*

**Explain The Purpose Of Auditing The Cash And Bank Balances

*Select The Evidence For Cash And Bank Balances

*Apply Suitable Audit Objectives And Assertions On Cash And Bank Balances

*Choose Suitable Audit Test To Be Used When Auditing The Cash And Bank Balances

*Construct Suitable Audit Procedures On Cash And Bank Balances

*What are the auditors primary concerns with regard

to cash?

* What are the auditors primary concerns with regard to cash?

- existence

* What are the auditors primary concerns with regard to cash?

- existence- completeness

* What are the auditors primary concerns with regard to cash?

- existence- completeness- physical control

* What are the auditors primary concerns with regard to cash?

- existence- completeness- physical control- presentation anddisclosure

*Cash Audit Procedures

perform analytical proceduresto test the reasonableness

of cash balances

* Cash Audit Procedures

Enquire of management regarding anycash requirements or restrictions from

debt agreements.

*What is kiting?

* What is kiting?

Kiting is an irregularity wherebyan overstatement of cash is cre-ated by a cash transfer between

bank accounts.

* What is kiting?

Kiting is an irregularity wherebyan overstatement of cash is

created by a cash transfer betweenbank accounts.

The deposit isrecorded in cash receipts but

the disbursement is not re-corded in cash disbursements.

*Kiting exampleOn 12/31, Aces bookkeeper writes a $5,000 chequeon the National Bank and deposits the cheque in the Canadian Bank account.

National Canadian12/31Ace Co.Ace Co. 5000

National

cash receipts journaldescription _ $$ _Dec. 31, 2004Misc. revenue 5000

cash payments journaldescription _ $$ _Dec.31, 2004

- no activity -

*Kiting exampleOn 12/31, Aces bookkeeper writes a $5,000 chequeon the National Bank and deposits the cheque in the Canadian Bank account. The bookkeeper recordsthe deposit in the cash receipts journal butdoes not record the cheque in the cashpayments journal. He also fails to list the chequeas outstanding on the National Bank reconciliation.

*Kiting exampleOn 12/31, Aces bookkeeper writes a $5,000 chequeon the National Bank and deposits the cheque in the Canadian Bank account.

National

Canadian

National will not be aware of the cheque until notification fromCanadian, probably during thefirst few days of January.

*Kiting exampleOn 12/31, Aces bookkeeper writes a $5,000 chequeon the National Bank and deposits the cheque in the Canadian Bank account.

National

Canadian

National will not be aware of the cheque until notification fromCanadian, probably during thefirst few days of January.

As a result of the deposit,Canadian will increase Aces account on 12/31.

Canadian

On 12/31, Aces bookkeeper writes a $5,000 chequeon the National Bank and deposits the cheque in the Canadian Bank account.

NationalNational will not be aware of the cheque until notification fromCanadian, probably during thefirst few days of January.

As a result of the deposit, Canadian will increase Aces account on 12/31.

As a consequence, the bank records will reflect a$5,000 cash overstatement for a few days until thecheque clears. December bank statements will alsosupport this overstatement.

*From an internal control perspective, why does kiting occur?

inadequate segregation ofduties between

accounting andcash custody

*From an internal control perspective, why does kiting occur?

*What effect is changing technology having on the

likelihood of kiting?

*What effect is changing technologyhaving on the likelihood of kiting?

Kiting is becomingless likely because

the float isshrinking; i.e.,

cheques clear banksfaster than in the

past.

*What audit procedures may detect kiting?

*What audit proceduresmay detect kiting?

tests related tothe cutoff bank

statement and schedule of

bank transfers

*Cash Audit ProceduresObtain a bank cutoff statement directlyfrom the bank.

?

*Cash Audit ProceduresObtain a bank cutoff statement directlyfrom the bank.

A bank cutoffstatement is prepared

ten business days after thebalance sheet date.

*Cash Audit ProceduresObtain a bank cutoff statement directlyfrom the bank.

A bank cutoffstatement is prepared

ten business days after thebalance sheet date.

Most items that were outstand-ing at year-end have clearedwhen the cutoff statement

is prepared (cheques, deposits).

*Cash Audit ProceduresObtain a bank cutoff statement directlyfrom the bank.

Trace all cheques, deposits, and othercash changes from the cutoff statementto cash receipts and disbursementsrecords, paying particular attention todates and amounts.

*Cash Audit Procedures

Prepare a schedule of bank transfersshowing all transfers between the clients bank accounts during the lastweek of the audit period and the firstweek of the subsequent period.

*Cash Audit ProceduresPrepare a schedule of bank transfersshowing all transfers between the clients bank accounts during the lastweek of the audit period and the firstweek of the subsequent period.

The schedule shouldbe prepared using cash receiptsand payments journals, year-end

reconciliation, year-end bank state-ment, and cutoff bank statement.

*Cash Audit Procedures

Obtain or prepare a year-end bankreconciliation or proof of cash foreach client bank account.

*Cash Audit ProceduresObtain or prepare a year-end bankreconciliation or proof of cash foreach client bank account.

Whatis a proofof cash?

*Cash Audit ProceduresObtain or prepare a year-end bankreconciliation or proof of cash foreach client bank account.

A proof ofcash is a working

paper prepared by the auditor toreconcile the banks record of theclients beginning balance, cashdeposits, cleared cheques, and

ending balance for the period withthe clients records.

*Cash Audit ProceduresObtain or prepare a year-end bankreconciliation or proof of cash foreach client bank account.

Trace amounts tothe schedule of bank transfers,cash receipts and payments journals, year-end reconcilia-tion, year-end bank statement,

and cutoff bank statement.

*What will a bank reconciliation help the

auditor determine?

* What will a bank reconciliation help the auditor determine?

- whether all client cash receiptshave been deposited

cash receipts journaldescription _ $$ _Dec. 31, 2004Misc. revenue 5000

Canadian

*What will a bank reconciliation help the auditor determine?

- whether all bank deposits have been recorded in client cashreceipts records

cash receipts journaldescription _ $$ _Dec. 31, 2004Misc. revenue 5000

Canadian

*What will a bank reconciliation help the auditor determine?

- whether all client cash pay-ments have been paid by thebank

cash payments journaldescription _ $$ _Dec. 31, 2004Misc. expense 5000

Canadian

*What will a bank reconciliation help the auditor determine?

cash payments journaldescription _ $$ _Dec. 31, 2004Misc. expense 5000

Canadian

- whether all bank payments havebeen recorded in client cashpayments records

*What will not be detected by a bank reconciliation?

*What will not be detected by a bank reconciliation?

- unrecorded cheques that have not cleared the bank (possible kiting)

*What will not be detected by a bank reconciliation?

- unrecorded cheques that have not cleared the bank (possible kiting)

- unrecorded deposits that have not cleared the bank

*What will not be detected by a bank reconciliation?

- unrecorded cheques that have not cleared the bank (possible kiting)

- unrecorded deposits that have not cleared the bank

- cheques written for incorrectamounts

*Cash Audit Procedures

Confirm all cashbalances held by

third parties, such asbanks and other financial

institutions.

BANK

*Cash Audit Procedures

Confirm all cash balances heldby third parties, such as banksand other financial institutions.

possibly throughuse of the standardbank confirmation

*Cash Audit ProceduresCount all cash on hand at the clientspremises. If cash is located in multipleplaces, count cash simultaneously toavoid double counting.

*Cash Audit Procedures

Review cutoffof cash receipts

anddisbursements.

*Cash Audit ProceduresAccount for the numeric sequence ofcancelled cheques. Investigate missingcheques.

Ace Company 6462

Ace Company 6461

Ace Company 6459

Ace Company 6458

Ace Company 6457?

NATIONAL BANK

*Cash Audit Procedures

Review monthlyclient-prepared

bankreconciliations.

*Cash Audit ProceduresInvestigate any cheques

made out to cash or bearer.Ace Company 6458

CASH

NATIONAL BANK

*Cash Audit ProceduresInvestigate any cheques that were

returned by the bank because the clientaccount had insufficient funds.

Ace Company 6458

NATIONAL BANK

*Cash Audit ProceduresReview and recalculate translations

of foreign currencies.

Trace a sample of entries from cash receipts journalto a/r subsidiary ledger

*Cash Audit Procedures

cash receipts journaldescription _ $$ _May 23, 2004ABC Vending 23,000

___a/r subsidiary customer _ $$ _ABC Vending 78,6605/23/04 payment 23,000

balance 55,660

Trace a sample of entries from cash receipts journalto a/r subsidiary ledger to bank statements

cash receipts journaldescription _ $$ _May 23, 2004ABC Vending 23,000

Bank Statement5/31/04

Deposits:

5/23 $23,000

*Cash Audit Procedures

___a/r subsidiary customer _ $$ _ABC Vending 78,6605/23/04 payment 23,000

balance 55,660

Trace a sample of entries from cash receipts journalto a/r subsidiary ledger to bank statements to

deposit slips.

cash receipts journaldescription _ $$ _May 23, 2004ABC Vending 23,000

Bank Statement5/31/04

Deposits:

5/23 $23,000

*Cash Audit Procedures

DepositSlip

5/23/04

23,000

___a/r subsidiary customer _ $$ _ABC Vending 78,6605/23/04 payment 23,000

balance 55,660

Trace a sample of entries from cash payments journal to a/p subsidiary ledger

*Cash Audit Procedures

cash payments journaldescription _ $$ _January 23, 2004a/p payment to

MGB Corp. 4,300

a/p subsidiary vendor _ $$ _MGB Corp 8,7801/23/04 payment 4,300

balance 4,480

Trace a sample of entries from cash payments journal to a/p subsidiary ledger to bank statement

cash payments journaldescription _ $$ _January 23, 2004a/p payment to

MGB Corp. 4300Bank Statement

1/31/04Deposits:

Payments:

1/26 $4300

*Cash Audit Procedures

a/p subsidiary vendor _ $$ _MGB Corp 8,7801/23/04 payment 4,300

balance 4,480

Trace a sample of entries from cash payments journal to a/p subsidiary ledger to bank statement to

cancelled cheques.

cash payments journaldescription _ $$ _January 23, 2004a/p payment to

MGB Corp. 4300Bank Statement

1/31/04Deposits:

Payments:

1/26 $4300

*Cash Audit Procedures

Ace Company 4512

MGB Corp. 1/23/044300

a/p subsidiary vendor _ $$ _MGB Corp 8,7801/23/04 payment 4,300

balance 4,480

NATIONAL BANK