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Cash and Financial Investments Chapter 10 Juan M. Garcia Merced Cont 4017 Slide 2 CPA Juan M. Garcia Merced Sources and Nature of Cash Includes general, payroll, petty cash and savings accounts. Cash equivalents are often combined with cash items (Cds, money market funds). The liquid nature of cash increases the risk of misappropriation. Slide 3 CPA Juan M. Garcia Merced Auditors Objectives - Cash a.Substantiate the existence of recorded cash and occurrence of the related transactions b.Establish the completeness of recorded cash c.Verify the cutoff and accuracy of cash transactions d.Determine that the client has rights to recorded cash e.Determine that the presentation and disclosure of cash, including restricted funds, are appropriate Slide 4 CPA Juan M. Garcia Merced Audit Time for Cash Auditors devote a larger proportion of the total audit hours to cash than might be suggested by the relatively small amount at year end. All transactions flow through cash. Most liquid asset. Inherent risk is high. Slide 5 CPA Juan M. Garcia Merced Audit Program Substantive Procedures for Cash Slide 6 CPA Juan M. Garcia Merced Obtain analyses of cash balances and trace or reconcile them to the general ledger Slide 7 CPA Juan M. Garcia Merced Send Standard Bank Conf. Slide 8 CPA Juan M. Garcia Merced Obtain or prepare bank reconciliations Slide 9 CPA Juan M. Garcia Merced Obtain a cutoff bank statement containing transact. of at least 7 days subsequent to the balance sheet date Slide 10 CPA Juan M. Garcia Merced Count and list cash on hand Slide 11 CPA Juan M. Garcia Merced Verify the clients cutoff of cash receipts and disbursements Slide 12 CPA Juan M. Garcia Merced Analyze bank transfers for last week of audit year and first week of following year Ck #FromToAmount Disb Books Disb Bank Receipt Books Receipt Bank 5897GeneralPayroll30,62012/281/312/28 6006GeneralBranch 424,018Jan 02Jan 0412/30 6029Branch 2 General10,000Jan 03Jan 05Jan 312/31 Slide 13 CPA Juan M. Garcia Merced Investigate any checks representing large or unusual payments to related parties To directors, employees, affiliated companies, or cash should be carefully reviewed to determine whether the transaction were: Properly authorized and recorded. Adequately disclosed in the financial statements. Slide 14 CPA Juan M. Garcia Merced Evaluate proper financial statement presentation and disclosure of cash Slide 15 CPA Juan M. Garcia Merced Questions?