Question

Which of the following audit procedures is the most appropriate when internal control over cash is weak or when a client requests an investigation of cash transactions?

1) Cash confirmation.
2) Bank reconciliation.
3) Evaluation of ratio of cash to current liabilities.
4) Proof of cash.

Answer 1

The most suitable audit procedure for investigating weak internal control over cash or for conducting a cash transaction investigation is proof of cash, which reconciles cash balances and examines all receipts and disbursements.

Step-by-step explanation:

The most appropriate audit procedure when internal control over cash is weak or when there is a request for an investigation of cash transactions is proof of cash. Proof of cash reconciles the beginning and ending cash balances by reviewing the cash receipts and disbursements during the period. This comprehensive procedure not only checks for the accuracy of the bank reconciliation but also ensures that all cash transactions have been properly recorded. This is especially useful in scenarios where internal controls are not robust and can help uncover discrepancies, errors, or fraudulent transactions.