Cash and Cash Equivalents
Cash and cash equivalents include bank accounts, cash management trusts and other cash transactional facilities held with banks, fund managers, credit unions and other approved financial or deposit taking institutions. These accounts provide either a paper based record or electronic record of transactions and may have cheque, direct debit or internet banking facilities.
The audit assertions for auditing a SMSF’s cash and cash equivalents are:
- Existence – obtaining evidence that the cash exists and is correctly classified.
- Rights and obligations (ownership) – obtaining evidence that the cash is owned directly or beneficially by the SMSF.
- Completeness – obtaining evidence that all cash owned by the SMSF is recorded.
- Valuation and allocation – obtaining evidence that the cash is valued at face value in accordance with the accounting policies.
Cash and cash equivalents are a SMSF’s most liquid assets and so may carry a high fraud risk. The auditor remains alert to fraud and the risk of fraud with respect to the SMSF’s bank accounts. The auditor assesses the internal controls surrounding the authorisation of payments and receipts to ascertain whether the cash of the SMSF is safeguarded adequately. The auditor remains sceptical of transactions in the bank accounts that may relate to early access or fraud perpetrated not only by the members or trustee but by those parties that may have access to a fund’s bank accounts.
If the banking operations are significant to the audit, the auditor sends bank audit confirmation requests to the SMSF’s banks. A bank audit confirmation is a request to a bank to provide independent confirmation for audit purposes of such information as the SMSF’s account balances, securities, treasury management instruments, documents and other related information held by the bank on behalf of the SMSF. The confirmation will also seek to identify any deliberate or inadvertent borrowings with the bank.
Some SMSFs may utilise a cash account established with their broker, investment account or other investment platform (for example, IDPS) as part of their securities trading activity. This account may facilitate trading, settlement and receipt of dividends and interest. The auditor establishes who has access to this account and who may authorise transactions to ensure that only authorised investment trading takes place.