Auditing Cash
Auditing Cash
Overview
• In
In general, asset balances are tested for general asset balances are tested for
overstatement. • We apply materiality to our testing We apply materiality to our testing
procedures. Bank Reconciliation
Bank Reconciliation
#1 Agree the bank balance per the client prepared g
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bank reconciliation to the bank statement at the balance sheet date. Balances must materially agree.
agree
(Note: MLR does not generally send bank confirmations, so you will almost always agree the
confirmations, so you will almost always agree the bank balance on the bank reconciliation to the bank statement)
If there is a material (greater than PAJE scope, as defined) difference, make note of the difference. Reconciling Items
Reconciling Items
#2 Reconciling Items
#2
Reconciling Items
– Scan the reconciliation for unusual items. For example, material outstanding checks that have been p ,
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outstanding for more than 6 months.
– Select material (as defined) outstanding checks and deposits in transit for testing. Document selections and procedures at “Detail testing” tab. Reconciling Items, Continued
Reconciling Items, Continued
– Include the following information for items selected:
Include the following information for items selected:
• G/L account number for the account tested
• For outstanding checks, list the outstanding check or wire transfer number.
• Dollar amount of the outstanding check or deposit in transit.
transit
• Date reconciling item cleared the bank. (Will need to look q
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at subsequent bank statement)
• Answer to whether the item appears to be a valid outstanding check or deposit in transit. Reconciling Items Testing – O/S Checks
Reconciling Items Testing O/S Checks
• Outstanding checks, wire transfers, etc.
– Definition – a disbursement (usually checks) listed as outstanding (O/S) on the bank reconciliation because it was written or initiated (in the case of wires) by the client before period‐end but it did not clear the bank account f
until the following period (ex. Check written in 11/08 but cleared in 1/09)
– It could take months for a check to clear the bank
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• If there are a material amount of very old checks on the O/S checklist (ex. > 6 months old), you may need to inquire about them.
– Could be indicative of a control problem
– In Texas, if there are O/S checks > 2 years old, they should be remitted to the state’s Unclaimed Property Fund. The money is held in trust by the state until someone claims it. If you notice a material amount of checks y
this old, you should note this in the workpaper.
Reconciling Items Testing ‐ DITs
Reconciling Items Testing • Deposits‐in‐transit
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– Definition – a deposit listed as outstanding (O/S) on the bank reconciliation because it was deposited at the bank at period‐end
the bank at period
end but it did not clear the bank but it did not clear the bank
account until the following period (ex. Deposited in 12/08 but cleared in 1/09)
– Review the deposit and the date it cleared the bank Review the deposit and the date it cleared the bank
statement (also note the amount is the same)
– Generally, the deposit should clear within a few days of period end
of period‐end
• If not, there could be a problem and it may not be a proper reconciling item. Highlight such items for the MLR associate.
Audit Consideration
Audit Consideration
– Consider
Consider whether there are any negative book whether there are any negative book
balances that do not have the right of offset that need to be reclassed to payables from cash in the financial statements. If so, make note on workpaper.
FDIC or SIPC?
FDIC or SIPC?
• “Regular” cash bank accounts are generally egu a cas ba accou ts a e ge e a y
insured by the FDIC
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• Some accounts such as brokerage accounts, cash sweep accounts (excess funds from a check and/or savings account are swept each night to a sweep account to earn more interest), etc. are tt
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not insured by the FDIC but are usually instead protected by the Securities Investor Protection
protected by the Securities Investor Protection Corporation (SIPC)
– Different disclosure applies
FDIC
• Federal
Federal Deposit Insurance Corporation Deposit Insurance Corporation
(“FDIC”) – insure deposits in banks up to $250,000 through December 31, 2013
• How to determine if a bank is insured by the FDIC:
– http://www.fdic.gov/help/faq.html#deposit
– Click “How to determine if my bank is insured and my deposits are covered?”
• Click on “Bank Find”
• Enter name of bank
Enter name of bank
SIPC
• Securities
Securities Investor Protection Corporation Investor Protection Corporation
(“SIPC”) – protects investors with investments held by a bankrupt or financially unstable brokerage firm
• Applies to investments, money market funds, etc.
• Generally listed on the investment statement. • More info:
– http://www.sipc.org/who/sipc7questions.cfm
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