Skip to content

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

While auditing the cash balance of Anand Foods Ltd, the auditor attends the cash count on 31 March at the company's head office, and finds that the cash in hand agrees with the cash book. Which additional audit step is most appropriate for ensuring that the cash count was reliable and complete?

The auditor should count all cash and petty cash funds at the same time in the custodian's presence and obtain the custodian's signed acknowledgement of the count. Simultaneous counting prevents cash being moved between funds, whereas advance notice, partial counting or relying on a certificate weakens the evidence.

  1. ACount the cash after informing the cashier in advance so that all vouchers are ready
  2. BCount all cash and petty cash funds at the same time, obtain the custodian's signature on the cash count certificate, and secure other imprest and bank-related balances during the countCorrect
  3. CCount only the large denomination notes and estimate the remaining
  4. DRely on the cashier's certificate of the balance instead of counting

Explanation

Good audit practice is to count all cash balances, including petty cash and imprest funds, simultaneously, preferably without prior warning, in the presence of the custodian, and to obtain the custodian's signed acknowledgement of the count and of the return of cash. This prevents the same cash being shown in different funds and ensures completeness. Advance notice reduces reliability, and estimates or certificates replace direct evidence.

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