auditing the financing/investing process: cash and investments · 2014-08-11 · auditing the...

Chapter 16

Auditing the Financing/Investing Process: Cash and

Investments

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Cash and the Effect of Major Accounting

Transactions/Business Processes

LO# 1

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Types of Bank Accounts

In order to optimize its cash flow, an entity implements

procedures for accelerating the collection of cash

receipts and delaying the payment of cash

disbursements, to the extent delay is appropriate.

General Cash

Account

Imprest Cash

Accounts

Branch

Accounts

Types of Bank

Accounts

LO# 2

16-3

Substantive Analytical

Procedures—Cash

This limited applicability of substantive analytical procedures is normally offset

by (1) extensive tests of controls and/or substantive tests of transactions for cash

receipts and disbursements or (2) extensive tests of the entity’s bank

reconciliations.

Because of the residual nature of

the cash account, the auditor’s

use of substantive analytical

procedures for auditing cash is

limited to . . .

comparisons with

prior years’ cash

balances.

comparisons with

budgeted amounts.

LO# 3&4

16-4

Substantive Tests of Details

of Transactions and Balances

LO# 3&4

16-5

Balance-Related Assertions

LO# 3&4

16-6

Auditing the General Cash

Account

Copy of Bank

Reconciliation

Standard Bank

Confirmation

Cutoff Bank

Statement

To audit a cash

account, the auditor

should obtain these

items.

LO# 5

16-7

Fraud-Related Audit Procedures

Extended Bank

Reconciliation

Procedures

Proof of Cash

Tests for Kiting

LO# 6

16-8

Disclosure Issues for Cash

LO# 6

16-9

Auditing Investments

Common Stock Preferred Stock

Debt Securities Hybrid Securities

LO# 7

16-10

Control Risk Assessment—

Investments

Occurrence

and

Authorization

Completeness

Accuracy and

Classification

Here are some of the more

important assertions for

investments.

LO# 8

16-11

Segregation of Duties

LO# 9

16-12

Substantive Procedures for Testing

Investments

LO# 10

16-13

Advanced Module: Auditing Fair

Value Measurements

LO# 11

ASC Topic 820 Levels

Level 1: Valuations based on quoted prices in active markets for identical assets. Also known as “marking to market.”

Level 2: Valuations based on directly or indirectly observable market data for similar assets. Also known as “marking to matrix.”

Level 3: Valuations based on management’s best judgment and involve management’s assumptions. Also known as “marking to model.”

16-14

Advanced Module: Auditing Fair

Value Measurements

LO# 11

Obtain an understanding of how management makes the fair value measurements.

Consider whether specialized skills or knowledge are required.

Test the entity’s fair value measurements.

Evaluate the reasonableness of the fair value measurements.

16-15

End of Chapter 16

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