How Does Big 4 Audit Firms Verify S-chips' Cash Balances

[maximillian]

Given the fact that cash-rich S-chips' share price trading at below per share net cash value is a perennial problem, would audit professionals from the Big 4 audit firm care to enlighten us on how S-chips' cash balances are being verified?

The 2 main areas of concern are:

1) how are bank confirmation currently being done?
2) how does the Big 4 audit firm avoid management corrupting the bank reconciliation process via generation of fake bank statements?

Hi minimax,
I am not an auditor, but am in charge of the accounts of a company. Bank confirmation process are done in two process.
A: verify that the bank balances in the company books with the bank statement and check all outstanding cheques. In a nutshell, auditors will have to check for all reconsilation items in the bank reconsilation. This will help to detect window dressing.
B. Auditors will request bank to send them a copy of bank statement to make sure that it agrees with the bank statement the client has. The assumtion is audit evidence is more reliable from third party.

Regards your question to point 2, you are refering to a fraud case. Generally auditors have an analytical procedure on the FS to detect this. But they only gives a reasonable assurance and not a perfect assurance. The answer lies with the internal control of the banks. I have no explosure to this area so maybe someone who have audited or works in the bank will be able to answer. I would like to hear about this as well.