1. 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

2. Chapter Overview

3. Auditing Investments

4. Investments – Audit Objectives

5. Investments Understanding the Entity and Environment
Analytical Procedures
Inherent Risk

6. Consideration of Internal Controls – Common Documents and Records
Stock certificate
Bond certificate
Bond indenture
Broker’s advice

7. Consideration of Internal Controls – Common Documents and Records
Broker’s statement
Books of original entry
Investment subsidiary ledger

8. Functions and Related Controls
Authorize Investment Transactions
Purchasing securities
Selling securities
Receive or Deliver Securities
Receiving securities
Safeguarding securities
Delivering securities
Receiving periodic income

9. 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

10. Preliminary Audit Strategies for Investments

11. Substantive Tests of Investments
Initial Procedures
Analytical Procedures
Tests of Details of Transactions

12. 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

13. Substantive Tests of Investments
Auditing the Fair Value of Investments
Tests of Details of Presentation and Disclosure

14. 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

15. 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

16. 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

17. Auditing Cash Balances

18. Cash Balances – Audit Objectives

19. Cash Balances Analytical Procedures Inherent Risk
Consideration of Internal Controls

20. Preliminary Audit Strategies for Cash Balances

21. Substantive Tests for Cash Balances
Initial Procedures
Analytical Procedures

22. 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

23. 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

24. 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

25. 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

26. 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

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