Question

James Thomas is responsible for preparing bank reconciliation statements for Ajax Inc. Ajax has many bank accounts, including separate accounts for each major branch, accounts for payments of salaries and dividends, and accounts kept in foreign currency for overseas divisions. James maintains records including bank statements and weekly bank reconciliations for each account. In addition, there are files containing correspondence with banks about disputed transactions, dishonored checks from Ajax's customers, and other bank-initiated transactions such as fees and interest.

a. Comment on the appropriateness of the evidence in James' files for Ajax's financial statement audit.

b. Explain how an auditor would obtain more appropriate evidence for the relevant assertions for the bank accounts at Ajax.

Answer 1

Bank reconciliation is the procprocess in which sum secorded in company's bank accounts are compared and reconciled with entries in their internal ledgers. This mechanism allows us to identify any differences, which can be addressed accordingly Andrus constitutes a genuine and exhaustive check on state of company's accounts with respect to bank account. However, all these documents maintained by Thomas are organization's internally generated documents there if these evidences are collaborated with some other external audit evidences like confirmation from third parties etc. then it can provide sufficient and appropriate audit evidences.

B .Auditor can obtain more appropriate evidence for the bank accounts at Ajax by adopting the following procedures :-

1. He can statement of bank account maintained by Ajax directly from the bank concerned. Since, evidences obtained from external sources are more reliable source of audit evidence.

2. In case of cheque received from customer which are not yet cleared or presented, in such case, he can obtain confirmation from the customer regarding cheques issued by him.

3 .similarly, if any cheques have been issued to the supplier by the Ajax then also he can obtain their confirmation.

4 .In case of salary paid through bank account he can verify the same through the pay slip issued to the employees.