What are the most important steps to take when auditing cash flow statements?

2 Plan the audit

The next step is to plan the audit, which involves setting the objectives, scope, and approach of the audit. You should determine the materiality level, the risk assessment, the audit procedures, and the audit evidence required for each cash flow category and line item. You should also coordinate with the audit team and the client, and establish the timeline, budget, and communication channels for the audit.

3 Test the controls

The third step is to test the controls that the company has in place to ensure the reliability and validity of its cash flow statements. You should evaluate the design and effectiveness of the internal controls, such as segregation of duties, authorization, reconciliation, verification, and documentation. You should also check for any deficiencies, weaknesses, or errors in the controls, and report them to the management or the audit committee.

4 Perform the substantive procedures

The fourth step is to perform the substantive procedures, which are the detailed tests of the transactions, balances, and disclosures related to the cash flow statements. You should verify the accuracy, completeness, and compliance of the cash inflows and outflows from each activity, and trace them to the supporting documents, such as bank statements, invoices, receipts, contracts, and ledgers. You should also compare the cash flow statements with the other financial statements, such as the income statement and the balance sheet, and look for any inconsistencies, discrepancies, or misstatements.

5 Review the presentation

The fifth step is to review the presentation of the cash flow statements, and ensure that they comply with the applicable accounting standards or regulations. You should check that the cash flow statements are properly classified, labeled, formatted, and disclosed, and that they provide a clear and fair view of the company's cash flows. You should also review any notes or supplementary information that accompany the cash flow statements, and verify their relevance, accuracy, and completeness.

6 Report the findings

The final step is to report the findings of the audit, and express your opinion on the cash flow statements. You should prepare a written audit report that summarizes the objectives, scope, approach, and results of the audit, and highlights any significant issues, recommendations, or adjustments. You should also state whether you have obtained sufficient and appropriate audit evidence, and whether you have found any material misstatements or deviations in the cash flow statements. You should then issue your audit opinion, which can be unqualified, qualified, adverse, or disclaimer, depending on the level of assurance and the nature of the findings.