Question

(c) Patapaa Transporters – Bank and cash

You are the external auditor of Patapaa Transporters, a public limited company. The
company’s year-end is 31 December. The bank and cash figure included in Patapaa
Transporters’ draft financial statements is comprised of a number of bank account balances.
The finance director has informed you that all accounts have been reconciled as at the year end.
The following is a reconciliation statement of one of the accounts.
Patapaa Transporters
Bank reconciliation as at 31 December 2019 GHC
Balance per cash book        (180,345.22)
Add Unpresented cheques     2,223.46
Less Outstanding lodgements (1 ,600.34)
Difference 1.34
Balance per bank statement (179,720.76)
Required:

Describe the substantive procedures the auditor should perform to verify the bank and cash
balance of Patapaa Transporters.

NB:All figures are in Ghana cedis

Answer 1

The Followings are the assertions of Bank account

1. Completeness

2. Existence

3. Right and obligation

4. Valuation

5. Cut-off

All these assertions could be addressed by obtaining third party confirmations.

Substantive procedures over bank balance:

a.Obtain the company’s bank reconciliation and check the additions to ensure arithmetical accuracy.
b.Obtain a bank confirmation letter from the company’s bankers.
c.Verify the balance per the bank statement to an original year end bank statement and also to the bank confirmation letter.
d.Verify the reconciliation’s balance per the cash book to the year end cash book.
e.Trace all of the outstanding lodgements to the pre year end cash book, post year end bank statement and also to paying-in-book pre year end.
f.Examine any old unpresented cheques to assess if they need to be written back into the purchase ledger as they are no longer valid to be presented.
g.Trace all unpresented cheques through to a pre year end cash book and post year end statement. For any unusual amounts or significant delays obtain explanations from management.
h.Agree all balances listed on the bank confi rmation letter to the company’s bank reconciliations or the trial balance to ensure completeness of bank balances.
i.Review the cash book and bank statements for any unusual items or large transfers around the year end, as this could be evidence of window dressing.
j.Examine the bank confirmation letter for details of any security provided by the company or any legal right of set-off as this may require disclosure.

Substantive procedures over cash balance:

If cash balances at the client are material, then the auditor may decide to attend a cash count.

Describe the conduct of a cash count

Planning Stage:

- Determine the time and location of the count.

- who is to be present (audit and client staff).

- Inspect the cash book to ensure it is written up to date and in ink.

During the count:

- Count cash balances held in front of official responsible. (The auditor should never be left alone with the cash.)

- Enquire into any IOUs.

- Confirm cash balances agree with the FS.

After the count:

- Ensure that certificates of cash in hand are obtained as appropriate.

- Ensure unbanked cheques are subsequently banked/agree to bank reconciliation.

- Ensure IOUs have been reimbursed.

- Ensure IOUs/cashed cheques outstanding for too long have been provided for.

- Ensure all balances counted are reflected in the accounts.