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Acfn 3162 CH 2 Audit of Cash and Marketable Securities FC
Acfn 3162 CH 2 Audit of Cash and Marketable Securities FC
YA AAUSC 1
…Audit of Cash
Cash typically has a small account balance, but auditors
devote a large proportion of total audit hours because:
Many transaction cycles affect cash (Liabilities, revenues,
expenses and most other assets flow through cash)
It is the most liquid asset with greater temptation for
misappropriation
Generally classified as High risk account because of its
susceptibility to theft, and can also be significantly
misstated.
YA AAUSC 2
Major Types of cash Accounts
YA AAUSC 3
…Major Types of cash Accounts
..TYPES OF CASH ACCOUNTS
1. General Cash Account- all cash receipts and
disbursements flow through this account The general
checking account is the principal bank account in most
companies and frequently the only bank account in small
businesses.
A company deposits in and disburses cash from this account.
A company cycles all transactions through it. For example, a
company deposits from and disburses to all other bank
accounts through the general checking account.
YA AAUSC 4
…Major Types of cash Accounts
YA AAUSC 6
..Major Types of cash Accounts
YA AAUSC 7
Cash Control
Cash Control
Strict Cash Management and Control: Why?
Stronger internal control mechanisms are applied for cash due to the
following reasons:
Many transactions affect cash in the form of payment and collection,
so it is exposed to misappropriation and embezzlement,
Cash is the most liquid asset that can easily be misused since
everyone would like to have it,
Cash lacks identification of ownership
YA AAUSC 8
..Cash Control
YA AAUSC 11
..Cash Control
YA AAUSC 12
RELEVANT FINANCIAL STATEMENT
ASSERTIONS RELEVANT TO CASH
Completeness - Cash balances include all cash transactions that occurred during
the period
Rights and obligations - Company has title to the cash accounts as of balance
sheet date
Presentation and disclosure - Cash is properly classified on the balance sheet and
disclosed in notes to the financial statements
YA AAUSC 13
Audit Program for Cash
YA AAUSC 16
Audit Program for Cash-PERFORMING RISK
ASSESSMENT PROCEDURES FOR CASH ACCOUNTS
ASSESSING FRAUD RISK
Three factors considered in assessing fraud risk:
1.Opportunities- Existence of circumstances such as absence of control,
ineffective control, or the ability of management to override control
2. Incentives/pressures- management or other employees have
incentive/pressure which provides motivation to commit fraud (eg.
someone needs money)
YA AAUSC 17
Audit Program for Cash-PERFORMING RISK
ASSESSMENT PROCEDURES FOR CASH ACCOUNTS
YA AAUSC 18
Audit Program for Cash-PERFORMING RISK
ASSESSMENT PROCEDURES FOR CASH ACCOUNTS
YA AAUSC 19
Audit Program for Cash-PERFORMING RISK
ASSESSMENT PROCEDURES FOR CASH ACCOUNTS
YA AAUSC 20
Audit Program for Cash-PERFORMING RISK
ASSESSMENT PROCEDURES FOR CASH ACCOUNTS
YA AAUSC 21
Audit Program for Cash: RESPONDING TO IDENTIFIED
RISKS OF MATERIAL MISSTATEMENT
YA AAUSC 22
Audit Program for Cash: RESPONDING TO IDENTIFIED
RISKS OF MATERIAL MISSTATEMENT
YA AAUSC 23
Audit Program for Cash: RESPONDING TO IDENTIFIED
RISKS OF MATERIAL MISSTATEMENT
YA AAUSC 24
Audit Program for Cash: Performing Tests of
Control & Substantive Tests
Performing Tests of Control:
Tests of transactions controls are performed by:
Inquiry of personnel performing the control
Observation of control being performed
Inspection of documentation confirming that control has
been performed
Re-performance of control by individual testing the control
YA AAUSC 25
Audit Program for Cash: Performing Tests of
Control & Substantive Tests
YA AAUSC 26
Audit Program for Cash: Performing Tests of
Control & Substantive Tests
….Performing Substantive tests of details for
Cash Accounts:
1. Preparing independent bank reconciliations
Auditor independently verifies the following
items when testing client’s bank reconciliation
▪ Balance as per bank statement
▪ Deposits in transit
▪ Outstanding checks
▪ Other adjustments
YA AAUSC 27
Audit Program for Cash: Performing Tests of
Control & Substantive Tests
….Performing Substantive tests of details for Cash
Accounts:
2. Obtaining bank confirmations and bank cutoff statements
Confirmations from bank is essential:
To verify the actual cash balance,
To confirm loan balance (the same form can serve both purposes)
Banks are obligated to inform the CPA firm of any loans not
included on the confirmation about which the bank has
knowledge.
This helps to achieve completeness objective for unrecorded bank
balances and loans from the bank.
YA AAUSC 28
Audit Program for Cash: Performing Tests of
Control & Substantive Tests
….Performing Substantive tests of details for
Cash Accounts:
Receipt of a Cutoff Bank Statement
A cutoff bank statement is a partial-period bank
statement and the related documents (copies of
cancelled (paid) checks, duplicate deposit slips, and
other documents included in bank statements), mailed
by the bank directly to the CPA firm’s office.
If a cutoff statement is not received directly from the
bank, auditors use the subsequent period bank statement
YA AAUSC 29
Audit Program for Cash: Performing Tests of
Control & Substantive Tests
….Performing Substantive tests of details for Cash
Accounts:
3. Preparing bank transfer schedules
Embezzlers occasionally cover a defalcations of cash by a practice known as
kiting, an act of transferring money from one bank to another and improperly
recording the transaction. It is a fraudulent cash scheme to overstate cash
assets at year end by showing the same cash in two different bank accounts
YA AAUSC 31
Internal Control over Marketable Securities
Marketable securities
These are investments in debt and equity securities from
temporarily idle cash (expected to be sold within one-year).
Based on the management’s intent to hold investments in
securities, three are three classifications:
1. Trading - to be sold in near term (are part of C/Asset)
2. Available for Sale – No immediate plan to sale
(C/Asset or Non current, depends on length of period)
3. Held to Maturity –There is an intenet to held until
maturity (C/Asset or Non current, depends on length of
period
YA AAUSC 32
Internal Control over Marketable Securities
YA AAUSC 34
Audit Program for Marketable Securities
YA AAUSC 35
Audit Program for Marketable Securities
CONTROL RISKS
This involves assessing risks for
Theft of securities if they are not physically controlled
Authorization and monitoring over their trade is not effective
Lack of policies over purchase or sale of securities
Lack of monitoring of changes in securities balances
Lack of policies over valuation or classification of securities
Lack of segregation of duties between those responsible for:
Making investment decisions
Custody of securities
Lack of involvement or oversight by internal audit in relation to
securities
YA AAUSC 36
Audit Program for Marketable Securities
YA AAUSC 37
Audit Program for Marketable Securities
YA AAUSC 38
Audit Program for Marketable Securities
YA AAUSC 39
Audit Program for Marketable Securities
YA AAUSC 41
Audit Program for Marketable Securities
disclosure)
YA AAUSC 42
Audit Program for Marketable Securities
YA AAUSC 43
Audit Program for Marketable Securities
Classification of securities
Valuation of securities
Reports of any outside valuation experts
Documentation of calculation of potential impairments
YA AAUSC 44