Question

List several of the audit objectives that should be considered during the audit of cash. Review the attached bank reconciliation and list the audit procedures that should be followed when auditing the bank reconciliation schedule. Assume that every dollar amount that appears in the bank reconciliation is deemed material. Comment on any additional observations related to the bank reconciliation schedule, and communications that should be made with the bank and the controller of the company.

Balance per Bank Statement, Dec 31		$24,594.72
Add: Deposit in Transit 12/31		400.00
		$24,994.72
Less: Outstanding Checks:
No. 846 issued on June 29	$320.00
No. 875 issued on October 26	49.21
No. 878 issued on December 29	275.00
No. 881 issued on December 31	186.50
		830.71
Adjusted Bank Balance		$24,164.01
Balance per General Ledger, Dec 31		$23,196.79
Add:
Interest Income from Bank	$1,237.22
Note Receivable Collected by Bank	500.00
Interest Income from Note Receivable	50.00
Deposit error	90.00
		1,877.22
		$25,074.01
Less:
NSF Check – L. Cicalese	835.00
Bank Service Fee	40.00
Bank Collection Fee Unreconciled Diffference	15.00 20.00
		910.00
Adjusted Book Balance		$24,164.01

Answer 1

Cash and bank balances may constitute a significant proportion of the total assets of an entity. An important feature of cash and bank balances which has a significant impact on the related audit procedures is that these assets are highly prone to misappropriation, misapplication and other forms of fraud.

List several of the audit objectives that should be considered during the audit of cash.

1) Existence -

To ensure that the cash is actually in existence and belong to the company at a given date or at the year-end date.

2) Completeness -

To ensure that there is no unrecorded cash.

3) Cut-off -

To ensure that amounts are correctly recorded in the proper period.

4) Presentation and disclosure -

To ensure that the cash balance and related statement of comprehensive income entries are correctly disclosed in the financial statements in accordance with legislation and accounting standards.

OBSERVATIONS ON ATTACHED BANK RECONSILIATION STATEMENT (BRS)

1) Deposit in transit is an item of addition and correctly added.

2) Check No. 846 issued on June 29 - This Check is a Stale dated cheque as it has crossed Six Months from the date of issue and is no longer valid. This should not appear in BRS and the entry should be reversed in the Books of accounts itself i.e. the Bank Balance as per Books of accounts needs to be increased by $ 320 and this entry should be removed from BRS.

3) Unreconciled difference of $ 20 needs to be reconciled, otherwise it should form part of audit observation.