Prof Madya Dr. Mohamad Azmi Nias Ahmad

20 Jun 2026

Restore, maintain face and 8K

Restore this old photo while keeping it realistic and true to the original. Reduce noise and film grain, fix blur, improve sharpness and micro-detail (eyes, hair, fabric), correct faded colors, balance exposure and contrast, remove minor scratches/dust/stains, and recover detail in shadows and highlights. Keep the same composition, faces, identity, and natural skin texture—do not change facial features or add/remove objects. Output 8K

Key Terms

Term	Meaning
Cash audit	Audit procedures performed to verify cash balance
Bank reconciliation	Comparison between bank statement and cash book
Deposits in transit	Cash received and recorded but not yet shown in bank statement
Outstanding cheque	Cheque issued but not yet cleared by the bank
Skimming	Stealing cash before recording it
Lapping	Hiding stolen cash by delaying customer payment records
Kiting	Overstating cash by manipulating transfers between bank accounts
Proof of cash	Audit schedule used to check cash receipts and payments
Cutoff	Ensuring transactions are recorded in the correct accounting period
Petty cash	Small cash fund for minor expenses

Audit of Imprest Petty Cash

Petty cash is usually small, but auditors may still check it because it can be misused.

Important controls over petty cash include:

One person should be responsible for the petty cash fund.
Petty cash should be kept separately from other cash.
There should be a maximum limit for each petty cash payment.
The total petty cash fund should be fixed.
Only approved types of expenses can be paid using petty cash.
Every petty cash payment should have a pre-numbered petty cash voucher.
The voucher should be approved by a responsible officer.
Actual cash plus unreimbursed petty cash vouchers should equal the petty cash fund amount in the general ledger.

Example:
Petty cash fund = RM500
Actual cash in box = RM120
Petty cash vouchers = RM380
Total = RM500

This means the petty cash fund balances correctly.

Test of Interbank Transfers

This test is used to detect kiting.

The auditor checks whether the recording dates for cash disbursement and cash receipt are in the same financial year.

Important rule:
The disbursement and receipt of the same transfer must be recorded in the same fiscal year.

If the receipt is recorded before year-end but the disbursement is recorded after year-end, it may indicate kiting.

Example of Kiting

Assume the company transfers RM10,000 from Account A to Account B.

Before year-end:

Account B records RM10,000 as received.
Account A has not yet recorded the deduction.

At 31 December, the accounts show:

Account	Balance Effect
Account A	RM10,000 still shown
Account B	RM10,000 added
Total shown	RM20,000
Actual cash	RM10,000

This means the company appears to have more cash than it actually has.

Proof of Cash

Proof of cash is used when there are material internal control weaknesses in cash.

It helps the auditor determine whether:

All recorded cash receipts were deposited.
All bank deposits were recorded.
All recorded cash payments were paid by the bank.
All payments made by the bank were recorded.

Extended Test of Bank Reconciliation

This is performed when the auditor believes the year-end bank reconciliation may be intentionally misstated.

The auditor checks whether transactions before and after year-end are correctly included or excluded.

Test of Bank Reconciliation

The auditor checks whether the bank reconciliation is properly prepared.

The auditor examines:

Bank balance
Cash book balance
Deposits in transit
Outstanding cheques
Bank charges
Errors
Other reconciling items

Cutoff Bank Statement

A cutoff bank statement is a short-period bank statement after year-end, usually covering 7 to 10 days after the reporting date.

The auditor uses it to check whether year-end reconciling items are genuine.

Example:
If the year-end date is 31 December 2023, the auditor may request a bank statement from 1 January to 10 January 2024.

Bank Confirmation

The auditor sends a confirmation request directly to the bank. The bank confirms the client’s cash balance, loan balance, or other financial information.

If the bank does not reply, the auditor should send a second request or ask the client to contact the bank.

Audit of the General Cash Account

The general cash account has high audit risk because cash is easy to steal or manipulate.

Important controls over the general cash account include:

Proper segregation of duties between cheque signing and accounts payable.
Cheques should be signed only by authorised persons.
Use of pre-numbered cheques.
Supporting documents must be reviewed before cheques are signed.
Bank reconciliation should be prepared monthly by an independent person.

The purpose of bank reconciliation is to ensure that the accounting records agree with the actual cash balance in the bank after considering reconciling items.

Common Substantive Tests for Cash

Substantive Test	Main Audit Objective
Obtain analysis of cash balances and reconcile to general ledger	Accuracy
Send bank confirmation to banks	Existence and rights
Obtain bank reconciliation	Existence and accuracy
Obtain bank cutoff statement	Cut-off and completeness
Count cash on hand	Existence
Verify cash transaction cut-off	Existence, rights, and completeness
Analyse bank transfers around year-end	Detect kiting
Investigate payments to related parties	Fraud risk and disclosure
Evaluate presentation and disclosure	Proper reporting

Designing Substantive Tests of Cash

Substantive tests are audit procedures used to obtain evidence about the correctness of cash balances.

Management has two main concerns about cash:

To protect cash from unauthorised use.
To maintain enough cash, but not excessive cash.

Although bank reconciliation can detect many errors, cash is still risky because of its liquid nature.

Internal Controls Over Cash - Physical Controls

Cash and cheques should be kept securely.

Examples of physical controls:

Keep cash in a locked safe.
Limit access to authorised staff only.
Use passwords for accounting systems.
Use two-factor authentication for online banking.
Keep cheque books in a secure place.

Internal Controls Over Cash - Bank Reconciliation

The company should compare the bank statement with the cash book regularly.

Bank reconciliation helps detect:

Unrecorded bank charges
Outstanding cheques
Deposits in transit
Errors by the bank
Errors by the company

Internal Controls Over Cash - Segregation of Duties

Different people should handle different cash-related tasks.

For example:

Duty	Person Responsible
Receiving cash	Cashier
Recording cash	Accounts clerk
Bank reconciliation	Independent staff
Approving payment	Manager

This reduces the chance of fraud because one person does not control the whole process.

Internal Controls Over Cash - Authorization of Transactions

All cash payments and receipts should be approved by authorised personnel.

Example:
Only the finance manager can approve cheque payments above RM5,000.

Fraud Risks in Cash - Kiting

Kiting happens when money is transferred between bank accounts to overstate the cash balance.

Simple explanation:
The same cash appears to exist in two bank accounts at the same time.

Example:
Before year-end, RM10,000 is recorded as received in Bank B, but it has not yet been deducted from Bank A. The company appears to have RM20,000, but the real cash is only RM10,000.

Fraud Risks in Cash - Fictitious Disbursement

This happens when fake expenses are recorded to hide cash theft.

Example:
An employee creates a fake supplier invoice and issues payment to their own bank account.

Fraud Risks in Cash - Lapping

Lapping is hiding cash theft by delaying the recording of customer payments.

Example:
Cash received from Customer A is stolen. Later, cash received from Customer B is used to cover Customer A’s account.

Fraud Risks in Cash - Skimming

Skimming is stealing cash before it is recorded in the accounting records.

Example:
A cashier receives RM500 from a customer but does not issue a receipt and keeps the money.

Risk of Material Misstatement - Window Dressing

A material misstatement means an error or fraud that is serious enough to affect the financial statements.

Possible misstatements in cash include:

2. Window Dressing

Window dressing happens when management tries to make the company look financially stronger than it actually is.

Example:
A director repays a loan to the company just before year-end, so the cash balance looks higher. Then, after year-end, the director borrows the money again.

Risk of Material Misstatement - Timing Error

A material misstatement means an error or fraud that is serious enough to affect the financial statements.

Possible misstatements in cash include:

1. Timing Error

A cash receipt or payment is recorded in the wrong accounting period.

Example:
Cash received on 2 January 2024 is wrongly recorded as received on 31 December 2023.

Risks Related to Cash - Inherent Risk

Inherent risk means the risk that an error or fraud may happen because of the nature of the business or transaction.

Cash has high inherent risk because it is easy to steal and easy to manipulate.

Inherent risk is higher when there is:

Situation	Explanation
High judgment	Staff may make wrong decisions when recording transactions
Estimates	Some cash-related amounts may require estimates
Complexity	Large businesses with many branches or subsidiaries may record cash incorrectly

Auditor’s Objectives When Auditing Cash - Presentation and Disclosure

The auditor checks whether cash is properly presented in the financial statements.

Example:
Restricted cash, compensating balances, or sinking funds should be properly disclosed.

Auditor’s Objectives When Auditing Cash - Accuracy

The auditor checks whether the cash balance is recorded at the correct amount.

Example:
The bank statement shows RM50,000, but the general ledger shows RM55,000. The auditor must investigate the difference.

Auditor’s Objectives When Auditing Cash - Rights

The auditor checks whether the company has legal rights to the cash.

Example:
Cash in the company’s bank account belongs to the company, but restricted cash may not be freely used.

Auditor’s Objectives When Auditing Cash - Completeness

The auditor checks whether all cash transactions have been recorded.

Example:
If the company received RM8,000 from a customer, the auditor checks whether it was recorded in the cash book and general ledger.

Auditor’s Objectives When Auditing Cash - Existence

The auditor checks whether the recorded cash actually exists.

Example:
If the company records RM100,000 cash in bank, the auditor checks whether the bank confirms that the money exists.

Why Cash Is Important in Audit

Cash is important because:

It is involved in almost all business cycles.
It is highly liquid and easy to misuse.
It is more exposed to theft than many other assets.
A wrong cash balance can affect users’ understanding of the company’s financial position.
Management may manipulate cash balances to make the business look stronger.

Cash Equivalents

Cash equivalents are short-term, highly liquid investments that can be easily converted into cash.

Examples:

Time deposits
Certificates of deposit
Money market funds

They usually have low risk and short maturity periods.

Imprest Petty Cash Fund

Petty cash is not a bank account. It is a small amount of cash kept for minor expenses.

Examples of petty cash payments:

Parking fees
Photocopy charges
Small stationery purchases
Courier fees

The petty cash fund should have a fixed amount, and all spending must be supported by receipts or petty cash vouchers.

Branch Bank Account

A branch bank account is used by branch offices. It helps the branch manage local cash transactions while still allowing the company to centralise control.

Example:
A company with branches in Kuantan, Temerloh, and Shah Alam may allow each branch to maintain its own bank account.

Imprest Account

An imprest account is a fixed-balance cash account. The company maintains a certain amount of money in the account and replenishes it when needed.

One example is an imprest payroll account, which is used to control salary payments.

General Cash Account

The general cash account is the main cash account of the business. Most cash receipts and cash payments pass through this account. It is the focal point of cash transactions.

Example:
Customer pays RM5,000 into the company bank account. The payment is recorded in the general cash account.

Introduction to Cash Audit

Cash is one of the most important accounts in an audit because almost every business transaction affects cash. Money comes into the business through sales, loans, disposal of assets, or capital introduced by owners. Money goes out through purchases, payroll, payment of liabilities, and buying assets.

Cash is considered high risk because it is easy to steal, misuse, or manipulate. Unlike inventory or equipment, cash does not need to be converted into another form before it can be used. Therefore, auditors must pay close attention to cash balances and cash transactions.

In auditing cash, the auditor must check two important things:

Whether the bank reconciliation is correct.
Whether the cash recorded in the general ledger reflects all actual cash transactions during the year.