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Audit of Cash
Balances
Copyright 2003 Pearson Education Canada Inc. 20 - 1
What are the auditors primary
concerns with regard to cash?
- existence
- existence
- completeness
- physical control
Copyright 2003 Pearson Education Canada Inc. 20 - 5
What are the auditors primary
concerns with regard to cash?
- existence
- completeness
- physical control
- presentation and
disclosure Copyright 2003 Pearson Education Canada Inc. 20 - 6
Cash Audit Procedures
perform
analytical
procedures
to test the
reasonableness
of cash
balances
Copyright 2003 Pearson Education Canada Inc. 20 - 7
Cash Audit Procedures
Enquire of management regarding any
cash requirements or restrictions from
debt agreements.
Canadian
?
Copyright 2003 Pearson Education Canada Inc. 20 - 23
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.
A bank cutoff
statement is prepared
ten business days after the
balance sheet date.
Most items that were outstand-
ing at year-end have cleared
when the cutoff statement
is prepared (cheques, deposits).
What
is a proof
of cash?
Copyright 2003 Pearson Education Canada Inc. 20 - 30
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.
Copyright 2003 Pearson Education Canada Inc. 20 - 31
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 reconcilia-
tion, year-end bank statement,
and cutoff bank statement.
Copyright 2003 Pearson Education Canada Inc. 20 - 32
What will a bank
reconciliation help the auditor
determine?
BANK
Confirm all cash
balances held by
third parties, such as
banks and other financial
institutions.
possibly through
use of the standard
bank confirmation
Copyright 2003 Pearson Education Canada Inc. 20 - 43
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.
Review cutoff
of cash receipts
and
disbursements.
Copyright 2003 Pearson Education Canada Inc. 20 - 45
Cash Audit Procedures
Account for the numeric sequence of
cancelled cheques. Investigate missing
cheques. Ace Company 6462
Ace Company 6461
NATIONAL BANK
CASH
NATIONAL BANK
NATIONAL BANK
5/23 $23,000
Payments:
1/26 $4300
Copyright 2003 Pearson Education Canada Inc. 20 - 55
Cash Audit Procedures
Trace a sample of entries from cash payments
journal to a/p subsidiary ledger to bank statement to
cancelled cheques.
1/26 $4300
Copyright 2003 Pearson Education Canada Inc. 20 - 56