Ch. 10

existence, occurrence, accuracy, cutoff, and rights

- count cash on hand - confirm cash balances with financial institutions

cutoff, existence, occurrence, rights, and completeness

- verify the client's cutoff of cash transactions - analyze bank transfers occurring at year-end

general sequence of steps of the audit process

1. use the understanding of the client and its environment to consider inherent risks related to cash 2. obtain an understanding of internal control over cash 3. assess the risks of material misstatement and design further audit procedures 4. perform further audit procedures - tests of control 5. perform further audit procedures - substantive procedures for cash transactions and balances

Ensure reports tie to client activity

Inspect monthly brokerage reports on securities owned, purchased, and sold

Verify that internal auditors' observations are consistent with those of external auditors

Inspect reports by internal auditors on their review of securities and derivatives

Ensure policies written are being followed

Review and test reports of investment activity for the investment committee

Ensure transactions are recorded and classified properly

Trace several transactions for purchases and sales of investments through the accounting system

Cutoff bank statements include activity for the period ____ the period being audited.

after

Cash confirmations need to be mailed under the control of the __________.

auditor

The standard form to confirm cash accounts also requests the financial institution to confirm any ____ to the bank.

balance owed

An important step in testing investments is to ensure all persons with access to investments are properly ___.

bonded

Control over cash sales is increased if a centrally located ______ participates in each transaction.

cashier

It is important to verify ____ of both cash receipts and cash disbursements.

cutoff

A _____ is a bank statement covering a few days after year end that is used by the auditors to verify the client's bank reconciliation.

cutoff bank statement

After auditing cash, it is important to evaluate proper financial statement presentation and __________ of cash.

disclosure

Verification of dividend revenue can be achieved by independent computation using ______ published by investment advisory services.

dividend records

Sometimes auditors may ____ securities on hand.

inspect

presentation and disclosure

investigate payments to related parties

Analyzing bank transfers at the end of the period being audited and the beginning of the next period helps detect ____________.

kiting

Collection of accounts receivable through the mail should be initially listed by personnel in the _____.

mail room

After testing internal controls related to investments, it may be necessary to ____ the risk of material misstatement.

modify

existence and accuracy

obtain analyses of cash balances and reconcile them to the general ledger

Auditors are often concerned with the _______of cash, as this is where most misstatements occur.

overstatement

Cash analyses need to be _______ to the general ledger.

reconciled

Cash reconciliations can be tested via ____.

reperformance

A sample internal control questionnaire question may ask about ____ inherent in the investment policy.

risk

An investment committee is a standing committee of ____.

the board of directors

It is necessary to ____ the client's cutoff of cash transactions

verify