[Checklist] Audit of Cash and Bank Balances (2024)

Sr. No.

ParticularsYes/No/NA

W.P. Ref.

I.Features of Bank balances that impact related Audit procedures(1)Have you factored in the inherent nature of Bank balances-that they are highly fraud-prone?II.Audit Objectives(2)Have you noted that the audit objective for the audit of Bank balances is to obtain sufficient appropriate audit evidence in support of the following assertions:

• Existence:that recorded bank balances exist at the year-end
• Rights:that recorded bank balances represent the assets of the entity
• Cut-off:Banking transactions are recorded in the period in which they take place and not earlier/later [See Barings Plc v Coopers & Lybrand (a firm) & Ors[2003] EWHC 1319 (Ch)]
• Completeness:there are no unrecorded bank balances.
• Valuation: in certain special cases – e.g. Foreign currency held by the entity/bank accounts designated in foreign currencies.

IIIRisk Assessment(1)Have you assessed the risks of the entity not disclosing all bank balances in accounts either due to lack of awareness or deliberately with the intent to reduce the income-tax liability?(2)Have you assessed the risks of window-dressing of the year-end Current ratio by showing payments to trade creditors as at 31^stMarch by dating the cheques 31^st March but delivering/sending them to creditors after a time lag (say at April end/May)?(3)Have you assessed the risks of cheques dated 31^st March and shown as payments to MSE Suppliers but being handed over to them much later to circumvent the provisions of disallowance of late payment to MSEs under Section 43B(h) of the Income-Tax Act, 1961?(4)Have you assessed the risks that the cheques to MSE Suppliers are dated on the due date for payment under section 15 of MSMED Act but handed over/delivered to them after a big time lag so as to show payments within the due date, avoid disallowance under Section 43b(h) of Income-Tax Act,1961, and avoid provisioning for and payment of interest on delayed payments under Section 16 of MSMED Act?(5)Have you assessed the risks that vendor masters will be updated with fake Udyam Numbers given by Suppliers without validating them on the Udyam Portal by employees conniving with suppliers so that the system treats them as Micro or Small Enterprises (MSEs) and pays them on priority as MSEs?(6)Have you presumed the existence of the risks of management override of internal controls by use of pre-signed blank cheques by the promoter of the entity for diversion of funds to him and his family members by using group entities as conduits as was the case in CA Lavitha Shetty, In re[2023] 151 taxmann.com 526 (NFRA)? [See SA 240](7)Have you assessed the risks of the entity accounting for cheques dated 31^stMarch but received thereafter as cheques on hand either to window-dress current ratio or to show lower related party balances or to evergreen loans to related parties?(8)Have you assessed the risks of fraud committed on the entity through internet banking frauds, hacking, etc?(9)Have you assessed the risks of fraud committed on the entity by fraudulent encashment of cheques?(9A)(a) Does the entity maintain too many bank accounts that are not warranted by its size?

(b) Have you exercised greater care in satisfying yourself about the genuineness of the transactions and balance?

IVInternal Control Evaluation(10)Have you evaluated the following aspects of internal controls over bank balances and banking transactions of the entity:

a)Segregation of duties relating to;

• authorisation of transactions.
• issuance of cheques.
• writing books of accounts

b)Proper authorisation of banking transactions

c)Restrictive crossing of cheques

d)Whether the entity had availed Positive Pay facility to protect against fraudulent encashment of cheques

e)Per day limits set on Internet banking transactions

f)Per day limits set on UPI transactions

g)Periodic reconciliation of bank balances.

h)Safe custody of cheque books, internet banking passwords etc

(11)Is a record maintained of all cheques issued and cancelled cheques not detached from the cheque book?(12)Does the entity have any system of pre-signed blank cheques being issued to anyone?(13)Is there a proper accounting control over cheques received through cheques on hand account right from the time they are received to the time they are banked till they are credited by the bank on realisation?(14)(a) Is it ensured that cheques received other than post dated cheques are debited to cheques on hand account on receipt and then to bank account when deposited and deposit is evidenced by pay-in slip?

(b) Is it ensured that there is no direct debit to the bank account on receipt of a cheque?

(15)Are Cheques on hand accounts reviewed from time to time to inquire about items outstanding in it as to why they have not been banked or, if banked, why it is still outstanding, and what is the status of the realisation of the cheque?(16)Are entries passed in bank accounts on a daily basis, a Bank Reconciliation Statement prepared as at every month end, and necessary action taken on items appearing in BRS?

Note: In the case of companies, accounting for receipts and payments on a day-to-day basis is a requirement of Section 338(2) of the Companies Act, 2013. In the case of other entities, it is a sound and prudent practice to ensure internal control over bank balances.

(16A)Does the entity ensure to cross cheques received as “account payee” if not already so crossed by the party before banking them especially if the amount is ₹2,00,000 or more (Section 269ST of Income-Tax Act, 1961)?(16B)Does the entity ensure to cross cheques as account payee before issuing them? [SeeSections 40A(3), 269T, Section 43(1)]VAudit Trail(17)In case of a Company using an accounting software to maintain books of account, have you verified the following regarding the audit trail for updating vendor master records:

• Non-Configurable: The audit trail feature must be non-configurable. That is to say, the audit trail should not be capable of being disabled and should not be capable of being tampered with.
• Enabled throughout the year: Verify whether the audit trail feature was enabled/operated throughout the year.
• Auditor’s responsibility is limited to transactions that have been recorded in the accounting software and subsequent changes made to those transactions: whether all transactions recorded in the software are covered in the audit trail feature? Proviso to Rule 3(1) of Companies (Accounts) Rules 2014 prescribes the requirement of an audit trail only in the context of books of account by stating that accounting software should be capable of creating an edit log of “each change made in books of account.” The auditor’s responsibilities have been prescribed for “all transactions recorded in the software.” Accordingly, the auditor’s responsibility under Rule 11(g) is restricted to transactions which have been recorded in the accounting software and subsequent changes made to those transactions (which is demonstrated through rectification/additional entities).
• Compliance with statutory record retention requirements: Has the audit trail been preserved as per statutory requirements for record retention under Section 128(5) of the Companies Act, 2013?

VICompleteness of disclosure of all bank balances(18)Have you verified AIS (Annual Information Statement) and Form 26AS generated by the Income-Tax Department?(19)(a) Have you verified bank accounts reflected in previous year’s ITR filed by the entity?

(b) Are all those bank accounts disclosed in the balance sheet of the year under audit?

VIIBank balance (20)a.Is the bank balance in the books a debit balance?

b.If the bank balance in the books is a credit balance, is there an overdraft arrangement with the bank?

c.If there is no overdraft arrangement with the bank and the bank account shows a credit balance, have you treated it as a red flag and enquired into the reasons? [See CA Lavitha Shetty, In re[2023] 151 taxmann.com 526]

VIIICut-off: Accounting for cheques received/other receipts through the bank in the proper period(21)Post Dated Cheques

• Verify that PDCs received have not been accounted for as deposits in bank account
• Verify that PDCs received are not accounted as cheques on hand

(22)Cheques received other than PDCs

• Have you verified the composition of balance of cheques on hand account?
• Have you verified that it does not include PDCs received?
• Have you verified that cheques received, which are dated 31st March or earlier but received after 31st March, are not included in cheques on hand in the balance sheet as at 31^stMarch?

(23)Have you ensured that cheques dated 31^stMarch or before are not accounted as payments if handed over/delivered after 31^stMarch?(24)Have you ensured that credit received in the bank account in the next accounting period is not accounted for as a receipt in the current accounting period? [See Barings Plc v Coopers & Lybrand(a firm) & Ors[2003] EWHC 1319 (Ch)]IXExistence of bank balances: Direct Confirmation/External Confirmation Procedure(25)Have you factored in mandatory requirements of PCAOB’s AS 2310 The Auditor’s Use of Confirmation (effective for FYE on or after 6/15/2025) (hereinafter referred to as “AS 2310(New)”) which provides that for cash and cash equivalents held by third parties (“cash”), the auditor should perform confirmation proceduresor otherwise obtain relevant and reliable audit evidence by directly accessing information maintained by a knowledgeable external source?

Note:The above requirement seems to be a case of Regulators learning from the Satyam case.

(26)(a) Have you Advised the entity to send letters of request to all its bankers to confirm the balances directly to the auditor?

(b) Do the requests for confirmation also cover dormant accounts and accounts closed during the year under audit?

XExamination of Bank Reconciliation Statement (BRS)(27)(a) Have you verified that cheques issued by the entity but not presented for payment, cheques deposited for collection but not credited, have been debited/credited in the subsequent period?

(b) Have you examined the bank statement for the relevant period to confirm this?

(28)Where entries for payment have been made in the books of account for cheques issued before the year-end, but these cheques were delivered to the parties only after the year-end, have you verified that the entity has reversed the entries?(29)(a) Have you paid special attention to those items in the BRS that are outstanding for an unduly long period?

(b) Have you ascertained the reasons for such items from the management?

(c) Have you examined whether such items require any adjustment or write-off?

(30)(a) Whether a large number of cheques have been issued in the last few days of the year-end?

(b) If so, whether a sizeable proportion of these subsequently remain unpaid or uncleared as per the Bank Reconciliation Statement?

(c) If so, as this may indicate an intention to overstate/understate debtors or creditors and/or bank balances to window-dress the current ratio and/or escape disallowance u/s 43B(h) in respect of delayed payments to MSEs and/or suppress payables to related parties:

(i)have you obtained confirmations from the parties concerned as to the actual date of receipt by them of the cheques, especially for cheques of large amounts; and

(ii)have you examined whether the reversal of entries of appropriate in the circ*mstances

(iii)if such cheques pertain to MSEs, have you verified that reversal of entries is considered in disclosing MSE dues in the notes to accounts

(iv)if entries are not reversed and the auditee is a company, have you considered reporting these as transactions represented merely by book entries [See Section 143(1)(b) of the Companies Act, 2013 and also modified the opinion on true and fair suitably?

(v) if you are tax auditor under Section 44AB of the Income-Tax Act, 1961, have you factored in the non-reversal of such entries in reporting in Clause 22 of Form 3CD the disallowance under Section 43B(h) and under Section 23 of MSMED?

(31)If a large number of cheques is at hand on the balance sheet date and a sizeable proportion of these have remained undeposited/uncleared subsequently, have you followed procedures in Points 30(c)(i) &(ii) aboveXI.Inoperative bank accounts(32)Have you verified inoperative bank accounts also?

Note: Even though balances have remained stagnant, transactions may have occurred. The auditor should be alert to this possibility.

XIIBalance/Deposits with Specific Charge or Lien(33)Are suitable disclosures made in financial statements in respect of Balance/Deposits with Specific Charge or Lien?XIIIRemittances in transit(34)a)Have you examined remittances shown as in transit with credit in the bank statement in the subsequent period?

b)If not credited in the next period, have you ascertained the reasons for the same.?

c)Have the entries been reversed in appropriate cases?

XIVBlocked accounts(35)If material amounts are held in blocked accounts e.g. in foreign banks due to exchange control restrictions or in any banks under moratorium or liquidation, have you examined whether-

i.the facts have been suitably disclosed in the financial statement; and

ii.suitable adjustments have been made in appropriate cases.

XVStale Cheques(36)Have suitable adjustments been made for cheques, which have become stale at the year-end?XVIExamination of valuation and disclosure(37)Have bank balances (foreign currency bank balances) been valued and disclosed in financial statements as per recognised accounting policies and practices and relevant statutory requirements?(38)Have you verified that the following items are not included in cash and bank balances?

• Stale or dishonoured cheques