Cash and Financial Investments

Cash and Financial InvestmentsCash and Financial Investments

Chapter 10

Juan M. Garcia Merced

Cont 4017

CPA Juan M. Garcia Merced

Sources and Nature of CashSources and Nature of Cash

Includes general, payroll, petty cash and savings accounts.

Cash equivalents are often combined with cash items (Cd’s, money market funds).

The liquid nature of cash increases the risk of misappropriation.


Auditor’s Objectives - CashAuditor’s Objectives - Casha. 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


Audit Time for CashAudit 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.


Audit Program Audit Program – Substantive – Substantive Procedures for Procedures for CashCash


Obtain analyses of cash balances Obtain analyses of cash balances and trace or reconcile them to the and trace or reconcile them to the general ledgergeneral ledger

XYZ, Inc.

CASH 12/31/2001

G/L

A/C BALANCE# DESCRIPTION 12/31/2001

103 CHECKING ACCOUNT - BPPR 18,315.69

100 PETTY CASH 400.00

108 DEPOSITS IN TRANSIT - BPPR 9,035.09

104 BPPR 0.00

105 BANCO SANTANDER 2,004.36

29,755.14

G/L - TRACED TO THE GENERAL LEDGER


Send Standard Bank Conf.Send Standard Bank Conf.


Obtain or prepare bank Obtain or prepare bank reconciliationsreconciliations


Obtain a cutoff bank statement Obtain a cutoff bank statement containing transact. of at least 7 days containing transact. of at least 7 days subsequent to the balance sheet datesubsequent to the balance sheet date


Count and list cash on handCount and list cash on hand


Verify the clients’ cutoff of cash Verify the clients’ cutoff of cash receipts and disbursementsreceipts and disbursements


Analyze bank transfers for last week Analyze bank transfers for last week of audit year and first week of of audit year and first week of following yearfollowing year

Ck # From To Amount

Disb

Books

Disb

Bank

Receipt

Books

Receipt

Bank

5897 General Payroll 30,620 12/28 1/3 12/28 12/28

6006 General Branch 4 24,018 Jan 02 Jan 04 12/30 12/30

6029 Branch 2 General 10,000 Jan 03 Jan 05 Jan 3 12/31


Investigate any checks representing Investigate any checks representing large or unusual payments to related large or unusual payments to related partiesparties

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.


Evaluate proper financial statement Evaluate proper financial statement presentation and disclosure of cashpresentation and disclosure of cash

XYZ, INC.

BALANCE SHEET, DECEMBER 31, 2001 and 2000

ASSETS DRAFT FOR DISCUSSION2001 2000

CURRENT ASSETS

Cash $22,659 $23,653


Questions?Questions?

Cash and Financial Investments

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