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Bank and Cash

The document outlines audit risks and procedures related to bank and cash balances, emphasizing the importance of proper presentation, completeness, and existence of financial information. It details audit procedures for bank loans, reconciliations, and petty cash, including obtaining confirmations from banks and verifying documentation. Additionally, it highlights key assertions and planning considerations for effective auditing in this area.

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2 views

Bank and Cash

The document outlines audit risks and procedures related to bank and cash balances, emphasizing the importance of proper presentation, completeness, and existence of financial information. It details audit procedures for bank loans, reconciliations, and petty cash, including obtaining confirmations from banks and verifying documentation. Additionally, it highlights key assertions and planning considerations for effective auditing in this area.

Uploaded by

pmokhathithatho
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Bank and Cash

© ACCA 1
CHAPTER 15:
Bank and Cash

© ACCA 2
Audit Risks
 Incorrect presentation as non-current (e.g. a bank loan repayable on
demand)
 Secured and unsecured loans may not be separately disclosed
(presentation)
 If loan interest payable/receivable is not accrued, interest
expense/income will also be understated (completeness)
 Cash is the most "liquid" of all assets and the most susceptible to theft
(existence)
 Cheques raised/accounted for at the year end (Dr Payables, Cr Cash)
and cancelled after year end is a form of "window dressing"
 Cash receipts may be stolen and could be difficult to trace
 Cheque payments may be misappropriated through forgery
© ACCA 3
Assertions – Balances

Completeness

Rights and obligations

Existence

Presentation

Classification
© ACCA 4
Assertions – Transactions

Completeness and occurrence

Classification

Cut-off

Accuracy
© ACCA 5
Activity: Sources of Evidence

Complete the ideas list of source of evidence for bank


and cash balances
 Accounting systems
 Documentation
 Tangible assets
 Management and employees
 Customers and suppliers
 Other third parties
 Analytical procedures

© ACCA 6
Answer to activity: Sources of Evidence

© ACCA 7
Audit Procedures – Bank Loans

 Obtain schedules of all loans, reconciling opening balances to


closing balances (agree to general ledger and financial statements)
 Examine loan agreements noting loan term, rate of interest, etc
 Confirm repayments during the year – authorised? paid?
 Verify new loan issues – authorised? received?
 Obtain direct confirmation from lenders
 Recalculate interest expense and interest accrual
 Agree presentation and disclosure

© ACCA 8
Bank
Reconciliation

© ACCA 9
Audit Procedures – Bank Reconciliation
 Did interim audit work identify potential problems for the year end?
 Agree balance per the bank statement to the bank report
 Agree bank ledger account balance to the financial statements
 Verify that the reconciliation is arithmetically correct
 Confirm cash book adjustments (e.g. bank charges).
 Agree uncleared deposits and unpresented cheques to entries on the
bank statement dated after the year end
 Reconcile the year-end closing balance from the prior year's audited
reconciliation through each monthly bank reconciliation
 Review each reconciliation during the year for unusual "balancing" items.

© ACCA 10
Audit Procedures – Petty Cash
 Understand the system of control over petty cash
 Count petty cash and agree balance in the petty cash book,
general ledger and financial statements
 In an imprest system, add up the petty cash vouchers and agree:
Physical cash + Vouchers = Imprest amount
 Review petty cash vouchers for authorisation and supporting
receipts/documentation
 Review the petty cash book for unusual items
 If counting cash in more than one location, ensure that cash cannot
be transferred between locations during the cash count
© ACCA 11
Bank Confirmation

 Obtaining a bank report for audit purposes (“bank confirmation


letter”) is a standard external confirmation procedure for all audits

 Approach and form of reports has been standardised

 Banks require specific written authority from their customers to be


able to release information to auditors

© ACCA 12
Bank Report – Content
 Issued on auditor's letterhead
 Sent at least two weeks before year end
 Bank's name and address
 Auditor's name and address
 Company's name, main account sort codes and account numbers
 Financial reporting date
 Confirmation of client’s authority
 Request for acknowledgement
 Additional information required
© ACCA 13
Bank Confirmation Report Content
 Disclaimer by bank – "Our response is given solely for the
purposes of the audit and creates no responsibility to the auditors”
 Balances on all accounts
 Details of accounts closed during the year
 Facilities – loans/overdrafts/guarantees etc
 Securities (including set-off arrangements)
 Additional banking relationships – not covered by above
 Custodian arrangements

© ACCA 14
Planning Considerations
 The date by which the confirmation is required

 Arrange to gather the required information concerning main


account numbers and bank sort codes

 Agree that the bank authority is still in place

 Where to send the request

© ACCA 15
Chapter 15: Summary
 Assertions for loan, bank and cash balances include “CAVE”
 Audit procedures for loan liabilities include:
- Examining new loan agreements
- Confirming repayments
- Obtaining direct confirmation from lenders
- Re-computing interest expense and interest accrual
 Audit procedures for cash at bank include substantiating the bank
reconciliation and obtaining bank confirmations for all balances
 The bank confirmation report also may provide evidence of:
- Loan/overdraft facilities
- Guarantees given
- Security held
© ACCA 16
Chapter 15: Practice questions

Study Question Bank

Wurm Co 25 mins

Cromwell Co 15 mins

For FAU
Attempt the Study Question Bank questions listed above after studying this chapter
Attempt Revision Question Bank questions in your revision phase, after studying all chapters

© ACCA 17
Thank you

© ACCA 18

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