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					   Chapter 23

Audit of Cash Balances




                         1
                Revenue & Collection
                 Transaction cycle


credit sales      accounts receivable   x.xx
                       sales                   x.xx
cash receipts     cash                  x.xx
                       accounts rec            x.xx




                                                      2
                 significant classes
                  of Transactions


“credit sales”    accounts receivable   x.xx
                       sales                   x.xx


“cash receipts” cash                    x.xx
                       accounts rec            x.xx


                                                      3
auditing transaction cycles


         cash         accounts receivable   sales
        250                800
                300
        450     200        550      450              550
        350     275        200      350              200
        550     100        100      550              100
        200     450        375      200              375
        100     300        190      100              190
        375     190        480      375              480
        190     320        365      190              365

        330                845                      2,260



                                                            4
auditing account balances


        cash         accounts receivable   sales
       250                800
               300
       450     200        550      450              550
       350     275        200      350              200
       550     100        100      550              100
       200     450        375      200              375
       100     300        190      100              190
       375     190        480      375              480
       190     320        365      190              365

       330                845                      2,260


                                                           5
Julian


 What is an imprest payroll account ?




                                        6
            cash equivalents

an original maturity date of less than 90 days

  savings accounts – time deposits
  certificates of deposit
  money market funds


                                                 7
COSO components of internal controls


•   Control environment
•   Risk assessment
•   Control activities
•   Information and communication
•   Monitoring


                                       8
                Control Activities


• Control Activities
  –   Adequate separation of duties
  –   Proper authorization of transactions and activities
  –   Adequate documents and records
  –   Physical control over assets and records
  –   Independent checks on performance



                                                            9
Tavian


 what responsibilities need to be separated to
 have adequate “segregation of duties” ?




                                                 10
      Separation of Duties         p 259




authorization of transactions from the custody
  of related assets
custody of assets from accounting
operational responsibility from record-
  keeping responsibility
IT duties from user departments

                                                 11
       Separation of Duties                p 259




authorization of transaction
custody of assets involved in transaction
Accounting (record-keeping) for the transaction
reconciliation of assets to accounting records



                                                   12
      Separation of Duties            p 458




Bank reconciliation by someone who does not
 approve check requests   authorize transactions

 handle cash receipts     custody of assets

 Write checks             custody of assets

 record cash receipts     accounting / record-keeping

 record disbursements     accounting / record-keeping



                                                        13
Adequate documents & records


Pre numbered checks




                               14
what is the third standard of field work ?




                                             15
   3rd standard of field work

The auditor must


obtain sufficient, appropriate audit evidence
by performing audit procedures
to afford a reasonable basis for an opinion
regarding the financial statements under
audit

                                              16
bank reconciliation (page 460)
 per bank statement                         120,262
 ADD: deposits in transit           8,425
                                   17,845    26,270
 outstanding checks         3086      226
                            3087   21,600
                            3088       47
                            3089    1,428
                            3090    1,000
                            1440      832
                            1441       41   -25,174
 adjusted balance                           121,358

 per General Ledger                         121,558
 less NSF check                                -200
 adjusted balance                           121,358

                                                      17
What is a cutoff bank statement?




                                   18
Connor


Who must request the bank to send a bank
confirmation to the auditor ?




                                           19
Chelsea


What information is on a bank confirmation?




                                              20
Mara


Who must sign the request for the bank
confirmation?




                                         21
22
Megan


 what distinguishes fraud from errors ?




                                          23
                 fraud


               Intentional
Knowingly making material
misrepresentations with the intent of
inducing someone to believe the falsehood
and act upon it and, thus suffer a loss or
damage.

                                             24
         proof of cash (page 467)
                      balance depositsw-drawals balance
                      12/31/LY  CR     checks 12/31/CY
per bank statement 115,261 912,275 907,274 120,262
deposits in transit
 @ 12/31/LY            21,321    (21,321)
  @ 12/31/CY                      26,270             26,270
outstanding checks
  @ 12/31/LY          (27,264)              (27,264)
  @ 12/31/CY                                 25,174 (25,174)
adjusted balance      109,318 917,224 905,184 121,358

per Gen Ledger        109,318 917,224 904,984       121,558
less NSF check                          200            (200)
adjusted balance      109,318 917,224 905,184 121,358


                                                               25
auditing transaction cycles


         cash         accounts receivable   sales
        250                800
                300
        450     200        550      450              550
        350     275        200      350              200
        550     100        100      550              100
        200     450        375      200              375
        100     300        190      100              190
        375     190        480      375              480
        190     320        365      190              365

        330                845                      2,260


                                                            26
schedule of transfers

      handout




                        27
        Bank transfer schedule
               handout
         bank accounts              date disbursed    recipt date
check                     amount      per    per      per per bank
 no.     from      to                books bank      books

4100     Parent   Sub B   $50,000    12/31   1/3     12/31    1/2
4275     Parent   Sub B   $10,000    12/31   1/4      1/2     1/2
4280     Parent   Sub B   $20,000     1/2    1/2     12/31   12/31
B403     Parent   Sub B    $5,000     1/2    1/3      1/3    12/31




                                                                     28
       transfer schedule (handout)
                1 st      Parent
                                           nd
                       writes check      2

check clears                          Sub receives
Parent’s bank                            check
            4 th                        rd
                                      3
                       check clears
                        Sub’s bank
                                                 29
Kevin S

handout

Does check 4275 result in a $10,000
 overstatement OK understatement



                                      30
               check 4275

 1 st     2 nd       3 rd      4 th
date in   date in    date      date
CD Jnl    Sub’s      check     check
Parent    CR Jnl    cleared   cleared
writes               Sub’s    Parent’s
check                bank      bank


12/31       1/2      1/2       1/4
                                         31
        Parent's         Sub B's
         cash             cash
        250              800
                   300
        450        200   550       450
        350        275   200       350
        550        100   100       550
        200        450   375       200
        100        300   190       100
        375        190   480       375
        190        320   365       190
12/31               10
 1/1                      10




                                         32
consolidated cash understated by $10,000




                                           33
Nick S

handout

Does check 4280 result in a $20,000
 overstatement OK understatement



                                      34
               check 4280

 1 st     2 nd       3 rd      4 th
date in   date in    date      date
CD Jnl    Sub’s      check     check
Parent    CR Jnl    cleared   cleared
writes               Sub’s    Parent’s
check                bank      bank


 1/2      12/31     12/31      1/2
                                         35
        Parent's         Sub B's
         cash             cash
        250              800
                   300
        450        200   550       450
        350        275   200       350
        550        100   100       550
        200        450   375       200
        100        300   190       100
        375        190   480       375
        190        320   365       190
12/31                     20
 1/1               20


                                         36
consolidated cash overstated by $20,000




                                          37
Mrinal

handout

Does check 4100 result in a $50,000
 overstatement OK understatement



                                      38
              check 4100

 1 st     2 nd       3 rd      4 th
date in   date in    date      date
CD Jnl    Sub’s      check     check
Parent    CR Jnl    cleared   cleared
writes               Sub’s    Parent’s
check                bank      bank


12/31     12/31      1/2       1/3
                                         39
        Parent's         Sub B's
         cash             cash
        250              800
                   300
        450        200   550       450
        350        275   200       350
        550        100   100       550
        200        450   375       200
        100        300   190       100
        375        190   480       375
        190        320   365       190
12/31               50    50
 1/1    280              895




                                         40
this should show up as an
  outstanding check on the Parent’s bank
  reconciliation
  deposit in transit on the sub’s bank
  reconciliation



                                           41
Who wants to try this

handout

Does check B403 result in a $5,000
 overstatement OK understatement



                                     42
              check B403

 1 st     2 nd       3 rd      4 th
date in   date in    date      date
CD Jnl    Sub’s      check     check
Parent    CR Jnl    cleared   cleared
writes               Sub’s    Parent’s
check                bank      bank


 1/2        1/3     12/31      1/3
                                         43
        Parent's         Sub B's
         cash             cash
        250              800
                   300
        450        200   550       450
        350        275   200       350
        550        100   100       550
        200        450   375       200
        100        300   190       100
        375        190   480       375
        190        320   365       190
12/31
 1/1                5      5


                                         44
            consolidated cash OK

The subsidiary actually has $5,000 less in their
 checking account than they show in their G.L.
B403 is an attempt to conceal the shortage.
Depositing the $5,000 in the Sub’s bank account on
 12/31/11 but not recording the deposit in the books
 until 1/2/12 would enable the Sub to reconcile
 their Bank Statement

                                                   45
Cash Receipts




                46
Heber
If you are concerned about the occurrence
   assertion for cash receipts during the year
 would you Vouch from CR Jnl to supporting
 evidence
OR
 Trace a sample of cash receipts from
 mailroom remittance list into CR Jnl

                                                 47
Kevin K
For occurrence of cash receipts
  Vouch from CR Jnl to supporting evidence

IF you find an entry in the CR Jnl for which
  there is no supporting evidence

Would Cash Receipts be over or under stated

                                               48
  Bryan
If you are concerned about the completeness
   assertion for cash receipts during the year
 would you Vouch from CR Jnl to supporting
 evidence
OR
 Trace a sample of cash receipts from the
 mailroom remittance list into the CR Jnl

                                                 49
Brandon
For completeness
  Trace a sample of cash receipts from the
  mailroom remittance list into the CR Jnl
If you find evidence of a CR in the mailroom
for which there was no entry in the CR Jnl

Would Cash Receipts be over or under stated

                                               50
Cash Disbursements




                     51
     Josh

With regard to the completeness of cash disbursements
 Would you

     Vouch from the CD Jnl to cancelled checks on the
     bank statement
or
     Trace a sample of checks on the bank statement into
     the CD Jnl


                                                           52
Jeff
For completeness of cash disbursements
  Trace a sample of checks into the CD Jnl

If you are unable to trace a check that appears
on the bank statement into the CD Jnl

Would Cash Disburse be over or under stated


                                                  53
Danielle
For completeness of cash disbursements
  Trace a sample of checks into the CD Jnl

If you are unable to trace a check that appears
on the bank statement into the CD Jnl

Would “Cash” be over or under stated


                                                  54
Nicole
With regard to the occurrence of
               cash disbursements
     Would you

     Vouch from the CD Jnl to the bank statement
or
     Trace a sample of checks on the bank statement
     into the CD Jnl


                                                      55
Melissa M
With regard to the occurrence of cash disbursements
  Vouch from CD Jnl to the bank statement

If you find an entry in the CD Jnl for which
there is no evidence of an underlying check

Would Cash Disburse be over or under stated


                                                      56
Brittany
With regard to the occurrence of cash disbursements
  Vouch from CD Jnl to the bank statement

If you find an entry in the CD Jnl for which
there is no evidence of an underlying check ??

Would “Cash” be over or under stated


                                                      57
cut-off at 12/31/2011




                        58
Erika

cash receipts
 are you going to audit the last 25 entries in
 the Cash Receipts Jnl prior to 12/31/11
 or
 the first 25 entries in the Cash Receipts Jnl
 after 1/1/12

                                                 59
Denise

cash receipts - will you

             Vouch or      Trace ?




                                     60
Heidi


cash receipts
  with which financial statement assertion are
  you concerned if we are auditing cash
  receipts?



                                                 61
         cash
        250
                300
        450     200
        350     275
        550     100
        200     450
12/31
 1/1    100     300
        375     190
        190     320




                      62
Nicholas M

cash receipts
  what evidence is provided if we audit the
  last 25 entries in the Cash Receipts Journal
  prior to 12/31/11?



                                                 63
Belen

cash disbursements
 audit the last 25 checks in the Cash
 Disbursements Jnl prior to 12/31/11
 or
 the first 25 checks in the Cash
 Disbursements Jnl after 1/1/12

                                        64
Andrew F


cash disbursements
 with which financial statement assertion are
 we concerned if we are auditing cash
 disbursements ?



                                                65
         cash
        250
                300
        450     200
        350     275
        550     100
        200     450
12/31
 1/1            300
                190
        100     320
        375
        190




                      66
Nathan


 what evidence is provided if we audit the
 first 25 checks dated after 1/1/2012 ?




                                             67
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