1. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-1 Bank Reconciliation Working Paper

2. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-2 Standard Bank Confirmation Form

3. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-3 Cutoff Bank Statement Date of Last Bank Reconciliation 7 to 10 Days A cutoff bank statement normally covers the 7- to 10-day period after the date on which the bank account is reconciled. Any reconciling item should have cleared the client’s bank account during the 7- to 10-day period.

4. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-4 Tests of the Bank Reconciliation The auditor uses the following audit procedures to test the bank reconciliation: 1.Test the mathematical accuracy and agree the balance per the books to the general ledger. 2.Agree the bank balance on the reconciliation with the balance shown on the standard bank confirmation. 3.Trace the deposits in transit on the bank reconciliation to the cutoff bank statement. 4.Compare the outstanding checks on the bank reconciliation with the canceled checks in the cutoff bank statement for proper payee, amount and endorsement. 5.Agree any charges included on the bank statement to the bank reconciliation. 6.Agree the adjusted book balance to the cash account lead schedule.

5. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-5 Fraud-Related Audit Procedures Extended Bank Reconciliation Procedures Proof of Cash Tests for Kiting

6. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-6 Proof of Cash

7. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-7 Tests for Kiting

8. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-8 Auditing a Payroll or Branch Imprest Account The audit of any imprest cash account such as payroll or a branch account follows the same basic audit steps discussed under the audit of the general cash account.

9. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-9 Obtain an Understanding of Internal Control Identify types of potential misstatements Design tests of controls Consider factors that affect the risk of material misstatement Design substantive procedures The auditor should obtain an understanding of each of the five components of internal control in order to plan the audit. This knowledge is used to:

10. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-10 Auditing Petty Cash Usually not material. Potential for defalcation. Seldom perform substantive tests. Document controls.

11. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-11 Disclosure Issues for Cash

12. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-12 Disclosure Issues for Cash

13. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-13 Disclosure Issues for Cash

14. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-14 Investments Common StockPreferred Stock Debt SecuritiesHybrid Securities

15. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-15 Control Risk Assessment—Investments Occurrence and Authorization Completeness Accuracy and Classification Here are some of the more important assertions for investments.

16. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-16 Segregation of Duties

17. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-17 Substantive Procedures for Testing Investments

18. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 16-18 End of Chapter 16