Page 35 - eBook Audit Of Financial Statement Components

CHAPTER 3: AUDITING PROCEDURES ON
CURRENT ASSETS

A current asset is an item on an entity's balance sheet that is

either cash, a cash equivalent, or which can be converted into

cash within one year. Examples of current assets are:

• Cash, including foreign currency
• Investments, except for investments that cannot be

easily liquidated

• Prepaid expenses

• Accounts receivable
• Inventory

This unit examines the audit of:
i. Cash and Bank Balances,

ii. Trade Receivables

iii. Inventories and work-in-progress

“The overall objective of the audit of cash is to determine that cash is fairly presented in
conformity with generally accepted accounting principles.”

3.1 AUDIT OF CASH AND BANK BALANCES

Cash balances includes cash in hand, petty cash and bank
balances. Cash at banks includes cash held in current and savings

accounts. Unlike other balance sheet account balances, cash may

be an asset or a liability. It is a liability if the bank or other

institution with which the entity holds an account grants the

entity an overdraft (i.e. the entity is allowed to write cheques or
transfer funds in excess of the balance in the account up to an

agreed limit).

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