COMPLETING AUDIT PROCEDURES FOR CASH AND BANK ACCOUNTS ON FINANCIAL STATEMENTS AT THANG LONG – t d k AUDITING AND VALUATION COMPANY, LTD

VIETNAM NATIONAL UNIVERSITY, HANOI
INTERNATIONAL SCHOOL

GRADUATION THESIS

COMPLETING AUDIT PROCEDURES FOR CASH AND BANK ACCOUNTS
ON FINANCIAL STATEMENTS AT THANG LONG – T.D.K AUDITING AND
VALUATION COMPANY, LTD

Nghiêm Thu Hiền

Hanoi – 2021

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VIETNAM NATIONAL UNIVERSITY, HANOI
INTERNATIONAL SCHOOL

GRADUATION THESIS

COMPLETING AUDIT PROCEDURES FOR CASH AND BANK ACCOUNTS
ON FINANCIAL STATEMENTS AT THANG LONG – T.D.K AUDITING AND
VALUATION COMPANY, LTD

SUPERVISOR: M.A. Ngơ Trí Trung
STUDENT: Nghiêm Thu Hiền
CODE: 17071263
COHORT: AC2017A

MAJOR: Accounting, Analyzing and Auditing

Hanoi – 2021

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Acknowledgement
Firstly, I would like to express my special gratitude and deeply regard to my
supervisor, M.A. Ngo Tri Trung, who supports and guides me in the thesis, for his
patience, motivation, enthusiasm, and immense knowledge. His guidance helped me
during the research and provided suggestions helping me accomplish the thesis well.
I also would like sincerely thank to the Board of Directors of Thang Long –
T.D.K Auditing and Valuation company, Ltd for providing the essential documents of
the company as well as the auditors for your enthusiastic guidance and facilitating me
to study and work.
Finally, I would like to thank International School, Vietnam National University,
Ha Noi for giving me a chance to experience and supports me for my thesis.
Yours sincerely,
Nghiem Thu Hien

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Letter of Declaration

I hereby declare that the Graduation Thesis titled “Completing the audit
procedures for cash and bank accounts on Financial Statements at Thang Long – T.D.K
Auditing and Valuation company, Ltd” is the results of my own research and has never
been published in any work of others. During implementing this thesis, I have seriously
taken research ethics; all findings of this project are results of my own research and
surveys; all references in this project are clearly cited according to regulations.
I bear full responsibility for the fidelity of the number and data and other contents
of my graduation project.

Hanoi, Jun 1st, 2021

Nghiêm Thu Hiền

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LIST OF ABBREVIATIONS
Thang Long – T.D.K Audit and Valuation Company, Ltd

T.D.K

ABC Joint Stock Company

ABC

Financial Statement

FS

International Standards on Auditing

ISA

Vietnam Association of Certified Public Accountants

VAPCA

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TABLE OF CONTENT
ACKNOWLEDGEMENT ........................................................................................... I
LETTER OF DECLARATION .................................................................................II
LIST OF ABBREVIATIONS ................................................................................... III
INTRODUCTION .................................................................................................... VII
. LITERATURE REVIEW ON AUDIT PROCEDURE FOR CASH
AND BANK ACCOUNTS ON FINANCIAL STATEMENT .................................. 1
1.1

LITERATURE ................................................................................................1

1.1.1 Definition and classification ........................................................................ 1
1.1.2 Rules for cash accounting ............................................................................ 2
1.1.3 Characteristics of cash and bank on Financial Statement. ......................... 3
1.2

CONCEPT OF AUDIT PROCEDURE FOR CASH AND BANK ACCOUNT

ON FINANCIAL STATEMENT ............................................................................... 4
1.2.1 Audit objectives ............................................................................................ 4
1.2.2 Resources and documentations for the audit ............................................... 5
1.2.3 Frequently misstatements ............................................................................ 6
1.3

FRAMEWORK OF AUDIT PROCEDURE FOR CASH AND BANK

ACCOUNTS ON FINANCIAL STATEMENT ......................................................... 7
1.3.1 Planning: ..................................................................................................... 7
1.3.2 Executive .................................................................................................... 13
1.3.3 Completion ................................................................................................. 19
CONCLUSION CHAPTER 1...................................................................................20
...........ACTUAL AUDIT PROCEDURES FOR CASH AND BANK
ACCOUNTS ON FINANCIAL STATEMENTS AT THANG LONG – T.D.K
AUDITING AND VALUATION COMPANY, LTD .............................................. 21
2.1

OVERVIEW OF THANG LONG – T.D.K AUDITING AND VALUATION

COMPANY, LTD ..................................................................................................... 21
2.1.1 General information .................................................................................. 21
2.1.2 History of establishment and development of the company....................... 22
2.1.3 Organizational structure............................................................................ 23
2.1.4 Types of service of the company ................................................................ 23
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2.1.5 The quality control of assurance services process .................................... 24
2.2

THE AUDIT PROCESS FOR FINANCIAL STATEMENTS AT THANG

LONG – T.D.K AUDITING AND VALUATION COMPANY, LTD ..................... 26
2.2.1 Planning phase .......................................................................................... 26
2.2.2 Execution ................................................................................................... 28
2.2.3 Completion ................................................................................................. 30
2.3

AUDIT PROCEDURES FOR CASH AND BANK ACCOUNTS ON

FINANCILA STATEMENTS AT THANG LONG – T.D.K AUDITING AND
VALUATION COMPANY, LTD ............................................................................ 31
2.3.1 Planning ..................................................................................................... 31
2.3.2 Execution ................................................................................................... 32
2.3.3 Completion ................................................................................................. 33
2.4

ACTUAL AUDIT PROCEDURES FOR CASH AND BANK ACCOUNTS

ON FINANCILA STATEMENTS AT THANG LONG – T.D.K AUDITING AND
VALUATION COMPANY, LTD ............................................................................ 34
2.4.1 Planning ..................................................................................................... 34
2.4.2 Execution ................................................................................................... 41
2.4.3 Completion ................................................................................................. 57
CONCLUSION CHAPTER 2...................................................................................59

PROPOSALS FOR COMPLETING THE AUDIT PROCEDURES
FOR CASH AND BANK ACCOUNTS ON FINANCIAL STATEMENT AT
THANG LONG – T.D.K AUDITING AND VALUATION COMPANY, LTD ... 60
3.1

COMMENTS ON THE ACTUAL AUDIT PROCEDURES FOR CASH

AND BANK ACCOUNTS PERFORMED BY THANG LONG – T.D.K
AUDITING AND VALUATION COMPANY, LTD. ............................................. 60
3.1.1 Advantages ................................................................................................. 60
3.1.2 Disadvantages............................................................................................ 61
3.1.3 Reasons for restrictions ............................................................................. 64
3.2

DEVELOPMENT ORIENTATION AND NECESSITY OF COMPLETING

THE AUDIT PROCEDURES FOR CASH AND BANK ACCOUNTS ON
FINANCILA STATEMENTS AT THANG LONG – T.D.K AUDITING AND
VALUATION COMPANY, LTD ............................................................................ 64
3.2.1 Development orientation of Thang Long ................................................... 64
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3.2.2 The necessity of completing the audit procedures for cash and bank
accounts on financial statements at Thang Long – T.D.K Auditing and Valuation
company, Ltd ......................................................................................................... 65
3.3

REQUIREMENTS AND RULES FOR COMPLETING THE AUDIT

PROCEDURES FOR CASH AND BANK ACCOUNTS ON FINANCILA
STATEMENTS AT THANG LONG – T.D.K AUDITING AND VALUATION
COMPANY, LTD ..................................................................................................... 66
3.3.1 Requirements for completing the audit procedures for cash and bank
accounts ................................................................................................................ 66
3.3.2 Rules of completing the audit procedures for cash and bank accounts..... 67
3.4

PROPOSALS FOR COMPETING AUDIT PROCEDURES FOR CASH

AND BANK ACCOUNTS ON FINANCIAL STATEMENT AT THANG LONG –
T.D.K AUDITING AND VALUATION COMPANY, LTD ................................... 67
3.4.1 Planning phase .......................................................................................... 67
3.4.2 Execution phase ......................................................................................... 68
3.4.3 Completion phase ...................................................................................... 69
3.5

CONDITIONS TO IMPLEMENT PROPOSALS .........................................69

3.5.1 To Thang Long – T.D.K Auditing and Valuation Company, Ltd ............... 69
3.5.2 To clients .................................................................................................... 70
3.6

PROPOSALS FOR THE THESIS ................................................................. 70

3.6.1 Limitations of the thesis ............................................................................. 70
3.6.2 Recommendations for thesis success ......................................................... 71
CONCLUSION CHAPTER 3...................................................................................73

CONCLUSION ........................................................................................................... 74
BIBLIOGRAPHY ...................................................................................................... 75
APPENDICES ............................................................................................................ 76

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Introduction
1.

Rationale of research
Along with the strong development of the economy, public audits are also

constantly growing and become an essential demand on the economic race. Currently,
in the economy, the information on FS does not only describe the whole picture of
operating and doing business in the fiscal year of businesses, to stakeholders, they
base on those to make their decisions and investments, thus, the information on FS is
required to become more true and fair, objective and high reliable. Therefore, auditing
is becoming necessary for operating and doing business and improvement the
management quality of all type businesses. The audit report is more concerned by
stakeholders because it expresses the degree of reliance of information on FS.
Along with Non-current assets and inventory accounts normally are high value
and pervasive to FS, Cash and Bank accounts also plays importance role on FS, as
Cash and Bank accounts are closely relative to the most of accounts on FS,
particularly, Financial Position and Statement of cash flow and almost relate to sales
and purchase cycles and payment transactions, which are important to the entity’s
operation. Besides that, Cash and Bank accounts both are the most high-liquidity
assest, therefore, almost transactions related to cash and bank are high value and high

possibility of having frauds and errors. However, not all audits of cash and bank
achieve audit objective and effectiveness. Moreover, the real story about Wirecard's
bankruptcy caused by the disappearance of 1.9 billion euros in cash and bank accounts
that was audited by a famous audit firm in June 2020 has been leading to controversy
whether the audit procedure for cash and bank accounts on FS currently has been
really focused.
Besides, understanding the importance of audit procedure for cash and bank
accounts on FS and through internship at Thang Long - T.D.K Auditing and Valuation
Company, Ltd, I realized that in fact, audit procedure for cash and bank account still
has difficulties and restrictions. Therefore, I choose the thesis topic is : “Completing
audit procedures for cash and bank accounts on Financial statements at Thang Long T.D.K Auditing and Valuation Company,Ltd”.

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2/ Aims and Objective
Aims:
The research aims to complete audit procedures for cash and bank on Financial
statement which helps auditor have a more reasonable assessment for these accounts
and reduce audit risk of providing reasonable audit opinion.
Objectives:
The research need to implement these main objectives:
- Systemization basic arguments on the audit process for cash and bank on FS;
- Study about actual audit procedures for cash and bank on FS which performed by
Thang Long - T.D.K Auditing and Valuation Company,Ltd.
- Assessing and giving proposals to complete the audit process for cash and bank on
FS at Thang Long - T.D.K Auditing and Valuation Company,Ltd.
3/ Scope of the research

- Subject of the research: Audit procedures for cash and bank accounts on Financial
statement.
- Scope of the research : Audit procedures for cash and bank accounts on Financial
statement which performed by Thang Long - T.D.K Auditing and Valuation
Company,Ltd in 2020.
4/ Research methods.
- Method of studying documents: Base on documents, standards on Accounting and
Auditing, accounting regime; using documentations and audit files of at Thang Long
– T.D.K Auditing and Valuation company, Ltd in order to obtain necessary
information served for the thesis.
+ Refer Accounting Regime Circular 200/2014/TT-BTC “Guidlines for
accounting policies for enterprises”, Standards on Auditing issued by International
Federation of Accountants (ISA 200, ISA 300, ISA 315, ISA320, ISA 520) to provide
a basis for studying the thesis.
+ Obtain the information of overview of Thang Long – T.D.K Auditing and
Valuation company, Ltd base on documents and website of T.D.K

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+ Obtain the information about audit procedures for cash and bank accounts for
clients at Thang Long – T.D.K Auditing and Valuation company, Ltd through audit
files provided by auditors.
- Observation and Inquiry: Observe directly the actual audit performance for cash
and bank accounts on FS at Thang Long – T.D.K Auditing and Valuation company,
Ltd during internship. Inquiry auditors and audit associates at Thang Long – T.D.K
Auditing and Valuation company, Ltd in order to gather other relevant information.
-

Synthesis and analysis: Synthesize the information and documentation collected
for analysis and evaluation. Then the results are gathered in order to make objective
comments thereby detecting pros and cons in audit procedures for cash and banks
accounts at T.D.K, then finding the causes and proposals for completing the audit
procedures for cash and banks accounts at Thang Long – T.D.K Auditing and
Valuation company, Ltd.

5/ Structure of research
The thesis including 3 main part:
Chapter 1: Concept and framework of Audit procedures for Cash and Bank accounts on
Financial Statements
Chapter 2: Actual Audit procedure for Cash and Bank accounts on Financial Statement
at Thang Long – T.D.K Auditing and Valuation company, Ltd.
Chapter 3: Proposals for completing the Audit procedures for Cash and Bank accounts
on Financial Statement at Thang Long – T.D.K Auditing and Valuation company, Ltd

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LITERATURE REVIEW ON AUDIT PROCEDURE FOR
CASH AND BANK ACCOUNTS ON FINANCIAL STATEMENT

1.1

LITERATURE

1.1.1 Definition and classification

In the economy, Trade in commodities is the essential activity in the development stage.
In the past, the exchange of goods is made through directly trade off between objects.
When the types of goods and services are variety, the trade is expanded in scope and
volume, thus it is necessary to have specific and unified unit to trade, so the money
occurs. “Economists define money as anything that is generally accepted as payment
for goods or services or in the repayment of debts”. (Mishkin 2016, p.95)
Mishkin (2016) pointed out 3 functions of money:
- Medium of exchange: money is used to make payments
- Unit of account: money is used to measure value in an economy
- Store of value: it is a repository of purchasing power available over time.
Money has taken different forms at different times, money currently exists as 3 main
types: cash on hand, cash in bank and cash in transits based on the charateristic of stored.
Cash on hand is the actual amount of cash stored in the enterprise, which aims to make
payments for commodities or payroll for employees. Cash on hand could exist in many
forms as Vietnamese Dong, foreign currencies or Monetary Gold. Cash on hand is the
most liquid in forms of money because it can be used to make payments immediately
without having to be converted into anything else.
Cash in bank is the cash deposit in bank aims to reserve for payments or term deposits.
Cash in bank can be Vietnamese Dong, foreign currencies or Monetary Gold. For the
enterprises which frequently have trade commodities with foreigners or import/ export

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goods, the transactions and account balaces of cash in bank are relatively large and
make up high portion in total cash.
Cash in transit is the amount of money deposited in Bank or State treasury but the
firm, or the firm made payments through bank accounts for others but not receive the

bank Statements or Credit notes. Cash in transit can be Vietnamese Dong or Foreign
currencies.
The classification of cash and bank above is a common way, but also is the way that
cash and bank accounts are presented on Statement of Financial Position of the
enterprises according to Circular 200/2014/TT-BTC. Each form of money have their
own characteristics, thus, management characteristic and internal control systerm for
cash and bank of each entity is also different, which is important for auditor to find the
appropriate audit strategy to obtain sufficiently appropriate evidences for these
accounts.
1.1.2 Rules for cash accounting
It is clear that cash and bank are important accounts for the enterprises. Therefore, each
entity has their own accounting system to manage and monitor cash, which must be
complied with accounting rules for cash and bank accounts regulated by Ministry of
Finance:
Firstly, consistency in moneytary unit – Accountants must use unified currency
monetary unit for recording all transactions and account balances. In Viet Nam,
“Monetary unit in accounting popularly means Vietnamese dong (national sign: đ ;
international sign: VND) used for bookkeeping, preparation and presentation of
financial statements of enterprises”. It means that the transactions which has amount
cash in foreign currencies must be converted into equivalent the Vietnamese dong
through exchange rate. However According to Article 4 Circular 200/2014/TT-BTC, it
is stated that “Any enterprise that mainly receive revenues and pays expenses in foreign
currencies shall base on regulations of the Law on accounting for consideration of
selection of monetary unit in accounting and take legal responsibility. When selecting
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the monetary unit in accounting, the enterprise must notify supervisory tax authority.”.

Besides, The currency used as monetary unit in accounting must meet requirements
below:
“a) It is mainly used in sales, provisions of services of the enterprise, which have great
impact on selling prices and service fees and it is normally used as posting prices and
used for payments; and
b) It is mainly used in purchases of goods or services, which have great impact on labor
costs, materials costs and other production costs or operating costs and it is normally
used for payments of that costs.”
Secondly, frequently updated – Account must record the transactions relevant to cash
and bank accounts regularly base on bank statements, receipt and payment slips and
frequently monitor petty cash book, detail ledger for each bank accounts. For foreign
currency accounts, accountant have to monitor the original currency and revaluation of
those accounts at the period end base on real exchange rate at the time.
1.1.3 Characteristics of cash and bank on Financial Statement.
Firstly, as Cash and Bank accounts are most liquid on Balance Sheet, thus, they plays
important roles in reflecting the solvency of business by analyzing the financial ratios
as current ratio, quick ratio,etc…Consequently, this can be a motivation for entity to
deliberately misrepresent the account balance in cash and bank on the FS, causing
intended users to misunderrate the financial position of the company. This is common
in businesses which tend to become listed companies or make more borrowings.
Secondly, cash is used for payments of purchase and cash also is the results of any sales,
thus cash is a mobile assets in the enterprise, thus, in a fiscal year, the number of
transactions related to cash and bank is extremely large with different sizes. Therefore,
when the internal control system is not effective, that will lead to significant risks and
frauds or errors affecting FS.

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Moreover, as cash are medium of exchange with high liquidity, thus Cash and bank
accounts are mostly related in important cycles such as purchase, revenue, payrolls,..
Consequently, the errors from these cycles could also affect seriously to cash and bank
accounts.
With these characteristics, it can be implied that cash and bank are important accounts
which are easily presented incorrectly, high possibility of material misstatement
existence, therefore, auditors should pay attention during audit.
1.2

CONCEPT OF AUDIT PROCEDURE FOR CASH AND BANK

ACCOUNT ON FINANCIAL STATEMENT
1.2.1 Audit objectives
To provide reasonable assurance about whether the FS as a whole are free from material
misstatement, the auditor needs to obtain evidences about the financial statement
assertions.
According to para. A124 (a)-(b) in ISA315, It is stated that the financial statement
assertions including assertions for classes of transactions and related disclosures and
account balances and related disclosures must be used in sufficient detail to form the
basis for the assessment of risks of material misstatement and the design and
performance of further audit procedures.
The assertions in audit cash and bank are set out in the table that follows:
A/

Assertions about account balances at the period end:
Assertions

Objective

Existence

Recorded cash balances exist at the period end

Completeness

Recorded cash balances include the effects of all
transactions that have occurred.

Accuracy, valuation and Recorded cash balances are realisable at amounts
allocation

stated

Rights and obligations

The entity has legal title to all cash balances shown at
the period

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Presentation

Disclosures relating to cash are adequate and in
accordance with accounting standards legislation

B/ Assertions about classes of transactions and events for the period under audit:

Assertion
Occurrence

Objective
All transactions and events relating to receving or paying
cash that have been recorded have been actually occured
and pertain to the entity

Accuracy

Amounts and other data relating to recorded transactions
and events have been recorded appropriately

Completeness

All transactions and events relating to Cash and Bank that
should have been recorded have been recorded.

Classification

Transactions and events have been recorded in proper
accounts

Cut-off

Transactions and events have been recorded in correct
accounting period

Presentation

Transactions and events are appropriately aggregated or
disaggregated and are clearly described, and related
disclosures are relevant and understandable in the context
of the requirements of the applicable financial reporting
framework.

1.2.2 Resources and documentations for the audit
The resources and documentations served for audit process during performing audit
cash and bank are variety. However, to obtain appropriate evidences, auditors can base
on these resources and documentation which is related to operational management and
relevant transactions, including:
- Policies, regulations related to cash management issued by government such as:
regulations on bank payments, non-cash payments,..

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- The regulations made by Board of management about approval responsibilities,
authorisations of payments, segregation of duties of treasurers and accountants, cash
count, reconciliations,…
- Financial statements: Statement of finacial position, statement of profit or loss, Notes
to financial statement, statement of cash flow.
- Accounting books: Cash book, petty cash book, general ledger, general journal,
detailed ledger,…
- Accounting documents related to cash and bank as: the receipt, payment slips, Credit
note, Debit note, Debit advice, Accreditative,..
- Other relevant documentations: cash count record, bank statements, bank

confirmation, bank contract,…
1.2.3 Frequently misstatements
First, Relating to occurrence and existence assertions:
- The receipts and payment slips do not reflect the actual transactions or events.
- Transfer money to the wrong person or recipient who has no economic relationship
to the entity
- Misrepresent the amount transferred to the bank, transfer payment.
- There is difference between cash fund exist to cash counts record.
- Not reconcile the deposit cash balance to the balance in Bank.
Second, Relating to accuracy and valuation and allocation assertion:
- At the end of period, the foreign currency balances are not valuated in proper
exchange rate accordance with the banks.
- The invoice are recordes twice, or paid in cash with amount greater than VND 20
millions.
Third, Relating to completeness assertion:
- Inconsistence in recording the transactions relating foreign currency.
- Lack of detailed ledger for each Bank accounts
- Not recording fully the bank deposit interest or the interest does not match with the
amount presented in bank.
Fourth, Relating to classification assertion:
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- Refect inappropriately the cash in transit
- Refect inappropriately the bank overdraft, deposit cash,..
Fifth, Relating to cut – off assertion:
Recorded according to debit advice and accreditative in wrong period.
Sixth, Relating to presentation and disclosure assertion:

- There are many petty cash books
- Not monitoring the currency amount of foreign currency account.
Besides the misstatements related the assertions, there are misstatements causes by
deficiency of internal control systems as: violating the segregation of duty as treasurer
could record transactions relating to cash and bank, the treasurer has family
relationship with the Executive director, Chief accountant, thus, cash might be used
for personal purpose, lack of approving the receipts and payment slips,…
1.3

FRAMEWORK OF AUDIT PROCEDURE FOR CASH AND BANK

ACCOUNTS ON FINANCIAL STATEMENT
The audit process for cash and bank accounts also follows as the phasese in the audit
of financial statements as whole, including: Planning, Execution and Completion.
1.3.1 Planning:
According to ISA 300 Planning an Audit of Financial Statements (para. 4), it is stated
that the auditor shall plan the audit so that the engagement is performed in an effective
manner.
Audits are planned to:
ü Help the auditor devote appropriate attention to important areas of the audit
ü Help the auditor identify and resolve potential problems on a timely basis
ü Help the auditor properly organize and manage the audit so it is performed in an
effective manner
ü Assist in the selection of appropriate team members and assignment of work to them
ü Facilitate the direction, supervision and review of work
ü Assist in co-ordination of work done by auditors of components and experts
(ISA 300: para. 2)

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The objective of planning phase is formulating an overall audit strategy which is
translated into a detailed audit plan for auditor to follow.
In planning phase, auditors perform including these tasks:
A/

Understanding client and its environment:

Before accepting new clients, most audit firm investigate and obtain information about
the clients, in order to determine its acceptability. For existing clients, the audit firm
will revaluate clients to determine whether there are reasons for not retaining clients. If
audit firm accept clients, it will implement procedures for client acceptance and
continuance and assessing audit risk through understanding client and its environment.
In this task, auditors need to study and obtain documents which have following
information:
- Industry, regulatory and other external factors, including the applicable financial
reporting framework
- Nature of the entity, including operations, ownership and governance, investments,
structure and financing
- Entity's selection and application of accounting policies
- Objectives and strategies and related business risks that might cause material
misstatement in the financial statements
- Measurement and review of the entity's financial performance
- Internal control.
(ISA 315 (Revised): paras. 11–12)
Finally, auditors need to collect the documentations and information about cash and
bank provided by chieft accountant such as: Statement of financial position, trial
balance, cash count record, general journal, petty cash, general ledger of account 111,

112, etc.
B/

Preliminary analytical procedures of cash and bank account:

Preliminary analytical procedures in planning phase is one part of audit risk assessment,
which helps auditor analyze and assess risk of material misstatement on FS and provide
a basic for audit approach strategy. Auditors can use horizontal analysis or vertical
analysis for information presented on FS and combine with evaluating non-financial

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information such as: operation environment, economic status, industry,.. Hence, auditor
have a objective view of FS, to find significant changes compared to previous year.
After that, auditors consider factors, risk related to cash and bank or any abnormal
changes.
C/

Understanding of internal control

Procedures to obtain an understanding of internal control are focus on both design and
implementation of internal control in order to estimate the level of reliance on internal
control system and establish suitable audit strategy. Understanding initial internal
control system for cash and bank requires auditor use their professional judgments and
implement procedures to assess control risk for transactions related to cash and bank
accounts. Moreover, initial understanding of internal control helps auditors assess audit
risk and identify types of risk of material misstatements related to cash and bank

accounts, then, estimate scope, content, schedule and audit tests need to perform.
Audit procedures to obtain an understanding of internal control including:
- Request clients to provide the regulations about internal control system for cash and
bank.
- Inquire clients’staffs who have understanding about internal control.
- Examine whether internal control system is operated as regulations.
D/

Preliminary judgment about materiality.

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Assessing audit risk:

Auditor must perform risk assessment procedures for cash and bank account to have a
basic to identify and assess risk of material misstatement on FS and Fianacial
management assertions level.
Auditor assess audit risk through audit risk model:
AR = IR x CR x DR
In which:
AR – “Audit risk is the risk that the auditor expresses an inappropriate audit opinion
when the financial statements are materially misstated” (ISA 200: para. 13(c)).

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IR – “Inherent risk is the susceptibility of an assertion about a class of transaction,
account balance or disclosure to a misstatement that could be material either

individually or when aggregated with other misstatements, before consideration of any
related internal controls” (ISA 200: para. 13(nii)).
CR – “Control risk is the risk that a material misstatement, that could occur in an
assertion about a class of transaction, account balance or disclosure and that could be
material, individually or when aggregated with other misstatements, will not be
prevented or detected and corrected on a timely basis by the entity's internal control”
(ISA 200: para. 13 (nii))
DR – “Detection risk is the risk that the procedures performed by the auditor to reduce
audit risk to an acceptably low level will not detect a misstatement that exists and that
could be material, either individually or when aggregated with other misstatements.”
(ISA 200: para. 13(e))
IRxCR is considered as risk of material misstatements arising in the FS. Auditor must
to assess risk of material misstatements in all aspects of FS and assertions about
transactions and cash and bank balances.
Risk assessment procedures including:
- Identify inherence risks through understanding client and its environment, including
studying the appropriate controls related to risk and identifying risks through
inspection transactions, account balances and information on Financial statement
disclosures; then assess the inherence risks whether they have a pervasive effect on
the overall financial statements and potentially affect assertions;
- Assess control risk through understanding of internal control system and consider
what controls the auditor intends to test;
- Synthesize inherence risk and control risk to assess detection risk. The high or low
detection risk is the basic for auditor estimate the volume of audit tests and
appropriate audit approach strategy.

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Materiality

In the ISA 320 (para. 2), the definition of materiality is not expressed, but it is discussed
in different terms by different financial reporting frameworks the following are
generally the case:
- Misstatements are considered to be material if they, individually or in aggregate,
could reasonably be expected to influence the economic decisions of users.
- Judgements about materiality are made in the light of surrounding circumstances,
and are affected by the size and nature of a misstatement or a combination of both.
- Judgements about matters that are material to users of financial statements are based
on a consideration of the common financial information needs of users as a group.
The materiality has both quantity aspect (amount) and quality aspect (nature):
- Quantitative aspects, misstatement is considered to be material when it reached at
specified benchmarks that can influence the decisions of intended users.
- Qualitative aspects, some misstatements may fall under specified benchmarks, but
are still considered material overall due to their nature effects.
The materiality level will impact on the auditor's decisions relating to the volume of
items need to test, which items need to examine, the level of risk of issuing
inappropriate audit opinion.
Determining the materiality is dependent on professional judgment of auditor. Auditor
establish overall materiality for FS as a whole and performance materiality for overall
FS to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for the financial
statements as a whole (ISA 320: para.9), then allocates the materiality for cash and
bank. Normally, a percentage is applied to a chosen benchmark as a starting point for
determining overall materiality for the financial statements.
There are some factors might affect choosing appropriate brenchmark, including:

- Items on FS interested by intended users;

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- Nature of client’s operation;
- Capital ownership structure of client.
Identifying materiality in planning phase aims to determine appropriate audit
procedures which easily to detect material misstatement or errors.
E/ Audit strategy and audit planning for cash and bank
Audit strategy and audit plan must be designed for each audit, clients and in appropriate
way in order to cover all material aspects of the audit.
Audit strategy and audit plan must be monitored to update and change if necessary
during conducting the audit.
The overall audit strategy sets the scope, timing and direction of the audit, and guides
the development of the more detailed audit plan (ISA 300: para. 7).
“In establishing the overall audit strategy, the auditor shall:
(a) Identify the characteristics of the engagement that define its scope;
(b) Ascertain the reporting objectives of the engagement to plan the timing of the
audit and the nature of the communications required;
(c) Consider the factors that, in the auditor’s professional judgment, are significant in
directing the engagement team’s efforts;
(d) Consider the results of preliminary engagement activities and, where applicable,
whether knowledge gained on other engagements performed by the engagement
partner for the entity is relevant; and
(e) Ascertain the nature, timing and extent of resources necessary to perform the
engagement”. (ISA 300: para.8)
Base on the overall audit strategy, audtior develop an audit plan. Audit shall include a

description of:
- “The nature, timing and extent of planned risk assessment procedures, as determined
under ISA 315.4
- The nature, timing and extent of planned further audit procedures at the assertion
level, as determined under ISA 330.5
- Other planned audit procedures that are required to be carried out so that the
engagement complies with ISAs. “(ISA 300: para.9)

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1.3.2 Executive
1.3.2.1.

Test of control

Procedures to obtain an understanding of internal control in planning phase generally
do not provide sufficient appropriated evidence that a control is operating effectively,
hence, test of controls are used to obtain evidence of effectiveness of internal control.
The aims of the test of internal control system for cash and bank is determining
whether these controls are effective and evaluating the level of control risk, in order to
estimate the scope of susbtantive test and other procedures. Test of control often
focus on the following issues:
A/ Possible tests of controls over cash payments:
- Observe the processing of cash payments and review the entity’s policies to evaluate
whether proper segregation of duties is operating.
- Review procedures for reconciling supplier statements
- review monthly reconciliation to confirm whether undertaken and independently

reviewed
- inspect relevant documentation for evidence of approval by senior personnel
- select a sample of cheque payments and ensure that cheque numbers follow on in
sequence
- Review reconciliation, to ensure performed, reviewed and any discrepancies
followed up on a timely basis.
- Review bank reconciliation for evidence it was done and independently reviewed.
Reperform a sample of bank reconciliations.
- Review reconciliation, to ensure performed, reviewed and any discrepancies
followed up on a timely basis.
- Review assignment of general ledger account.
B/ Possible tests of controls over cash receipts:
- Observe the processing of cash receipts and review the entity's policies to evaluate
whether proper segregation of duties is operating.
- Examine application controls for electronic cash receipts transfer.

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- Observe cash sales procedures.
- Observe mail opening procedures, including endorsement of cheques.
- Observe preparation of cash receipts' records.
- Review documentation, reconciliations for evidence of independent check.
- Review monthly bank reconciliations to confirm performed and reviewed.
Reperform a sample of the reconciliations.
- Enquire of management about handling of customer statements.
- Review entity's procedures for sending out statements.
1.3.2.2.

Substative procedures:

A/ Analytical procedures:
ISA 520 (para. 5) states that when using analytical procedures as substantive tests, the
auditor must:
- Determine the suitability of particular analytical procedures for given assertions.
- Evaluate the reliability of data from which the auditor's expectation of recorded
amounts or ratios is developed.
- Develop an expectation of recorded amounts or ratios and evaluate whether this is
sufficiently precise to identify a misstatement that may cause the financial statements
to be materially misstated.
- Determine the amount of any difference that is acceptable without further
investigation.
Analytical procedures are usually more applicable to large volumes of transactions
that tend to be predictable over time. The suitability of a particular analytical
procedure will depend on the auditor's assessment of how effective it will be in
detecting material misstatements (ISA 520: para. A6).
Analytical procedures can be performed using various techniques from simple
comparisons to complex analyses, in which ratio analysis is one of the most useful
technique.

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