Cash in hand and cash at bank are commonly referred to as liquid assets. Because of this liquidity, these assets represent the most vulnerable of...

      

Cash in hand and cash at bank are commonly referred to as liquid assets. Because of this liquidity, these assets represent the most vulnerable of all the assets of an entity. You have recently been employed by Korir and Associates (Certified Public
– Accountants) as an audit assistant. During your first audit assignment at Viwanda Ltd you have been allocated the audit of cash in hand and cash at bank.

Required
(i) State and explain any the audit procedures you would undertake in order to determine whether or not there has been any misappropriation of cash.
(ii) Explain any five controls over cash you would expect to be instituted by a business entity in order to minimize cases of embezzlement of cash

  

Answers


Wilfred
(i)
-Cash sales
The following are the audit procedures that I would undertake in order to determine
whether or not there has been any misappropriation of cash:-
i. Obtain analyses of cash balances and reconcile them to the general ledger: The auditors will prepare or obtain a schedule that list all of the client‘s cash accounts. For cash in bank accounts this schedule will typically list the bank, the
account number, account type and the year-end balance per books. The auditors will trace and reconcile all accounts to the general ledger as necessary.
ii. Confirmation letters: send standard confirmation forms to financial institutions to verify amounts on deposit.
iii. Bank reconciliations: obtain or prepare reconciliation of bank accounts as of the balance sheet date and consider need to reconcile bank activity for additional montus. Also obtain a cut off bank statement containing transactions of at least seven days subsequent to balance sheet date.
iv. Cash count: the auditor should count and list cash on hand. Cash on hand consists of undeposited cash receipts, petty cash funds and change funds. Auditors should make a surprise count of these funds.
v. Analyze bank transfers for the last week of audit year and first week of following year to discover whether there is kiting.
vi. Investigation: investigate any checks representing large or unusual payments to related parties.
vii. Evaluation: evaluate proper financial statement presentation and disclosure of cash.

- Credit Sales
- For amounts collected from debtors, the auditor should verify the counterfoil or the carbon copy of the receipts issued to customers.
- For large firms where transactions are voluminous, the receipts issued should be traced into the serially numbered cash book to check the correctness or otherwise of the entry.
- The auditor should the amount is entered on the same day of the receipt i.e. the dates of the receipt should correspond to the date on which the receipts are recorded in the cash book.
- For discounts allowed to customers, the auditor should ensure that the company policies regarding the same are followed and further authorized by the responsible officer.

(ii)
- The cashiers who operate cash tills must be properly trained and sincere to management.
- The activities of the operators should be checked and controlled by supervisor on duty.
- The cashiers should not be involved in preparation of ledger accounts. This practice reduces opportunities of committing 'teeming and lading‘.
- The cashiers should work in shifts then the supervisor on duty should remove the till roles to which the cashiers do not have any access. A new till roll should be inserted for the new operator at the start of a new shift.
- All cheques for payment should be signed by ALL the signatories before issue to creditors.
- The individual responsible for banking daily collections should be a person working in a department other than the cashiers. This reduces chances of collusion with creditors.
- At the end of every day, the cashier should be made to sign against the amount of cash she/he has handled- monies collected, banked and carried forward.
Wilfykil answered the question on February 22, 2019 at 13:06


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