- 20 Marks
AA – May 2024 – L2 – SA – Q2 – Audit Evidence
This question focuses on the risks of cash misstatements, bank confirmations, and audit procedures for verifying cash and cash balances.
Question
In the audit of organizations, auditors often place importance on cash and cash equivalents because of the risk of misstatement associated with them. There have been cases of unreported bank balances and bank accounts opened in the names of organizations and operated secretly without the knowledge of management.
The audit work performed on cash balances will usually depend on materiality considerations. In this context, materiality should be considered not only in terms of the amount in the statement of financial position, but also in terms of the value of individual transactions passing through the cash account during the period.
Required:
a. Explain three risks of misstatement associated with cash and cash balances. (3 Marks)
b. Enumerate and explain six areas covered by a bank confirmation letter. (6 Marks)
c. State and explain five audit steps you will perform after obtaining the confirmation replies from banks. (7 Marks)
d. State and explain four main audit steps involved in a physical count in verifying cash balances. (4 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Audit Steps, Bank Confirmations, Cash Balances, Cash Misstatement Risks
- Level: Level 2
- Topic: Audit evidence
- Series: MAY 2024