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Audit on Cash and Bank


In practice, cash in Company is the most important asset among other assets and liabilities, so company should have strong internal control. Payment and receipts should be verified and approved by authorized persons to avoid fraud or errors.

Payment and receipt process should be complied with internal policy for internal audit purpose. Material or immaterial concept will be focused for internal audit process in practice.


As we know, audit tests are procedures carried out by the auditor in order to generate audit evidence.

There are a number of audit testing procedures that may be available to the auditor. Which procedures are actually used will depend on the area that is being audited, and the evidence available to the auditor.


This covers the physical review or examination of records, documents and tangible assets. An example in a test of controls is examining purchase invoices for evidence of authorisation.


This technique involves looking at a process or procedure being performed. An example is the distribution of wage packets to see that internal control procedures are adhered to or the observation by auditors of inventory being counted in accordance with inventory counting instructions.

seeking relevant information  from knowledgeable persons inside or outside the enterprise.

An example in test of control is asking management for an explanation of the company’s policy for vetting credit customers. This would then be verified by reviewing documents completed during the vetting process for evidence of completion of the process.


Confirmation ( a specific type of enquiry) concerns obtaining a representation directly from a third party. For example, the auditor may seek direct confirmation of receivables balance by writing to the customers.


Checking the arithmetical accuracy of records or performing independent calculations (e.g. checking the addition of the trial balance).


Reperformance is the auditor carrying out procedures or controls that were originally performed as part of the entity’s internal control system, for example reperforming the aging of receivables balances in an aged debt analysis.

7.Analytical procedure 

Analytical procedures can be defined as the evaluation of financial information by studying the relationships between both financial data and non-financial data.

Analytical procedures include. They also include comparison of financial information  with prior periods, budgets and forecasts and similar industries consideration of predictable relationships such as the relationship of purchases to sales, and payroll costs to the number of employees.


Balance per cash book Xxx/(xxx)
Items on the bank statement but not in the day books:
 Bank charges (xxx)
 Bank interest charged (xxx)
 Bank interest credit xxx
 Standing order (xxx)
 Direct debit payment (xxx)
 Credit transfer xxx
Errors in the day books: Xxx/(xxx)
Dishonoured Cheques : (xxx)
Revised bank per cash book (amount in BS)…………………………….. xxx


Balance on the bank statement Xxx/(xxx)
Items not yet on the bank statement:
   Outstanding  or unpresented  cheques (xxx)
   Outstanding deposits or lodgements xxx
Errors by the bank (xxx)/xxx
Revised bank balance xxx

In practice, revised bank balance via bank statement must equal revised bank per cash book, otherwise fraud may occur.


The​ auditor relies mainly on just two key pieces of evidence: the bank confirmation letter and the bank reconciliation.

  • Obtain the company’s bank reconciliation and cast to ensure arithmetical accuracy.
  • Verify the reconciliation’s balance per the cash book to the year end cash book.
  • Trace all of the outstanding lodgements to the pre yearend
  • cash book, post yearend bank statement and also to payinginbook pre yearend.
  • Trace all unpresented cheques through to a pre year end cash book and post yearend statement. For any unusual amounts or significant delays obtain explanations from management.
  • Examine any old unpresented cheques to assess if they need to be written back into the purchase ledger as they are no longer valid to be presented.
  • Obtain a bank confirmation letter from the company’s bankers.
  • Verify the balance per the bank statement to an original year end bank statement and also to the bank confirmation letter.
  • Agree all balances listed on the bank confirmation letter to the company’s bank reconciliations or the trial balance to ensure completeness of bank balances.
  • Examine the bank confirmation letter for details of any security provided by the company.
  • Review the cash book and bank statements for any unusual items or large transfers around the year end, as this could be evidence of window dressing.
  • Count the petty cash in the cash tin at the year end and agree the total to the balance included in the financial statements.

In practice, internal audit for cash, daily cash report (cash receipt and cash payment) is very crucial.

  • Customer order
  • Sale order
  • Delivery note to customer
  • Official invoice
  • Official receipt
  • contracts
  • Purchase orders
  • Delivery note from supplier
  • Goods received note
  • Invoice from supplier
  • Payment voucher
  • Daily cash report ( most important)
  • Cash book, Bank statement and bank reconciliation etc.

Let’s practice QUESTIONS