Auditing

Assuming a client with excellent internal controls uses an imprest payroll bank account, the verification of the payroll bank reconciliation ordinarily takes less time than the tests of the general bank account even though the number of payroll checks exceeds those written on the general account because an imprest payroll account has no activity other than payroll checks drawn and deposits made to reestablish the standard minimum account balance. Furthermore, most employees cash their checks quickly, so there usually are few outstanding checks, especially older ones, and no other reconciling items. On the other hand, the general bank account will include all regular activity plus bank charges, notes, other liabilities, etc., which must be reconciled and verified.

23-14 The verification of petty cash reimbursements consists of footing the petty cash vouchers supporting the amounts of the reimbursements, accounting for a sequence of petty cash vouchers, examining the petty cash vouchers for authorization and cancellation, and examining the supporting documentation attached to the vouchers for reasonableness. The balance in the fund is verified by a count of the petty cash. Testing of petty cash transactions is more important than the ending balance in the account, because even if the amount of the petty cash fund is small, there is potential for a large number of improper transactions if the fund is frequently reimbursed.

There is a greater emphasis on the detection of fraud in tests of details of cash balances than for other balance sheet accounts because the amount of cash flowing into and out of the cash account is frequently larger than for any other account in the financial statements. Furthermore, the susceptibility of cash to misappropriation is greater than other types of assets because most other assets must be converted to cash to make them usable.