How to Audit: Cash at Bank

Let's see how an auditor should verify the cash at bank for the audit of any organization.

Let's make a checklist for quicker grasp and clear understanding, that way all the significant aspects will be covered too.

Followings are the major points to be considered by an auditor while verifying the cash at bank of an entity.

Bank Reconciliation

Apart from comparing the entries in the cash book with those in the Pass Book the auditor should obtain a certificate from the bank confirming the balance at the close of the year as shown in the Pass Book.

Examine the bank reconciliation statement prepared as on the last day of the year and see whether the following have been duly debited/credited in the subsequent period.

• cheques issued by the entity but not presented for payment, and
• cheques deposited for collection by the entity but not credited in the bank account

Outstanding Amounts even after the subsequent period

Pay special attention to those items in the reconciliation statements which are outstanding for an unduly long period. The auditor should ascertain the reasons for such outstanding items from the management. He should also examine whether any such items require an adjustment write-off.

Bank Certificates

Examine relevant certificates in respect of fixed deposits or any type of deposits with banks duly supported by bank advices.

Inoperative and Stagnant Accounts

The auditor should examine the possibility, that even though the balance in an apparently inoperative account may have remained stagnant, transactions may have taken place in that account during the year.

Balances with Charges

In relation to balances/deposits with specific charge on them, or those held under the requirements of any law, the auditor should examine that suitable disclosures are made in the financial statements.

Evaluation of Remittances

Remittances shown as being in transit should be examined with reference to their credit in the bank in the subsequent period. Where the auditor finds that such remittances have not been credited in the subsequent period, he should ascertain the reasons for the same. He should also examine whether the entity has reversed the relevant entries in appropriate cases.

Stale Cheques

The auditor should examine that suitable adjustments are made in respect of cheques which have become stale as at the close of the year.

Freezed or Blocked Amounts

Where material amounts are held in bank accounts which are blocked, e.g. in foreign banks with exchange control restrictions or any banks which are under moratorium or liquidation, the auditor should examine whether the relevant facts have been suitably disclosed in the financial statements. He should also examine whether suitable adjustments on this account have been made in the financial statements in appropriate cases.

Numbers of Bank Accounts Held

Where the auditor finds that the number of bank accounts maintained by the entity is disproportionately large in relation to its size, the auditor should exercise greater care in satisfying himself about the genuineness of banking transactions and balances.

Well, that's all on how to audit the cash at bank. Stay tuned for more "how to audits".

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