ACC 450 Ch 10

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cash equivalents include

-money market funds -savings certificate -certificates of deposit

imprest account

- low balance; maintained at a fixed amount (ex: petty cash)

why do auditors spend time on cash

-Liabilities, revenue, expenses, and most other assets flow through the Cash account; that is, these items either arise from or result in cash transactions.

auditors will prepare a schedule that lists all of the client's cash accounts, including ___

-account number -bank name -year-end balance per books

advantage of requiring disbursement by check include

-centralization -a permanent record -obtaining evidence

the auditors objectives in the audit of cash and cahs transactions are to

-consider the inherent risks including fraud risks related ot cash -obtain an understanding of internal control over cash

proper disclosure of related party transactions should include

-dollar amount of the transaction -nature of the relationship -description of the transaction

to verify the client is not overstating cash balances, auditors should analyze bank transfers for the

-last week of the audit year -first week in the year following the audit

before verifying the client's cash on hand, auditors must establish control over

-securities and other investments -cash funds -note receivable

finance department assurances:

1) All cash that should have been received was in fact received, recorded accurately, and deposited promptly. 2) Cash disbursements have been made for authorized purposes 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. The need for obtaining loans or for investing excess cash is thus made known on a timely basis.

auditor's objectives in audit of cash

1) understanding of the client and its environment to consider inherent risks, including fraud risks, related to cash. 2) Obtain an understanding of internal control over cash. 3) Assess the risks of material misstatement of cash and design tests of controls and substantive procedures that: -Substantiate the existence of recorded cash and the occurrence of cash transactions. -Determine the accuracy of cash transactions. -Establish the completeness of recorded cash. (more on page 402)

compensating balance

Under the terms of a bank loan agreement, the cash in a company's general account sometimes must be maintained at a specified minimum balance

segregation of the function of custody and record keeping for financial investments may be achieved by using an independent safekeeping agent such as

a stockbroker

window dressing

action taken by the client shortly before the balance sheet date to improve the financial picture presented in the financial statements

Another reason contributing to extensive auditing of cash is that

cash is the most liquid of assets and offers the greatest temptation for theft, embezzlement, and misappropriation; high inherent risk

the major elements of adequate internal control over financial investments include

complete detailed records of all securities and derivatives instruments owned an investment committee that authorizes and reviews financial investment activities

the primary purpose of a standard bank confirmation is to corroborate the __ of recorded information

existence

the auditors prepare a list of all the client's cash accounts and related information. this information is traced and reconciled to the

general ledger

Derivatives

instruments that "derive" their value from other financial instruments, underlying assets, or indexes.

a client may conceal an ____ of cash by omitting an outstanding check from the year-end bank rec

overstatement

to document auditors of internal controls over cash, auditors often use a flowchart or internal control

questionnaire

the auditors may ask the financial institutions for cutoff bank statements in order to

test the accuracy of the year-end rec

auditors may use a client prepared year-end bank reconciliation but must examine it in detail

correct statement

cash equivalents

money market funds, certificates of deposit, savings certificates, and other similar types of deposits;any item that cannot be converted to cash on short notice should be classified as an investment, a receivable, or a prepaid expense, rather than as a cash equivalent.

the detection of fraud in relation to the audit of cash is

only relevant to the overall fairness of hte client's financial statements if material in amounts

substantive procedures to test the valuation of financial investments will best confirm

presentation


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