Deposits are one of the most important liabilities that a business holds and they require a comprehensive auditing procedure to ensure their accuracy and completeness.
In this article, we will discuss the accounting treatment, audit risks, audit assertions, walkthrough testing, a test of control, and substantive audit procedures for deposits.
Accounting Treatment
Deposits are generally recorded in the liability section of a company’s balance sheet as a current liability or long-term liability, depending on the maturity of the deposit.
According to International Financial Reporting Standards (IFRS), deposits should be recognized when they become payable and the company has a legal obligation to repay them.
Audit Risks
There are several audit risks that auditors need to pay attention to when auditing deposits. These risks include:
- Misstatement of deposit balances
- Misclassification of deposits as either current or long-term liabilities
- Non-recognition of deposit balances
- Mismatch of deposit balances with bank statements
- Inadequate documentation of deposit transactions
- Unauthorized deposits
- Unrecorded deposit balances
- Deposits with incorrect maturity dates
- Unreconciled deposit balances
- Deposits with incorrect interest rates
Audit Assertions
Audit assertions are statements made by the management regarding the accuracy and completeness of deposit balances. The auditor should consider the following audit assertions when auditing deposits:
- Existence and completeness of deposit balances
- Valuation and allocation of deposit balances
- Accuracy of deposit balances with bank statements
- Authorization of deposit transactions
- Proper presentation and disclosure of deposit balances in the financial statements
Walkthrough Testing
Walkthrough testing is a preliminary step in the auditing process where the auditor reviews the process by which the deposits are recorded, summarized, and reported. This testing involves reviewing deposit transactions, deposit reconciliations, and other relevant documentation.
Test of Control
Test of control is a testing procedure used by auditors to assess the effectiveness of internal controls over deposit transactions. This testing involves evaluating the deposit authorization process, deposit reconciliation process, and other control activities to ensure that they are adequate and operating effectively.
Substantive Audit Procedures
Substantive audit procedures are detailed audit procedures performed by auditors to verify the accuracy and completeness of deposit balances. The substantive audit procedures for deposits include:
- Reviewing deposit transactions to ensure they are recorded properly and complete
- Reconciling deposit balances with bank statements to ensure they match
- Confirming deposit balances with the depositor or the bank
- Testing the deposit authorization process to ensure that only authorized deposit transactions are recorded
- Reviewing the deposit reconciliation process to ensure it is effective and accurate
- Testing the accuracy and completeness of deposit balances by performing substantive audit procedures such as substantive analytical procedures, or tests of details.
In conclusion, auditing deposits is a critical part of the auditing process that requires a comprehensive and detailed approach to ensure the accuracy and completeness of deposit balances.
Auditors should pay close attention to the audit risks, audit assertions, walkthrough testing, test of control, and substantive audit procedures when auditing deposits.