Skip to content

CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

Auditor of Ganga Foods Ltd is verifying cash and bank balances. The bank reconciliation statement as on 31 March shows several cheques issued before year-end but presented in the first week of April, while the company's books show them as paid. The bank statement balance is ₹40 lakh and cheques issued but not presented total ₹6 lakh; cheques deposited but not yet credited total ₹2 lakh. Under the standard approach to reconciliation, what is the balance as per cash book, and what should the auditor additionally check?

The cash book balance is ₹36 lakh, being ₹40 lakh less ₹6 lakh of uncleared issued cheques plus ₹2 lakh of deposits not yet credited. The auditor should also examine the subsequent bank statement to check clearing of items and detect any window dressing near the year-end.

  1. A₹32 lakh; no further check is needed
  2. B₹36 lakh; check subsequent bank statements and window-dressing around the year-endCorrect
  3. C₹44 lakh; check the opening balance only
  4. D₹48 lakh; check only the cheque register

Explanation

Cash book = bank balance − cheques issued not presented + cheques deposited not credited = 40 − 6 + 2 = ₹36 lakh. Check: 36 + 6 − 2 = 40, which equals the bank statement. The auditor should also examine the April bank statement to confirm the clearing of the cheques and detect window dressing. ₹32 lakh results from subtracting the deposits instead of adding them.

Did you get it right without looking?

One question tells you little. A timed set on Audit of Items of Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Audit of Items of Financial StatementsFree diagnostic mock

More Audit of Items of Financial Statements questions