Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

A book-selling company has a head office and 25 shops, each of which holds cash (banknotes, coins, and credit card vouchers) at the balance sheet date. There are no receivables. Accounting records are held at shops. Shops make returns to head office and head office holds its own accounting records. Your firm has been the external auditor to the company for many years and has offices near to the location of some but not all of the shops.

Required:

List the audit objectives for the audit of cash and state how you would gain the audit evidence in relation to those objectives at the year-end. (8 marks)

ANSWER
Principal audit objectives of cash audit and related audit evidence

Audit objectives are dealt with in ISA 500 ‗Audit Evidence‘

(i) Existence: to ensure that the cash actually exists at a given date. The related evidence will include cash counts. Cash counts need not necessarily be conducted at each location (unless the amounts are material), the firm might consider conducting counts on a rotational basis, year on year. The decision as to which sites to visit might be determined on the basis of materiality and analytical procedures. Cash balances should be reconciled to records held at the shop and records held at head office. Any shortfalls in cash, or ‗IOUs‘ should be thoroughly investigated.

(ii) Completeness: to ensure that there is no unrecorded cash. This means reconciling cash balances to records held at the shop and records held at head office, as above, ensuring that proper sales cut-off has been achieved.

(iii) Rights and obligations: to ensure that the company has a right to the cash. This means checking to ensure that credit card vouchers are correctly made payable to the company, and not to third parties.

(iv) Occurrence: to ensure that the cash belongs to the company at the year-end date. This means checking to ensure that no credit card vouchers are post-dated.

(vi) Measurement: to ensure that amounts are correctly recorded in the proper period. This means ensuring that cut-off is correct and consistent between the records held at shops, the returns to head office, and the records held at head office.

(vii) Presentation and disclosure: to ensure that the cash balance and related income statement entries are correctly disclosed in the financial statements in accordance with legislation and accounting standards.



(Visited 11 times, 1 visits today)
Share this on:

Leave a Reply

Your email address will not be published. Required fields are marked *