1. Auditing Cash 1 1 1

2. Cash
Cash represents currency on hand and cash on deposit in bank accounts including certificates of deposit, time deposits, and savings accounts.
Virtually all accounting transactions pass through the cash account at some point.

3. Types of Cash Accounts General cash account Imprest accounts
Payroll accounts
Petty cash accounts
Branch accounts

4. Audit Objectives for Cash
Consider inherent risks of material misstatement, including fraud risks.
Consider internal control over cash transactions
Substantiate the existence of recorded cash
Establish the completeness of recorded cash
Determine that the client has rights to recorded cash
Determine whether the presentation and disclosure of cash is appropriate.
Compensating balances
Bond sinking funds
Establish the accuracy of cash transactions
Verify the proper cutoff of cash transactions

5. Primary Risks for Errors and Fraud Related to Cash
Ending cash balance is overstated
Omission of outstanding check from year-end reconciliation
Fictitious check in cash on hand at year end
Ending cash balance has been improperly reduced
Do client’s records reflect all cash transactions
Were all cash payments properly authorized and made for legitimate business purpose

6. General Internal Control Over Cash
Design of controls should provide assurance that:
All cash that should have been received was in fact received, recorded accurately and deposited promptly.
Cash disbursements have been made only for authorized purposes and have been properly recorded.
Cash balances are maintained at adequate, but not excessive, levels.

7. Internal Control over Cash Receipts
Cash sales
Involvement of two or more employees
Cash Registers
Electronic point of sales systems
Collections of receivables
Initial listing of cash receipts
Custody and depositing of cash receipts
Maintenance of customer account records
Reconciliation of customers’ ledgers with control accounts
Mailing monthly statements to customers
Collection activity and past-due accounts
Lockbox system 3 2 2 2

8. Potential Misstatements for Cash Receipts
Recording fictitious cash receipts
Proper segregation of duties
Bank reconciliations
Failure to record receipts from cash sales
Use of cash registers, POS systems, and encouragement of customers to obtain receipts
Failure to record cash from collection of accounts receivables
Reconciliation of subsidiary A/R ledger to GL control account
Early (late) recognition of cash receipts
List and deposit cash receipts on a timely basis
Ethical environment created by top management 3 3 3

9. Internal Control over Cash Disbursements
Proper segregation of duties
Payment by check or electronic funds transfer
Match of purchase order and receiving documents with vendor’s invoice
Review of supporting documents by authorized check signer
Cancel of supporting documents
Authorized check signer should mail checks 4 4

10. Potential Misstatements for Cash Disbursements
Inaccurate recording of a purchase or disbursement
Proper segregation of duties
Proper matching of voucher documents
Adequate chart of accounts and controls over posting procedures
Duplicate recording and payment of purchases
Proper review and cancellation of supporting documents by check signer
Unrecorded disbursements 5 5

11. Audit Program for Cash Consider internal control over cash
Obtain an understanding of internal control.
Assess control risk and design additional tests of controls for cash.
Perform additional tests of controls for those controls necessary to support the planned level of control risk
Test records and reconciliations by reperformance
Compare a sample from detailed cash receipts listing to CRJ, A/R postings and bank deposit slips.
Compare a sample of recorded disbursements from CDJ to A/P postings, P/Os, receiving reports, and paid checks.
Reassess control risk and modify substantive tests for cash.

12. Substantive Tests for Cash Balances
B. Substantive Tests
Audit Objectives
Obtain analyses of cash balances and reconcile them to the G/L.
Clerical Accuracy
Send confirmation forms to financial institutions.
Obtain bank reconciliations and consider reconciling bank activity.
Obtain bank cutoff statement.
Count cash on hand (concurrently with investments if possible).
Existence and rights
Verify the client’s cutoff of cash transactions.
Analyze bank transfers around year-end.
Completeness
Investigate payments to related parties.
Evaluate financial statement presentation and disclosure.
Presentation and disclosure 6 7 7