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How does an audit team test cash?

The auditor will test for cash balances reflected on the client’s balance sheet by applying two primary tests:

Bank reconciliations – Bank reconciliations are used when testing for the various mentioned management assertions. Bank reconciliations can be applied by a variety of methods such as agreeing the balance per the books to the amounts listed on the general ledger, or by simply footing bank reconciliations to the checks listed.

Bank Confirmations – When applying bank confirmations as a substantive test of details, the auditor should send out confirmations to all banks that the company has engaged with during the year. It is good practice to send out confirmations to every bank even if the company has little to no activity with them in the year under audit. By sending out bank confirmations, the auditor will obtain additional evidence as well (including evidence about existing loans, collateral that has been pledged by the company, surety agreements, and contingent liabilities).


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