Auditing the Financing/Investing Process: Cash and Investments

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Presentation transcript:

Auditing the Financing/Investing Process: Cash and Investments Chapter 16 Auditing the Financing/Investing Process: Cash and Investments McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

LO# 1 Cash and the Effect of Major Accounting Transactions/Business Processes 16-2

Types of Bank Accounts Types of Bank Accounts LO# 2 Types of Bank Accounts General Cash Account Imprest Cash Accounts Branch Accounts Types of Bank Accounts In order to optimize its cash flow, an entity implements procedures for accelerating the collection of cash receipts and delaying the payment of cash disbursements, to the extent delay is appropriate. 16-3

Substantive Analytical Procedures—Cash LO# 3&4 Because of the residual nature of the cash account, the auditor’s use of substantive analytical procedures for auditing cash is limited to . . . comparisons with prior years’ cash balances. comparisons with budgeted amounts. This limited applicability of substantive analytical procedures is normally offset by (1) extensive tests of controls and/or substantive tests of transactions for cash receipts and disbursements or (2) extensive tests of the entity’s bank reconciliations. 16-4

Substantive Tests of Details of Transactions and Balances LO# 3&4 Substantive Tests of Details of Transactions and Balances 16-5

Balance-Related Assertions LO# 3&4 Balance-Related Assertions 16-6

Auditing the General Cash Account LO# 5 Auditing the General Cash Account Copy of Bank Reconciliation To audit a cash account, the auditor should obtain these items. Standard Bank Confirmation Cutoff Bank Statement 16-7

Fraud-Related Audit Procedures LO# 6 Fraud-Related Audit Procedures Extended Bank Reconciliation Procedures Proof of Cash Tests for Kiting 16-8

Disclosure Issues for Cash 16-9

Auditing Investments Common Stock Preferred Stock Debt Securities LO# 7 Auditing Investments Common Stock Preferred Stock Debt Securities Hybrid Securities 16-10

Control Risk Assessment—Investments LO# 8 Control Risk Assessment—Investments Here are some of the more important assertions for investments. Occurrence and Authorization Completeness Accuracy and Classification 16-11

LO# 9 Segregation of Duties 16-12

Substantive Procedures for Testing Investments LO# 10 Substantive Procedures for Testing Investments 16-13

Advanced Module: Auditing Fair Value Measurements LO# 11 Advanced Module: Auditing Fair Value Measurements ASC Topic 820 Levels Level 1: Valuations based on quoted prices in active markets for identical assets. Also known as “marking to market.” Level 2: Valuations based on directly or indirectly observable market data for similar assets. Also known as “marking to matrix.” Level 3: Valuations based on management’s best judgment and involve management’s assumptions. Also known as “marking to model.” 16-14

Advanced Module: Auditing Fair Value Measurements LO# 11 Advanced Module: Auditing Fair Value Measurements Obtain an understanding of how management makes the fair value measurements. Consider whether specialized skills or knowledge are required. Test the entity’s fair value measurements. Evaluate the reasonableness of the fair value measurements. 16-15

End of Chapter 16 16-16