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a) During the audit of cash in bank, an auditor should seek to obtain standard bank confirmations from each-hank with which the client conducted business during...

      

a) During the audit of cash in bank, an auditor should seek to obtain standard bank
confirmations from each-hank with which the client conducted business during the period
under audit.
Required;
i) Explain the importance of an auditor obtaining confirmations from the client's bank.
ii) Outline the steps followed by an auditor when obtaining confirmations from the
client's bank.
b) Describe the audit procedures an auditor would carry out when verifying a client's bank
reconciliation.

  

Answers


Kavungya
a) 1) Importance of an auditor obtaining confirmations from the client's bank
• Assist in reducing audit risk for the related assertions made by management in the
financial statements e.g. occurrence, valuation etc.
• Forms corroborating information obtained from a source independent from the entity
which increases the assurance the auditor obtains from management representations made
on matters relating to the clients financial statements.
• External confirmation is likely to provide strong evidence to support the existence, the
rights and obligations of items in the financial statement.
• It provides the useful information to be used in the reconciliations to be made.
• It provides information on the clients assets held as security and liabilities attached and
ownership.
• It provides information on the genuineness of the balances as at the balance sheet date.
• It is used to test the cut-off procedure of bank balances as at the balance sheet date.
• Confirmation also provides evidence regarding to operation of-cut-off procedures.
ii) Steps followed when confirming balances from the bank;
• The auditor should write to the management-or client to obtain authority to communicate
with the client's bank. It will enable the bank to disclose the necessary information.
• The auditor should determine the details of information obtained.
• He should send a bank letter in a standard format to be received by the bank in good time
of at least two weeks to the yearend attaching the authority granted to obtain information.
• Where additional information is needed, the auditor should draft a separate letter
requesting for information.
• When confirmation is received from the bank, the auditor should check that the bank has
answered all the questions from the letter.
• The auditor should make a follow up of a point not disclosed in the bank letter to assess
the completeness.

b) Audit procedures an auditor could carry out when verifying a client's bank
reconciliation.
• Obtain analysis of cash balances and reconcile them to the general ledger. The primary
objective is to ascertain clerical accuracy of bank reconciliations.
• To select standard confirmation forms to financial institutions to verify amounts on
deposits.
• Obtain or prepare reconciliation of bank accounts as at the balance sheet date and
consider the need to reconcile bank activity for additional months
• Obtain a cut off bank statement containing transactions of at least seven business days
subsequent to balance sheet date
• Count and list the cash in hand.
• Verify the client cut off of cash receipts-and cash disbursements
• Analyze bank transfer for last week of audit year and first week of the following year to
verify the completeness
• Investigate any cheques representing large or unusual -amounts to related parties, e.g.
audit company to subsidiary company.
• Trace the outstanding cheques from the bank reconciliation to the cash book before the
year end and date alter the bank statement is issued.
• Determine if the hank accounts have any restrictions e.g. if used as security to
borrowings, or fixed -deposits.
• Evaluate proper financial statements, presentation and disclosure-of cash.
• Asses the standing orders that require adjustments.
• Check on the short banking's and over banking's.

Kavungya answered the question on May 14, 2019 at 14:06


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