AUDIT OF CASH

AUDIT OBJECTIVES:

To determine that:

1. Cash balances at the end of the reporting period represent cash and cash items on hand, in
transit to, or in depository banks.
2. Cash transactions have been properly recorded.
3. 3. Cash balances are properly described and classified, and adequate disclosures with respect to
amounts restricted as to withdrawal are made in the financial statements.

AUDIT PROCEDURES:

1. Conduct a cash count of undeposited collections, petty cash and other funds.
a. Obtain custodian’s signature to acknowledge return of items counted.
b. Reconcile items counted with general ledger balances.
c. Trace undeposited collections counted to bank reconciliation.
d. Follow up dispositions of items in cash counted:
i. Undeposited collections should be traced to bank deposits.
ii. Checks accommodated in petty cash should be deposited after the count to
establish their validity.
iii. IOUs in the petty cash should be confirmed and traced to collections in the next
payroll period.
iv. Expense vouchers should be traced to the succeeding replenishment voucher.
e. Coordinate cash count with count of marketable securities and other negotiable assets
of the client.
f. Obtain confirmation of year-end fund balances of cash not counted in branches or other
offices.
2. Confirm bank balance by direct correspondence with all bank in which the client has had
deposits and loans during the year.
3. Obtain bank reconciliation.
a. Check arithmetical accuracy of reconciliation.
b. Trace balance per book to the general ledger balance of cash count.
c. Trace balance per bank to bank statement and compare with amount confirmed by
bank.
d. Establish authenticity of reconciling items by reference to their respective sources, like:
i. Bank debit or credit advices
ii. Duly approved journal vouchers
e. Investigate checks outstanding for a long period of time.
i. Consider adjustment, especially if the check is already stale.
ii. Consider the possibility of an erroneous preparation of the check.
iii. Investigate any unusual reconciling items.
iv. Where internal control over cash is weak, consider preparing a proof of cash
reconciliation.
4. Obtain cutoff bank statement showing the client’s transactions with the bank at least one week
after the reporting date, and:
a. Trace year-end reconciling items, like:
i. Deposit of the year-end undeposited collections.
 ii. Completeness of year-end outstanding checks.
iii. Corrections of bank errors.
b. Examine supporting documents of year-end outstanding checks that did not clear in the
cut-off bank statement.
5. Obtain a list of interbank transfers of funds a few days before and after the reporting date.
a. Vouch supporting documents
b. Ascertain that the related receipts and disbursements were booked by the client within
the same day or at least within the same month.
6. Test reasonableness of cut-off by:
a. Comparing dates of checks returned with cutoff bank statement to dates of recording in
the cash disbursements register.
b. Tracing receipts recorded a few days before the reporting date to bank deposits.
7. Inspect savings account passbook and certificates of deposits.
a. Reconcile with book balances.
b. Update interest earned posting on passbooks, if necessary.
c. Compare balances with bank confirmation reply.
8. Determine any restrictions on availability of cash.
9. Determine propriety of financial statement presentation and adequacy of disclosures.

AUDIT OF INVENTORIES

AUDIT OBJECTIVES:

To determine that;

1. Inventories included in the statement of financial position physically exist.

2. Inventories represent items held for sale in the ordinary course of business, in the process of
production for such sale, or in the form of materials or supplies to be used in the production
process or in the rendering of services.
3. Inventory quantities include products, materials, and supplies owned by the company (on hand,
in the stored at outside locations).
4. The entity has legal title or similar rights of ownership to the inventories.
5. Inventories are properly stated at the lower of cost and net realizable value.
6. Inventories are properly described and classified in the financial statements and disclosures are
adequate.

AUDIT PROCEDURE:

1. Observe physical inventory counts

-Test shipping and receiving cutoff procedures.
-Account for all inventory tags and count sheets used in recording the physical inventory counts.
-Test the clerical accuracy of inventory listings.
-Trace test counts recorded during the physical inventory observation to the inventory listing.
-Reconcile physical counts to perpetual records and general ledger balances and investigate
significant variations.
 -Test inventory transactions between a preliminary physical inventory date and the end of the
reporting period.

2. Obtain confirmation of inventories at locations outside the entity.

3. Review perpetual inventory records, production records, and purchasing records for indications of
current activities.

4. Analytically review the relationship of inventory balances to recent purchasing, production, and sales
activities, and to anticipated sales volume.

5. Examine paid vendors’ invoices, consignment agreements, and contracts.

6. Review direct labor rates.

7. Test the computation of standard overhead rates.

8. Examine analysis of purchasing standard cost variances.

9. Examine inventory turnover analysis.

10. Review industry experience and trends.

11. Tour the plant. Inquire of production and sales personnel concerning possible excess or obsolete
inventory items.

12. Examine sales after year-end and open purchase order commitments.

13. Obtain confirmation of inventories pledged under loan agreements.

14. Review drafts of the financial statements.

15. Compare the disclosures made in the financial statements to the requirements of PFRS.