Cash Audit Procedures

Assertions & Objectives Management Cash Exists Include all transactions that should be presented Represents rights of the entity Valued appropriately Presented and disclosed properly within the financial statements Audit Existence or occurrence Completeness Rights and obligations Valuation or allocation Presentation and disclosure

Approach to audit Nature – using persuasive procedures (bank account confirmation) Timing – perform procedures at the balance sheet date (cut-off) Extent – test more extensively (increase sample size) DUE TO: 1.Detection risk 2.Control risk 3.Inherent risk

CASH Audit Procedures

Substantive Tests: Cash Balance AssertionsProcedures Existence, rights valuation valuation 1.Confirm year-end cash balance with all banks and other depositories 2.Verify mathematical accuracy of recorded cash balance: Foot cash journals Trace totals to the general ledger and to year- end bank reconciliations prepared by client Test cash on hand as necessary Existence Completeness Valuation 3.Test cut-off Obtain cut-off bank statements directly from banks

AssertionsProcedures Existence Completeness Valuation 3. Test cut-off (continued) Obtain cut-off bank statements directly from banks a.Verify accuracy of cut-off bank statements b.Examine information and trace to reconciling items in year-end bank reconciliation and to entries in cash journals c.Consider necessity of preparing proof of cash Reconcile recorded cash balance with returned bank confirmations Examine intercompany and interbank transfer near year end Presentation and disclosure4. Review financial statements to determine whether: Cash balance are properly classified and described Disclosures are adequate

Confirm cash balances Standard form to confirm account balance with financial institutions

Verify mathematical accuracy Recompute totals in cash journals and client- prepared bank reconciliations Trace cash journal totals to postings in general ledger Counts cash on hand (petty cash)

Test cut-off Test if cash receipts and disbursements are recorded in the proper accounting period Cash journals General ledger Bank reconciliations VS Year-end bank statements Cut-off bank statements Returned bank confirmations

BANK RECONCILIATION

LO 10 Explain common techniques employed to control cash. Reconciliation of Bank Balances Schedule explaining any differences between the bank’s and the company’s records of cash. Reconciling Items: 1. Deposits in transit. 2. Outstanding checks. 3. Bank charges and credits. 4. Bank or Depositor errors. Time Lags

LO 10 Reconciliation of Bank Balances

LO 10 Explain common techniques employed to control cash.

Cash542Nov. 30 Office expense 18 Accounts receivable220 Accounts payable180 Interest revenue600 Illustration: Illustration: Journalize the adjusting entries at November 30 on the books of Nugget Mining Company. LO 10 Explain common techniques employed to control cash.

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is: a. outstanding checks. b. deposit in transit. c. a bank error. d. bank service charges. Review Question LO 10 Explain common techniques employed to control cash.

FINANCIAL STATEMENT PRESENTATION AND DISCLOSURE Issues related to Cash

A financial asset—also a financial instrument. Financial Instrument - Any contract that gives rise to a financial asset of one entity and a financial liability or equity interest of another entity. What is Cash?

► Most liquid asset. ► Standard medium of exchange. ► Basis for measuring and accounting for all other items. ► Current asset. LO 1 Identify items considered cash. What is Cash? Examples: coin, currency, available funds on deposit at the bank, money orders, certified checks, cashier’s checks, personal checks, bank drafts and savings accounts.

Short-term, highly liquid investments that are both LO 2 Indicate how to report cash and related items. Reporting Cash (a)readily convertible to cash, and (b)so near their maturity that they present insignificant risk of changes in interest rates. Examples: Treasury bills, commercial paper, and money market funds. Cash Equivalents

When material in amount: Segregate restricted cash from “regular” cash. Current assets or non-current assets Restricted Cash Examples, restricted for: (1) plant expansion, (2) retirement of long-term debt, and (3) compensating balances.

When a company writes a check for more than the amount in its cash account. LO 2 Indicate how to report cash and related items. Bank Overdrafts Generally reported as a current liability. Offset against cash account only when available cash is present in another account in the same bank on which the overdraft occurred.

LO 2 Illustration 7-3 Summary of Cash-Related Items