Chapter 23
Audit of Cash Balances
Pages 315-330
1
Revenue & Collection
Transaction cycle
accounts receivable x.xx
sales
cash receipts cash
x.xx
accounts rec
credit sales
x.xx
x.xx
2
significant classes
of Transactions
“credit sales” accounts
“cash receipts”
receivable
sales
x.xx
cash
accounts rec
x.xx
x.xx
x.xx
3
Loren
What is an imprest payroll account ?
4
cash equivalents
an original maturity date of less than 90 days
savings accounts – time deposits
certificates of deposit
money market funds
5
COSO components of internal controls
•
•
•
•
•
Control environment
Risk assessment
Control activities
Information and communication
Monitoring
6
Control Activities
• Control Activities
– Adequate separation of duties
–
–
–
–
Proper authorization of transactions and activities
Adequate documents and records
Physical control over assets and records
Independent checks on performance
7
Ricardo
what responsibilities need to be
separated to have adequate
“segregation of duties” ?
8
Separation of Duties
p 166
• authorization of transactions from the
custody of related assets
• custody of assets from accounting
• operational responsibility from recordkeeping responsibility
• IT duties from user departments
9
Separation of Duties
authorization of transaction
custody of assets involved in transaction
Accounting (record-keeping) for the transaction
reconciliation of assets to accounting records
10
Separation of Duties
p 320
Bank reconciliation by someone who does not
handle cash receipts
record cash receipts
custody of assets
approve check requests
Write checks
record disbursements
authorize transactions
accounting / record-keeping
custody of assets
accounting / record-keeping
11
Adequate documents & records
Pre numbered checks
12
Lauren
What is the objective of AU-C section 500?
13
AU-C 500
Audit Evidence
.04 The objective of the auditor is to design and
perform audit procedures that enable the
auditor to obtain sufficient appropriate audit
evidence to be able to draw reasonable
conclusions on which to base the auditor's
opinion.
14
Nicole
Describe a cutoff bank statement?
15
Romy
Describe a Bank Confirmation
What information is on a bank confirmation?
16
Marc
Who must request the bank to send a
bank confirmation to the auditor ?
Who must sign the request for the bank
confirmation?
17
18
Somer
what distinguishes fraud from errors ?
19
fraud
Intentional
Knowingly making material
misrepresentations with the intent of
inducing someone to believe the
falsehood and act upon it and, thus
suffer a loss or damage.
20
significant classes
of Transactions
“credit sales” accounts
“cash receipts”
receivable
sales
x.xx
cash
accounts rec
x.xx
x.xx
x.xx
21
auditing account balances
cash
250
450
350
550
200
100
375
190
330
accounts receivable
800
300
200
275
100
450
300
190
320
550
200
100
375
190
480
365
845
450
350
550
200
100
375
190
sales
550
200
100
375
190
480
365
2,260
22
auditing transaction cycles
cash
250
450
350
550
200
100
375
190
330
accounts receivable
800
300
200
275
100
450
300
190
320
550
200
100
375
190
480
365
845
450
350
550
200
100
375
190
sales
550
200
100
375
190
480
365
2,260
23
proof of cash (page 329)
balance depositsw-drawals balance
12/31/LY
CR
checks 12/31/CY
per bank statement 115,261 912,275 907,274 120,262
deposits in transit
@ 12/31/LY
@ 12/31/CY
outstanding checks
@ 12/31/LY
@ 12/31/CY
21,321
(27,264)
(21,321)
26,270
26,270
(27,264)
25,174 (25,174)
adjusted balance
109,318 917,224 905,184 121,358
per Gen Ledger
less NSF check
109,318 917,224 904,984
200
adjusted balance
109,318 917,224 905,184 121,358
121,558
(200)
24
schedule of transfers
handout
25
Bank transfer schedule handout
bank accounts
check
no.
amount
from
to
4100
4275
4280
B403
Parent
Parent
Parent
Parent
Sub B
Sub B
Sub B
Sub B
$50,000
$10,000
$20,000
$5,000
date disbursed
receipt date
PARENT
per
Parent's
books
bank
SUBSIDIARY
per
SUB's
books bank
12/31
12/31
1/2
1/2
12/31
1/2
12/31
1/3
1/3
1/4
1/2
1/3
1/2
1/2
12/31
12/31
26
transfer schedule (handout)
st
1
Parent
writes check
check clears
Parent’s bank
nd
2
Sub receives
check
th
4
rd
3
check clears
Sub’s bank
27
Jena
handout
Does check 4100 result in a $50,000
overstatement OK understatement
28
check 4100
st
1
nd
2
rd
3
th
4
date in
CD Jnl
date in
Sub’s
CR Jnl
date
check
cleared
Sub’s
bank
date
check
cleared
Parent’s
bank
1/2
1/3
Parent
writes
check
12/31
12/31
29
Parent's
cash
250
450
350
550
200
100
375
190
12/31
1/1
280
Sub B's
cash
800
300
200
275
100
450
300
190
320
50
550
200
100
375
190
480
365
50
895
450
350
550
200
100
375
190
30
consolidated cash is correct
31
Huyen
How would these items show up on the bank
reconciliation?
outstanding check on the Parent’s bank reconciliation
deposit in transit on the Sub’s bank reconciliation
32
Julissa
handout
Does check 4275 result in a $10,000
overstatement OK understatement
33
check 4275
st
1
nd
2
rd
3
th
4
date in
CD Jnl
date in
Sub’s
CR Jnl
date
check
cleared
Sub’s
bank
date
check
cleared
Parent’s
bank
1/2
1/4
Parent
writes
check
12/31
1/2
34
Parent's
cash
250
450
350
550
200
100
375
190
12/31
1/1
Sub B's
cash
800
300
200
275
100
450
300
190
320
10
550
200
100
375
190
480
365
450
350
550
200
100
375
190
10
35
consolidated cash understated by $10,000
36
Julia
How would these items show up on the bank
reconciliations?
outstanding check on the Parent’s bank reconciliation
it would not appear on the Sub’s bank reconciliation
37
Katina
handout
Does check 4280 result in a $20,000
overstatement OK understatement
38
check 4280
st
1
nd
2
rd
3
th
4
date in
CD Jnl
date in
Sub’s
CR Jnl
date
check
cleared
Sub’s
bank
date
check
cleared
Parent’s
bank
Parent
writes
check
1/2
12/31
12/31
1/2
39
Parent's
cash
250
450
350
550
200
100
375
190
12/31
1/1
Sub B's
cash
800
300
200
275
100
450
300
190
320
550
200
100
375
190
480
365
20
450
350
550
200
100
375
190
20
40
consolidated cash overstated by $20,000
41
Xiaodan
How would these items show up on the bank
reconciliations?
it would not appear on the Parent’s bank reconciliation
it would not appear on the Sub’s bank reconciliation
42
5 points if you get it correct
-2 points if you get it wrong
handout
Does check B403 result in a $5,000
overstatement OK understatement
43
check B403
st
1
nd
2
rd
3
th
4
date in
CD Jnl
date in
Sub’s
CR Jnl
date
check
cleared
Sub’s
bank
date
check
cleared
Parent’s
bank
Parent
writes
check
1/2
1/3
12/31
1/3
44
Parent's
cash
250
450
350
550
200
100
375
190
12/31
1/1
Sub B's
cash
800
300
200
275
100
450
300
190
320
550
200
100
375
190
480
365
5
5
450
350
550
200
100
375
190
330
45
The subsidiary actually has $5,000 less in their
checking account than they show in their G.L.
B403 is an attempt to conceal the shortage.
Depositing the $5,000 in the Sub’s bank
account on 12/31/15 but not recording the
deposit in the books until 1/2/16 would enable
the Sub to reconcile their Bank Statement
46
Cash Receipts
47
Dillon
If you are concerned about the
occurrence assertion for cash receipts
during the year
would you Vouch from CR Jnl to
supporting evidence
OR
Trace a sample of cash receipts from
mailroom remittance list into CR Jnl
48
Christina
For occurrence of cash receipts
Vouch from CR Jnl to supporting evidence
IF you find an entry in the CR Jnl for which
there is no supporting evidence
Would Cash Receipts be over or under stated
49
Gordon
If you are concerned about the
completeness assertion for cash receipts
during the year
would you Vouch from CR Jnl to
supporting evidence
OR
Trace a sample of cash receipts from the
mailroom remittance list into the CR Jnl
50
Jake M
For completeness
Trace a sample of cash receipts from the
mailroom remittance list into the CR Jnl
If you find evidence of a CR in the mailroom
for which there was no entry in the CR Jnl
Would Cash Receipts be over or under stated
51
Cash Disbursements
52
Ian
With regard to the occurrence of
cash disbursements at Year End
Would you
Vouch from the 2015 CD Jnl to the bank statement
or
Trace a sample of checks on the 12/31/15 bank
statement into the CD Jnl
53
Tim
With regard to the occurrence of cash disbursements
Vouch from 2015 CD Jnl to the bank statement
If you find an entry in the 2015 CD Jnl for which
there is no evidence of an underlying check
Would Cash Disburse be over or under stated?
54
Ashley
With regard to the occurrence of cash disbursements
Vouch from 2015 CD Jnl to the bank statement
If you find an entry in the 2015 CD Jnl for which
there is no evidence of an underlying check
Would ”Cash” be over or under stated
55
Aleksandr
With regard to the completeness of cash disbursements
Would you
Vouch from the 2015 CD Jnl to cancelled checks on
the bank statement
or
Trace a sample of checks from the 12/31/15 bank
statement into the CD Jnl
56
Vivian
For completeness of cash disbursements
Trace a sample of checks from the 12/31/15
bank statement into the 2015 CD Jnl
If you are unable to trace a check that appears
on the 12/31/15 bank statement into the 2015
CD Jnl
Would Cash Disburse be over or under stated
57
Janet
For completeness of cash disbursements
Trace a sample of checks into the CD Jnl
If you are unable to trace a check that
appears on the bank statement into the CD
Jnl
Would “Cash” be over or under stated
58
cut-off at 12/31/2015
59
Fiona
cash receipts
are you going to audit the last 25 entries
in the Cash Receipts Jnl prior to 12/31/15
or
the first 25 entries in the Cash Receipts
Jnl after 1/1/16
60
Bryce
cash receipts - will you
Vouch or
Trace ?
61
Sam
cash receipts
with which financial statement assertion
are you concerned if we are auditing
cash receipts at 12/31/15?
62
cash
250
12/31
1/1
450
350
550
200
300
200
275
100
450
100
375
190
300
190
320
63
Jake S
cash receipts
what evidence is provided if we audit
the last 25 entries in the Cash Receipts
Journal prior to 12/31/15?
64
Alyssa
cash disbursements
audit the last 25 checks in the Cash
Disbursements Jnl prior to 12/31/15
or
the first 25 checks in the Cash
Disbursements Jnl after 1/1/16
65
Stephanie
cash disbursements
with which financial statement assertion
are we concerned if we are auditing
cash disbursements at 12/31/15 ?
66
cash
250
450
350
550
200
12/31
1/1
100
375
190
300
200
275
100
450
300
190
320
67
Katie
You are concerned about cash being overstated
With regard to cash disbursements
You are auditing the first 25 entries in the January
2016 Cash Disbursements Journal
will you
Vouch
or
Trace
68
Vouch from the CD Jnl to cancelled checks on
the bank statement
69
Loren
If you vouch a check that appears in the
2016 CD Jnl into the 12/31/15 bank statement
Would Cash Disburse be over or under stated
70
Ricardo
If you vouch a check that appears in the
2016 CD Jnl into the 12/31/15 bank statement
Would “Cash” be over or under stated
71
Lauren
what evidence is provided if we audit the
first 25 checks dated after 1/1/2016 ?
72
73
74
75
76
77