When the auditor examines the cash transaction and general audit of XYZ Ltd.

Leather
manufacturing company, he will examines the following control measures.

1. TESTING THE EFFECTIVENESS OF INTERNAL CONTROL

All receipts are accounted for and all payments are authenticated and relate to goods and services
received for the purpose of running the business. The supervision of the execution of thee
accounting of cash transaction are adequate and effective and in order to avoid fraud and
pilferage mechanical aids are used for accounting the receipts and payments whenever necessary.
The balance of cash, stamps, stamp-papers etc are physically verified periodically and suitable
action taken in case of discrepancies book balances are reconciled at regular intervals.

2. TESTING THE SYSTEM OF ACCOUNTING

The auditor should verify the accuracy of the system of recording the transactions in the books of
accounts. If entries in the book are verified then the following errors can be found out; errors of
omission, errors of commission, errors of principle, compensating errors By suppressing the
receipts of cash and by overstatement of payments fraud can be committed.

3. SUPPRESSION OF RECEIPT OF CASH

Adjusting the customer’s accounts with allowances and rebates not actually allowed by the
organization and misappropriating the money collected from the customers to the extent of the
adjustment. Omitting to records the miscellaneous receipts such as the sale of scrap and omitting
to account a part of cash sale or not accounting the money collected from the customer and
treating that account as bad and writing it off.

4. TESTING THE TRANSACTION TO VERIFY THEIR VALIDITY

To verify the validity of the transactions, the auditor has to verify the following.

The agreements between the organization and the third party.

The Article of association , partnership deed, trust deed etc.
The Minutes of the Board of directors.

5. VERIFICATION OF DOCUMENTARY EVIDEMCE

The accounting entries should be verified against the supporting documentary evidence. The
evidence may be internal which are generated and maintained by the organization or external
which are obtained from outside the organization. Counterfoil of receipt payroll etc are internal
document. Purchase invoice. bank statement, loan agreement, etc are external evidence.