These should be verified by reference to bank reconciliation statement, and the balance certificates received from banks. If a Bank Reconciliation statement includes a large number of uncleared items as on the date of the Balance Sheet, the auditor should verify that the items were subsequently collected.
On the other hand, where a cheque issued for more than six months before the close of the year is shown in the bank reconciliation statement, the entry has to be reversed. If audit is undertaken long after the close of the year, the auditor should reconcile the bank balances right up to the date on which he undertakes the audit. The form of Balance Sheet contained in Part I of Schedule VI requires that the bank balance should be segregated as follows :
- With Scheduled Banks.
- With Others.
In the last mentioned case, the nature of interest, if any, of a director or his relative with each of the bankers, should be disclosed. Further, the nature of deposit in each case should be stated, e.g., current, fixed call, etc. In the case of a non-scheduled bank, its name and the maximum balance that was held by it during the year should also be disclosed. The auditor should satisfy himself that cash and bank balances have been valued and disclosed in the financial statements in accordance with recognized accounting policies and practices and relevant statutory requirements, if any. In this regard, the auditor should examine that following items are not included in cash and bank balances.
- Temporary advances.
- Stale or dishonoured of cheques.
Postage and revenue stamps, if material in amount, may be shown separately instead of being included under cash and bank balances.
