Case Study: Audit Procedures for Cash and Bank Accounts

Background: ABC Company is a medium$-$sized manufacturing firm. As part of their annual financial audit, the external auditors need to perform audit procedures for the cash and bank accounts. The auditors aim to ensure that the company's cash and bank balances are accurately stated and that there are no material misstatements or irregularities.

Audit Procedures:

Confirmation of Bank Balances: The auditors send confirmation letters directly to the company's banks to verify the cash and bank balances. The banks provide the auditors with the account balances, outstanding checks, and other relevant information. This procedure helps confirm the accuracy of the cash and bank balances reported in the financial statements.

Bank Reconciliation: The auditors review the bank reconciliations prepared by the company's accounting department. They compare the reconciliations to the bank statements to ensure that all transactions are accurately recorded and any discrepancies are properly investigated and resolved.

Physical Cash Count: The auditors perform surprise cash counts at the company's premises. They select a random sample of cash on hand and compare it to the recorded cash balance. This procedure helps detect any potential misappropriation or irregularities in handling cash.

Examination of Cash Receipts and Disbursements: The auditors analyze a sample of cash receipts and disbursements to ensure that they are properly recorded and supported by appropriate documentation. They review bank statements, deposit slips, canceled checks, and other relevant records to verify the accuracy and validity of the transactions.

Review of Internal Controls: The auditors assess the company's internal controls over cash and bank accounts. They evaluate the segregation of duties, authorization procedures, and security measures in place to safeguard cash. Any weaknesses or deficiencies in the internal control system are identified and reported to management for remediation.

Objective Question:

Based on the case study, which audit procedure helps confirm the accuracy of the cash and bank balances reported in the financial statements?

A$)$ Confirmation of Bank Balances B$)$ Bank Reconciliation C$)$ Physical Cash Count D$)$ Examination of Cash Receipts and Disbursements

Please choose the correct option $($A$,$ B$,$ C$,$ or D$).$