Chapter 16 - Auditing the Financing/Investing Process: Cash and Investments Flashcards
!! Can we use Substantive Analytical Procedures when auditing Cash? !!
Because of the residual nature of the cash account, the substantive analytical procedures are limited to comparisons with prior-years’ cash balances and comparisons with budgeted amounts. (So no, not really)
!! If an entity had Custody of their Investments, would the Auditor go Look at them? !!
If the entity maintains custody of the securities, the auditor normally examines the securities. During the physical count, the auditor should note any relevant information about the various securities.
!! What is an interbank transfer? !!
Interbank transfer schedules are used to kelp auditors test for kiting. It tracks the dates cash disbursements are recorded in the client’s books and when they clear the paying bank account and it also tracks the dates the cash receipt is recorded in the client’s books and when the amount is received in the receiving bank account.
!! What are the Three Audit Procedures typically used to detect Fraudulent Activities in Cash Accounts? !!
Extended bank reconciliation procedures
Proof of cash
Tests for kiting
!! Why do we confirm our cash balance with a third party? What assertion are we testing for? !!
Confirming bank account balances with financial institutions tests for the Existence, Completeness, Accuracy, Valuation, and Allocation assertions about account balances. We do this because bank statements or websites are not effective at identifying the “other information”
!! What is an imprest bank account? !!
It contains a stipulated amount of money to be used for a specific purpose (e.g. disbursing payroll or dividend checks). Use of imprest accounts minimizes the time required to reconcile the general cash account.
!! Why would an auditor use a cutoff bank statement? !!
A cutoff bank statement is used to test the reconciling items included in the bank reconciliation. It normally covers the 7 to 20 day period after the account is reconciled, and any reconciling item should have cleared the entity’s account during this period.
ESSAY QUESTION - What are the six audit procedures auditors typically use to test the bank reconciliation? (Part 1)
- Verify the mathematical accuracy of the bank reconciliation working paper and agree the balance per the books to the general ledger.
- Agree the balance on the bank reconciliation with the balance shown on the standard bank confirmation.
- Trace the deposits in transit on the bank reconciliation to the cutoff bank statement.
ESSAY QUESTION - What are the six audit procedures auditors typically use to test the bank reconciliation? (Part 2)
- Compare the outstanding checks on the reconciliation working paper with the canceled (or substitute) checks contained in the cutoff statement for proper payee, amount, and endorsement.
- Agree any charges included on the bank statement to the bank reconciliation.
- Agree the adjusted book balance to the cash account lead schedule.
