Chapter 18 by wpr1947

VIEWS: 4 PAGES: 112

									Chapter 6

Auditing Cash




                1
2
                Revenue & Collection
                 Transaction cycle


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




                                                      3
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


                                                           4
                 significant classes
                  of Transactions


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


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


                                                      5
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



                                                            6
         Someone without reading


what is the third standard of field work ?




                                             7
   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

                                              8
Jason C


 what is fraud ?




                   9
                 fraud

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.



                                             10
Fraud
  misappropriation of assets
  defalcations
  embezzlement
Direct-effect illegal acts
Errors


                               11
Sunny


 what are the three conditions that facilitate
 employee fraud?




                                                 12
                  fraud


motivation
opportunity
rationalization



                          13
                  fraud


motivation
opportunity        poor internal controls
rationalization    control environment



                                            14
COSO components of internal controls


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


                                       15
COSO components of internal controls


• Control Procedures
  –   Performance reviews
  –   Segregation of duties
  –   Physical controls
  –   Information processing controls



                                        16
David


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




                                                 17
   Segregation of Duties          p 165




authorization to execute transactions
recording transactions
custody of, and access to assets
reconciliation of assets to recorded amounts


                                               18
                 Revenue & Collection
                  Transaction cycle


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




                                                      19
                 significant classes
                  of Transactions


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


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


                                                      20
 Revenue & Collection cycle
receiving customer orders
   processing customer orders
delivering goods (or services) to customers
billing customer
collecting cash
   depositing cash receipts
reconciling bank statement

                                              21
 Revenue & Collection cycle
receiving customer orders
   processing customer orders
delivering goods (or services) to customers
billing customer                Actg / AR
collecting cash                 mailroom
   depositing cash receipts
reconciling bank statement      Treasury

                                              22
Authorize Custody        Record     Reconcile
Transaction   of Asset   keeping
               cash        in          bank
              deposit    Gen Jnl   reconciliation

Sales Dept Mailroom Accounting      Treasurers
Credit Dept           Dept            Office


                                                    23
  Revenue & Collection cycle

billing customer                       Actg Dept

collecting cash              mailroom or lock box
     depositing cash receipts
reconciling bank statement             Treasurer




                                                    24
Patrick
Vocabulary word

 what is a lockbox ?




                       25
Cash Receipts


 See Exhibit 6.3

    page 219



                   26
Jason G
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

                                                 27
Darryn
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

                                               28
  Craig
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

                                                 29
Alysia
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

                                               30
Cash Disbursements


    See Exhibit 6.4

       page 220



                      31
Christine
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


                                                      32
Jesun
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


                                                      33
Rachel
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


                                                      34
     Rob F

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


                                                           35
Nick
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


                                                  36
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” be over or under stated


                                                  37
  Kathleen

What is detection risk at the start of every audit ?

How does detection risk get reduced ?




                                                       38
    at the beginning of the audit DR = 1.00


                         AR  0.05
AR  CR  MAX  DR                  DR
                         CR  1.00
           req' d DR  Low


     the only way to reduce DR is for the
  auditor to perform substantive tests

  req’d DR is Low => extensive subst. tests
                                              39
cut-off bank statement
        page 225




                         40
bank confirmation
     page 227




                    41
bank reconciliation (page 226)
 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

                                                      42
         proof of cash (page 226)
                      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


                                                               43
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


                                                           44
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



                                                            45
Cash Receipts =
        beginning Accounts Receivable
   +    Sales
   -    ending Accounts Receivable




                                        46
schedule of transfers

      handout




                        47
        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




                                                                     48
       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
                                                 49
Song

handout

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



                                      50
               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
                                         51
        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




                                         52
consolidated cash understated by $10,000




                                           53
Tracy

handout

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



                                      54
               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
                                         55
        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


                                         56
consolidated cash overstated by $20,000




                                          57
Lisa

handout

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



                                      58
              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
                                         59
        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




                                         60
this should show up as an
  outstanding check on the Parent’s bank
  reconciliation
  deposit in transit on the sub’s bank
  reconciliation



                                           61
Tony

handout

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



                                     62
              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
                                         63
        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


                                         64
            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
 12/31/09 but not recording the deposit in the books
 until 1/2/10 would enable the Sub to reconcile
 their Bank Statement

                                                   65
cut-off at 12/31/2009




                        66
Keith

cash receipts
 are you going to audit the last 25 entries in
 the Cash Receipts Jnl prior to 12/31/09
 or
 the first 25 entires in the Cash Receipts Jnl
 after 1/1/10

                                                 67
Randy

cash receipts - will you

             Vouch or      Trace ?




                                     68
Kristin


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



                                                 69
         cash
        250
                300
        450     200
        350     275
        550     100
        200     450
12/31
 1/1    100     300
        375     190
        190     320




                      70
Cesar

cash receipts
  what evidence is provided if we audit the
  last 25 entries in the Cash Receipts Journal
  prior to 12/31/09 ?



                                                 71
Chris Mc

cash disbursements
 audit the last 25 checks in the Cash
 Disbursements Jnl prior to 12/31/09
 or
 the first 25 checks in the Cash
 Disbursements Jnl after 1/1/10

                                        72
Max


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



                                                73
         cash
        250
                300
        450     200
        350     275
        550     100
        200     450
12/31
 1/1            300
                190
        100     320
        375
        190




                      74
Sarah


 what evidence is provided if we audit the
 first 25 checks dated after 1/1/2010 ?




                                             75
Lindsey
Vocabulary word

 describe lapping ?




                      76
          Lapping page 218
Customer A’s $100 payment
   cashier pockets A’s check
Cashier uses Customer B’s $100 payment to
credit A’s account on remittance list
Cashier uses Customer C’s $100 payment to
credit B’s account on remittance list

                                            77
Kim
Vocabulary word

 describe kiting ?




                     78
                kiting

Depositing a “hot check” from Bank A into
Bank B.
Depositing a “hot check” from Bank C into
Bank A.




                                            79
Sales cut-off 12-31-2009
   not for Chapter six




                           80
     control of mobile assets


when counting any mobile asset, such as:
    cash
    investments
    some inventory items

you must control the asset to prevent the client
from transferring the asset to another location after
you count it
                                                        81
anyone

credit sales
 are you going to audit the last 25 entries in
 the Sales Jnl prior to 12/31/09
 or
 the first 25 entries in the Sales Jnl after
 1/1/10

                                                 82
anyone


will you

           Vouch or   Trace ?




                                83
                                       Sales Journal
                            invoice
date       customer           no. ref amount    balance
12/30   Babbitt Bros.         7801      1,060    135,000
12/30   Miller Motor Co.      7802      1,135    136,135
12/30   Abbot Sisters         7803        780    136,915
12/31   Orielly RV Center     7804        930    137,845
12/31   Desert Toyota         7805      1,540    139,385
12/31   David Bradley         7806      2,121    141,506
12/31
12/31   Abbot Sisters         7807
                              7808      1,457    142,963
12/31   Sullivan's Store      7809      1,440      1,440
12/31   Carlson Inc.          7810      1,690      3,130
 1/2    Babbitt Bros.         7811      1,960      5,090
 1/3    Holmes Tuttle         7812      2,560      7,650



                                                           84
            accounts receivable    sales
                                           652,500

June           132,000   107,900           132,000
July           137,237   112,200           137,237
August         137,609   116,651           137,609
September      134,160   116,968           134,160
October        138,973   114,036           138,973
November       135,000   118,127           135,000
December       142,963   114,750           142,963

               157,310                1,610,442



                                                     85
                                       Sales Journal
                            invoice
date       customer           no. ref amount    balance
12/30   Babbitt Bros.         7801      1,060    135,000
12/30   Miller Motor Co.      7802      1,135    136,135
12/30   Abbot Sisters         7803        780    136,915
12/31   Orielly RV Center     7804        930    137,845
12/31   Desert Toyota         7805      1,540    139,385
12/31   David Bradley         7806      2,121    141,506
12/31   Abbot Sisters         7807      1,457    142,963
12/31   Sullivan's Store      7808      1,440    144,403
12/31   Carlson Inc.          7809      1,690    146,093
 1/2    Babbitt Bros.         7810      1,960      1,960
 1/2    Holmes Tuttle         7811      2,560      4,520



                                                           86
anyone



 what evidence does it provide if we can
 Vouch the last 25 entries, prior to 12/31/09,
 to the supporting Shipping Documents ?




                                                 87
88
    AU Section 330
    The Confirmation Process
(Supersedes section 331.03.08)
Source: SAS No. 67.
Effective for audits of fiscal periods ending after
June 15, 1992, unless otherwise indicated.


Introduction and Applicability

01 This section provides guidance about the confirmation
   process in audits performed in accordance with
   generally accepted auditing standards. This section

    ù    Defines the confirmation process (see paragraph
         .04).

    ù    Discusses the relationship of confirmation
         procedures to the auditor's assessment of audit
         risk (see paragraphs .05 through .10).

    ù    Describes certain factors that affect the reliability
         of confirmations (see paragraphs .16 through .27).      89
anyone



 what are the three forms of
   receivables confirmations ?




                                 90
three forms of receivables confirmations ?
         positive
               blank form
                    negative
                                     page




                                             91
controlling the confirmation process




                                       92
  alternate procedures

subsequent cash receipts




                           93
aged trial balance
    page 269




                     94
              over       over       over
             90 days    60 days    30 days    current   balance
Ace                        2,529     2,016     11,876    16,421
Applied                             15,939     27,901    43,840
Barry           1,089        743     3,176      8,993    14,001
Brandt            501      7,310    30,948     24,441    63,200
Cermetrics                           3,814      8,617    12,431
Columbia                                        4,321     4,321
Drake                                   740     2,954     3,693
EMC                        1,261      1,048    16,195    18,504


W&M                       1,905      2,167     28,390    32,461
Yancey           815      2,861      9,874     13,562    27,112
              10,157     56,706    160,537    392,136   619,537


                                                                  95
anyone



 for what other financial statement assertion
 might the aged trial balance be helpful ?




                                                96
     shipping documents
sales (and receivables) cut-off




                          at the
                         loading
                          dock

                                   97
shipping documents
           goods shipped in
          2009         2010




                              98
anyone


     do you want to sample the last 25 orders
     that were actually shipped prior to 12/31/09
or
     sample the first 25 orders that were shipped
     after 1/1/10


                                                    99
anyone


         Vouch or Trace




                          100
anyone



 what evidence does it provide if we can
 trace the last 25 orders that were shipped in
 2009 into the 2009 Sales Jnl ?




                                                 101
anyone



 what evidence does it provide if we trace
 the first 25 orders shipped in 2010 into the
 2010 Sales Jnl provide ?




                                                102
shipping documents
           goods shipped in
          2008         2009




                              103
                                       Sales Journal
                            invoice
date       customer           no. ref amount    balance
12/30   Babbitt Bros.         7801      1,060    135,000
12/30   Miller Motor Co.      7802      1,135    136,135
12/30   Abbot Sisters         7803        780    136,915
12/31   Orielly RV Center     7804        930    137,845
12/31   Desert Toyota         7805      1,540    139,385
12/31   David Bradley         7806      2,121    141,506
12/31
12/31   Abbot Sisters         7807
                              7808      1,457    142,963
12/31   Sullivan's Store      7809      1,440      1,440
12/31   Carlson Inc.          7810      1,690      3,130
 1/2    Babbitt Bros.         7811      1,960      5,090
 1/3    Holmes Tuttle         7812      2,560      7,650



                                                           104
anyone



 what evidence would it provided if you
 traced the first 25 orders shipped in 2010
 into the 2009 Sales Jnl?




                                              105
                                       Sales Journal
                            invoice
date       customer           no. ref amount    balance
12/30   Babbitt Bros.         7801      1,060    135,000
12/30   Miller Motor Co.      7802      1,135    136,135
12/30   Abbot Sisters         7803        780    136,915
12/31   Orielly RV Center     7804        930    137,845
12/31   Desert Toyota         7805      1,540    139,385
12/31   David Bradley         7806      2,121    141,506
12/31
12/31   Abbot Sisters         7807
                              7808      1,457    142,963
12/31   Sullivan's Store      7809      1,440    144,403
12/31   Carlson Inc.          7810      1,690    146,093
 1/2    Babbitt Bros.         7811      1,960      1,960
 1/3    Holmes Tuttle         7812      2,560      4,520



                                                           106
anyone

 what opinion do we issue
 while performing substantive tests we find
 material misstatements in the financial
 statements
 the client agrees to make the necessary
 adjustments prior to issuing the financial
 statements

                                              107
anyone

what opinion do we issue
 while performing substantive tests we find
 material misstatements in the financial
 statements
        the client refuses to adjust their
              financial statements

                                              108
109
110
111
112

								
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