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