Exam 3 Flashcards
Cash includes
currency on hand , currency in bank accounts, savings accounts, time deposits and certificates of deposit.
•
Cash equivalents
are frequently combined with cash for
presentation in the financial statements
Short‐term, highly liquid investments that are readily
convertible to cash or so near maturity that there is little ri
sk
of change in their value
treasury bills and money market funds
General
Operating
Imprest
Typically used for specific disbursements (i.e. Payroll)
•
Sweep
Typically used for cash receipts
Common cash controls
Bank reconciliations • Sweep accounts • Segregation of duties • Disbursement requirements
This limited applicability of substantive analytical procedures is normally offset by
(1)
tests of controls and/or substantive tests of transactions for cash receipts and
disbursements or (2)
tests of the entity’s bank reconciliations.
Because of the residual nature of the cash account, it does not always have a direct relationship with other f/s accounts. The auditor’s use of substantive analytical procedures for auditing cash is limited to . . .
comparisons with
prior years’ cash
balances
comparisons with
budgeted amounts
Existence
do cash balances represented in the general ledger exist? Auditors obtain comfort through confirming cash accounts.
Cutoff
are all transactions represented in the
appropriate accounting period? Auditors obtain
comfort through testing the
reconciliation
Rights and obligations
are there any restrictions, obligations, etc. related to cash balances. Auditors obtain comfort through confirmations , and inquiries of management.
To audit a cash
account, the auditor
should obtain these
items
Copy of Bank
Reconciliation
Standard Bank
Confirmation
Cutoff Bank
Statement
Disclosure Issues for Cash
and Cash Equivalents
Accounting policy for defining cash and cash
equivalents.
•
Any restrictions on cash such as sinking fund
requirements, obligations to maintain compensating
balances, or funds designated for specific purposes.
•
Letters of credit
Marketable securities
need to be properly classified as
held‐to‐maturity, trading, and available‐for‐sale.
Held‐to‐maturity securities and individual available‐
for‐sale securities
should be classified as current or
non‐current assets based on whether management
expects to convert them to cash within 12 months.
All trading securities
should be classified as current
assets.
Investments measured at fair value are
disclosed
according to the fair value hierarchy
Auditing Standards state that the auditor should
perform one of the following procedures when
gathering evidence for existence:
•
Physical examination
•
Confirmation with the issuer, custodian, or broker
•
Reading executed partnership or similar agreements
The auditor must also determine if there has been any
“other than temporary impairments” in the value of an
investment security. Indicators of non‐temporary
impairment:
Fair value is significantly below cost
• Management does not possess both the intent and ability to hold
the
investment long enough to allow for any recovery in fair value
• The decline in fair value has existed for an extended period
Non‐temporary impairment =
Write down to new
carrying amount
•
Level 1
Valuations based on
quoted
prices in
active markets for identical assets.
Level 2
Valuations based on directly or indirectly
observable market data for
similar
assets.
•
Level 3
Valuations based on management’s best
judgment
and involve management’s
assumptions.
Fair Value Measurements
Audit steps:
Obtain an understanding of how management makes the fair value measurements. • Consider whether specialized skills or knowledge are required. • Evaluate the reasonableness of the fair value measurements.
