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Modern Auditing:Assurance Services and the Integrity of Financial Reporting, 8th EditionWilliam C. BoyntonCalifornia Polytechnic State University at San Luis ObispoRaymond N. JohnsonPortland State UniversityChapter 18 Auditing Investments and Cash Balances
Chapter Overview
Auditing Investments
Investments Audit Objectives
InvestmentsUnderstanding the Entity and Environment
Analytical Procedures
Inherent Risk
Consideration of Internal Controls Common Documents and RecordsStock certificate
Bond certificate
Bond indenture
Brokers advice
Consideration of Internal Controls Common Documents and RecordsBrokers statement
Books of original entry
Investment subsidiary ledger
Functions and Related ControlsAuthorize Investment TransactionsPurchasing securitiesSelling securities
Receive or Deliver SecuritiesReceiving securitiesSafeguarding securitiesDelivering securitiesReceiving periodic income
Functions and Related ControlsRecord TransactionsRecording purchases, sales, and incomeRecording market adjustments and reclassificationsReviewing purchases, sales, and income transactions
Settle TransactionsReceiving cashDisbursing cashAssessing investment performance and reporting
Preliminary Audit Strategies for Investments
Substantive Tests of InvestmentsInitial Procedures
Analytical Procedures
Tests of Details of Transactions
Substantive Tests of InvestmentsTests of Details of BalancesInspect and Count Securities on HandConfirm Securities Held by OthersRecalculate Investment Revenue Earned
Tests of Details of Accounting EstimatesProper Classification of Investments
Substantive Tests of InvestmentsAuditing the Fair Value of Investments
Tests of Details of Presentation and Disclosure
Study BreakThis document is an engraved, prenumbered form showing the number of bonds owned by a bondholder.Stock certificateBond certificateBond indentureBrokers advice
B. Bond certificate
Study BreakWhile recording investing transactions, all of the following functions need to be carried out, except:Recording purchases, sales, and incomeRecording market adjustments and reclassificationsReviewing purchases, sales, and income transactionsAssessing investment performance and reporting
D. Assessing investment performance and reporting
Study BreakAll of the following are proper classification for investments, except:Held-to-maturity securitiesDaily securitiesTrading securitiesAvailable-for-sale securities
B. Daily securities
Auditing Cash Balances
Cash Balances Audit Objectives
Cash BalancesAnalytical Procedures
Inherent Risk
Consideration of Internal Controls
Preliminary Audit Strategies for Cash Balances
Substantive Tests for Cash BalancesInitial Procedures
Analytical Procedures
Substantive Tests for Cash BalancesTests of Details of TransactionsPerform Cash Cutoff TestsCash Receipts Cash Disbursements
Trace Bank TransfersKitingBank Transfer Schedule
Substantive Tests for Cash BalancesTests of Details of TransactionsCount Cash on HandCash Counts
Tests to Detect LappingConfirm Accounts ReceivableMake a Surprise Cash CountCompare Details of Cash Receipts Journal Entries with the Details of Corresponding Daily Deposit Slips
Substantive Tests for Cash BalancesTests of Details of BalancesConfirm Bank Deposit and Loan BalancesConfirm Other Arrangements with BanksScan, Review, or Prepare Bank ReconciliationsObtain and Use Bank Cutoff Statements
Tests of Details of Presentation and Disclosure
Study BreakCash is related to all of the following cycles, except:Revenue CycleFinancing CycleExpenditure CycleAll of the Above
D. All of the Above
Study BreakThis test of details of transactions for cash balances involves the counting of all undeposited cash receipts and change funds.Perform Cash Cutoff TestsTrace Bank TransfersCount Cash on HandTests to Detect Lapping
C. Count Cash on Hand
Study Break______ is a form of fraud the results in the deliberate misappropriation of cash receipts.KitingCash CountsCompensating Balance Lapping
D. Lapping
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