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Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition. William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University. Chapter 18 – Auditing Investments and Cash Balances. Chapter Overview.

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Modern Auditing:

Assurance Services and the Integrity of Financial Reporting, 8th Edition

William C. Boynton

California Polytechnic State University at San Luis Obispo

Raymond N. Johnson

Portland State University

Chapter 18 – Auditing Investments and Cash Balances

investments
Investments
  • Understanding the Entity and Environment
  • Analytical Procedures
  • Inherent Risk
consideration of internal controls common documents and records
Consideration of Internal Controls – Common Documents and Records
  • Stock certificate
  • Bond certificate
  • Bond indenture
  • Broker’s advice
consideration of internal controls common documents and records7
Consideration of Internal Controls – Common Documents and Records
  • Broker’s statement
  • Books of original entry
  • Investment subsidiary ledger
functions and related controls
Functions and Related Controls
  • Authorize Investment Transactions
    • Purchasing securities
    • Selling securities
  • Receive or Deliver Securities
    • Receiving securities
    • Safeguarding securities
    • Delivering securities
    • Receiving periodic income
functions and related controls9
Functions and Related Controls
  • Record Transactions
    • Recording purchases, sales, and income
    • Recording market adjustments and reclassifications
    • Reviewing purchases, sales, and income transactions
  • Settle Transactions
    • Receiving cash
    • Disbursing cash
    • Assessing investment performance and reporting
substantive tests of investments
Substantive Tests of Investments
  • Initial Procedures
  • Analytical Procedures
  • Tests of Details of Transactions
substantive tests of investments12
Substantive Tests of Investments
  • Tests of Details of Balances
    • Inspect and Count Securities on Hand
    • Confirm Securities Held by Others
    • Recalculate Investment Revenue Earned
  • Tests of Details of Accounting Estimates
    • Proper Classification of Investments
substantive tests of investments13
Substantive Tests of Investments
  • Auditing the Fair Value of Investments
  • Tests of Details of Presentation and Disclosure
study break
Study Break
  • This document is an engraved, prenumbered form showing the number of bonds owned by a bondholder.
    • Stock certificate
    • Bond certificate
    • Bond indenture
    • Broker’s advice

B. Bond certificate

study break15
Study Break
  • While recording investing transactions, all of the following functions need to be carried out, except:
    • Recording purchases, sales, and income
    • Recording market adjustments and reclassifications
    • Reviewing purchases, sales, and income transactions
    • Assessing investment performance and reporting

D. Assessing investment performance and reporting

study break16
Study Break
  • All of the following are proper classification for investments, except:
    • Held-to-maturity securities
    • Daily securities
    • Trading securities
    • Available-for-sale securities

B. Daily securities

cash balances
Cash Balances
  • Analytical Procedures
  • Inherent Risk
  • Consideration of Internal Controls
substantive tests for cash balances
Substantive Tests for Cash Balances
  • Initial Procedures
  • Analytical Procedures
substantive tests for cash balances22
Substantive Tests for Cash Balances
  • Tests of Details of Transactions
    • Perform Cash Cutoff Tests
      • Cash Receipts
      • Cash Disbursements
    • Trace Bank Transfers
      • Kiting
      • Bank Transfer Schedule
substantive tests for cash balances23
Substantive Tests for Cash Balances
  • Tests of Details of Transactions
    • Count Cash on Hand
      • Cash Counts
    • Tests to Detect Lapping
      • Confirm Accounts Receivable
      • Make a Surprise Cash Count
      • Compare Details of Cash Receipts Journal Entries with the Details of Corresponding Daily Deposit Slips
substantive tests for cash balances24
Substantive Tests for Cash Balances
  • Tests of Details of Balances
    • Confirm Bank Deposit and Loan Balances
    • Confirm Other Arrangements with Banks
    • Scan, Review, or Prepare Bank Reconciliations
    • Obtain and Use Bank Cutoff Statements
  • Tests of Details of Presentation and Disclosure
study break25
Study Break
  • Cash is related to all of the following cycles, except:
    • Revenue Cycle
    • Financing Cycle
    • Expenditure Cycle
    • All of the Above

D. All of the Above

study break26
Study Break
  • This test of details of transactions for cash balances involves the counting of all undeposited cash receipts and change funds.
    • Perform Cash Cutoff Tests
    • Trace Bank Transfers
    • Count Cash on Hand
    • Tests to Detect Lapping

C. Count Cash on Hand

study break27
Study Break
  • ______ is a form of fraud the results in the deliberate misappropriation of cash receipts.
    • Kiting
    • Cash Counts
    • Compensating Balance
    • Lapping

D. Lapping