Cash and Cash equivalents
Cash & Cash Equivalents
Introduction:
Cash & cash equivalents may constitute a significant proportion of the total assets of an entity. It is the most liquid asset found within the asset category of a company 's balance sheet. It is an important criterion to evaluate the liquidity and the short term solvency of a business venture. Liquidity and short term solvency means the ability of the business to pay its short term liabilities. Inability to pay-off short term liabilities affects its credibility and credit rating. The amount of cash and cash equivalents also shows the ability of the organization to grow and seize any investment opportunity to expand inorganically.
An important feature of cash & cash equivalents which has a significant impact on related audit procedures is that these assets are highly prone to misappropriation, misapplication and other kinds of fraud.
In carrying out an audit of cash & cash equivalents the auditor is mainly concerned with sufficient appropriate audit evidence to corroborate the management’s assertions regarding existence, right and obligations and completeness. Besides the above, in certain situations the auditor may also be particularly concerned with the valuation of cash & cash equivalents, e.g., in the case of foreign currency held by the entity or in case of bank accounts designated in foreign currencies.
Definition and categorization as per Revised Schedule VI: (i) Cash and cash equivalents shall be classified as:
(a) Balances with banks;
(b) Cheques, drafts on hand;
(c) Cash on hand
(d) Others (specify nature).
(ii) Earmarked balances with banks (for example, for unpaid dividend as per 205A and 205C of the Companies Act, 1956) shall be separately stated.
(iii) Balances with banks to the extent held as margin money or security against the borrowings, guarantees, other commitments shall be
Introduction:
Cash & cash equivalents may constitute a significant proportion of the total assets of an entity. It is the most liquid asset found within the asset category of a company 's balance sheet. It is an important criterion to evaluate the liquidity and the short term solvency of a business venture. Liquidity and short term solvency means the ability of the business to pay its short term liabilities. Inability to pay-off short term liabilities affects its credibility and credit rating. The amount of cash and cash equivalents also shows the ability of the organization to grow and seize any investment opportunity to expand inorganically.
An important feature of cash & cash equivalents which has a significant impact on related audit procedures is that these assets are highly prone to misappropriation, misapplication and other kinds of fraud.
In carrying out an audit of cash & cash equivalents the auditor is mainly concerned with sufficient appropriate audit evidence to corroborate the management’s assertions regarding existence, right and obligations and completeness. Besides the above, in certain situations the auditor may also be particularly concerned with the valuation of cash & cash equivalents, e.g., in the case of foreign currency held by the entity or in case of bank accounts designated in foreign currencies.
Definition and categorization as per Revised Schedule VI: (i) Cash and cash equivalents shall be classified as:
(a) Balances with banks;
(b) Cheques, drafts on hand;
(c) Cash on hand
(d) Others (specify nature).
(ii) Earmarked balances with banks (for example, for unpaid dividend as per 205A and 205C of the Companies Act, 1956) shall be separately stated.
(iii) Balances with banks to the extent held as margin money or security against the borrowings, guarantees, other commitments shall be