How to Audit Cash-Basis Bookkeeping
The accounting books of businesses using the cash-basis method show a record of transactions when cash is exchanged. To audit a cash-basis bookkeeping function involves the evaluation of these transactions to determine that actual cash outflows and inflows were recorded on the accounting records. In addition, cash outflows and inflows should be supported with documentation identifying the transactions that occurred as valid. Any transactions that are missing from the books may signal an error in record-keeping or a sign of theft or fraud.
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Instructions
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Evaluate the bookkeeping function’s internal control environment. Interview personnel and document the job responsibilities of each employee; note any internal control issues. For example, the separation of responsibilities between employees who handle cash and employees who reconcile the cash account should be present to prevent a scenario where theft of cash could occur without detection.
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2
Perform transaction testing on transactions involving cash inflows. Choose a sample of transactions that involved cash inflows, such as collections on accounts receivable, cash sales and sales of fixed assets. Review the transactions in the sample; they should have supporting documentation showing that cash was received and recorded to the correct accounts in a timely manner.
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3
Perform transaction testing on transactions involving cash outflows. Choose a sample of transactions that involved cash outflows, such as payments on accounts payable, payments for employee salaries and income tax payments. Review the transactions in the sample; they should have supporting documentation showing that cash was paid and recorded to the correct accounts in a timely manner.
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Identify audit findings or issues based on the internal control evaluation and testing performed. For all internal control and transaction testing issues identified, list each issue separately and explain the problem and its potential impact on the bookkeeping function and the company as a whole. If the audit did not disclose any audit findings, skip steps 4 and 5.
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Discuss the audit findings and corrective actions with the bookkeeping function’s management. For each issue identified, make recommendations on the issues and ask management to determine the most suitable corrective action.
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Write up the final audit report and present it to upper management. The final audit report should discuss the work performed, the audit findings identified and include management’s corrective actions for each issue disclosed. If the audit did not have any negative findings, discuss the work performed during the audit, along with the positive results.
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References
- “Auditing: CPA Exam Review”; DeVry/Becker Educational Development Corp.; 2009
