16-1
Bank Reconciliation Working Paper
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-2
Standard Bank Confirmation Form
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-3
Cutoff Bank Statement
Date of Last
Bank
Reconciliation
7 to 10
Days
A cutoff bank statement normally covers the 7- to 10-day
period after the date on which the bank account is
reconciled.
Any reconciling item should have cleared the client’s
bank account during the 7- to 10-day period.
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-4
Tests of the Bank Reconciliation
The auditor uses the following audit procedures to
test the bank reconciliation:
1. Test the mathematical accuracy and agree the balance per the books to
the general ledger.
2. Agree the bank balance on the reconciliation with the balance shown
on the standard bank confirmation.
3. Trace the deposits in transit on the bank reconciliation to the cutoff
bank statement.
4. Compare the outstanding checks on the bank reconciliation with the
canceled checks in the cutoff bank statement for proper payee, amount
and endorsement.
5. Agree any charges included on the bank statement to the bank
reconciliation.
6.McGraw-Hill/Irwin
Agree the adjusted book balance to the cash Copyright
account
© 2006 by The lead
McGraw-Hill schedule.
Companies, Inc. All rights reserved.
16-5
Fraud-Related Audit Procedures
Extended Bank
Reconciliation
Procedures
Proof of Cash
Tests for Kiting
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-6
Proof of Cash
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-7
Tests for Kiting
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-8
Auditing a Payroll or Branch Imprest
Account
The audit of any imprest cash account
such as payroll or a branch account
follows the same basic audit steps
discussed under the audit of the general
cash account.
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-9
Obtain an Understanding of Internal
Control
The auditor should obtain an understanding of each of
the five components of internal control in order to plan
the audit. This knowledge is used to:
McGraw-Hill/Irwin
Identify types of
potential
misstatements
Consider factors
that affect the risk
of material
misstatement
Design tests of
controls
Design substantive
procedures
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-10
Auditing Petty Cash
Usually not
material.
Potential for
defalcation.
Seldom perform
substantive
tests.
Document
controls.
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-11
Disclosure Issues for Cash
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-12
Disclosure Issues for Cash
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-13
Disclosure Issues for Cash
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-14
Investments
McGraw-Hill/Irwin
Common Stock
Preferred Stock
Debt Securities
Hybrid Securities
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-15
Control Risk Assessment—Investments
Occurrence
and
Authorization
Here are some of the
more important
assertions for
investments.
Completeness
Accuracy and
Classification
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-16
Segregation of Duties
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-17
Substantive Procedures for Testing
Investments
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
16-18
End of Chapter 16
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.