chapter 6 audit of cash accounting 4081chapter 6
TRANSCRIPT
Chapter 6
Audit of Cash
Accounting 408 1Chapter 6
Accounting 408 Chapter 6 2
1. Substantive Tests –General Concepts
Audits are performed by dividing the f/s into smaller segments or components
Transaction cycles Groups of repetitive transactions
Examples Revenue Cycle
relating to sales, shipping, receivables, and collections Acquisition Cycle
referring to purchases, payables, and payments Production Cycle
relating to manufacturing products and storage Also, payroll, investing, financing
Assertions, Objectives, Evidence and Procedures
Accounting 408 Chapter 6 3
Accounting 408 Chapter 6 4
1. Substantive Tests –General Concepts
Combining CR assessments accounts affected by a single
transaction cycle accounts affected by more than one
transaction cycle
Accounting 408 Chapter 6 5
Accounting 408 Chapter 6 6
1. Substantive Tests –General Concepts (con’t)
Approaches for substantive tests tests of details of balances tests of details of transactions overstatement errors understatement errors
Designing substantive tests nature timing extent
Accounting 408 Chapter 6 7
Accounting 408 Chapter 6 8
1. Substantive Tests –General Concepts (con’t)
Types of substantive tests tests of details
of transactions of balances effectiveness depends on type of test used and sample size
substantive analytical procedures usually less effective than tests of details usually lower in cost can enhance effectiveness by
more reliable procedure (e.g., comparing ratios to industry average instead of just comparing account balance to prior year account balance, regression analysis)
more reliable expectations, (more predictable relationships) (e.g., obtained from independent sources, independence level of internal sources)
effectiveness of internal control (i.e., source data is more reliable) less effective procedure if data used is subject to management
discretion (e.g., maintenance expense, advertising expense)
Accounting 408 Chapter 6 9
2. Cash - Internal Control Internal control over cash receipts
general rules for handling cash separate functions: receiving cash,
depositing cash, recording the transactions, reconciling
controls over cash sales, payments received through the mail
documents and records: remittance advice, cash receipts list, daily cash summary, deposit slip
Accounting 408 Chapter 6 10
2. Cash - Internal Control Internal control over cash
disbursements steps: pay from approved voucher,
control check signing, mail payment, cancel voucher, record cash payment
documents and records: paid voucher file, cash disbursements journal
2. Cash - Internal Control
Cash key control activities Information processing
voucher packet (Purchase requisition, purchase order, receiving report, invoice) matched prior to cash disbursement authorization
deposits reconciled to amounts credited to accounts receivable ledger bank reconciliation
Physical controls over the security of assets deposit cash and checks daily and intact lock box account dual custody over cash unused checks secured check imprinting machine
Segregation of duties separate authorization, custody, recording, reconciliation
Reconciliations
Accounting 408 11Chapter 6
Accounting 408 Chapter 6 12
3. Cash - Substantive Tests Cash
Bank confirmation Cutoff bank statement Bank reconciliation Four-column proof of cash Interbank transfer schedule Cash cutoff tests Count cash on hand
Exhibit 6.8Bank Confirmation
Accounting 408 13Chapter 6
Proof of Cash
Accounting 408 14Chapter 6
Accounting 408 Chapter 6 15
3. Cash - Substantive Tests
Cash Existence and Occurrence
confirmation, cutoff tests, cash count, reconciliation
Rights and Obligations confirmation, cash count, reconciliation
Completeness analytical procedures, confirmation, cutoff
tests, cash count
Accounting 408 Chapter 6 16
3. Cash - Substantive Tests
Cash Valuation
little problem, confirmation, cash count Presentation and Disclosure
compare statement presentation to GAAP compensating balances, overdrafts, lines
of credit, loan guarantees
Chapter 6 17
Review Questions for Discussion Chapter 6
6.106.116.15
Accounting 408
6.166.176.19