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

[Clement]

Monies can be transferred into the bank account before the audit and then t/f back out. Chinese company are good at this type of money TaiChi.

This type of cash movements can typically be caught by the cash book review. Auditors will review all material cash inflows and outflows from bank accounts for a few selected sample months. Usually the the last month of a financial year is also selected to detect such movements.

Hi Clement,

let's say that you are the audit partner of a publicly listed Singaporean company.

You have reasons to believe that your client, the publicly listed Singaporean company, is faking its cash balance because:
1) despite having big net cash balances and generating healthy profits, the company's share price has been below its net cash value per share for a couple of years
2) despite being cash rich, the company has consistently done share placements to raise funds. Management says that the funds raised are to be used for general corporate purposes.

You know that the bank confirmation done by your audit team is legit because:
1) the bank confirmation form was personally mailed out by your audit team
2) the bank accounts are accounts maintained with Singapore branch of a big Singaporean bank and you know that the bank do not have incentives to collude with your client to falsify the bank confirmation form.

Of course the bank reconciliation check out ok, but the bank reconciliation always check out OK if your client is faking bank statements.

So that must mean the client is transferring in funds before the cut-off date and then transferring out the funds after the cut-off date.

So in this case how do you show that your client is faking cash balances?

Hmmm.. Lets see how normal audit procedures can be used.

1) The cash book review can be extended to cover all 12 months for large inflows and outflows from bank accounts.
2) The post balance sheet date events review can used to detect large outflows from bank accounts up to the date the audit report is signed.

Of course detection is much more difficult if the company is able to disguise the bank transfers used to inflate bank balances.