Generally cash balance is maintained for the daily operational expenses of an organisation. So, the auditor has to perform audit procedures particularly having regard to the fact that maintaining such huge balance may lead to misappropriation and other forms of fraud. Accordingly, if the entity is consistently maintaining huge cash balance, which is not justified by its operational requirement needs, the Guidance Note on Audit of Cash and Bank Balances

Verification of Cash

It is the duty of an auditor that the auditor should carry out surprise verification of cash more frequently to ascertain whether the actual cash-on-hand agrees with the balance as shown by the books. If the cash-on-hand is not in agreement with the balance as shown in the books, he should seek explanations from a senior official of the entity.

In case of material difference is found, he should state this fact in his report. Further, he should satisfy himself regarding the necessity having regard to the normal working requirements of the entity. The entity may also be advised to deposit the whole or the major part of the cash balance in the bank at reasonable intervals.