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CA Intermediate · Auditing and Ethics · Audit of Banks

CA Sunita, a statutory auditor of a bank, wants to verify cash balances at several branches. Which procedure is the most appropriate and effective?

The best procedure is a surprise physical count of cash, done together with other valuables in the strong room, and agreeing it to the cash book and general ledger. Management representations or trial balance figures are weaker evidence, and cash at branches cannot be verified at head office.

  1. ARely solely on the cash balance reported in the branch's trial balance
  2. BCount cash and verify it against the cash book and general ledger balances, ideally on a surprise basis and simultaneously with other cash holdings such as the strong room contentsCorrect
  3. CAsk the branch manager to send a confirmation letter of cash balance at year end
  4. DVerify cash only at the head office

Explanation

Physical verification of cash on hand, preferably done unannounced and together with other valuables in the strong room, gives reliable evidence on existence. Trial balance and management confirmations are internal and less reliable. Head-office-only checking ignores branch cash.

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