INTERNAL CONTROL CHECK LIST: Cash Receipts • Remittances deposited intact daily. • Receipts recorded daily by DIP. • Receipted deposit slips matched to other cash details, as Remittance Advices. • Monthly bank reconciliations of all cash accounts by DIP. • Approved pre-numbered documentation required; subsidiary ledgers’ support.
INTERNAL CONTROL CHECK LIST: Cash Receipts • Credit memos & non-cash credits (e.g., bad debt write-offs) properly authorized. • Approved documentation & security codes required for computer inputs to Cash, A/R and Inventory. • Sales Tabulations reviewed, approved, and reconciled to Customer Orders and Unfilled Orders Files, Unbilled shipments. • Cash & Sales Tabulations compared to plans & budgets, etc.
Cash Receipts Audit Objectives • Existence & completeness • Presentation & disclosure • Bank overdrafts • Restricted balances • Compensating balances
Audit Evidence & Procedures for Cash Receipts • Bank confirmation • Bank reconciliation • Cutoff bank statement • Cash receipts cutoff tests • Proof of cash • Analysis of interbank transfers • Vouch receipt before & after year-end
Beware of Kiting! Kiting—recording a bank transfer as a deposit in the receiving bank while failing to show a deduction from the bank account on which the transfer check is drawn.
Warning Signs • Bartered advertising • Inflated sales/fictitious accounts receivable • Inadequate loan loss reserves • Early revenue recognition
Audit Program Summary for Cash Receipts Transactions • Prepare a Proof of Cash for test month(s). • Trace cash receipts from/to A/R subsidiary records, deposit list detail, bank statements, Cash Receipts tabulations. • Tie-in details’ totals to General Ledger. • Test for kiting, lapping, window dressing. • Verify authorizations for non-cash credits to Accounts Receivable. • Write memo with your opinion.
AUDIT PROGRAM: Cash (1/4) • Test prescribed controls for legal, procedural & policy compliances. • Observe counts of all cash funds & signed receipt for same (workpaper in ink); tie-in to G/L. • Prove all Bank Reconciliations for all accounts of the year & tie-in to G/L. • Test mathematics of Reconciliations.
AUDIT PROGRAM: Cash (2/4) • Request cut-off bank statements & compare details to reconciliations. • Test year-end cut-off procedures & consistency with accounts receivable. • Test for inactive accounts, lapping, kiting & window dressing, using Interbank Transfers work papers. • Verify pre-numbering where applicable.
AUDIT PROGRAM: Cash (3/4) • Mail positive confirmations to all banks used during the year. • List and investigate all exceptions. • Tie-in all non-cash details (e.g., notes) to appropriate work papers. • Calculate related accruals. • Consider second, third requests. • Consider an FYE “Proof of Cash.”
AUDIT PROGRAM: Cash (4/4) • Perform analytical procedures & calculate significant ratios, trends. • Scanfor and investigating the unusual. • Analyze for fraud if control absent or weak, or as deemed necessary. • Clear all exceptions; project sampling. • Writea memo with your opinion.
AFTER ALL CAPITONS, the In-charge CPA will… • Review for GAAP consistency and/or violations. • Consider materiality, potential for fraud, misleading data. • Make decisions as to Presentations, Footnotes, Disclosures. • Draft the Audit Report.