Assurance - Execution - Audit of Cash and Investment

Question 1

Explain what cash and cash equivalent

Answer 1

Cash - Can be both on hand or demand deposit
Ex. Legal tender on hand on business premises
- Deposit at banks that are accessible on demand, such as chequing and saving account
- Foreign currency that can be easily converted into company operating currency

Cash equivalent - Draw bank overdraft used as part of cash management, term deposit with maternity date, treasury bill

Question 2

What are the key risks of cash

Answer 2

The key risk related to cash is overstatement. Cash is highly susceptible to theft and as a result
- Bank confirmation process
- Another key risk is right/ obligation as an entity has a legal claim

• Investment key risk is the valuation, accuracy, and allocation common to investment. Existence, Rights and Obligation, Completeness, Classification & Presentation

Question 3

What are the general procedures for cash and investment

Answer 3

1. Obtain bank reconciliation and perform the following test - reperform reconciliation, Agree to the bank balance and bank confirmation letter
   Cut-off testing to be performed
2. Obtain bank confirmation letter for all bank account that user open
3. Obtain an investment confirmation form from the company’s institutional or investment custodian

Question 4

What are the risks specific to the audit of cash and investment

Answer 4

In regards to safeguarding asset - Existence - send bank confirmation to the company’s bank to agree that the bank balance of cash is the same as the bank reconciliation

Company obtains pledge that cash is held off security for the loan - Rights and Obligation - Obtain debt agreement and recalculate (are not) to determine if the company is in compliance

The company holds an investment that is measured at FV which decreased 100% last year - Accuracy, Valuation, Allocation - If the investment is publicly traded, review F/S of the investment company and any other relevant information