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24 April, 15:26

When auditing a client's statement of cash flows, an auditor will rely primarily uponA. Determination of the amount of cash at year endB. Cross-referencing to balances and transactions considered in connection with the audit of the other financial statementsC. Analysis of significant ratios of prior years as compared to the current yearD. The audit guidance provided by the Financial Accounting Standards Board

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  1. 24 April, 17:23
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    B. Cross-referencing to balances and transactions considered in connection with the audit of the other financial statements

    Explanation:

    The cash flow statement simply shows the inflows and outflows of cash based on the client's transactions during the year. The cash flow statement shows the relationship between the opening and closing cash balances of an organization in relation to the profit for the year (which is usually arrived at from the statement of profit or loss and other comprehensive income). This statement is usually divided into three parts namely; Cash flows from Operating activities, Cash flows from Investing activities and Cash flows from financing activities. Elements of the cash flow from operating activities will include Cash received from customers, payments to employees and suppliers. Increase/decrease of inventory etc. The changes to these elements may be confirmed by the auditor from the statements of financial position. For the investing activities, elements like the purchase of assets, proceeds from the sale of fixed assets, subsidiaries etc are considered, Such information again are usually derived from the movements in Statement of financial position. Financing activities include loan drawn down, interest paid etc which are also derived from the statement of financial position, and statements of profit or loss. As such, the audit needs to cross reference the balances and transactions considered in connection with the audit of other financial statements.
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