How would you verify the Cash at hand and Bank

Cash provides one of the most difficult and one of the most interesting verification problems with which an auditor must deal. With regard to verification, the auditor should review the internal control over cash. If for example, one person has complete control over cash disbursements including approval of invoices for payment writing and signing cheques, mailing cheques to creditors, and reconciling the bank statement, the possibilities of errors – international or un-international are much greater than they would be if those duties were all separated or carefully reviewed by a superior. Here the extent of the verification procedures necessary to satisfy an auditor that all was well would be much greater than in a situation where such duties were sub-divided among several people each of whom acted independently of the others.

Basic requirements of Cash verification is that the auditor must satisfy himself:

a) What the balance of cash actually is?

b) What the records show the balance of cash should be?

c) Whether transactions have been properly recorded?

Essentials of verification Programme

A)        To ascertain that all cash is there that is Said to be there:

I) Count cash on hand:

1) Count all cash on hand simultaneously;

2) Count each fund or other part of cash on hand in the present of custodian and obtain acknowledgement;

3) Include in work papers adequate details of item counted to permit subsequent investigation of peculiar items;

4) Control any un-deposited receipts until they are deposited in the bank and obtain duplicate copy of bank deposit receipt;

5) Investigate any such means as seems satisfactory any unusual item included in cash submitted for count.

II) Determine cash in bank by reconciliation with bank statement:

1) Prepare own Bank Reconciliation, or if client has already prepared one, review the same thoroughly:

i) Determine outstanding cheques from a comparison of cancelled cheques returned by bank;

ii) Determine deposits in transit from comparison of Cash Receipt Book with deposits shown on bank statement;

iii) Investigate, any other reconciling items until satisfied about their validity.

2) Obtain a confirmation from the bank covering the balance per bank on the reconciliation date;

3) Obtain a “cut off” bank statement direct from the bank:

a) verify outstanding cheques by comparison of cancelled cheques accompanying cut-off statement with list of outstanding cheque on reconciliation date;

b) verify deposits in transit by tracing in to deposits listed on cut off statement;

c) review all cheques returned with cut off statement for unusual items and for cheques not recorded at reconciliation date.

III) Compare cash balances determined by cut and reconciliations with cash balances per general ledger.

IV) Clear non-cash items from the Cash account balances by adjusting journal entry.

B)        To Ascertain that all cash is there that Should be there:

1) Foot cash books (including cross-footing);

2) Trace postings into general ledge;

3) Foot and balance cash account;

4) Investigate and peculiar entry in Cash account;

5) Examine documentary evidence in support of entries in cash record;

6) Review Bank Reconciliations made during the year;

7) Reconcile receipts per books with deposits per bank and disbursements per book with cheques paid per bank;

8) Compare detail of duplicate deposit tickets with detail of cash receipt record;

9) Account for all cheque numbers;

10) Examine any outstanding cheques at previous audit date which did not clear with cut-off statement obtained at that time.