# Audit of Cash and Cash Equivalents
Cash is highly liquid, easily manipulated, and a common area for fraud. Auditors therefore rely on two pillars: verification of the Bank Reconciliation Statement (BRS) and direct confirmation from banks.
## 1. Verification of Bank Reconciliation Statement (BRS)
The auditor must drill into each material reconciling item:
### (a) Tally the Book Balance
Match the closing balance per the bank book to the bank confirmation/statement.
### (b) Cheques Issued but Not Presented
Ensure each such item is traced to the underlying bank book entry forming part of Books of Account (BOA).
### (c) Cheques Deposited but Not Credited
- Request the bank deposit slips to confirm deposit was made before year-end.
- Verify that the deposit appeared in the subsequent period's bank statement — otherwise it may be a fictitious deposit window-dressing year-end cash.
### (d) Bank Charges/Credits Not Accounted
Request bank statements covering the audit period and tally each charge/credit booked as a reconciling item.
## 2. Direct Confirmation Procedure
This is the most significant audit activity for bank balances:
- Contact banks directly (not through the client) to confirm balances in current accounts, deposit accounts, EEFC accounts, and cash credit accounts.
- Aim for 100% confirmation coverage of bank accounts.
- Where no reply is received, perform alternative procedures:
- Agree balance to bank statement received by the company or via internet banking login.
- Send a team member to the bank branch along with the entity's officer to obtain balance confirmation directly.
- Discrepancies must be investigated and reconciled by the company.
## 3. Disclosure Requirements
Cash and cash equivalents are classified as:
- Balances with banks
- Cheques, drafts on hand
- Cash on hand
- Others (specify nature)
### Additional Separate Disclosures
- Earmarked balances with banks (e.g., for unpaid dividend).
- Balances held as margin money or security against borrowings.
- Repatriation restrictions on cash/bank balances.
- Bank deposits with more than 12 months' maturity (these are not really 'cash equivalents' but must be shown here separately).