5. Cash in bank.—The asset, cash in bank, may con sist of cash deposited on current account, of cash in restricted funds, or of certificates of deposit. The auditor will probably request the management to write to the several depositaries, asking them to cer tify, directly to the auditor, the amount of the various balances on hand on the date the audit is closed. In addition, the banks will be asked to certify to the amount of acceptances and notes-payable outstanding. The certificates of deposit will be inspected, and the accrued interest up to the date of audit will be cal culated and will be shown as an asset.
When a business undertaking contemplates having an audit made as of a certain date, the bank pass-book should always be sent to the bank to be balanced as of that date, and all cash which is collected on that business day, and which has not yet been deposited, should immediately be deposited.
6. Should the auditor check all f ootings?—The question will be raised, whether or not the auditor should check all the footings in the books of original entry and in the ledger accounts. It must be'admit ted that fraud and dishonesty have sometimes been perpetrated thru manipulation of the footings in the books, and yet considerations in regard to time and expense may prohibit verification of the footings of all the books. - The problem is comparatively simple if an adequate system of internal check has been in stalled. Some auditors insist upon checking the accu racy of all footings, both in the books of original entry and in the ledger accounts ; while others believe that complete verification is unnecessary, and that the time required for such operations should be spent upon other phases of the work.
It is evident that footing the cash book would neither prevent nor detect the fraudulent holding out of cash by a dishonest cashier. He could either make no entry of the money, or postpone making an entry until a later date; in either case he could make use of the cash. Most auditors would probably check all disbursements shown in the cash book, item by item, against either the bank vouchers or the can celed checks. In the end, the auditor himself must decide what method to adopt. It would seem that the checking of footings is not all-important, since falsification of footings is, in the majority of cases, the crudest attempt at fraud; if an employe is really dishonest, he can use any one of many other safer ways to accomplish his end.
7. Checking the postings.—The question as to whether all postings should be checked or not is also debatable. Some auditors insist on checking the ac curacy of the posting by analyzing the ledger. At times this would seem advisable since not only may mechanical errors in posting occur which will materi ally affect the account, but fraudulent postings may be made.
With reference to the cash book, if all cash receipts are deposited in the bank, and all payments are made by check, the footings of the cash book can be proved by simply checking the bank's receipts of cash de posited and its records of cash paid out.
When columns are provided for cash sales or other items of income, as well as a column for discounts allowed on the payment of accounts receivable, a cashier may defraud by underfooting the columns in which the receipts of cash are entered, and overfoot ing the discount or other credit columns. Where this possibility seems to exist, the auditor will prob ably check the footings of these columns. Probably the postings to the nominal accounts will be checked, and the analysis of the sundries column will be tested.
On the payment side, probably all postings should be checked, but even this check is not sufficient to reveal all the fraudulent entries that could be made. For instance, a check might be abstracted from the check book and might be drawn to the order of the cashier or someone in league with him; it could be destroyed when it was returned canceled from the bank. The footings on the payment side of the cash book would be forced to cover up the amount ab stracted. The testing of the footings on every fourth, fifth or tenth page of the cash book would not, of course, uncover the fraudulent footing if the foot ing of the page upon which it occurred were not also verified by the auditor.
Thus we see the difficulty of attempting to lay down rules applicable to all possible cases and con ditions. An experienced auditor can generally be relied upon to sense the particular situation and de termine which items he may safely omit and which he must check in detail when a complete verification is not possible.