Cash Audit Program 661q8

AUDIT PROGRAM FOR CASH1 Audit Objectives To determine that: a) Cash balances at the end of the reporting period represent cash and cash items on hand, in transit to, or in depository banks. b) Cash transactions have been properly recorded. c) Cash balances are properly described and classified and adequate disclosures with respect to amounts restricted as to withdrawal are made in the financial statements. Audit Procedures 1) Conduct a cash count of undeposited collections, petty cash, and other funds. o Obtain custodian’s signature to acknowledge return of items counted o Reconcile items counted with general ledger balances o Trace undeposited collections counted to bank reconciliations o Follow up dispositions of items in cash counted:  Undeposited collections should be traced to bank deposits  Checks accommodated in petty cash should be deposited after the count to establish their validity  IOUs in the petty cash should be confirmed and traced to collections in the next payroll period  Expense vouchers should be traced to the succeeding replenishment voucher o Coordinate cash count with count of marketable securities and other negotiable assets of the client o Obtain confirmation of year-end fund balances of cash not counted in branches or other offices 2) Confirm bank balance by direct correspondence with all banks in which the client has had deposits and loans during the year 3) Obtain bank reconciliation o Check arithmetical accuracy of reconciliation o Trace balance per book to the general ledger balance of cash o Trace balance per bank to bank statement and compare with amount confirmed by bank o Establish authenticity of reconciling items by reference to their respective sources like bank debit or credit advices or duly approved journal vouchers o Investigate checks outstanding for a long period of time o Investigate any unusual reconciling items o Where internal control over cash is weak, consider preparing a proof of cash reconciliation 4) Obtain cutoff bank statement showing the client’s transactions with the bank at least one week after the reporting date and: o Trace year-end reconciling items such as deposit of the year-end undeposited collections; completeness of year-end outstanding checks and corrections of bank errors o Examine ing documents of year-end outstanding checks that did not clear in 1

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the cutoff bank statement 5) Obtain a list of interbank transfers of funds a few days before and after the reporting date o Vouch ing documents o Ascertain that the related receipts and disbursements were booked by the client within the same date or at least within the same month 6) Test reasonableness of cutoff by:  Comparing dates of checks returned with cutoff bank statement to dates of recording in the cash disbursements  Tracing receipts recorded a few days before the reporting date to bank deposits 7) Inspect savings book and certificates of deposits o Reconcile with book balances o Update interest earned posting on books, if necessary o Compare balances with bank confirmation reply 8) Determine any restrictions on availability of cash 9) Determine propriety of financial statement presentation and adequacy of disclosures Internal Control Questionnaire for Cash2 Date of Examination: As of _________________________ Prepared by: __________________________Date: ________________________ Received by: _________________________ Date: ________________________ Yes

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2. Are receiving reports prepared for each item received and copies transmitted to inventory custodians? To purchasing? To the ing department?

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3. Are purchases made for employees authorized through regular purchases procedures?

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4. Are quantity and quality of goods received determined at the time of receipt by receiving personnel independent of the purchasing department?

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5. Are vendors’ invoices matched against purchase orders and receiving reports before a liability is recorded?

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6. Do managers compare actual expenses to budget?

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7. Are vouchers canceled with a PAID stamp when paid?

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8. Are shipping documents authorized and prepared for goods returned to vendors?

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9. Are invoices approved for payment by a responsible officer?

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Completeness 10. Are the purchase order forms pre-numbered and the numerical sequence checked for missing documents?

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11. Are receiving forms pre-numbered and the numerical sequence checked for missing documents?

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12. Is the s payable department notified of goods returned to vendors?

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Recurrence 1. Are the purchasing department, ing department, receiving department and shipping department independent of each other?

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Remarks

13. Are vendors’ invoices listed immediately on receipt?

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14. Are unmatched receiving reports reviewed frequently and investigated for proper recording?

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15. Is statistical analysis used to examine overall purchasing levels?

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16. Are vendors’ monthly statements reconciled with individual s payable s?

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Accuracy 17. Are competitive bids received and reviewed for certain items?

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Verification 19. Are purchase prices approved by a responsible purchasing officer?

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20. Is s payable reconciled to the general ledger every period?

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21. Are monthly statements reviewed by senior officials?

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18. Are all purchases made only on the basis of approved purchase requisitions?

Classification 22. Do the chart of s and the ing manual give instructions for classifying debit entries when purchases are recorded? 23. Are journal entries authorized at appropriate levels? Cut-Off 24. Does the ing manual give instructions to purchases/payable entries on the date of receipt of goods?

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MULTIPLE CHOICE QUESTIONS3 1) Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting? a. Domination of management by top executives b. Large amounts of cash processed c. Negative cash flows from operations d. Small high-dollar inventory items 2) An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors’ invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the 3

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invoices and related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all a. Cash Disbursement b. Approved vouchers c. Receiving reports d. Vendors’ invoices Assume that a company has a control deficiency regarding the processing of cash receipts. Reconciliation of cash s by a competent individual otherwise independent of the cash function might make the likelihood of a significant misstatement due to the control deficiency remote. In this situation, reconciliation may be referred to as what type of control? a. Compensating b. Preventive c. Adjustive d. Nonroutine Which of the following procedures would an auditor most likely to perform to test controls relating to management’s assertion about the completeness of cash receipts for cash sales at a retail outlet? a. Observe the consistency of the employees’ use of cash s and tapes b. Inquire about employees’ access to recorded but undeposited cash c. Trace deposits in the cash receipts journal to the cash balance in the general ledger d. Compare the cash balance in the general ledger with the bank confirmation request Sound internal control dictates that immediately upon receiving checks from customers by mail, a responsible employee should a. Add the checks to the daily cash summary b. that each check is ed by a prenumbered sales invoice c. Prepare a duplicate listing of checks received d. Record the checks in the cash receipts journal An auditor suspects that a client’s cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor most likely would compare the a. Dates checks are deposited per bank statements with the dates remittance credits are recorded b. Daily cash summaries with the sums of the cash receipts journal entries c. Individual bank deposit slips with the details of monthly bank statements d. Dates uncollectible s are authorized to be written off with the dates the write-offs are actually recorded Upon receipt of customers’ checks in the mailroom, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the a. Internal auditor to investigate the listing for unusual transactions b. Treasurer to compare the listing with the monthly bank statement c. s receivable bookkeeper to update the subsidiary s receivable records

d. Entity’s bank to compare the listing with the cashier’s deposit slip 8) In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also a. Reviews the monthly bank reconciliation b. Returns the checks to s payable c. Is denied access to the ing documents d. Is responsible for mailing the checks 9) Which of the following sets of information does an auditor usually confirm on one form? a. s payable and purchase commitments b. Cash in bank and collateral for loans c. Inventory on consignment and contingent liabilities d. s Receivable and Accrued Interest Receivable 10) The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form May a. Not believe that the bank is obligated to confidential information to a third party b. Sign and return the form without inspecting the accuracy of the client’s bank reconciliation c. Not have access to the client’s cutoff bank statement d. Be unaware of all the financial relationships that the bank has with the client 11) An auditor most likely would limit substantive audit of sales transaction when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence ing a. Opening and closing inventory balances b. Cash receipts and s receivables c. Shipping and Receiving activities d. Cutoffs of sales and purchases 12) An auditor should trace bank transfers for the last part of the audit period and first part of the subsequent period to detect whether a. The cash receipts journal was held open for a few days after the year end b. The last checks recorded before the year-end were actually mailed by the year-end c. Cash balances were overstated because of kiting d. Any unusual payments to or receipts from related parties occurred 13) To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except a. Cutoff bank statement b. Year-end bank statement c. Bank confirmation d. General ledger 14) A cash shortage may be concealed by transporting funds from one location to another or by converting negotiable assets to cash. Because of this, which of the following is vital? a. Simultaneous confirmations

b. Simultaneous bank reconciliations c. Simultaneous verification d. Simultaneous surprise cash count 15) The primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year to a. Detect kiting activities that may otherwise not be discovered b. Corroborate information regarding deposit and loan balances c. Provide the date necessary to prepare a proof of cash d. Request information about contingent liabilities and secured transactions ANSWERS 1) C 2) A 3) A 4) A 5) C 6) A 7) C 8) D 9) B 10) D 11) B 12) C 13) D 14) C 15)

B