Question

1. Identify the relevant assertions and risks of material misstatement that are typically related to the cash balance.

2. Give examples of substantive procedures used to test cash and relate them to the relevant assertions.

Answer 1

1. Relevant assertions related to the cash balance.:

1. Existence or Occurrence : cash balance on the balance sheet really exist on reporting date.
2. completeness : cash balance include all cash transaction that have occurred during the accounting period
3. Right & Obligation : The company has tittle to cash account as of reporting date.
4. Valuation & Allocation : Recorded cash balance reflects true underlying economic value of the cash.
5. Presentation & Disclosure : cash is properly classified in the balance sheet and adequate disclosure have been made.

1.2. Risks of material misstatement related to the cash balance:

1. Certain cash accounts, such as cash clearing accounts, suspense account and cash disbursement account may be omitted from financial statements.
2. Cash transactions/balance and bank statements may not reconcile to the financial statements or closing balance or previous year may not agree with opening balance.
3. Cash is misstated due improper cut -off period

2.Examples of substantive procedures used to test cash and relate them to the relevant assertions:

1. Confirm cash balance.
2. Vouch reconciling items to subsequent month bank statement.
3. Ask if all bank account are included in the general ledger.
4. Inquire of management regarding the collectibility  of customer accounts
5. Match collected funds to invoices billed.