Auditing Cash Disbursements – Risk, Assertions, And Procedures


Auditing Cash Disbursements is an important part of the work performed when auditing cash and cash equivalents.

It allows the auditor to see how the entity pays its bills, whether it has been doing it in accordance with its internal policies and records it following the applicable accounting standards.

Let us look into details below on the risks involved when auditing Cash Disbursements, what assertions are relevant and the procedures that can be performed to ensure the Cash Disbursements in your client’s financial statements are fairly stated.


Before we can decide what procedures to perform, we, as an auditor, must first identify the risks associated with auditing Cash Disbursements:

  • Risk of Material Misstatement: The Risk of Material Misstatement when auditing Cash Disbursements is generally low. That is because all Cash Disbursements can be easily verified by checking the bank statements. We can also obtain third-party confirmations from the banks to confirm the year-end balance. There is, however, a heightened Risk of Material Misstatement when the entity being audited uses an automated accounting system to record entries every time a Cash Disbursement is made via bank transfer. This may result in double-counting of such Cash Disbursements if the first Cash Disbursement ends up being rejected by the bank due to certain reasons and the entity subsequently reissues the Cash Disbursement without manually reversing the first Cash Disbursement entries from its accounting system.
  • Control Risk: The Control Risks related to Cash Disbursements is the lack of internal policy in terms of the payment process, no formal invoice is received before payment is processed, no proper approval obtained being the issuance of payment, no preparation of bank reconciliation, and incorrect cut-off near the end of the accounting period.
  • Detection Risk: Detection Risk arises when the auditor is not able to detect the material misstatements in the reported amounts of Cash Disbursements. This exists in all audits as auditors generally performed checking on a sample basis.
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The audit risk for Cash Disbursements is generally low but it also heavily depends on how well the entity’s internal control policy is.


For an auditor to be reasonably assured of the Cash Disbursements made by the entity, tests will be performed to cover the audit assertions. The assertions applicable to Cash Disbursements are:

  • Existence: The Cash Disbursements recorded in the entity’s book actually exists.
  • Completeness: All Cash Disbursements made by the entity have been recorded and presented in the financial statements.
  • Valuation: Cash Disbursements will be only remeasured when the balance is originally in foreign currency. A revaluation of the end balance will also be required when there is a difference between the spot and foreign exchange rate at the end of the accounting period.
  • Presentation and Disclosure: The Cash Disbursement amounts in the financial statements and relevant disclosure notes to the financial statement are complete and following the applicable accounting standards.


Audit Procedures for testing Cash Disbursements include Test of Controls and Substantive Tests. 

Test of Controls:

Controls that are relevant to Cash Disbursements include the supplier due diligence process, procure-to-payment process, bank reconciliation process, and segregation of duties.

  • Supplier Due Diligence Process: This control exists to help the entity verify that the suppliers they are dealing with are actual suppliers. It can help to prevent fraud that may cause the entity to lose its hard-earned cash.
  • Procure-to-Payment Process: This control ensures all payments made are supported by valid purchases and authorisation for payment is obtained before any payment is made. In this control, the auditor needs to check that the entity does not make any payment without a valid invoice from the supplier under normal circumstances.
  • Bank Reconciliation Process: This control is to reconcile the entity’s recorded cash balance to the bank statement and ensure all differences are solely due to timing differences.
  • Segregation of Duties: This control is vital here. With segregation of duties, different person has to be assigned for payment issuance, payment approval, and recording of payment. This will lower the risk of fraud and effectively reduce the risk of any material error being made.
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Substantive Audit Procedures for Cash Disbursements:

Substantive Audit Procedures for Cash Disbursements consist of the following components:

1) Substantive Analytical Procedures:

Substantive Analytical Procedures are performed by looking at the changes or lack of changes in the entity’s financial’s performance.

The changes or lack of changes must be benchmarked against a set expectation such as historical performance, latest business developments, and any other information relevant to the entity.

Such information will then allow the auditor to detect potential areas with a higher risk of material misstatements.

For example, the entity was expanding its business and has purchased a lot of expensive machinery by cash in the third month of the accounting period.

We, as auditors, should expect to see a large number of Cash Disbursements being made in the same month. Any discrepancies should then prompt the auditor to further investigate and determine if there is any material misstatement.

2) Test of Details for Cash Disbursements:

To test details for Cash Disbursements, audit procedures are designed around assertions. Example and description of test of details are given in the table below:

Audit AssertionExample of Audit Procedure
ExistenceObtaining a sample of Cash Disbursements made and check them against the corresponding invoices, payment vouchers as well as bank statements.   Obtaining external bank confirmation and ensure that all the balances stated in the confirmation are recorded by the entity.
Completeness  Perform a cut-off test for Cash Disbursements made near the end of the accounting period to ensure they are recorded in the correct period.
ValuationRecomputing the translation of foreign currency bank balance to local currency to ensure the revaluation is correct.   Reviewing bank reconciliation prepared by the entity to ensure reconciliation of the recorded bank balances to the bank statements is done correctly.
Presentation and DisclosureReviewing the financial statements prepared by the entity and identifying if Cash Disbursements has been correctly presented in the Statement of Cash Flow per the applicable accounting standard.
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