Auditing bank and cash balances
The evidence an audit team needs for year-end bank and cash: bank confirmations, testing the reconciliation, imported statements and cash counts.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Bank is often the first lead schedule a junior is given, because it looks simple: one balance per account, a statement to agree it to, and a reconciliation the client has already prepared. That simplicity is exactly why it goes wrong. A reconciliation that "agrees" can hide a lodgement that never cleared, a cheque written on the last day of the year and kept in a drawer, or an account nobody mentioned because it sits at a different bank.
Cash also tends to be where the evidence available is strongest. A bank's own confirmation is about as independent as audit evidence gets. The skill lies in getting it properly, and in testing the reconciling items the client would rather you did not look at.
What can go wrong with bank and cash
Think in terms of assertions:
- Existence: the balance in the books is not what the bank holds, or a reconciling item is fictitious.
- Completeness: an account, an overdraft or a loan from the same bank is left out.
- Rights and obligations: cash is restricted, held in trust or pledged as security, and the statements do not say so.
- Cut-off: payments are recorded before year end but not released, or receipts are banked after year end and dated before it, to flatter the position.
- Presentation: overdrafts are netted against positive balances without the right to offset.
In cash-heavy businesses, such as retailers, fuel stations and restaurants, add misappropriation: takings that never reach the bank, and lapping of receipts across customers' accounts.
Confirmations from the bank
A bank confirmation is external evidence obtained directly by the auditor, which is why it carries weight under ISA 505. It also covers more than the balance: depending on the bank's form, it can show every account in the client's name, facilities, loans, security held and other arrangements the client may not have listed.
Control of the process is the point. The auditor decides what is asked and of whom, and the reply comes back to the auditor, not through the client.
In Achekam, staff plan external confirmations under Audit & Assurance and prepare the requests, a different person approves them, and each respondent answers through a single-use link. Achekam does not send the requests itself: the team sends them and records how. Many banks run their own audit-confirmation channels, and the record of what was sent, when and by which route belongs on the file either way. The wider confirmation process is described in external confirmations and component auditors by link.
Testing the year-end reconciliation
The client's reconciliation is a schedule prepared by the client. Test it rather than accept it.
- Agree the bank balance to the confirmation and to the year-end statement.
- Agree the book balance to the trial balance and the general ledger.
- Check the arithmetic and that every reconciling item is listed, not netted.
- Trace outstanding lodgements to the statement after year end. A lodgement that clears only after a delay suggests window dressing.
- Trace unpresented payments to the statement after year end, and ask about any that have not cleared by the time of fieldwork.
- Investigate stale, round-sum or unexplained reconciling items, and any that repeat from last year.
- Look at transfers between the client's own accounts around year end, to make sure the same money is not counted twice.
For a client whose books are on Achekam, the reconciliation itself follows strict rules. Bank lines are matched by suggestion and a person accepts each match; a line not yet in the books becomes a suggested journal that a person approves; and a reconciliation completes only when the difference has been cleared or every leftover line is explained. That makes the explained items the place to focus: read each explanation and test the material ones, because an explanation is a person's assertion, not evidence.
Imported statements, and what the balance check proves
Staff can import bank statements into Achekam as PDF, CSV, Excel, OFX, QIF, MT940 or CAMT.053 files, and Achekam checks that the opening balance plus the movements equals the closing balance. Scanned or photographed statements are read by text-recognition software on Achekam's own server, on by default, and checked against the running balance. A person still accepts each suggested bank match.
That check is useful for the auditor in a narrow way. A statement whose lines do not add up from opening to closing balance is flagged, which catches a corrupted export or a missing page. It does not make a client-supplied statement independent. A statement the client downloaded and sent is still client-provided evidence; the confirmation, or statements obtained directly, carries the external weight.
Cash on hand and petty cash
Petty cash is usually immaterial and can be dealt with analytically. Cash on hand is a different matter where the client handles significant notes and coins: till floats, safes at branches, cash-in-transit at year end.
Where a count is warranted:
- count at, or as close as practicable to, year end, ideally without notice;
- count all cash under the same custodian at the same time, so it cannot be moved between locations;
- have the custodian present throughout and sign the count sheet;
- list IOUs and vouchers separately rather than treating them as cash;
- agree the count to the cash book and investigate differences.
Use the RFI console to ask the client, ahead of year end, for a list of every bank account and its signatories, the cash locations and the planned count times. Staff create, send and track requests for documents, answers and confirmations there, whichever screen a request was raised from.
Recording the work
On the bank work item, each procedure needs a written response and its documents before it is marked done, or a reason if it is set aside; steps are never deleted. Write the response so a reviewer can see what was relied on: "balance agreed to bank confirmation received through the single-use link on the date recorded" says far more than "agreed". The AccountingTools walk-through of the bank reconciliation process is a handy refresher for juniors on how cash records are compared with the bank statement and the books adjusted.
How reconciling items should be explained in the client's own books is covered in bank reconciliations with explained items.
Where to start this year
Before year end, list every account the client held at any point in the year, including closed ones, and make sure each is on the confirmation plan. Bank findings often come from the account nobody thought to ask about.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
