Cash so near their maturity that they present insignificant risk of changes

in value because of changes in interest rates.

- According to Layman, “cash” simply means money.
- As contemplated in accounting, cash includes money and Examples:
any other negotiable instrument that is payable in money 1. Three-month BSP treasury bill
2. Three-year BSP treasury bill purchased three months
and acceptable by the bank for deposit and immediate
before date of maturity
credit. 3. Three-month time deposit
- Cash includes checks, bank drafts and money 4. Three-month money market instrument or commercial
paper
Restricted Cash
Restricted cash is money that is reserved for a specific purpose and Equity securities – shares do not have maturity date.
therefore not available for immediate or general business use.
Measurement of Cash
Examples:
There are many scenarios in which a company might need to set Cash is measured at face value.
aside a specific amount of restricted cash. Common examples of Cash in foreign currency is measured at the current exchange rate.
restricted cash include refundable deposits, minimum balances on
bank accounts, and funds held in escrow. Our broker center has FS Presentation of Cash
plenty of information to get you more familiar with the stock
market! Cash and Cash Equivalents – first line item among the current assets.

It is often the case that restricted cash results from a legally binding Cash and Cash Equivalents should be disclosed in the notes to
agreement. For example, if a company receives a bank loan, the financial statements.
lending institution's contract might stipulate that the company
reserve a certain amount of money in a restricted cash account that Difference of unrestricted cash and cash fund for certain purposes
will remain unavailable for spending for a preset period of time.
This includes:
However, not all restricted cash arises from legal or contractual 1. Current
obligations. Sometimes a company will voluntarily decide to set a. Petty cash fund
aside restricted cash. For example, a company might choose to b. Payroll fund
reserve a certain amount of money for a new project and designate c. Travel fund
that cash as restricted. d. Interest Fund
e. Dividend Fund
Reporting restricted cash on financial statements f. Tax Fund
A company's balance sheet must include all assets and liabilities, 2. Noncurent
including cash. Restricted cash is reported separately from cash and a. Sinking Fund
cash equivalents on a company's balance sheet, and the reason the b. Redemption Fund
cash is restricted is typically revealed in the financial statement's c. Contingent Fund
accompanying notes. d. Insurance Fund
e. Fund for acquisition or conduction of PPE.
UNRESTRICTED CASH
Bank Overdraft
*There is no specific standard dealing with “cash”
A credit balance on cash in bank account.
PAS 1, Paragraph 66, which provides that “an entity shall classify an Issuance of checks in excess of the deposit.
asset as current when the asset is cash or a cash equivalent unless it
is restricted to settle a liability for more than twelve months after A bank overdraft should not be offset against other bank accounts
the end of the reporting period. with debit balances.

Cash must be readily available in the payment of current obligations It can only be offset when an entity maintains two or more accounts
and not be subject to any restrictions, contractual or otherwise. in one bank.

Cash items included in cash Treatment of Foreign Currency

1. Cash on hand Cash in foreign currency should be translated to Philippine peso

2. Cash in Bank using the current exchange rate.
3. Cash fund – petty cash fund, payroll fund and dividend
fund Deposits in foreign countries which are not subject to any foreign
exchange restriction are included in cash.
Cash Equivalents
Deposits in foreign bank which are subject to foreign exchange
PAS 7, paragraph 6, defines “cash equivalents” as short-term and restriction, if material, should be classified separately among
highly liquid investments that are readily convertible into cash and noncurrent assets and the restriction clearly indicated.
Foreign exchange controls are various forms of controls imposed by
a government on the purchase/sale of foreign currencies by
residents or on the purchase/sale of local currency by nonresidents.
Common foreign exchange controls include:
Banning the use of foreign currency within the country
Banning locals from possessing foreign currency
Restricting currency exchange to government-approved exchangers
Fixed exchange rates
Restrictions on the amount of currency that may be imported or
exported
Compensating Balance
If the deposit is not legally restricted as to withdrawal by the
borrower because of an informal compensating agreement, the
compensating balance is part of cash.
If the deposit is legally restricted because of a formal compensating
balance agreement it must be separated as cash held as
compensating balance.
Undelivered checks
Drawn and recorded but not given to the payee before the end of
the reporting.
Adjusting entry must debit cash and credit accounts payable or
appropriate account.
Postdated check delivered
Drawn, recorded and already given to the payee but it bears a date
subsequent to the end of the reporting period.
Same adjusting entry as above
Stale checks
Check not encashed by the payee within a relatively long period of
time.
Depends on the agreements. The law states only reasonable time.
In banking practice, a check becomes stale if not encashed within six
months from the time of issuance.
Even after three months only, the entity may issue a “stop payment
order” to the bank for the cancelation of previously check.
Cash Shortage
It will be adjusted depending who is held responsible for the cash
short or over.
Cash overage is treaded as miscellaneous income if there is no claim
on the same.
Cash shortage is treded as miscellaneous expense if it is not properly
found.
Imprest system and Flactuating Fund System
Imprest system is a system of control of cash which requires that all
cash receipts should be deposited intact and all cash disbursement
should be made by means of checks.
If small amounts are to be expensed the entity will use the petty
cash fund because small payments becomes impractical by means of
checks.
Flactuating fund system because the checks drawn to replenish the
fund do not necessarily equal the petty cash disbursement.
Replenishment checks are simply drawn upon the request of the
petty cashier.
Window Dressing
Window dressing refers to actions taken or not taken prior to issuing
financial statements in order to improve the appearance of the
financial statements.
Here is an example of window dressing. A company operates
throughout the year with a negative balance in its general ledger
Cash account. (Its balance at the bank is positive due to the time it
takes for its checks to clear its bank account.) Since the financial
statements report the Cash amount appearing in its general ledger
account, the financial statements would report a negative amount of
Cash. However, the company does not want its December 31
balance sheet to report a negative cash balance, since it will be
reviewed by many outsiders. To avoid reporting a negative cash
balance the company does not make the payments for amounts that
should be paid between December 26 and December 31. This
postponement of payments allows its book amount of Cash to
temporarily be a positive amount. Then on January 2, the company
issues checks for all of the amounts that normally would have been
paid at the end of December.
LAPPING AND KITING
Often we know the meaning of fraud in an audit with the word
FRAUD, but fraud in the financial world can be interpreted as forms
of theft such as in 362 article KUHP, extortion and threats in 368
article KUHP, embezzlement in 372 article KUHP, and
skullduggery in 378 article KUHP. In general, the scams have also
been defined by Webster's New World Dictionary as a fraud
committed for personal gain
Commonly known fraud in an audit in the form of LAPPING and
KITTING. Know the difference between the lapping and kitting, to
the two it is a form of cheating are often found on examination of
auditors' client cash balances. Actually, not only like that,
SKIMMING. Is a form of cheating before heading bookkeeping made.
But in this case, we will discuss about the accident lapping and
kitting and how to overcome them and their examples.
LAPPING, in definition
Is cheating by using accounts receivable have been paid and will be
closed with unpaid receivables next and so on. Moreover, it can be a
way of skimming money by way of cash-retreat delay the recording
of cash receipts in both the near-term and longer periods of time.
KITTING, in definition
Is cheating by using bank checks in different service areas as an aid
to make a cash balance or money freely. With the withdrawal of
funds in one bank, which will be deposited in another bank. And will
be withdrawn and will be recorded in the Bank's third and so on. In
addition kitting form can be done with the window dressing that
makes the treasury at the Bank is better than ever.
Presumably the above definition because it can not be completely
understood by the following examples lapping and kitting for a
complete understanding.
LAPPING example
Galih stole cash used by Customer A to pay the loan, the funds
received from Customer B was used to pay the balance of
receivables owned by the Customer A and so on, this can be likened
to digging a hole and cover the hole.
KITTING example
Ariza cover the theft by creating cash by wire transfer of money
between banks (interbank transfer). Ariza makes money by
depositing checks from bank A to bank B and pull their money.
Because Bank A, funds not enough, then Ariza deposit a check from
Bank C to Bank A to Bank B before the check cleared. Thus the
pattern continues with the checks and deposits as many times as
necessary to keep the check could not be rejected. So that auditors
can overcome the lapping and kitting there was made a test to
detect lapping and kitting. After each test question.
So that auditors can overcome the lapping and kitting there was
made a test to detect lapping and kitting. After each test question.
LAPPING solution
1. Confirmation of accounts receivable. Just as is done in the
audit of accounts receivable, the auditor should consider the
amount of deposits that contain a large number of doubts.
2. Doing the calculation of cash suddenly. The calculation of the
amount of money in the company should be done suddenly, with
the intention that lapper can not prepare for the possibility of fraud
known to the auditor. Given the element of surprise, deception
posed insurmountable.
3. Perform daily cash receipts journal comparisons with
corresponding daily deposit slip details.
KITTING solution
1. Making the cutoff bank statement, will be seen from this list
does not match the checks cleared the list of outstanding checks.
2. Creating a test cutoff, from this list will be known before
spending the last balance sheet date will not be recorded in the
check register.
Different Audit Risk
Audit risk is the risk that the financial statements are materially
incorrect, even though the audit opinion states that the financial
reports are free of any material misstatements. Because creditors,
investors, and other stakeholders rely on the financial statements,
audit risk may carry legal liability for a CPA firm performing audit
work.
1. Inherent Risks
An inherent risk is the type of audit risk that could not be identified
by a company’s internal auditors or other financial officers. In order
to try to prevent the audit risk components, companies must have in
place a series of procedures to hopefully prevent any problems.
Identifying these types of audit risks involves having a clear audit
plan, audit approach and audit strategy. An audit plan is the
guidelines to which to strictly adhere when conducting an internal
audit. It allows for a list of evidence that needs to be gathered as
well as the relevant numbers. The audit approach is a method of risk
analysis that balances internal operations with expected external
results. Finally, an audit strategy is used to develop the audit plan. It
dictates the outline of how all the parts fall into place as well as the
timing and employees involved.
2. Detection Risks
A detection risk a type of audit risk example that is the result of poor
planning. The chance an auditor will not identify and correct a
misstatement in time before the audit. When a company’s financial
teams aggregate materials there is the chance parts are gathered
erroneously, either with missing information or with faulty
mathematics. A detection risk is one of the components of audit
risks that require a deep understanding of the nature of the
company and business in general. The depth and width of a
company’s operation, its financial statements and the methodology
of its financial reporting all gather as the components of detection
risks. The components of detection risks include classification
testing, completeness testing, occurrence testing and valuation
testing.
3. Control Risk
A control risk is a type of audit risk that investigates if the numbers
reported by a company’s employees are accurate. A company could
accidentally commit fraud by assessing numbers incorrectly or
reporting it erroneously. Identifying areas where there may be such
problems is vital to recognizing control risks. A control risk example
could be if the control is weak there is a great chance that the
financial materials are incorrect which in turn could mean the
company’s auditors or other financial officers wouldn’t catch it.
Circumventing the three types of audit risk involves several
components that must be dealt with by a steady hand: planning and
strategizing thoroughly in every department in every step, proper
internal control over financial reporting and excellent assessment of
audit risks. Whether handled entirely in-house or coupled with the
services of an accounting firm for an objective viewpoint, audit risks
can be reconciled early and promptly to prevent a business being
fiscally injured.
Different Types of Audit Opinion
1. Unqualified Opinion
An unqualified opinion indicates that the information presented in a
company’s financial report is clean. As in a medical patient’s clean
bill of health, an unqualified opinion shows that the audited financial
statements can be presumed to be free from misstatements.
2. Qualified Opinion
An opinion rendered in a qualified audit report is similar to an
unqualified opinion; however, the auditing body cannot express an
unqualified opinion for several reasons. One reason could be that
the company did not present its financial records in accordance with
generally acceptable accounting principles (GAAP).
3. Disclaimer Opinion
Auditors give a disclaimer when they are unable to express a definite
opinion. This can be due to the lack of properly maintained financial
records or the absence or insufficient support from the
management. For instance, an auditor may not have had the
opportunity to fulfill tasks that they deem to be crucial to the audit,
such as observing operational procedures or reviewing particular
procedures.

4. Adverse Opinion
When auditors issue an adverse opinion, it indicates that there has
been a gross misstatement and, possibly, fraud, in the preparation of
the company’s financial records. An adverse opinion shows that the
company’s records have not been prepared in accordance with
GAAP. Public entities that receive this kind of opinion are obligated
to Financial statements with adverse audit opinions are typically
rejected by financial institutions or investors.

Can be an audit Plan be change during the course of Audit?

Yes, the auditor should modify the overall audit strategy and the
audit plan as necessary if circumstances change significantly during
the course of the audit, including changes due to a revised
assessment of the risks of material misstatement or the discovery of
a previously unidentified risk of material misstatement.