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AUDIT OF CASH BALANCE. 23. Society Expects A Lot From Auditors. Cash in the Bank and Transaction Cycles. Cash in the Bank and Transaction Cycles. Failure to bill a customer Billing a customer at a lower price than called for by company policy

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Presentation Transcript
slide1

AUDIT OF CASH

BALANCE

23

Society Expects A

Lot From Auditors

slide2

Cash in the Bank

and

Transaction Cycles

slide3

Cash in the Bank and Transaction Cycles

  • Failure to bill a customer
  • Billing a customer at a lower price than called for by company policy
  • a defalcation of cash by interception of cash receipts from customers before
  • they are recorded, with the account charged off as a dab debt
  • Duplicate payment of a vendor’s invoice
  • Improper payments of officers’ personal expenditures
  • Payment for raw materials that were not received
  • Payment to an employee for more hours than he or she worked
  • Payment of interest to a related party for an amount in excess
  • of the going rate
slide4

TYPES OF CASH ACCOUNTS

 General Cash Account

 Imprest Payroll Account

 Branch Bank Account

 Imprest Petty Cash Fund

 Cash Equivalents

slide6

AUDIT OF THE

GENERAL CASH ACCOUNT

Receipt of a Bank

Confirmation

Receipt of a Cutoff

Bank Statement

Tests of the

Bank Reconciliation

slide7

FIRGURE 22 -4

Working Paper for a

Bank Reconciliation

slide8

FIRGURE 22 - 5

Standard Confirmation

of Financial Institution

Account Balance Information

slide10

FRAUD-ORIENTED PROCEDURES

  • Extended Tests of the Bank Reconciliation
  • All recorded cash receipts were deposited.
  • All deposits in the bank were recorded in the accounting records.
  • All recorded cash disbursements were paid by the bank.
  • All amounts that were paid by the bank were recorded.
slide11

A reconciliation of the balance on the bank statement

    • with the general ledger balance at the beginning of
    • the proof-of-cash period.
  • A reconciliation of cash receipts deposited per the
  • bank with the cash receipts journal for a
  • given period.
  • A reconciliation of cancelled checks clearing the bank
  • with the cash disbursements journal for a
  • given period.
  • A reconciliation of the balance on the bank statement
  • with the general ledger balance at the end of the
  • proof-of-cash period.

Proof of Cash

slide12

FIGURE 22 - 7

Interim

Proof of Cash

slide13

Types of Cash Accounts

and their Relationship

to the General

Cash Account

slide14

FIGURE 22 - 8

Interbank Transfer working Paper

slide15

Petty Cash

Petty cash is a unique account because it is often immaterial

in amount,yet it is verified on many audits.

The account is verified primarily because of the potential

for defalcation and the client’s expectation of an audit

review even when the amount is immaterial.

slide16

SUMMARY

¶ Transactions in most cycles affect the cash account.

¶ Wait to audit the ending cash balance until the

controls and substantive tests of transactions

have been completed for all cycles.

¶ Tests of the cash balance normally include include

tests of the bank reconciliation’s of key cash

accounts, such as the general cash accounts,

imprest payroll account, and imprest

petty cash fund.

slide17

Which of the Following Misstatements

Will Be Uncovered by a Carefully

Prepared Independent Bank

Reconciliation?

  • Cash receipts recorded in the cash receipts journal but lost before deposit.
  • A check recorded in the cash disbursements journal for an amount $100 greater than the amount that the check was written for.
  • Cash receipt lost before it was recorded in the cash receipts journal.
  • Bank debit memo that should have been charged to a different customer.
  • A check written for $100 more than the amount on the vendor’s invoice.
  • A stop-payment by a customer where the client was not informed that the
  • stop-payment had taken place.