VERIFICATION OF CURRENT ASSETS - 2.0 out of 5 based on 1 review
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Cash in hand

The cash in hand will mainly be composed of the petty cash float and any unbanked receipts from customers. Most organisations refrain from maintaining substantial cash amounts in their premises due to the risks involved.

Audit Objectives

The main audit objective is to ascertain the completeness and existence of the cash in hand

Audit procedures

These audit objectives are fulfilled by carrying out the following procedures:

  1. Where appropriate the auditor should visit the client at the Balance Sheet date and count cash at hand and compare it with cashbook entries. He should count authorised IOU’s, stamps & cheque drafts as well.
  2. If the company has different cash collection centres cash in all entries must be counted simultaneously to avoid a shortage in one centre being made up with balances from other centres.
  3. The counting should be in the presence of the cashier so that in case of a shortage the auditor can ask for a certificate of shortage from the cashier which should be mentioned in the management letter.
  4. The auditor should obtain a certificate of cash in hand from all branches should he be unable to attend a cash count in those branches. He should mention this in his report i.e. he relied on certificate of balances from the branches.
  5. If there is cash held by third parties he should request for a certificate of balance from them.
  6. If the auditor cannot visit the client, he should obtain a certificate from the client’s management confirming the amount of cash held as at the end of the financial period.
  7. A reconciliation of the actual cash in hand counted and the expected cash balance per the cashbook should be prepared. Any reported variances should be investigated and appropriate action taken.

Cash in bank

Audit objectives

The auditor will be concerned with ascertaining whether:

  • The bank balance exists
  • Completeness and accuracy

Audit procedures

The above objectives are tested by performing the following procedures;

The auditor should obtain the bank reconciliation statement as at the end of the period and perform the following procedures;

  1. Verify that the reconciliation is accurately prepared
  2. Ensure that the correct balances as per the bank statement and the cash book have been picked in the reconciliation.
  3. Verify that the reconciling items have subsequently cleared
  4. Ensure that there are no unexplained variances
  5. Verify that all un-presented cheques had been dispatched to the payees and that all un-credited deposits have cleared. This will assist the auditor in testing for window dressing. Window dressing in this context refers to attempts to overstate the liquidity of the company by keeping the cash book open such that money received after year end is credited to the cash book increasing the cash balance and reducing debtors. It could also take place by debiting cheques paid in the period under review but are not dispatched until after year- end.

This procedure of inspecting the bank reconciliation statement assists in verifying the completeness and accuracy of the bank balance.

The auditor should obtain a direct confirmation from the bank of the amount holding on behalf of the client. The auditor should obtain the clients consent to communicate directly with the bank. Where consent is granted a standard letter of request should be sent to the bank. Auditors’ use a standard letter of request because of the following

  • Use of a standard letter by all auditors facilitates the quick preparation of the reply by the bank as they are well familiar with the contents and the required information in the letter.
  • Use of a standard letter ensures that no omission is made in the information required.
  • It is more efficient for the auditors because all is needed is to amend the letter to reflect the specific details of the client.

The reply to this request is a good source of corroborative audit evidence to confirm the existence of the bank balance and other information such as the interest earned, any loans granted to the company or any restrictions placed on the operation of the account.

Stocks and Work-In-Progress

Stock includes;

  • Finished goods held for sale in the ordinary course of business
  • Work in progress
  • Raw materials

Stock comprises a significant portion of the company’s assets and hence has a material effect on the presentation of the financial statements.