CASH by pptfiles

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									CASH

I.

COMMON SUBSTANTIVE TESTS: Procedure

CASH Assertions Classification E R C V P O O O A D Recalculation Comparison

1.

2.

Obtain a Lead Schedule of Cash Balances from the client. Foot the Lead Schedule and agree totals to the client’s Trial Balance Obtain (or prepare)a year-end Bank Reconciliation for each bank account held by the client. a. Confirm the “balance per bank.” b. Verify reconciling items by obtaining a “cutoff” Bank Statement 1. Trace outstanding checks returned with “cutoff” statement to the client’s year-end reconciliation 2. Vouch deposits-in-transits from the client’s year-end reconciliation to Deposit Slips returned with the “cutoff” Statement 3. Agree other reconciling items from “cutoff” statement to the client’s year-end reconciliation. c. Verify the mathematical accuracy of the reconciliation and agree balance per books to the Lead Schedule of Cash Balances. Prepare a Schedule of Interbank Transfers Perform analytical procedures for Cash If control risk is relatively high, prepare a Proof of Cash If control risk is relatively high, perform tests to detect lapping Count cash on hand

Confirmation Inspect Documents

Reconciliation Comparison

3.

Inspect Documents Analytical Procedures Inspect Documents Recalculation Inspect Documents Physical Examination

4. 5. 6. 7.

Procedure 8. Evaluate the overall presentation of cash in the financial statements a. Review disclosures related to cash b. Inquire about restrictions on the use of cash c. Consider information received in confirmation regarding compensating balances

Assertions Classification E R C V P O O O A D

Inspect Documents Inquiry Confirmation

II.

AUDITOR PRECAUTIONS - TESTS OF CASH

Substantive Test Action A. Count cash on *Control all cash & hand negotiable instruments (May not be material) held by client until all funds have been counted *Insist that the custodian of the cash be present throughout the count *Obtain a signed receipt from the custodian on return of the funds to the client *Ascertain that all undeposited checks are payable to the order of the client, either directly or through endorsement B. Confirm bank balances * Send to all banks, including those with

*

Personally mail the request in own return address envelope--with client permission

* C.Bank reconciliation * Balance per bank— * Balance per bank-compare to bank confirmation * Balance per books— compare to general ledger * Go through reconciliation process. Most reconciling items clear shortly after year-end. D. Obtain & use bank * Cutoff date should be cutoff statement point in time that will permit year-end outstanding checks to clear. * Obtain statement * Deposits in transit on the bank statement to the cutoff statement * Year-end outstanding Checklist to cutoff statement. * Checks dated after yearend--recorded in the following year important

E. Bank transfer schedules: Purpose--To disclose overstatements of cash balances resulting in kiting. 1. How does Kiting occur? Business maintains multiple checking accounts at various banks. Check is drawn on Bank A is deposited in Bank B -- several days pass before check clears. During this period, the amount of the check is included in the balance at both banks. Problem exists when this “double counting” occurs on the balance sheet date. 2. Assume a $5,000 check is written on Bank A account(current balance $10,000) to Bank B account(current balance $15,000) Example: Bank A Bank B Total

Apparent Balance

Actual Balance

3. Clues to Kiting: a. Frequent deposits and checks in the same (round figures) amounts, and to the same banks

b. c. d.
BANK TRANSFER SCHEDULE Check No. From ---- -------1052 General 1067 1096 520 1100 1109 General General Branch 3 General General Check Amount -----10,000 5,000 8,000 7,000 9,000 20,000 Disbursement -----------Books Bank --------12/28 12/31 12/31 12/31 12/31 1/2 1/4 1/2 1/2 1/2 1/2 1/6 Receipt -----------Books Bank --------12/28 12/28 12/31 12/31 1/2 12/31 1/2 12/31 1/2 1/2 12/31 1/2

To -------Payroll Branch 1 Branch 2 General Branch 4 Branch 1

Questions Which transfers will cause a misstatement of cash at 12/31? Which transfer is an example of kiting at 12/31?

F. Comprehensive bank reconciliation-PROOF OF CASH 1. 4 reconciliations 2. Primary purpose: Existence of cash
Beginning Balance 11/30 Balance per Bank Deposits in Transit: 11/30 12/31 Checks Outstanding: 11/30 12/31 (1385) (1385) 1505 (1505) 5353 Receipts Disbursements Ending Balance 12/31 6890

12455

10918

410

(410) 644

644

True Cash Balance Balance per Client’s Books Bank Service Charge: November December Other Bank Charges: NSF Collections By Bank Collections By Bank True Cash Balance

4378

12689

11038

6029

802

12668

11044

2426

(36)

(36) 30 (412)

(30) (412)

3612

(3612) 4045 4045

4378

12689

11038

6029

Relevant Data 1. Bank service charge for month not shown on company books 2. Bank debit memo for NSF not shown on company books

11/30 36

12/31 30

412

3. Collection of note by bank not shown on company books 3612

4045


								
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