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CMA Intermediate · Corporate Accounting and Auditing · Audit of Various Items of Financial Statements

While auditing the cash balance of a company at the year-end, which procedure is most appropriate for the auditor to obtain direct evidence of the existence of the cash in hand shown in the balance sheet?

The auditor should count the cash physically at or near the balance sheet date and reconcile the count to the cash book. Physical inspection is direct evidence that the cash exists, whereas comparisons with prior balances or budgets do not prove existence.

  1. ACompare the cash book closing balance with the previous year's closing balance
  2. BAttend or arrange a physical count of cash on hand at or near the balance sheet date and reconcile it with the cash bookCorrect
  3. CExamine the bank pass book for the last week of the year
  4. DReview the budget for petty cash approved by the board

Explanation

Existence of cash in hand is best verified by physical inspection. The count is reconciled with the cash book, adjusting for transactions between the count date and the balance sheet date. Comparing balances with last year or reading budgets gives no direct evidence of existence.

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