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Chapter 12

Chapter 12. Auditing Liquid Assets. Cash Accounts Affected. General Checking Accounts. Cash Management Accounts. Imprest Payroll Accounts. Marketable Security Accounts. Marketable Securities. Short-Term Cash Management Programs. New Types of Financial Instruments.

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Chapter 12

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  1. Chapter 12 Auditing Liquid Assets

  2. Cash Accounts Affected General Checking Accounts Cash Management Accounts Imprest Payroll Accounts

  3. Marketable Security Accounts Marketable Securities Short-Term Cash Management Programs New Types of Financial Instruments

  4. Planning for Audits of Cash and Marketable Securities • Materiality and Risk Considerations • Volume of activity • Liquidity • Automated Systems • Importance in meeting debt covenants Inherent Risk Control Risk

  5. Cash Management Techniques • Lockboxes • EDI and Automated Transfers • Cash management agreements with financial institutions • Compensating Balances

  6. Evaluating Control Risk: Cash Accounts • Appropriate internal controls would include: • Separation of duties • Restrictive endorsements • Independent reconciliation control procedures • Computerized control totals and edit tests • Authorization of transactions • Prenumbered & turnaround documents • Periodic internal audits • Competent, well-trained employees

  7. Audits of Cash Accounts • Understanding and Testing • Internal Controls

  8. Substantive Testing of Cash Balances • Specific risks that should be assessed • Transactions in the wrong period • Account balance misstated due to fraud • Company manipulation of accounts • Cash is embezzled and therefore not recorded

  9. Substantive Testing of Cash Balances • Independent bank reconciliations • Cutoff bank statement • Standard bank confirmation • Obtaining year-end cutoff information • Bank transfer schedules • Kiting

  10. Operational Audits of Cash • Procedures • handling of cash receipts • excess or idle funds • effectiveness of cash management and cash budgeting • financial arrangements with financial institutions • compliance of treasury activities • electronic transfers • controls to minimize risk of loss of cash • timely payments

  11. Marketable Securities and Financial Instruments • Audits of marketable securities • Audits of other short-term securities • New financial instruments and marketable securities Special concerns regarding liquidity

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