1. Planning and Risk Assessment:

• Understand the client's business and industry: This involves understanding the nature of cash transactions, internal controls, and inherent risks.
• Identify significant risks: Auditors focus on areas with higher risk of misstatement, such as cash handling, reconciliations, and bank accounts.
• Set materiality level: This determines the amount of misstatement that would be considered significant enough to affect the financial statements.

2. Substantive Procedures:

a. Physical Count of Cash:

• Attend the client's cash count and observe the process.
• Reconcile count results to accounting records.
• Obtain a cash count certificate from the client.

b. Confirmation of Bank Balances:

• Send bank confirmation letters directly to banks to verify cash balances, loans, and restrictions.
• Follow up on any discrepancies.

c. Review of Bank Reconciliations:

• Scrutinize client-prepared bank reconciliations for accuracy and completeness.
• Pay attention to unusual items or adjustments.
• Trace reconciling items to supporting documentation.

d. Analytical Procedures:

• Analyze cash balances and transactions for trends, ratios, and unusual fluctuations.
• Investigate any significant variances.

e. Examination of Cash Receipts and Disbursements:

• Test a sample of cash receipts for proper recording and deposit.
• Examine a sample of cash disbursements for authorization and validity.
• Verify adherence to internal controls.

f. Testing of Internal Controls:

• Assess the design and operating effectiveness of internal controls over cash.
• Identify control deficiencies and evaluate their impact on the audit.

3. Conclusion and Reporting:

• Evaluate the results of all audit procedures.
• Form an opinion on whether cash and cash equivalents are fairly stated in the financial statements.
• Communicate findings to management and those charged with governance.
• Issue an audit report.

Additional Considerations:

• Auditors may employ specialized techniques for complex cash transactions or entities with foreign currency accounts.
• Continuous auditing and data analytics are increasingly used to enhance audit efficiency and effectiveness.
• Professional judgment is essential in assessing risks and determining appropriate audit procedures.