Cash – Substantive Testing

1. Cash – Substantive Testing CAS 500 – Audit evidence CAS 505 – External confirmations CAS 520 – Analytical procedures

2. Cash Receipts and Cash Balances Most companies require little authorization to accept payments from customers. Authorization is required for LO1

3. Cash Receipts and Cash Balances — Custody At some point, someone has the cash and cheques in hand, and has physical custody at that point. Cash is attractive and has no evidence of ownership other than possession LO1

4. Cash Receipts and Cash Balances —Recording The accountants who record cash, should not handle cash. Cash should be recorded using the remittance lists. On recording, what accounts are updated? LO1

5. Cash Receipts and Cash Balances —Periodic Reconciliation Bank reconciliations need to be prepared carefully. By whom? Deposit slips should be traced to: Paid cheques should be compared to LO1

6. The Existence Assertion A Bank Confirmation Very strong external evidence Good idea to get confirmation of zero balances LO5

7. Using Bank Confirmations A Bank Confirmation is considered to be a required generally accepted audit procedure. For cash and loan balances, a standard bank confirmation form is used for confirmation of deposit and loan balances. There are sections on the form for: LO6

8. The standard bank confirmation form is used to confirm deposit and loan balances.

9. Controlling the Confirmation The auditor needs to control the confirmations, including the bank address to which they are sent. Auditors do not need to be concerned with the confirmation response rate: Why? LO6

10. Audit of Bank Reconciliations Bank reconciliations are audited 100%: Bank balance is confirmed The reconciliation is Reconciling items are The auditor obtains a cut-off bank statement directly from the client’s bank. LO7

11. Financial Statement Presentation of Cash On the balance sheet: In the notes:

12. Problem DC 11-5, Page 612 The Patrick Company had poor internal control over its cash transactions. Facts about its cash position at November 30 were as follows: The cash books showed a balance of $18,901.62, which included undeposited receipts. A credit of $100 on the bank statement did not appear on the books of the company. The balance according to the statement was $15,550. When you receive the cutoff bank statement on December 10, the following cancelled cheques were enclosed: No. 6500 for $116.25, No. 7126 for $150.00, No. 7815 for $253.25, No. 8621 for $190.71, No. 8623 for $206.80, and No. 8632 for $145.28. The only deposit was in the amount of $3,794.41 on December 7. The cashier handles all incoming cash and makes the bank deposits personally. He also reconciles the monthly bank statement. His November 30 reconciliation is shown below. Required: You suspect that the cashier has stolen some money. Prepare a schedule showing your estimate of the loss How did the cashier attempt to conceal the theft? Based only on the information above, name two specific features of internal control that are missing. If the cashier’s October 31 reconciliation is known to be in order and you start your audit on December, what specific auditing procedures could you perform to discover the theft?