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Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition

Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition. William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University. Chapter 18 – Auditing Investments and Cash Balances. Chapter Overview.

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Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition

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  1. Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8th Edition William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Chapter 18 – Auditing Investments and Cash Balances

  2. Chapter Overview

  3. Auditing Investments

  4. Investments – Audit Objectives

  5. Investments • Understanding the Entity and Environment • Analytical Procedures • Inherent Risk

  6. Consideration of Internal Controls – Common Documents and Records • Stock certificate • Bond certificate • Bond indenture • Broker’s advice

  7. Consideration of Internal Controls – Common Documents and Records • Broker’s statement • Books of original entry • Investment subsidiary ledger

  8. Functions and Related Controls • Authorize Investment Transactions • Purchasing securities • Selling securities • Receive or Deliver Securities • Receiving securities • Safeguarding securities • Delivering securities • Receiving periodic income

  9. Functions and Related Controls • Record Transactions • Recording purchases, sales, and income • Recording market adjustments and reclassifications • Reviewing purchases, sales, and income transactions • Settle Transactions • Receiving cash • Disbursing cash • Assessing investment performance and reporting

  10. Preliminary Audit Strategies for Investments

  11. Substantive Tests of Investments • Initial Procedures • Analytical Procedures • Tests of Details of Transactions

  12. Substantive Tests of Investments • Tests of Details of Balances • Inspect and Count Securities on Hand • Confirm Securities Held by Others • Recalculate Investment Revenue Earned • Tests of Details of Accounting Estimates • Proper Classification of Investments

  13. Substantive Tests of Investments • Auditing the Fair Value of Investments • Tests of Details of Presentation and Disclosure

  14. Study Break • This document is an engraved, prenumbered form showing the number of bonds owned by a bondholder. • Stock certificate • Bond certificate • Bond indenture • Broker’s advice B. Bond certificate

  15. Study Break • While recording investing transactions, all of the following functions need to be carried out, except: • Recording purchases, sales, and income • Recording market adjustments and reclassifications • Reviewing purchases, sales, and income transactions • Assessing investment performance and reporting D. Assessing investment performance and reporting

  16. Study Break • All of the following are proper classification for investments, except: • Held-to-maturity securities • Daily securities • Trading securities • Available-for-sale securities B. Daily securities

  17. Auditing Cash Balances

  18. Cash Balances – Audit Objectives

  19. Cash Balances • Analytical Procedures • Inherent Risk • Consideration of Internal Controls

  20. Preliminary Audit Strategies for Cash Balances

  21. Substantive Tests for Cash Balances • Initial Procedures • Analytical Procedures

  22. Substantive Tests for Cash Balances • Tests of Details of Transactions • Perform Cash Cutoff Tests • Cash Receipts • Cash Disbursements • Trace Bank Transfers • Kiting • Bank Transfer Schedule

  23. Substantive Tests for Cash Balances • Tests of Details of Transactions • Count Cash on Hand • Cash Counts • Tests to Detect Lapping • Confirm Accounts Receivable • Make a Surprise Cash Count • Compare Details of Cash Receipts Journal Entries with the Details of Corresponding Daily Deposit Slips

  24. Substantive Tests for Cash Balances • Tests of Details of Balances • Confirm Bank Deposit and Loan Balances • Confirm Other Arrangements with Banks • Scan, Review, or Prepare Bank Reconciliations • Obtain and Use Bank Cutoff Statements • Tests of Details of Presentation and Disclosure

  25. Study Break • Cash is related to all of the following cycles, except: • Revenue Cycle • Financing Cycle • Expenditure Cycle • All of the Above D. All of the Above

  26. Study Break • This test of details of transactions for cash balances involves the counting of all undeposited cash receipts and change funds. • Perform Cash Cutoff Tests • Trace Bank Transfers • Count Cash on Hand • Tests to Detect Lapping C. Count Cash on Hand

  27. Study Break • ______ is a form of fraud the results in the deliberate misappropriation of cash receipts. • Kiting • Cash Counts • Compensating Balance • Lapping D. Lapping

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