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Cash

Cash. Cash is included in several cycles The amount of cash flowing into and out of the cash account is often larger than that for any other account Susceptibility to defalcation greater than for other assets errors in cash show up under other cycles Sales, payments, payroll, . Cash.

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Cash

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  1. Cash • Cash is included in several cycles • The amount of cash flowing into and out of the cash account is often larger than that for any other account • Susceptibility to defalcation greater than for other assets • errors in cash show up under other cycles • Sales, payments, payroll,

  2. Cash • Bank reconciliation alone cannot confirm these errors • failure to bill customer • billing a customer at wrong price • interception of cash receipts • duplicate payment of vendor invoice • improper payments of officer’s personal expenditures • payment for raw materials that were not received • payment to employee for more hours than worked

  3. Cash • Accounts: • General Cash • Imprest Payroll • Disbursement Imprest • Deposit Imprest • Branch Bank Account • Imprest Petty Cash Fund

  4. Cash • Cash equivalents • readily convertible to cash • CD’s, time deposits, money market funds

  5. Audit of Cash • Business Risk - Investment policies • Tolerable misstatement needs to be low because inherent risk • Assess Control Risk • controls over transaction cycles • separation of duties (check signing, A/P functions) • prenumbered checks • review of supporting documentation • independent bank reconciliation • statement received unopened by reconciler

  6. Audit of Cash • Tests of Controls and substantive tests • already done in other cycles • Analytical Procedures • compare to prior year and prior month • Tests of Details of Balances • Bank reconciliation • Existence, Accuracy, completeness

  7. Bank reconciliation • compare canceled checks with disbursements records for date, payee and amount • examine canceled checks for signature endorsement and cancellation • compare deposits in bank with recorded receipts for date, customer and amount

  8. Bank reconciliation • Account for numerical sequence of checks and investigate missing ones • reconcile all items causing a difference between book and bank balance • reconcile total debits on bank statement with totals in cash disbursement record • reconcile total credits on the bank statement with the totals in the cash receipt records

  9. Bank reconciliation • review month-end interbank transfers for propriety and proper recording • follow up on outstanding checks and stop-payment notices

  10. Details of Balances • Bank Confirmation • Cutoff bank statement direct to CPA firm • 7 to 10 days subsequent to balance sheet date (you can substitute the subsequent month)

  11. Fraud-oriented procedures • Confirmation • Tests for lapping • Review cash account detail for unusual items • Test customer order to sales to cash receipts • examine approvals on bad debt write offs • requisition, P.O, receiving report, invoice payment

  12. Fraud-oriented procedures • Extended tests of bank reconciliation • look at November bank reconciliation and trace to December activity • December bank statement activity to disbursement and receipts journal • Proof of Cash (both test of transactions and balances) • Bank statement to G/L balance beginning of period • deposits to cash receipts journal • cleared checks with disbursements • bank statement to G/L end of period

  13. Fraud-oriented procedures • Tests for Kiting ( flying a kite) • a checks is recorded in two bank accounts while it is clearing, doubling the total cash balance • Tests of interbank transfers detect kitting

  14. Fraud-oriented procedures • Interbank Transfers • List all bank transfers days before and days after balance sheet date • Trace all transfers to accounting records • accurracy must be verified • recorded in receiving an disbursing accounts • both dates must be in the same fiscal year • disbursements should be included on bank reconciliation correctly • receipts should be included on bank reconciliation correctly

  15. Impress Payroll Account • Same tests as general cash

  16. Audit of Petty Cash • small balance however lots of activity • Count Petty cash • Test reimbursements • foot vouchers • account for sequence of vouchers

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