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CA Intermediate · Auditing and Ethics · Audit of Banks

CA Nisha is auditing a branch of Ganga Bank. For verifying cash and security items at the branch, which procedure is most appropriate to obtain reliable audit evidence on the cash balance reported at the year-end?

The auditor should physically count the cash, preferably by surprise on or near the balance sheet date with branch officials present, and reconcile it to the cash book and ledger. Ledger balances, head office statements or manager certificates are weaker evidence than the auditor's own count.

  1. ARely on the cash balance shown in the branch's general ledger only
  2. BCount the cash physically, preferably on or near the balance sheet date and by surprise, in the presence of branch officials, and reconcile it with the cash book and ledgerCorrect
  3. CObtain a confirmation of the cash balance from the head office alone
  4. DAsk the branch manager to give a written certificate of the cash balance

Explanation

Physical verification of cash on hand, done by surprise count on or near the year-end and reconciled to the books, gives the most reliable evidence. A ledger balance is the item being tested, not evidence of itself. Head office confirmation or manager certificate is internally generated and weaker than the auditor's own count.

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