*

*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 and
disclosure

* Cash Audit Procedures

perform analytical procedures

to test the reasonableness
of cash balances

* Cash Audit Procedures

Enquire of management regarding any
cash requirements or restrictions from
debt agreements.

*What is kiting?

* What is kiting?

Kiting is an irregularity whereby

an overstatement of cash is created by a cash transfer between
bank accounts.

* What is kiting?
Kiting is an irregularity whereby
an overstatement of cash is
created by a cash transfer between
bank accounts.

The deposit is
recorded in cash receipts but
the disbursement is not recorded in cash disbursements.

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

National

Ace Co.

Ace Co.

National

12/31
5000

Canadian

*Kiting example
On 12/31, Aces bookkeeper writes a $5,000 cheque
on the National Bank and deposits the cheque
in the Canadian Bank account. The bookkeeper records
the deposit in the cash receipts journal but
does not record the cheque in the cash
payments journal. He also fails to list the cheque
as outstanding on the National Bank reconciliation.

cash receipts journal

description
_ $$ _
Dec. 31, 2004
Misc. revenue
5000

cash payments journal

description
_ $$ _
Dec.31, 2004
- no activity -

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

National

National will not be aware of

the cheque until notification from
Canadian, probably during the
first few days of January.

Canadian

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

National

National will not be aware of

the cheque until notification from
Canadian, probably during the
first 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 cheque

on the National Bank and deposits the cheque
in the Canadian Bank account.
National will not be aware of
National
the cheque until notification from
Canadian, probably during the
first few days of January.
As a result of the deposit, Canadian
will increase Aces account on 12/31.

Canadian

As a consequence, the bank records will reflect a

$5,000 cash overstatement for a few days until the
cheque clears. December bank statements will also
support this overstatement.

* From an internal control perspective,

why does kiting occur?

* From an internal control perspective,

why does kiting occur?

inadequate
segregation of
duties between
accounting and
cash custody

*What effect is changing

technology having on the

likelihood of kiting?

*What effect is changing technology

having on the likelihood of kiting?

Kiting is becoming
less likely because
the float is
shrinking; i.e.,
cheques clear banks
faster than in the
past.

*What audit procedures may

detect kiting?

*What audit procedures

may detect kiting?

tests related to
the cutoff bank
statement and
schedule of
bank transfers

*Cash Audit Procedures

Obtain a bank cutoff statement directly
from the bank.

*Cash Audit Procedures

Obtain a bank cutoff statement directly
from the bank.

A bank cutoff
statement is prepared
ten business days after the
balance sheet date.

*Cash Audit Procedures

Obtain a bank cutoff statement directly
from the bank.
A bank cutoff
statement is prepared
ten business days after the
balance sheet date.
Most items that were outstanding at year-end have cleared
when the cutoff statement
is prepared (cheques, deposits).

*Cash Audit Procedures

Obtain a bank cutoff statement directly
from the bank.
Trace all cheques, deposits, and other
cash changes from the cutoff statement
to cash receipts and disbursements
records, paying particular attention to
dates and amounts.

*Cash Audit Procedures

Prepare a schedule of bank transfers
showing all transfers between the
clients bank accounts during the last
week of the audit period and the first
week of the subsequent period.

*Cash Audit Procedures

Prepare a schedule of bank transfers
showing all transfers between the
clients bank accounts during the last
week of the audit period and the first
week of the subsequent period.

The schedule should

be prepared using cash receipts
and payments journals, year-end
reconciliation, year-end bank statement, and cutoff bank statement.

*Cash Audit Procedures

Obtain or prepare a year-end bank
reconciliation or proof of cash for
each client bank account.

*Cash Audit Procedures

Obtain or prepare a year-end bank
reconciliation or proof of cash for
each client bank account.

What
is a proof
of cash?

*Cash Audit Procedures

Obtain or prepare a year-end bank
reconciliation or proof of cash for
each client bank account.
A proof of
cash is a working
paper prepared by the auditor to
reconcile the banks record of the
clients beginning balance, cash
deposits, cleared cheques, and
ending balance for the period with
the clients records.

*Cash Audit Procedures

Obtain or prepare a year-end bank
reconciliation or proof of cash for
each client bank account.
Trace amounts to
the schedule of bank transfers,
cash receipts and payments
journals, year-end reconciliation, 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 receipts

have been deposited

cash receipts journal

description
_ $$ _
Dec. 31, 2004
Misc. revenue
5000

Canadian

* What will a bank reconciliation help

the auditor determine?

- whether all bank deposits have

been recorded in client cash
receipts records

cash receipts journal

description
_ $$ _
Dec. 31, 2004
Misc. revenue
5000

Canadian

* What will a bank reconciliation help

the auditor determine?

- whether all client cash payments have been paid by the

bank

cash payments journal

description
_ $$ _
Dec. 31, 2004
Misc. expense
5000

Canadian

* What will a bank reconciliation help

the auditor determine?

- whether all bank payments have

been recorded in client cash
payments records

cash payments journal

description
_ $$ _
Dec. 31, 2004
Misc. expense
5000

Canadian

*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 incorrect
amounts

*Cash Audit Procedures

BANK
Confirm all cash
balances held by
third parties, such as
banks and other financial
institutions.

*Cash Audit Procedures

Confirm all cash balances held
by third parties, such as banks
and other financial institutions.

possibly through
use of the standard
bank confirmation

*Cash Audit Procedures

Count all cash on hand at the
clients
premises. If cash is located in
multiple
places, count cash
simultaneously to
avoid double counting.

*Cash Audit Procedures

Review cutoff
of cash receipts
and
disbursements.

*Cash Audit Procedures

Account for the numeric sequence of
cancelled cheques. Investigate missing
cheques.
Ace Company

6462

Ace Company

6461

Ace Company

6459

Ace Company
Ace Company

NATIONAL BANK

6458
6457

*Cash Audit Procedures

Review monthly
client-prepared
bank
reconciliations.

*Cash Audit Procedures

Investigate any cheques
made out to cash or bearer.
Ace Company

CASH
NATIONAL BANK

6458

*Cash Audit Procedures

Investigate any cheques that were
returned by the bank because the client
account had insufficient funds.
Ace Company

NATIONAL BANK

6458

*Cash Audit Procedures

Review and recalculate translations
of foreign currencies.

*Cash Audit Procedures

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

cash receipts journal

description
_ $$ _
May 23, 2004
ABC Vending
23,000

___a/r subsidiary
customer
_ $$ _
ABC Vending
78,660
5/23/04 payment 23,000
balance
55,660

*Cash Audit Procedures

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

cash receipts journal

description
_ $$ _
May 23, 2004
ABC Vending
23,000
Bank Statement
5/31/04
Deposits:
5/23

$23,000

___a/r subsidiary
customer
_ $$ _
ABC Vending
78,660
5/23/04 payment 23,000
balance
55,660

*Cash Audit Procedures

Trace a sample of entries from cash receipts journal

to a/r subsidiary ledger to bank statements to
deposit slips.
cash receipts journal
description
_ $$ _
May 23, 2004
ABC Vending
23,000

___a/r subsidiary
customer
_ $$ _
ABC Vending
78,660
5/23/04 payment 23,000
balance
55,660

Bank Statement
5/31/04
Deposits:
5/23

Deposit
Slip
5/23/04

$23,000
23,000

*Cash Audit Procedures

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

cash payments journal

description
_ $$ _
January 23, 2004
a/p payment to
MGB Corp.
4,300

a/p subsidiary
vendor
_ $$ _
MGB Corp
8,780
1/23/04 payment 4,300
balance
4,480

*Cash Audit Procedures

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

cash payments journal

description
_ $$ _
January 23, 2004
a/p payment to
MGB Corp.
4300
Bank Statement
1/31/04
Deposits:
Payments:
1/26

$4300

a/p subsidiary
vendor
_ $$ _
MGB Corp
8,780
1/23/04 payment 4,300
balance
4,480

*Cash Audit Procedures

Trace a sample of entries from cash payments

journal to a/p subsidiary ledger to bank statement to
cancelled cheques.
cash payments journal
description
_ $$ _
January 23, 2004
a/p payment to
MGB Corp.
4300

a/p subsidiary
vendor
_ $$ _
MGB Corp
8,780
1/23/04 payment 4,300
balance
4,480

Bank Statement
1/31/04
Deposits:

Ace Company

MGB Corp.

Payments:

NATIONAL BANK

1/26

$4300

4512
1/23/04

4300