Audit test 4
Presentation and Disclosure
-Investigate payments to related parties -evaluate financial statement presentation and disclosure audit objective?
Cutoff, existence, occurrence, rights, and completeness
-verify the clients cutoff of cash transactions -analyze bank transfers occurring year end audit objective?
existence and accuracy
Obtain analyses of cash balances and reconcile them to general ledger -audit objective?
1. all cash that should have been received was received, recorded accurately, and deposited promptly 2. cash disbursements have been made for authorized purposed only and have been properly recorded 3. cash balances are maintained at adequate, but not excessive, levels by forecasting expected cash receipts and payments related to normal operations
functions of finance and accounting department that provides assurance that
PPE
includes all tangible assets with a service life of more than 1 year and are not acquired for the purpose of resale
50% or more
investment in PPE amounts to _____ of total asset
business risk faced by the clients management
most inherent risk related to
controls exist to provide assurance that disbursements are properly authorized
satisfactory internal control over cash disbursements requires that
each day collections be deposited intact no later than the next banking day
satisfactory internal control over cash reciepts demands that
cutoff bank statement
statement covering a specified number of business days following the end of year
deductions from the invoices are being made in accordance with the terms of the agreement
when advancements are made, auditors should ascertain that procedures are being followed to ensure that
reassess the level of control risk for each financial statement assertion regarding cash
when the auditors have completed the procedures described in the preceding sections, they should
standard confirmation form
-addresses only the clients deposits and loan balances -designed to provide corroborating evidence about the clients account balances
existence, occurrence, accuracy, cutoff, rights
-confirm cash bal with financial institution -obtain rec of back bal and consider rec bank activity -identify and investigate unusual cash receipt and disbursement - count cash on hand audit objective?
1. land 2. buildings, machinery, equipment, and land improvements 3. natural resources
3 groups of PPE
window dressing
Action taken by the client shortly before the balance sheet date to improve the financial picture presented in the financial statements.
lapping
Concealment of a cash shortage by delaying the recording of cash receipts
kiting
Manipulations causing an amount of cash to be included simultaneously in the balance of two or more bank accounts. -based on the float period—the time necessary for a check deposited in one bank to clear the bank on which it was drawn.
bank statement
_____ are not confirmations
related working paper
a _____ will summarize a test of controls for cash transactions and the assessment of risk for the financial statement assertions about cash
1. typical unit of property or equipment has a high dollar value, and relatively few transactions may lie behind a large balance sheet 2. there is usually relatively little change in property accounts from year to year
audit work for PPE is much smaller audit time for 2 reason
1. use the understanding of the client and its environment to consider inherent risk related to PPE 2. obtain understanding of internal control over PPE 3. assess the risk of material misstatement and design test controls and substantive procedures
auditor objective to in auditing PPE is
-an understanding of the programs and controls used by management to mitigate risk and determine whether controls have been implemented
auditors may identify fraud risk- should obtain
1. use the understanding of the client and its environment to consider inherent risk related to cash 2. obtain understanding of internal control over cash 3. assess the risk of material misstatement of cash and design test controls and substantive procedures
auditors objectives in the audit of cash
flow chart or written description of controls and an internal questioner for larger companies
auditors working papers for cash includes a
voucher
authorization sheet that provides space for the initials of the employees performing various authorization functions
check, EFT, or petty cash
cash disbursements should be made by
money market funds certificate of deposits saving certificate
cash equivalent includes
compensating balance
cash in a company's general account sometimes must be maintained at a specified minimum balance referred to as
general payroll petty cash savings accounts
cash includes
Purchasing cards (Pcard) or Procard (procurement cards
company credit cards that are designated to employee for company expense -have spending limit -replaces petty cash funds
lapping
comparison of daily entries in the cash receipts journal with bank deposits may disclose a type of fraud known as
periodic reconciliation of the operations control copies of the mail room control listings with the cash receipts journal and the details of the validated deposit slips received from the bank
control is exercised over the cashier by
2 or more employees participate in each transaction
control over cash sales is strongest when
reconciliation of the balance per the bank statement at the date with the balance per the companys accounting record
determining a companys cash position at the close of the period requires a
reviewed and approved in writing
each month the bank rec should be
1. interception of cash received 2. payment for materials not received 3. duplicate payments 4. over payments to employees or payments to fictitious employees 5. payments for personal expenditures of officers or related parties
examples of fraud with cash
1. test accounting records and rec by reperformance 2. compare sample of cash receipts listings to the journals, AR posting, and authenticated deposits 3. compare sample of recorded disbursements to AP posting, purchase orders, receiving reports, invoices, and paid checks
examples of test of controls
derivitive
financial instruments that derive their value from other financial instruments, underlying assets, or indexes
flowchart or internal control questionnaire
for audit of larger companies, _______ is usually employed to describe internal control
substantial audit evidence about opening balances consistency of account principles
for companies who have changed auditors, a new of the predecessor auditors audit documentation may provide
1. use the understanding of the client and its environment to consider inherent risk 2. obtain an understanding of internal control 3. assess the risk of material misstatement and design further audit procedures 4. perform further audit procedures- test of control 5. perform further audit procedures- substantive procedures
general pattern of work performed by auditors in the audit of cash
1. do not permit any one employee to handle transactions from beg to end 2. separate cash handling from record keeping 3. centralize receiving of cash to the extent practical 4. record cash receipts on timely basis 5. encourage customers to obtain receipts and observe cash register totals 6. deposit cash receipts daily 7. make all disbursements by check or electronic fund transfers- except small things like petty cash 8. have monthly bank rec prepared by employees not responsible for making cash payments or custody of cash 9. monitor cash receipts and disbursements by using software to identify unusual transactions and comparing recorded amounts to budgeted amounts
guidelines for achieving internal control over cash
written description of controls
in an audit of a small business, auditors may prepare ______, based upon questioning of owners and employees and upon firsthand observation
transactions
in petty cash fund, auditors focus on ______ rather then end of year balances
conduct a historical analysis of the property account
in the first year audit of a company that has not previously been audited, or access to predecessor work is unavailable that ideal approach is to
an employee who receives collections from customers is responsible for the posting of customers accounts
lapping is most carried on when
control listing
listing shows the amount of cash received by mail from customer and identifies the customer by name or account number
overstatements
most misstatements of assets involve
finance department under direction of treasurer
most of the processes relating to cash handling are the responsibility of the
imprest fund
must have a certain amount
1. whether check signing authority is restricted 2. whether checks are rent directly to the payees after being signed
points made clear by questionnaire
lock box
post office box controlled by companys financial institution
Electronic Fund transfer system (EFT)
process funds-related transactions for customers as an alternative to paying by check
1. cash receipts and disbursements recorded in the accounting records, but not bank statement 2. cash deposits and disbursements recorded on the bank statement but not in the accounting records 3. cash receipts and disbursements recorded at different amounts by the bank than in the accounting records
proof of cash is used to identify
voucher system
provides assurance that all disbursements are properly authorized and reviewed before a check is issued
vendor statements
received monthly, should be reconciled promptly with the AP ledger or list of open vouchers, and any discrepancies should be fully investigated
advances
recovered by making percentage deductions from invoices
their current market values
securities in both trading and AFS are values at
fictitious check or omission of an outstanding check
shortage may be concealed by
1. existence of recorded cash and the occurrence of cash transactions 2. determine accuracy of cash transactions 3. establish completeness of recorded cash 4. verify cutoff of cash transaction 5. determine that the client has rights to cash 6. determine that the presentation and disclosure of cash are appropriate
test of control substantive procedures for cash
effectiveness of controls
test towards ______ help tp evaluate the clients internal control and determine whether the auditors planned assessed levels of the risk of material misstatement can be supported
tracing selected items back through the cash disbursements journal to original source documents
testing cash disbursements involves
liquid nature
the _____ of cash increases the risk of fraud and may be more difficult to detect an error
accuracy
to determine that the clients accounting procedures are operating effectively, the auditors perform test of ______ of the clients journals and ledgers
original cash receipt listings to the daily deposit tickets
to provide assurance that cash receipts have been deposited intact, the auditors should compare the detail of _____
walk through
to trace a transaction or a few transactions through each step of the system to determine that the transactions actually are being processed in the manner indicated by the flowchart
voucher register
transaction are recorded in a ______ by an entry debiting the appropriate asset, liability, or exp and crediting vouchers payable
-existence - completeness - cutoff -rights - valuation or allocation -accuracy - presentation and disclosure
types of substantive procedures
lapping
when you steal money from customer and replace it from with someone else money and ect
1. subsidiary ledger consisting of a separate record for each unit of property. 2. a system executive approval of all PPE acquisitions, whether by lease, purchase or construction serially number capital work orders are convenient means of recording authorization 3. a review of construction and lease contracts by competent personnel to ensure that the accounting is in accordance with the appropriate accounting framework 4. a reporting procedure assuring prompt disclosure and analysis of variances between authorized and actual cost 5. an authoritative written stmt of company policies distinguishing between capital expenditures and rev expenditures. A dollar min ordinarily will be established by capitalism any expenditures of a lesser amount automatically are classified as charges against cur rev 6. a policy requiring all purchases of PPE to be handled through the department and subject ed to standard routines for receiving inspections and payment 7. periodic physical inventories designed to verify the existence, location, and condition of all property listed in the accounts and to disclose the existence of any unrecorded units when assets are mobile and of high value, a radio frequency identification or global positioning system may be used to track the movement of the assets and prevent theft 8. a system of retirement procedures including serially numbered retirement work orders, stating reason for retirement and bearing appropriate approvals
Internal controls over PPE