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

Gomti Retail Ltd has a material cash balance spread across several branches. The auditor plans to verify cash in hand at the year-end. Which procedure is most appropriate to verify the existence of cash?

The auditor should count the cash physically, ideally simultaneously at all locations, in the custodian's presence and obtain a signed acknowledgement. Simultaneous counting prevents shifting of cash between branches, whereas certificates or counting one branch alone would not give sufficient appropriate evidence.

  1. ACount the cash physically, preferably simultaneously at all locations, in the presence of the custodian, and obtain a signed acknowledgementCorrect
  2. BAccept the cash book balance as certified by the branch manager
  3. CVerify only the previous year's closing balance
  4. DCount cash at one branch and extrapolate to the others without any other work

Explanation

Physical verification of cash is best done by counting it in the custodian's presence, and simultaneously at all locations where practicable so that cash cannot be moved between them. The custodian's signed acknowledgement protects the auditor. Relying on a manager's certificate or extrapolating from one branch does not provide sufficient appropriate evidence for each location.

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