Cash is the area where maximum possibility of being misappropriation and fraud. Sometimes it is not easy to find any misappropriation existed. Audit of cash should be in a way to make the auditor assure that there are not any misappropriation in the system. Following are some points may help the auditor for audit of cash related transactions.
a. Opening balance must be telly with last year’s closing balance
b. Check the contra entry of cash of any deposit with bank by checking Cash book with bank satatement, both should be on same date
c. Check the contra entry of cash withdrawal from bank by checking cash book with bank statement, both should be on same date
d. Check if any sufficient balance available to the cash but still huge amount of cash withdrawal is made then ask the client why so withdrawal (This may helpful to track actual cash in business)
e. Cash Balance of every transaction should check, it shouldn’t have any negative balance
f. Cash payment shouldn’t have more than Rs. 20,000 in a day to any person as per Rule 6DD and Section 40A(3)
g. See monthly or quarterly weekly cash balances and check whether any major fluctuations in balances then ask for reasons
h. Payment in cash must supported with bills or voucher (if bills are not possible to issue by payee, eg. Labours payments).
i. Check the expenses in cash so booked relate to the activity of business and not any personal.
j. Cash custody by one person may have big chanses of cash being misappropriated.
k. Any payment in cash for more than Rs. 5,000 must have voucher with stamp with a signature of payee, i.e. to whom payment has made in cash as a supporting evidence (Salary, wages etc.)
l. Excess cash expense even though there is no business activity should be under suspection
m. Payment or Receipt of Loan shouldn’t by way of cash.
n. Excess cash closing balance or less cash closing balance should compare from last year. Reasons of such should find out
o. Cash sales should be supported by cash memo, if any, and such should properly deposited to bank in a timely manner.
p. During the year if accountant or the person handling cash leaves job then should find out reasons for such. Sometimes there may chances of cash misappropriation or fraud in such case
q. If petty cash are being maintained by the organization then it should be separately accounted in books or both the cash should be separately identifiable
I made above few points to consider while conducting audit. As per SA 240 auditor has no primary object of detecting fraud and error but while carrying on audit and when cash involves in transactions then according to the judgement of auditor special considerations should be given on few aspects.
There may be many other points to cover under such. Please give your valuable feedback to make this blog better, knowledgeable and sharable. Thank you.
Dwarkesh K. Diwan 