chap 13//13.3 Flashcards
subs. prdrs for cash bal
- prdrs exclude prdrs for petty cash an imprest bank account
- huge significance of cash to entity liquidity but bal I relative small
3.DR is set low always
initial prdrs
- verify opening bal with last period closing bal from audit working paper
2.review activity in GL cash acc for sign entries that are unusual and requires investigation
3.cash schedule produced by the entity to show undeposited cash and summaries of bank bal
- lead schedule accuracy check with cash bal in GL
- test provides evi for AVA
- anal prdrs
limited to doing comparison to past year cash bal or with budgeted amt
test of trsn
- cash cut off test
2.verifying bank transfer
test of trsn
1.test of trsn partially performed when doing cash and purchases adt
2.cash cut off test-verifying agreement of cash receipt recorded in the acc record at close of bsn with the movement of cash:
-cash receipt cut off test
-cash payment cut off test
- cash cut off provides evi for completeness and existence
test of balance
- testing bank bak
test of trsn//tracing bank transfer
1.when entity make bank transfers between acc, there is a time lag between the money is deducted from the sending account and the money is added to the receiving account
- this delay causes the reciving acc to be overstated as the deposit is recorded while deduction is not yet processed
3 this gives way to knitting , an intentional act to record a transfer deposit without showing its corresponding deduction.
4. knitting done to conceal cash shortage or overstate bank acc at end of reporting year
- adtr identifies bank transfers by examining cash book a few days before year end and a bank transfer schedule is created to present the listing the transfers and the dates they were recorded in both the company’s books and the bank statements.
- if cheque is issued and recorded in dec but cleared in Jan by bank the listed as outstanding cheque in dec reconciliation
7 if cheque is recorded as deposit in dec and deduction made in Jan, cash bal is overstated. adjustment needs to be made to reflect true cash position
- etransfer limits issue related with delay
9.knitting possible when internal control is weak:improper segregation in duties or collusion between 2 people functions
10.tracing bank transfer detect knitting by:
-examining subsequent period bank statement and identify cheques cleared in Jan an don’t recorded in DEC
-CASH Cut off test by checking which last dec cheques issued in dec but not recorded in cheque register
- tracing provides reliable evi for existence and completeness assertion
test of balance
1.verifying bank recon
2.confirming bank bal
3.confirming other bank arrangements
4.obtaining and verifying from subsequent period bank statements
5. counting cash on hand
test of balances// verifying bank recon
- verifies that bank bal confirmed with the bank agrees with the clients record
- involves
-check mathematical accuracy and compare with GL
-verify bank bal as per bank statement and bank bal per reconciliation
-trace outstanding cheques on bank recon to subsequent month bank statement
-trace deposit in transit on bank recon to bank statement of next month
-check for unrecorded bank charges and errors on the bank recon and make required adjustment - primary source of AVA
- provides evi for existence, R&O, COMPLETENESS
test of balances// confirming bank Bal.
- sending bank confirmation to request information about
-account balances
-securities
-loan documents
-contigent liabilities
-interest rate
-interest rate
- must be sent during every adt and requires clients to sign a letter of authorization sent to bank requesting them to fill the form
3.confirming cash on deposit provides evi for existence, R&O and AVA
4CONFIRMING overdraft and loan balances provides evi fro existence, R&O and AVA
- OVERALL test provides evi for completeness as well
test of balances//confirming other bank arrangements
- need to confirm for loan, contingent liabilities
- important for disclosure assertion
3.evidence for completeness assertion is limited
test of balances//obatining and verifying subsequent period bank statement
- issued at the end of the nest month following the end of the FS date
- if deadline is tight, adtr can make a special request to bank to obtain it earlier
3.adtr should:
-trace all bank transfers and cheques that are recorded but not cleared by bank before FS date
-trace deposit and bank transfer that appear in the bank recon to deposits in the statement
-identify unusual items at the end of year
- tracing cheques verify for outstanding cheques. in case where there is discrepancies abt outstanding cheques, it could indicate kiting. thus adtr needs to investigate
5.If the discrepancies are material, it is referred to as window dressing. it is explained when entity manipulates with their assets and liabilities amt to boost their short term solvency
- window dressing arises when cheques are issued on the last day of FS date but not mailed until receipts at bank is sufficient to cover any shortage
- if adtr identifies that cheques are not presented at bank for more than 2 weeks, then should enquire with. mgt
- if it is evidenced that entity is involved in window dressing, adtr should recommend adjustments to the cash balances
9.delays in depositing cash receipts indicate lapping
test of balances//counting cash on hand
- cash on hand consist of undeposited cash receipts and change. adtr should ensure that :
-they control all cash and negotiated instruments held until funds count is done
-custodian of the cash be present the”out the count
-custodian provides a signed receipt upon return of funds. helps to minimize dispute over shortage
-all undeposited cheques are payable to the entity
- sealing and additional adtr required when cash held at multiple location
- provides evi for all assertions for balances except for disclosure
