Question

R13.2: Explain the difference between the audit of the processes impacting cash and the substantive testing of the cash balance. How is audit testing for each affected by the outcome of controls testing?

R13.3: What information is obtained by sending a bank confirmation? Explain the importance of a bank confirmation to the audit of cash balances, including the assertions that are addressed by obtaining a bank confirmation.

Answer 1

Answers:-

1) The audit of the processes impacting cash involve the controls involved concerning the receipt of cash.

The substantive testing of the cash balance verifies the end result of the process.

Both are impacted by internal controls and the environment.

2)

1. The client's permission for the bank to respond to the auditor.
2. Requests for all bank balances including details of any accounts closed during the year.
3. Requests of details of interest charges.
4. Requests for details of any loans or lending facilities or bank overdrafts, together with the limits and, if applicable, dates of repayments and any collateral pledged as security for the loan.
5. Requests for details of any assets held by the bank on the customer's behalf.
6. Requests for details of any contingent liability of which the bank may be aware.