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

While auditing the cash balance of Tulsi Retail Ltd, the auditor plans to verify cash in hand at the year-end at multiple branches. Which approach is most appropriate to ensure reliability of the cash count evidence?

The auditor should count cash at all locations simultaneously, or secure it and the records until counted, in the custodian's presence, and obtain the custodian's acknowledgement. This prevents cash being shifted between locations and gives direct evidence, unlike manager certificates or extrapolation from one site.

  1. AAsk branch managers to count cash and send a certificate
  2. BCount cash at all locations simultaneously or secure the cash and records until counted, in the presence of the custodian, and obtain the custodian's acknowledgementCorrect
  3. CCount cash only at the head office and extrapolate to branches
  4. DRely on the previous year's cash book closing balance

Explanation

Cash counts should be done in the custodian's presence, with simultaneous counting or sealing of cash at different locations so that funds cannot be moved between them. The custodian's acknowledgement is then obtained. Certificates from managers and extrapolation do not give direct evidence.

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