Audit and Assurance · The audit of specific items

Audit of Bank and Cash: Procedures for ACCA AA

Updated 11 October 2026 · Fact-checked

Auditing bank and cash means obtaining evidence that balances exist, belong to the company, are complete, are correctly valued and are properly disclosed. You do this mainly through bank confirmation letters, testing the bank reconciliation, and counting cash on hand. Bank evidence is external, so it is strong.

Understand Audit of Bank and Cash

Cash is the most liquid asset and the easiest to steal. It is also usually a simple balance to audit, because strong external evidence exists. That makes it a common exam topic, both in objective test cases and in written questions.

Start with the assertions. For bank and cash balances, the key ones are existence (the money is really there), rights and obligations (it belongs to the company), completeness (all accounts are included, including overdrafts), valuation (the amount and any foreign currency translation are right) and presentation (cash and overdrafts are classified and disclosed correctly). Overdrafts matter because understating them hides liabilities.

The main evidence on bank balances is the bank confirmation letter. The auditor asks the bank, with the client's permission, to confirm balances at the year end. It also covers other items such as loans, overdrafts, security given, guarantees, and accounts closed in the year. It is external, so it is reliable. It also helps completeness, because you can spot accounts the client did not list. The auditor should send the request and receive the reply directly, without it passing through the client.

The bank reconciliation links the cash book balance to the bank statement balance. Differences come from unpresented cheques, outstanding lodgements (deposits in transit), and bank charges or direct items not yet in the cash book. The auditor checks that the reconciliation is accurate and that each reconciling item is genuine and cleared soon after the year end.

Cash in hand, such as petty cash, is tested with a cash count. The auditor counts it, ideally unannounced and in the presence of the custodian. The count is compared with the petty cash book and the imprest amount. The auditor controls the cash while counting and gets the custodian to sign that cash was returned intact. Cash is often immaterial, so the work is usually small unless the business handles a lot of cash, such as a retailer.

Key rules to remember

Reconciliation check: Balance per bank statement + outstanding lodgements − unpresented cheques = adjusted balance = cash book balance (after adjusting for bank items not yet recorded); Use this to check the arithmetic of a client's reconciliation. Only reconciling items that are genuine should appear.
Assertions for bank and cash: Existence, rights and obligations, completeness, valuation, presentation; Link every procedure you write to one of these assertions.
Cash count rule: Cash counted + vouchers/IOUs = imprest amount (for an imprest system); Any difference needs explanation and follow-up.

How to solve Audit of Bank and Cash questions

Use this method for any question on bank and cash, whether it asks for procedures, risks or evaluation of a scenario.

1Read the scenario and decide what is asked: bank confirmation, reconciliation, cash count, or a mix.
2Identify the assertion at risk. Existence and completeness are the usual ones, plus cut-off for lodgements and cheques near the year end.
3Pick the procedure that gives the best evidence. For bank balances, this is the confirmation letter. For reconciling items, use the post year-end statement.
4Write each procedure as an action: what you do, what you compare with, and what you are looking for.
5Tailor the procedure to the facts, such as foreign accounts, a cash-heavy business, or old unpresented cheques.
6Finish with follow-up: investigate differences, consider fraud such as window dressing or teeming and lading, and conclude.

Quickest way: Three-source check

When to use it: Use when a short objective question or a time-pressed written part asks for the best evidence or a quick list of procedures.

Bank balance: think confirmation letter, an external source.
Reconciling items: think statement after the year end, and check dates and amounts.
Cash in hand: think surprise count against the cash book or imprest.
Add one tailored point from the scenario, such as unusual items or an old unpresented cheque.

Common mistakes in Audit of Bank and Cash

Saying the auditor should get the bank letter from the client.
Students forget independence of the evidence.
Fix: State that the auditor sends the request and the bank replies directly to the auditor, with the client's consent.
Listing procedures without saying what you are looking for.
Students copy a memorised list.
Fix: For each step say what you compare and what error it could reveal, for example cheques unpresented for months or lodgements that never appear on the statement.
Ignoring window dressing near the year end.
Students check only that the reconciliation adds up.
Fix: Test large lodgements and cheques around the year end against the post year-end statement for timing and genuineness.
Forgetting that the confirmation also covers overdrafts, loans, security and closed accounts.
Students think it only confirms the balance.
Fix: Mention completeness of liabilities and disclosure of security or guarantees.
Treating a cash count as a year-end-only test done with notice.
Students assume counts are scheduled like inventory counts.
Fix: A surprise count reduces the chance that cash is moved between funds. Keep control of the cash, get the custodian's signed receipt, and count other cash and negotiable items together.
Writing a long answer on a tiny balance.
Bank work feels easy to write about.
Fix: Check materiality and the risk. If cash is small and controls are good, limit the work and say so.

Worked examples

Example 1

Section C style: You are auditing Kora Co, a retailer. The year-end bank reconciliation shows a balance per bank statement of $84,000, outstanding lodgements of $12,500 and unpresented cheques of $9,300. Calculate the cash book balance the reconciliation implies and describe the audit work on the reconciliation.

Show the solution

Apply the check: 84,000 + 12,500 − 9,300.
84,000 + 12,500 = 96,500.
96,500 − 9,300 = 87,200.
So the cash book balance should be $87,200, assuming no other reconciling items.
Agree the bank statement balance to the bank confirmation letter and to the year-end statement.
Agree the cash book balance to the trial balance and the draft financial statements.
Trace each outstanding lodgement to the post year-end statement, check it clears within a few days and that the date matches the cash book.
Trace each unpresented cheque to the cash book and the post year-end statement, and look at any that are old or unusually large.
Re-perform the arithmetic and investigate any unexplained or unusual reconciling items.

Answer: The cash book balance should be $87,200. Audit work focuses on agreeing balances to external evidence and testing that each reconciling item is genuine and cleared after the year end.

Example 2

Objective test case: Which procedure gives the most reliable evidence of the existence of a client's bank balance at the year end?

Show the solution

Compare the options by source of evidence: external evidence is more reliable than internal evidence.
A bank confirmation letter is sent by the auditor to the bank and returned directly to the auditor.
A copy of the bank statement held by the client, a client's cash book, or the client's reconciliation are all internal or client-handled.
So the confirmation letter is best.

Answer: A bank confirmation letter sent by the auditor and replied to directly by the bank.

Exam tips

Write procedures as actions with a purpose. Use verbs such as agree, trace, inspect and recalculate.
In objective questions, choose external evidence over client-prepared evidence when asked about reliability.
For a cash-heavy business, mention surprise cash counts and tests on cash takings and banking.
Look for scenario clues such as old unpresented cheques, foreign accounts or large lodgements near the year end, and tailor your answer.

Audit of Bank and Cash in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Audit of Bank and Cash: frequently asked questions

What is the purpose of a bank confirmation letter?

It gives the auditor direct external evidence of the client's balances and other arrangements with the bank at the year end. It supports existence, completeness and disclosure, for example of loans, security and guarantees.

How do you audit a bank reconciliation?

Agree the statement balance to the confirmation and statement, and the cash book balance to the ledger. Then test each reconciling item against the post year-end statement and check the arithmetic.

What are the procedures for a petty cash count?

Count the cash in the custodian's presence, preferably unannounced, and keep control of it. Compare the cash and vouchers with the petty cash book or imprest amount, investigate differences, and get a signed acknowledgement of return.

Is bank and cash always a high-risk area?

No. Balances are often small and well supported by bank evidence. Risk is higher for cash-handling businesses or where there are signs of window dressing or weak controls.