Johnstone - 9e - Auditing - Chapter 10 - PPT FINAL

AUDITING
A RISK-BASED APPROACH TO
CONDUCTING A QUALITY AUDIT
9th Edition
Karla M. Johnstone | Audrey A. Gramling | Larry E. Rittenberg
CHAPTER 10
AUDITING CASH AND
MARKETABLE SECURITIES
Copyright © 2014 South-Western/Cengage Learning

LEARNING OBJECTIVES
1. Identify the significant accounts, disclosures, and

relevant assertions in auditing cash accounts
2. Identify and assess inherent risks of material
misstatement in cash accounts
3. Identify and assess fraud risks of material
4. Identify and assess control risks of material
10-2
LEARNING OBJECTIVES
5. Describe how to use preliminary analytical

procedures to identify possible material
misstatements for cash accounts, disclosures, and
assertions
6. Determine appropriate responses to identified risks
of material misstatement for cash accounts,
disclosures, and assertions
7. Determine appropriate tests of controls and
consider the results of tests of controls for cash
accounts, disclosures, and assertions
10-3
LEARNING OBJECTIVES
8. Determine and apply sufficient appropriate

substantive audit procedures for testing cash
accounts, disclosures, and assertions
9. Identify types of marketable securities, articulate
the risks and controls typically associated with
these accounts, and outline an audit approach for
testing these accounts
10. Apply frameworks for professional decision making
and ethical decision making to issues involving the
audit of cash accounts, disclosures, and assertions
10-4
THE AUDIT OPINION FORMULATION
PROCESS
10-5
PROFESSIONAL JUDGMENT IN CONTEXT - FRAUDULENT
PETTY CASH TRANSACTIONS AT KOSS CORPORATION
• Former vice president of finance orchestrated a $31

million embezzlement
• Remediation actions
• Eliminating petty cash fund
10-6
PROFESSIONAL JUDGMENT IN CONTEXT - FRAUD AT
PEREGRINE FINANCIAL
• Embezzlement of over $200 million from Peregrine

Financial Group’s (PFG) brokerage clients over a 20-
year period
• Bankruptcy filed immediately after implementation of
change in online system
• Where bank statement information would be sent
electronically directly to National Futures Association
10-7
PROFESSIONAL JUDGMENT IN CONTEXT - FRAUD AT
KOSS CORPORATION AND PEREGRINE FINANCIAL
• Why is cash an inherently risky account? (LO 2, 3)

• What controls should be in place to help ensure that
cash accounts are not misappropriated? (LO 4)
• What are the audit implications of poor controls over
cash accounts? (LO 6)
• What types of audit procedures would auditors
employ when auditing cash? (LO 7, 8)
10-8
LEARNING OBJECTIVE 1
IDENTIFY THE SIGNIFICANT ACCOUNTS,

DISCLOSURES, AND RELEVANT ASSERTIONS IN
AUDITING CASH ACCOUNTS
MAJOR TYPES OF CASH ACCOUNTS
• General checking accounts

• Cash management accounts
• Imprest payroll accounts
• Petty cash accounts
• Marketable security accounts: A security that is
readily marketable and held by a company as an
investment
10-10
IMPREST PAYROLL ACCOUNTS
• Imprest bank account

• Normally carrying a zero balance
• Replenished when checks are to be written against the
account
• Provides additional control over cash
• Payroll account - The most widely used imprest bank
account
• Company makes a deposit equal to amount of payroll
checks issued
10-11
BENEFITS OF CASH MANAGEMENT
TECHNIQUES
Speed the collection and deposit of cash
Reduce the amount of paperwork
Automate the cash management process
10-12
CASH MANAGEMENT TECHNIQUES
Electronic
Lockboxes
Funds Transfers
Cash
Management
Compensating
Agreements
Balances
with Financial
Institutions
10-13
LOCKBOXES
• Cash management arrangement with a bank whereby

payments are sent directly to a post office box number
accessible to client’s bank
• Bank opens cash remittances and directly deposits
money in client’s account
• Advantages
• Company immediately earns interest on deposited funds
• Manual processing is shifted to bank
• Speeds up receipt of cash and allows organization to use
cash to earn a return
10-14
RELEVANT FINANCIAL STATEMENT
ASSERTIONS RELEVANT TO CASH
Existence or occurrence
• Cash balances exist at balance sheet date
Completeness
• Cash balances include all cash transactions that occurred during the period
Rights and obligations

• Company has title to the cash accounts as of balance sheet date
Valuation or allocation
• Recorded balances reflect true underlying economic value of those assets
Presentation and disclosure

• Cash is properly classified on the balance sheet and disclosed in notes to the
financial statements
10-15
IDENTIFY AND ASSESS INHERENT RISKS OF

MATERIAL MISSTATEMENT IN CASH ACCOUNTS
PERFORMING RISK ASSESSMENT
PROCEDURES FOR CASH ACCOUNTS
• Information useful in assessing risk of material
misstatement is obtained
• Inherent risks
• Financial statement level
• Account and assertion level
• Fraud risks
• Feedback from audit team brainstorming sessions
• Strengths and weaknesses in internal control
• Results from preliminary analytical procedures
10-17
REASONS FOR IDENTIFYING CASH AS
HAVING HIGH INHERENT RISK
Volume of activity
Liquidity
Automated systems
Importance in meeting debt covenants
Can be easily manipulated
10-18
INHERENT RISK ANALYSIS
QUESTIONNAIRE: CASH
Does company have significant cash flow problems in
meeting its current obligations on a timely basis?
Does company use cash budgeting techniques

effectively?
Does company use cash management services offered

by its banker? What is their nature?
10-19
INHERENT RISK ANALYSIS
QUESTIONNAIRE: CASH
Has company made significant changes in its cash
processing in the past year?
Does company have loan or bond covenants that

influence use of cash or maintenance of working-capital
ratios?
Is there any reason to suspect that management may

desire to misstate the cash balance?
10-20
IDENTIFY AND ASSESS FRAUD RISKS OF

TOPICS TO BE COVERED IN A
BRAINSTORMING SESSION
Incentives Opportunities
Rationalization
10-22
AUDITING IN PRACTICE - COMMON
FRAUD SCHEMES RELATING TO CASH
• Frauds relating to cash receipts
• Inventory sold, but employee does not record the sale
and steals the cash
• Employee receives a check and deposits it, but does
not record the sale; then the employee writes a check
out to himself and does not record the disbursement
• Employee collects a customer payment, steals cash,
and writes off accounts receivable as uncollectible
10-23
• Lapping: Employee steals a payment from one
customer, and covers it up by using payments from
another customer to disguise the theft
• Skimming: Type of fraud that occurs when an
employee makes a sale but does not record it, and
steals the cash
10-24
• Frauds relating to cash payments
• Purchasing merchandise and recording sale at an
unauthorized discounted amount
• Selling merchandise to a friend at a discounted price;
friend returning merchandise for a refund at
undiscounted price; splitting profits
• Employee stealing cash and concealing it by recording
a fictitious discount
• Employee writing a check to a fictitious vendor and
depositing the check into an account controlled by the
employee
10-25
IDENTIFY AND ASSESS CONTROL RISKS OF

COMMON CONTROLS OVER CASH
Segregation of duties
Restrictive endorsements of customer checks
Independent bank reconciliations by

employees who do not handle cash
Computerized control totals and edit tests
Authorization of transactions
10-27
COMMON CONTROLS OVER CASH
Prenumbered cash receipt documents
Turnaround documents
Periodic internal audits
Competent, well-trained employees
10-28
AUDITING IN PRACTICE - THE PARMALAT
FRAUD AND ITS MANY VICTIMS
• Evolved over a 10-year period
• Included invention of over $11 billion in fictitious
cash in offshore front companies to offset liabilities
at parent company
• In reality, cash was not accounted for and Parmalat
had only about 500 million euros in cash
• Involved large number of individuals acting
collusively in various ways
10-29
IMPLICATIONS OF WEAK CONTROLS
RELATED TO COMPLETENESS
• Employee required to record a cash receipt
• Not performing the task
• Not reflecting the cash being received, a sale made, or
reduced accounts receivable
10-30
AUDITING IN PRACTICE - SKIMMING
AND THE COMPLETENESS ASSERTION
• When a transaction is not immediately recorded,
completeness assertion is violated
• Applicable where customers pay cash directly to an
employee
10-31
CONTROLS FOR PETTY CASH
• Limiting access by keeping funds in a locked box

• Requiring receipts for petty cash disbursements with:
• Date
• Amount received
• Purpose or use for funds
• Name of employee receiving funds
• Reconciling petty cash fund before replenishing it
• Keeping customer receipts separate from petty cash
funds
10-32
CONTROLS FOR CASH MANAGEMENT
TECHNIQUES
Lockboxes
Electronic funds transfers
Cash management agreements with

financial institutions
10-33
ASSESSING CONTROL RISK FOR CASH
• Controls minimize potential risks to cash accounts

• Requires the auditor to have an understanding of
internal controls for:
• Integrated audits
• Financial statement only audits
• Understood by:
• A walkthrough of process
• Inquiry
• Observation
• Review of documentation
10-34
• At account and assertion levels, considering:

• Entity-wide controls
• Transaction controls
• At entity-wide level, considering control environment
• Commitment to financial accounting competencies
• Independence of the board of directors
• Risk assessment
• Information and communication
• Monitoring controls
10-35
• Integrated audit of cash involves evaluating:

• Design of internal controls
• Operation of internal controls
• Smaller organizations - Testing of operating
effectiveness of controls is not a required part of the
audit
• Larger organizations - Evaluating and testing of
internal controls happen via an integrated audit
10-36
CONTROL RISK QUESTIONNAIRE -
CASH
Have service arrangements been reviewed on a
current basis?
Do management and board periodically review

the process?
Are cash transactions properly authorized?
Are bank reconciliations performed on a timely

basis?
Does internal audit department conduct timely

reviews of the process?
10-37
CONTROL RISK QUESTIONNAIRE -
CASH
Is the lockbox used to collect cash receipts?
Who is authorized to make cash transfers?
What procedure is used to assure monitoring of

authorization process?
Are there any restrictions in getting access to

cash?
10-38
DOCUMENTING CONTROLS
• Documenting auditor’s understanding of internal

controls for:
• Integrated audits
• Financial statement only audits
• A questionnaire often used to guide auditors in
documenting understanding of internal controls
10-39
EXHIBIT 10.3 - CONTROL ACTIVITIES QUESTIONNAIRE:
CASH RECEIPTS
10-40
DESCRIBE HOW TO USE PRELIMINARY ANALYTICAL

PROCEDURES TO IDENTIFY POSSIBLE MATERIAL
MISSTATEMENTS FOR CASH ACCOUNTS,
DISCLOSURES, AND ASSERTIONS
PERFORMING PRELIMINARY
ANALYTICAL PROCEDURES
• Helps identify areas of potential misstatements when
planning the audit
• Cash is examined in relation to:
• Operational data
• Budgetary forecasts
• Requires awareness of importance of cash balances
to debt covenants
10-42
PERFORMING PRELIMINARY
ANALYTICAL PROCEDURES
• Relationships indicating heightened risk of fraud in
cash:
• Consistent profits over several years, but cash flows
are declining
• Unexpected reductions in accounts receivable
collections, or timeliness of collections
• Unexpected declines in petty cash account
10-43
USING TREND ANALYSIS OF ACCOUNT BALANCES AND
RATIOS IN PRELIMINARY ANALYTICAL PROCEDURES FOR
CASH ACCOUNTS
Comparing monthly cash balances with past years
and budgets
Identifying unexpected spikes or lows in cash

during the year
Computing trends in interest returns on investments
Analyzing cash balances and changes in relation

to new or retiring debt obligations
10-44
USING TREND ANALYSIS OF ACCOUNT BALANCES AND
RATIOS IN PRELIMINARY ANALYTICAL PROCEDURES FOR
CASH ACCOUNTS
Comparing cash ending account balances with

those of preceding years
Computing typical short-term liquidity ratios
Comparing cash flow to sales and profitability
10-45
DETERMINE APPROPRIATE RESPONSES TO

IDENTIFIED RISKS OF MATERIAL MISSTATEMENT FOR
CASH ACCOUNTS, DISCLOSURES, AND ASSERTIONS
RESPONDING TO IDENTIFIED RISKS OF
MATERIAL MISSTATEMENT
• Audit procedures are proportional to assessed risks
• Areas of higher risk receive more audit attention and
effort
• Developing audit approach that contains:
• Tests of controls (if applicable)
• Substantive procedures, including analytical
procedures
• Audit programs are customized based on assessment
of risk of material misstatement
10-47
EXHIBIT 10.5 - PANEL A: SUFFICIENCY OF EVIDENCE
FOR EXISTENCE AND COMPLETENESS OF CASH
10-48
EXHIBIT 10.5 - PANEL B: APPROACHES TO OBTAINING
AUDIT EVIDENCE FOR EXISTENCE AND COMPLETENESS
OF CASH
10-49
DETERMINE APPROPRIATE TESTS OF CONTROLS AND

CONSIDER THE RESULTS OF TESTS OF CONTROLS FOR
SELECTING CONTROLS TO TEST AND
PERFORMING TESTS OF CONTROLS
• Auditors make decisions about:
• Which controls to test for formulating an opinion on
entity’s internal controls
• Whether the level of control risk warrants reduction of
substantive testing
10-51
SELECTING CONTROLS TO TEST AND
PERFORMING TESTS OF CONTROLS
• Tests of transactions controls
• Inquiry of personnel performing the control
• Observation of control being performed
• Inspection of documentation confirming that control
has been performed
• Reperformance of control by individual testing the
control
10-52
CONSIDERING THE RESULTS OF TESTS
OF CONTROLS
Control deficiencies identified No control deficiencies identified
Determining that preliminary

Assessing those deficiencies to
assessment of control risk as low
determine their severity
is appropriate
Determining the extent that

Modifying preliminary control risk controls can provide evidence
assessment on correctness of account
balances
Documenting implications of Determining planned substantive

control deficiencies audit procedures
10-53
DETERMINE AND APPLY SUFFICIENT APPROPRIATE

SUBSTANTIVE AUDIT PROCEDURES FOR TESTING
AUDITING IN PRACTICE - WEAKNESSES IN
SUBSTANTIVE PROCEDURES RELATED TO CASH
• Auditor needs to consider types of substantive

procedures for cash that should be performed
• Make sure that engagement team performs those
procedures
• PCAOB disciplinary proceedings against two audit
firms provide insight on weaknesses in cash-related
audit procedures
10-55
SUBSTANTIVE ANALYTICS FOR CASH
ACCOUNTS
• Focusing on substantive tests of details
• Minimal substantive analytics to be performed
include identifying significant:
• Fluctuations in cash balances
• Differences between budgeted and actual levels of
cash
10-56
SUBSTANTIVE TESTS OF DETAILS FOR
CASH ACCOUNTS
Preparing independent bank
reconciliations
Obtaining bank confirmations and bank

cutoff statements
Preparing bank transfer schedules
10-57
PREPARING INDEPENDENT BANK
RECONCILIATIONS
• Provides evidence for accuracy of year-end cash
balance
• Process includes reconciling balance per bank
statements with balance per books
Auditor independently verifies the following items
when testing client’s bank reconciliation
Balance as per bank statement

Deposits in transit
Outstanding checks
Other adjustments
10-58
EXHIBIT 10.7 - TESTS OF CLIENT’S
BANK RECONCILIATION
10-59
BANK CONFIRMATION
• A standard confirmation sent to all banks with which

the client had business during the year
• Used to obtain information about year-end cash
balance and additional information about loans
outstanding
• Seeks information on:
• Client’s deposit balances
• Existence of loans
• Due dates of loans
10-60
BANK CONFIRMATION
• Interest rates
• Dates through which interest has been paid
• Collateral
• An asset or a claim on an asset held by a borrower or an
issuer of a debt instrument
• To serve as a guarantee for value of a loan or security
• If the borrower fails to pay interest or principal, collateral
is available to lender to recover principal amount of loan
10-61
EXHIBIT 10.8 - STANDARD BANK
CONFIRMATION: ACCOUNT BALANCES
10-62
AUDITING IN PRACTICE - CONFIRMATIONS
WITH FINANCIAL INSTITUTIONS
• PCAOB-proposed Auditing Standard would require
auditor to:
• Perform confirmation procedures for cash and other
relationships with financial institutions
10-63
OBTAINING BANK CONFIRMATIONS –
LOAN GUARANTEES
• These requirements are referred to as covenants
• A violation of covenants makes loans immediately
due and payable
• Considering client‘s ability to continue to operate as a
going concern
• In case of a long-term debt, reclassifying it as a current
liability
10-64
EXHIBIT 10.9 - STANDARD BANK
CONFIRMATION: LOAN GUARANTEES
10-65
OBTAINING YEAR-END CUTOFF INFORMATION
AS PART OF BANK CONFIRMATION PROCESS
• Obtaining information on last checks issued in fiscal
year
• Last check number
• Observing that all previous checks had been mailed
• Obtaining information on last cash receipts
10-66
CUTOFF BANK STATEMENTS
• A statement for a period of time determined by

client and auditor
• Shorter than that of regular month-end statements
• Sent directly to auditor, who uses it to verify
reconciling items on client’s year-end bank
reconciliation
10-67
PREPARING BANK TRANSFER
SCHEDULES
• Kiting: Fraudulent cash scheme to overstate cash
assets at year end by showing the same cash in two
different bank accounts
• Bank transfer schedule: Audit document listing all
transfers between client bank accounts
• Starts shortly before year end and continues for a short
period after year end
• Purpose - Assures that cash in transit is not recorded
twice
10-68
FRAUD-RELATED SUBSTANTIVE
• Confirming with financial institutions about
individuals authorized to access cash accounts
• Scrutinizing checks that are payable to cash
• Scrutinizing checks with unusual vendor names
• Scrutinizing checks made out to employees outside
of normal payroll processing system
• Comparing timing of deposits into bank accounts
with timing of cash receipts
• Noting any unusual time lags
10-69
FRAUD-RELATED SUBSTANTIVE
• Comparing time lags between:
• The date a check was issued for payment
• The date that it clears the bank
• Investigating voided checks and analyzing voided
transactions
10-70
DOCUMENTATION RELATED TO SUBSTANTIVE
• Copies of independent bank reconciliations
• Copies of bank confirmations
• Documentation of oral confirmations
• Copies of bank cutoff statements
• Copies of bank transfer schedules
• Evidence of any restrictions on use of cash balances
or bank compensating balances
10-71
IDENTIFY TYPES OF MARKETABLE SECURITIES,

ARTICULATE THE RISKS AND CONTROLS TYPICALLY
ASSOCIATED WITH THESE ACCOUNTS, AND OUTLINE AN
AUDIT APPROACH FOR TESTING THESE ACCOUNTS
• Held as temporary investments

• Short-term cash management securities
• U.S. Treasury bills
• Certificates of deposit (CDs)
• Commercial paper
• Notes issued by major corporations at rates
approximating prime lending rates with high credit rating
• Short-term hybrid-type securities
• Improve return on temporary investments
10-73
CLASSIFICATION OF INVESTMENTS IN
SECURITIES
Held-to-maturity • Valued at amortized cost,
securities subject to an impairment test
Trading securities • Carried at fair market value
Available-for-sale
• Carried at fair market value
securities
10-74
AUDITOR’S JUDGMENTAL CHALLENGE
• Corroborating management’s intent in classifying

assets
• Gathering information about management’s trades in
investments
• Importance of market value to management
compensation
• Determining fair market value
• Easily determinable for regularly traded securities
• Financial institutions reluctant to mark fair values for
thinly traded securities
10-75
RELEVANT FINANCIAL STATEMENT
ASSERTIONS
Existence or Securities exist at balance sheet date
occurrence
Securities balances include all securities
Completeness transactions taken place during the period
Rights and Company has title to such securities accounts

obligations as of balance sheet date
Valuation or Recorded balances reflect true underlying

allocation economic value of those assets
Presentation and Properly classifying the securities on balance

sheet and disclosing in notes to financial
disclosure statements
10-76
INHERENT AND FRAUD RISKS
Risk of sudden market declines
Manipulation of classification of
securities
Manipulation of valuation of fair

market value
10-77
CONTROL RISKS
• Risk of theft of securities if:

• They are not physically controlled
• Authorization and monitoring over their trade is not
effective
• Lack of policies over purchase or sale of securities
• Lack of monitoring of changes in securities balances
• Lack of policies over valuation or classification of
securities
10-78
CONTROL RISKS
• Lack of segregation of duties between those

responsible for:
• Making investment decisions
• Custody of securities
• Lack of involvement or oversight by internal audit in
relation to securities
10-79
INHERENT RISK ANALYSIS QUESTIONNAIRE
- MARKETABLE SECURITIES
Is there a regular investment in marketable

securities?
Is there a change in classification of securities? If

yes, what is the reason for the change?
Is there a ready market for the securities?
10-80
CONTROL RISK ANALYSIS QUESTIONNAIRE -
Are the written policies and guidelines approved

by the board?
Is there a clear policy for classification of

marketable securities?
If classification has changed, are the amounts

significant and reviewed by audit committee?
10-81
CONTROL RISK ANALYSIS QUESTIONNAIRE -
How is value of marketable securities estimated if
a liquid market does not exist?
Is there an effective segregation of duties?
Is there a regular audit of the controls and review

of recent reports?
10-82
AUDITING IN PRACTICE - COMMON FRAUD
SCHEMES RELATING TO INVESTMENTS
• Securities purchased, not authorized
• Securities purchased, not recorded as purchased
• Securities recorded as purchased, not purchased
• Securities sold, not recorded as sold
• Securities recorded as sold, not sold
• Investment income is stolen
• Investments are purposely valued inaccurately
• Investment classifications are purposely inaccurate
10-83
ANALYTICAL PROCEDURES FOR
• Developing expectations about level of amounts in
ending balances
• Based on purchase or sales activity reported
• Developing expectations about relationship between
balances in marketable securities accounts
• Reviewing changes in:
• Balances
• Risk composition
• Classification types of marketable securities
10-84
TESTS OF CONTROLS
• Reviewing policies for authorization

• To purchase, sell, and manage such securities
• Inquiring of board of directors about board’s
oversight of process and examining related
documentation
• Examining documentation of authorization
• For selected purchases and sales
• Reviewing minutes of board meetings
• For reference to investment policies and associated
oversight
10-85
TESTS OF CONTROLS
• Examining evidence of authorization controls

• For changes in classification of such securities
• Inquiring of management about its process for
• Establishing valuation
• Reviewing related documentation
• Inquiring about process for reclassifications and
review related documentation
10-86
TESTS OF CONTROLS
• Examining documentation for selected marketable

securities transactions
• Reviewing reports of internal audit
10-87
ASSERTIONS AND RELATED SUBSTANTIVE TESTS
OF DETAILS - MARKETABLE SECURITIES
Existence or occurrence
• Requesting for a schedule of securities and verifying their existence
Completeness
• Footing schedule of marketable securities and examining them
Rights and obligations

• Examining selected documents to determine any restrictions
Valuation or allocation
• Determining current market value
• Re-computing interest and proper recording of accrued interest
Presentation and disclosure

• Determining whether securities are properly classified
10-88
EXHIBIT 10.15 - AUDIT WORKPAPER FOR
TESTING MARKETABLE EQUITY SECURITIES
10-89
AUDITING IN PRACTICE - AUDIT PROCEDURES USED TO ADDRESS
RISK RELATED TO COMMON FRAUD SCHEMES FOR INVESTMENTS
• Employing specialist to assist in fair value

measurements
• Conducting background checks of employees having
access to investment accounts
• Requiring original documents of securities
• Tracing:
• Dividend payments
• Interest payments
• Sales of securities
10-90
AUDITING IN PRACTICE - AUDIT PROCEDURES USED TO ADDRESS
RISK RELATED TO COMMON FRAUD SCHEMES FOR INVESTMENTS
• Tracing purchases of securities to cash

disbursements on the bank statement
• Reviewing any unusual journal entries in investment
accounts
10-91
PROCEDURES FOR MARKETABLE SECURITIES
• Schedule of marketable securities as:

• Prepared by client
• Reviewed by auditor
• Documentation of any confirmation of securities
• Documentation of securities transactions scrutinized
• Memo containing rationalization for judgments
about management’s:
• Classification of securities
• Valuation of securities
10-92
PROCEDURES FOR MARKETABLE SECURITIES
• Reports of any outside valuation experts

• Documentation of calculation of potential
impairments
10-93

Johnstone - 9e - Auditing - Chapter 10 - PPT FINAL

Diunggah oleh

Informasi Dokumen

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Johnstone - 9e - Auditing - Chapter 10 - PPT FINAL

Diunggah oleh

Hak Cipta:

Format Tersedia

AUDITING

Karla M. Johnstone | Audrey A. Gramling | Larry E. Rittenberg

Copyright © 2014 South-Western/Cengage Learning

1. Identify the significant accounts, disclosures, and

5. Describe how to use preliminary analytical

8. Determine and apply sufficient appropriate

• Former vice president of finance orchestrated a $31

• Embezzlement of over $200 million from Peregrine

• Why is cash an inherently risky account? (LO 2, 3)

IDENTIFY THE SIGNIFICANT ACCOUNTS,

• General checking accounts

• Imprest bank account

Reduce the amount of paperwork

Automate the cash management process

• Cash management arrangement with a bank whereby

Rights and obligations

Presentation and disclosure

IDENTIFY AND ASSESS INHERENT RISKS OF

Importance in meeting debt covenants

Can be easily manipulated

Does company use cash budgeting techniques

Does company use cash management services offered

Does company have loan or bond covenants that

Is there any reason to suspect that management may

IDENTIFY AND ASSESS FRAUD RISKS OF

IDENTIFY AND ASSESS CONTROL RISKS OF

Restrictive endorsements of customer checks

Independent bank reconciliations by

Computerized control totals and edit tests

Prenumbered cash receipt documents

Periodic internal audits

Competent, well-trained employees

• Limiting access by keeping funds in a locked box

Electronic funds transfers

Cash management agreements with

• Controls minimize potential risks to cash accounts

• At account and assertion levels, considering:

• Integrated audit of cash involves evaluating:

Do management and board periodically review

Are cash transactions properly authorized?

Are bank reconciliations performed on a timely

Does internal audit department conduct timely

Who is authorized to make cash transfers?

What procedure is used to assure monitoring of

Are there any restrictions in getting access to

• Documenting auditor’s understanding of internal

DESCRIBE HOW TO USE PRELIMINARY ANALYTICAL

Identifying unexpected spikes or lows in cash

Computing trends in interest returns on investments

Analyzing cash balances and changes in relation

Comparing cash ending account balances with

Computing typical short-term liquidity ratios

Comparing cash flow to sales and profitability

DETERMINE APPROPRIATE RESPONSES TO

DETERMINE APPROPRIATE TESTS OF CONTROLS AND

Determining that preliminary

Determining the extent that

Documenting implications of Determining planned substantive

DETERMINE AND APPLY SUFFICIENT APPROPRIATE

• Auditor needs to consider types of substantive

Obtaining bank confirmations and bank

Preparing bank transfer schedules

Balance as per bank statement