Chapter 15: Bank and cash

Bank confirmation letter

The procedure is carried out as follows:

• Auditor to choose from which bank(s) to obtain confirmation (thường thì confirm tất cả các bank)

• Audit client ot provide bank with written authority to disclose the information requested ni the confirmation to the auditors (giấy uỷ quyền từ công ty đến ngân hàng để xác nhận số dư)

• Bank confirmation letter produced on auditor's headed paper and sent ot the bank at least one month in advance of the client's year end. Include a preaddressed envelope ot facilitate replies.

• Auditors receive reply to letter from bank

• Auditors agree the balance in the bank letter to the bank balance as per the client records

Choosing where to send a confirmation request

The following matters will impact the auditor's decision as to which of the audit client's bank or banks to send a bank confirmation letter to:

• Size of balance

• Volume of activity

• Degree of reliance on internal control

• Materiality to the financial statements

Preparation and despatch of the bank confirmation letter

• Listing balances and other information, and requesting confirmation of their accuracy and completeness

• Requesting details of balances and other information, which can then be compared with the requesting client's records

Cut-off testing

(a) Keeping the cash book open to take credit for remittances actually received after the year end, thus enhancing the balance at bank and reducing receivables

(b) Recording cheques paid ni the period under review which are not actually despatched until after the year end, thus decreasing the balance at bank and reducing liabilities

Audit of cash balances

Auditors will be concerned that the cash exists, is complete, belongs to the company (rights and obligations) and is stated at the correct value.

Items included in the confirmation request (cont'd)

• Unused facilities

• Lines of credit/standby facilities

• Details of any collateral given or received (tài sản cầm cố)

• Contingent liabilities

• Securities held by the bank

Bank confirmation procedure

• The banks will require explicit written authority from their client to disclose the information requested.

• The auditors' request must refer to the client's letter of authority and the date thereof.

• Alternatively, it may be countersigned by the client or it may be accompanied by a specific letter of authority.

• In the case of joint accounts, letters of authority signed by all parties will be

Window-dressing

• The bank balance is open to the risk of window-dressing so cut-off must be audited carefully.

• Management may try to overstate liquidity by:

  • Keeping the cash book open to take credit for remittances actually received after the year-end, thus enhancing the balance at bank and reducing receivables

  • Recording cheques paid in the period under review which are not actually despatched until after the year end, thus decreasing the balance at bank and reducing liabilities

Substantive procedures to test bank

• Obtain standard bank confirmations from each bank with which the client conducted business during the audit period.

• Re-perform arithmetic of bank reconciliation.

• Trace cheques shown as outstanding from the bank reconciliation to the cash book prior to the year-end and to the after-date bank statements and obtain explanations for any large or unusual items not cleared at the time of the audit.

• Compare cash books and bank statements in detail for the last month of the year, and match items outstanding at the reconciliation date to bank statement

• Examine all lodgements (tiền nhận) in respect of which payment has been refused by the bank (coi vì sao bị từ chối); ensure that they are cleared on representation or that other appropriate steps have to be taken to effect recovery of the amount due.

• Verify balances per the cash book according to the bank reconciliation by inspecting cash book, bank statements and general ledger.

• Verify the bank balances with reply to standard bank letter and with the bank statements.

• Inspect the cash book and bank statements before and after the year-end for exceptional entries or transfers which have a material effect on the balance shown to be in-hand.

• Review bank reconciliation previous to the year-end bank reconciliation and test whether all items are cleared in the last period or taken forward to the year-end bank reconciliation.

• Obtain satisfactory explanations for all items in the cash book for which there are no corresponding entries in the bank statement and vice versa by discussion with finance staff.

• Verify by inspecting paying-in slips (phiếu nhận tiền) that uncleared bankings are paid in prior to the year-end.

Cash

Planning the cash count

• All cash balances should be counted at the same time.

• Need to establish locations where cash is held.

• Need to establish time of count.

• Need to know names of audit staff and client staff attending the counts.

• Where a location is not visited, it may be appropriate to get a letter confirming the balance from the client.

Cash count

• All cash/petty cash books should be written up to date in ink (or other permanent form) at the time of the count.

• All balances must be counted at the same time.

• All negotiable securities must be available and counted at the time the cash balances are counted.

• At no time should the auditors be left alone with the cash and negotiable securities.

• All cash and securities counted must be recorded on working papers subsequently filed on the current audit file.

• Reconciliations should be prepared where applicable (for example, imprest petty cash float).

Substantive procedures to test cash

Cash count

• Count cash balances held and agree to petty cash book or other record.

• Count all balances simultaneously and all counting to be done in the presence of the individuals responsible.

• Enquire into any IOUs or cashed cheques outstanding for all

• Obtain certificates of cash-in-hand from responsible officials long period of time.

• Confirm that bank and cash balances as reconciled above are correctly stated other financial statements.

Follow-up procedures

• Obtain certificates of cash-in-hand as appropriate.

• Verify unbanked cheques/cash receipts have subsequently been paid in and agree to the bank reconciliation by inspection of the relevant documentation.

• Ensure IOUs and cheques cashed for employees have been reimbursed.

• Review whether IOUs or cashed cheques outstanding for unreasonable periods of time have been provided for.

• Verify the balances as counted are reflected in the accounts (subject to any agreed amendments because of shortages and so on) by inspection of draft financial statements.