Cash

1. Cash • Cash is included in several cycles • The amount of cash flowing into and out of the cash account is often larger than that for any other account • Susceptibility to defalcation greater than for other assets • errors in cash show up under other cycles • Sales, payments, payroll,

2. Cash • Bank reconciliation alone cannot confirm these errors • failure to bill customer • billing a customer at wrong price • interception of cash receipts • duplicate payment of vendor invoice • improper payments of officer’s personal expenditures • payment for raw materials that were not received • payment to employee for more hours than worked

3. Cash • Accounts: • General Cash • Imprest Payroll • Disbursement Imprest • Deposit Imprest • Branch Bank Account • Imprest Petty Cash Fund

4. Cash • Cash equivalents • readily convertible to cash • CD’s, time deposits, money market funds

5. Audit of Cash • Business Risk - Investment policies • Tolerable misstatement needs to be low because inherent risk • Assess Control Risk • controls over transaction cycles • separation of duties (check signing, A/P functions) • prenumbered checks • review of supporting documentation • independent bank reconciliation • statement received unopened by reconciler

6. Audit of Cash • Tests of Controls and substantive tests • already done in other cycles • Analytical Procedures • compare to prior year and prior month • Tests of Details of Balances • Bank reconciliation • Existence, Accuracy, completeness

7. Bank reconciliation • compare canceled checks with disbursements records for date, payee and amount • examine canceled checks for signature endorsement and cancellation • compare deposits in bank with recorded receipts for date, customer and amount

8. Bank reconciliation • Account for numerical sequence of checks and investigate missing ones • reconcile all items causing a difference between book and bank balance • reconcile total debits on bank statement with totals in cash disbursement record • reconcile total credits on the bank statement with the totals in the cash receipt records

9. Bank reconciliation • review month-end interbank transfers for propriety and proper recording • follow up on outstanding checks and stop-payment notices

10. Details of Balances • Bank Confirmation • Cutoff bank statement direct to CPA firm • 7 to 10 days subsequent to balance sheet date (you can substitute the subsequent month)

11. Fraud-oriented procedures • Confirmation • Tests for lapping • Review cash account detail for unusual items • Test customer order to sales to cash receipts • examine approvals on bad debt write offs • requisition, P.O, receiving report, invoice payment

12. Fraud-oriented procedures • Extended tests of bank reconciliation • look at November bank reconciliation and trace to December activity • December bank statement activity to disbursement and receipts journal • Proof of Cash (both test of transactions and balances) • Bank statement to G/L balance beginning of period • deposits to cash receipts journal • cleared checks with disbursements • bank statement to G/L end of period

13. Fraud-oriented procedures • Tests for Kiting ( flying a kite) • a checks is recorded in two bank accounts while it is clearing, doubling the total cash balance • Tests of interbank transfers detect kitting

14. Fraud-oriented procedures • Interbank Transfers • List all bank transfers days before and days after balance sheet date • Trace all transfers to accounting records • accurracy must be verified • recorded in receiving an disbursing accounts • both dates must be in the same fiscal year • disbursements should be included on bank reconciliation correctly • receipts should be included on bank reconciliation correctly

15. Impress Payroll Account • Same tests as general cash

16. Audit of Petty Cash • small balance however lots of activity • Count Petty cash • Test reimbursements • foot vouchers • account for sequence of vouchers