Premium Essay

Audit of Cash and Other Liquid Assets

In: Business and Management

Submitted By fergusonc02
Words 14523
Pages 59
Solutions for Chapter 12

Audit of Cash and Other Liquid Assets

Review Questions:

12-1. It is important that cash and liquid asset testing be coordinated because the assets can be quickly moved and thus substituted for each other. For example, an organization could quickly move assets between cash and certificates of deposit.

12-2. General Cash Account. This is the account used to transact most of the organization's cash transactions. It is usually a high volume, but low balance account. Because of its high volume and its liquidity it is susceptible to greater risk than most asset accounts of the same size.

Imprest Payroll Account. This is an account that is maintained strictly for the payment of payroll. The organization makes a deposit equal to the monthly or weekly payroll at the time the payroll checks or electronic transfers are issued. The account is used to minimize accounting costs and to isolate payroll risks to one account.

12-3. We disagree with the auditor's assessment of inherent risk of cash transactions as low. Granted, the accounting for cash and marketable securities is not overly complex. However, the liquidity of the accounts, coupled with their susceptibility to fraud or misappropriation, makes the inherent risk of the accounts at least moderate - if not high. Most organizations recognize the high inherent risk associated with the accounts and have implemented detailed control procedures to reduce control risk to a minimal level.

12-4. Cash, when well managed, is not a large balance account at year-end. However, it is susceptible to fraud because (1) it is a high volume account during the year, and (2) it is liquid and thus easily susceptible to defalcation or other fraudulent schemes if a sufficient control structure is not instituted. The types of fraud that may occur with cash and the types of audit procedures that may…...

Similar Documents

Premium Essay

Brief Analysis of Asset-Based Financing and Consequent Audit Risk

...First name Last name Name of Course Name of Professor 12 November 2012 Brief Analysis of Asset-based Financing and Consequent Audit Risk The article by Robert A. Modansky and Jerome P. Massiminom mainly discusses the features and rationale of three asset-based financing methods-revolving lines of credit, purchasing order financing and factoring and further introduces how to account for them according to U.S. GAAP. Companies that are highly-leveraged or do not have the credit rating or track record to qualify for bank financing now find asset-based lending a pleasant choice instead of the financing option of last resort. The main difference between the asset-based lending and traditional types of banking is that asset-based financing is secured by an asset like trade account receivable, inventory or property and equipment not credit rather than credit ratings (Robert A. Modansky, Jerome P. Massiminom).The benefit of placing the borrower’s assets as collateral is that the borrower will receive a higher amount of maximum credit with a lower interest rate. Revolving lines of credit requires the borrower to grant a security interest in its receivables and inventory to lenders as collateral to secure the loan, which creates a borrowing base for the loan. It’s worth noting that not all receivables and inventory are eligible to constitute the borrowing base. For instance, receivables that are more than 90 days old and related party receivables would be ineligible (Robert......

Words: 1038 - Pages: 5

Premium Essay

Assets

...Structural Risk Management (Asset/Liability Management) (ALM) Section Topic Page 7000 Executive Summary…………………………………………… 7-2 7100 Legislative Summary………………………………………….. 7-3 7200 Policy……………………………………………………………. 7-5 7201 Asset/Liability Management Philosophy…………………….. 7-6 7202 Balance Sheet Mix…………………………………………….. 7-7 7203 Managing Liabilities…………………………………………… 7-9 7204 Managing Assets………………………………………………. 7-13 7205 Pricing…………………………………………………………… 7-14 7206 Terms……………………………………………………………. 7-15 7207 Interest Rate Risk……………………………………………… 7-16 7208 Matching Maturities……………………………………………. 7-17 7209 Foreign Currency Risk………………………………………… 7-18 7210 Financial Derivatives…………………………………………... 7-19 7300 Planning………………………………………………………… 7-21 7400 Risk Measurement and Board Reporting…………………… 7-22 7401 Mix and Yields…………………………………………………. 7-25 7402 Growth………………………………………………………….. 7-26 7403 Financial Margin……………………………………………….. 7-27 7404 Interest Rate Risk Measurement…………………………….. 7-28 7405 Monitoring Derivatives………………………………………… 7-35 7500 Risk Management……………………………………………… 7-36 7501 Reliance on Qualified and Competent Staff and Volunteers 7-37 7502 Managing Interest Rate Risk… ……………………………… 7-38 Executive Summary The goal of asset/liability management (ALM) is to properly manage the risk related to changes in interest rates, the mix of balance sheet assets and liabilities, the holding of foreign currencies, and the use of derivatives. These risks should be......

Words: 12512 - Pages: 51

Free Essay

Cash Audit Progra,

...Internal Audit Department Audit Program for Cash | | |Audit Scope: | |Audit Objectives: | |Risks | |Cash transactions may not be recorded accurately | |Cash may not exist | |Audit Procedures |Done by |Date |W/P Ref | |Confirm selected bank accounts and special arrangements | | | | | | | | | |Select bank accounts for confirmation in order to obtain a moderate to low level of | | | | |assurance that the......

Words: 700 - Pages: 3

Free Essay

Institutional Asset and Liability Management

...Institutional Asset and Liability Management Group Assignment Words counting: Executive Summary The purpose of this report is to critically evaluate that Bank of Queensland’s liquidity and credit risk management during 2000 and 2010. The report first deals with liquidity risk. It starts with analysing liquidity risk by using various ratios such as quick ratio, financing gap etc. It then followed by evaluate the management of liquidity risk within 11years respectively. After comparing the actual ratio and real management, recommendations are provided. Similar analysis to credit risk, it is first analysed through expert system, loan credit rating and derivative financial instruments to evaluate BOE’s credit risk management. Finally, recommendations for improving risk management are provided. Most information we obtained from the company annual reports, bank homepages, textbook and relevant database such as Finanalysis and Bankscope. Thus, the information we provided is reliable. Table of Content 1. Introduction……………………………………………………………………………… 5 1.1 Background of Bank of Queensland …………………………………………………5 1.2 Structure……………………………………………………………………………… 5 2. Liquidity Risk………………………………………………………………………… 6 2.1 Causes of liquidity Risk………………………………………………………………6 2.2 Measurement of liquidity risk………………………………………………………8 2.2.1 Quick ratio…………………………………………………………………………......

Words: 3602 - Pages: 15

Free Essay

Audit Program for Cash

...Substantive Audit Program- Cash Balances Assertions: 1. The amount of cash is not materially more than the amount shown on the balance sheet. (checked with procedure 3, 5 and 7) 2. All cash has been recorded. (Checked with procedures 3, 5 and 7) 3. Cash is correctly shown as a current asset. (Checked with procedure 12) 4. Cash is not restricted to noncurrent use. (Checked with procedure 12) 5. All deposits and disbursements of cash reflect transactions before the end of the year. (Checked with procedure 2, 3, 4, 5, 6, 7) Procedures 1. All reconciliations are for valid bank accounts, obtain confirmation from a third party (Existence) 2. AOW vouched deposit in transit to the cutoff bank statement, noted it cleared the bank on january 4 2010, appears to be a valid reconciling items. (Existence) 3. AOW traced selected January deposits from the cutoff bank statement to the cash receipts journal. No other reconciling items. (Completeness) 4. AOW vouched outstanding check to cash disbursement journal and cutoff bank statements, noting the check cleared after 12/31. (Existence) 5. AOW made a selection from the cash disbursements journal and trace to the cutoff bank statement to test outstanding checks for completeness. No exceptions noted. (Completeness) 6) All outstanding checks from the cutoff statement written before year end are included on the reconciliation. (Existence) 7) All deposits from the cutoff statement made before year end are......

Words: 282 - Pages: 2

Premium Essay

Audit of Cash Balances

...Audit of Cash Balances Auditor's Assessment of the Cash Account The appropriate tests for the ending balance in the cash accounts depend heavily on the initial assessment of control risk, tests of controls, and substantive tests of transactions for cash receipts. The company's controls over cash receipts assist the auditor in determining that cash received is promptly deposited, that receipts recorded are proper, that customer accounts are promptly updated, and that the cash cutoff at year-end is proper. If the results of the evaluation of internal control, the tests of controls, and the substantive tests of transactions are adequate, it is appropriate to reduce the tests of details of balances for cash, especially for the detailed tests of bank reconciliations. On the other hand, if the tests indicate that the client's controls are deficient, extensive year-end testing may be necessary. There is a greater emphasis on the detection of fraud in tests of details of cash balances than for other balance sheet accounts because the amount of cash flowing into and out of the cash account is frequently larger than for any other account in the financial statements. Furthermore, the susceptibility of cash to misappropriation is greater than other types of assets because most other assets must be converted to cash to make them usable. This emphasis affects the auditor's evidence accumulation in auditing year-end cash as in these examples: < ......

Words: 2627 - Pages: 11

Premium Essay

Audit

...Section A: Audit Practice Part b (i): Why is the audit of cash important part of the audit? From an auditing standpoint, cash is an important account because cash transactions affect all other business and financial processes. Businesses acquire cash by selling goods or services, disposing of fixed assets, or acquiring debt or equity. The same businesses put their cash to use through purchasing, paying employees, and buying inventory. Audits are an important part of business. Cash audits check that money has been handled properly, and performance audits ascertain whether employees are doing their jobs properly. Corporations are likely to undergo tax audits to ensure proper tax reporting and withholding. Audits may be performed in-house by management or human resources, by a third-party consulting firm hired specifically to perform the audits or by IRS agents who are auditing company tax records. The audit of cash is considered an important part of an audit mainly due to almost all business transactions will be ultimately settled through the cash accounts, the audit of cash accounts also assists in the verification of other asset and liability accounts as well as revenue and expenses. Some of the investor relies on the accuracy of the cash account to evaluate the financial health of the company. They use current asset which include the cash account to compute several financial measures. Other than that, cash is the highly liquid asset in a company and it is an area of high...

Words: 9221 - Pages: 37

Premium Essay

Audit Consideration Long Lived Asset

...Audit Considerations PCAOB – Public Company Accounting Oversight Board Staff Audit Practice Alert No. 3 – Audit Considerations in the Current Economic Environment (December 5, 2008) Representation Letter A letter from management to the auditor representing that the financial statements are fairly presented. The letter is addressed to the independent auditor, and dated at the date of the auditor's report. It is signed by members of management whom the auditor believes are responsible for, and knowledgeable about, matters covered (chief executive officer and chief financial officer). Specific items included in the representation letter are: - All items requiring disclosure (such as loss contingencies, illegal acts, and related party transactions) have been properly disclosed. - All accounting records, financial data, and minutes of directors’ meetings have been made available to the auditors. - Financial statements are completed and prepared in conformity with generally accepted accounting principles - Management's responsibility for the significant assumptions used in forecasting future cash flows. Consult Specialist The auditor's considerations should be based on knowledge of the entity, its business and management. When reviewing cash flow estimates, auditors should ensure they have the expertise to make critical assessments of the company's work. If necessary, they should contact industry experts or financial consultants specializing in......

Words: 804 - Pages: 4

Premium Essay

Cash Flow

...Motors at a Glance 14 Major Launches during the Year 16 Presence across Markets 18 The NEXT Level in Design 20 The NEXT Level in Driving Experiences 22 The NEXT Level in Fuel Economy 24 The NEXT Level in Connectivity 26 Corporate Social Responsibility at Tata Motors 30 Awards and Accolades 32 Financial Performance 36 Summarised Balance Sheet and Statement of Profit and Loss (Consolidated) STATUTORY REPORTS 44 Notice 53 Directors’ Report 69 Management Discussion & Analysis 104 Corporate Governance 125 Secretarial Audit Report Chairman’s Message To ensure long-term competitiveness of Tata Motors, the company also took several steps under the Horizonext strategy. FINANCIAL STATEMENTS Standalone Financial Statements 126 Independent Auditors’ Report 130 Balance Sheet 131 Statement of Profit and Loss 132 Cash Flow Statement 134 Notes to Accounts Consolidated Financial Statements 170 Independent Auditors’ Report 172 Balance Sheet 173 Statement of Profit and Loss 174 Cash Flow Statement 176 Notes to Accounts Subsidiary Companies 207 Financial Highlights 210 Listed Securities issued by Subsidiary Companies during FY 2013-14 14 Major Launches during the Year Our products represent the Horizonext philosophy with best-in-class offerings. 38 Summarised Balance Sheet and Statement of Profit and Loss (Standalone) 40 Funds Flow - Last Five Years 41 Financial Statistics 30 ANNUAL GENERAL MEETING Date Awards and Accolades Range Rover Sport won the SUV of the Year......

Words: 116965 - Pages: 468

Free Essay

B Audit Cash Balance

...ASSIGNMENT 2 AUDIT CASH BALANCE APPLE BLOSSOM COLOGNE COMPANY The Apple Blossom Cologne Company has two bank checking accounts. The general account (account number 101) is with the Big City National Bank, Main at Michigan Avenue, Chicago, Illinois. It is used for ordinary cash receipts and disbursements transactions. The payroll account (102) is with the Second National Bank, 615 Lakeway Road, Chicago, Illinois. The payroll account is not an imprest account, and transfers between it and the general account occur frequently. All transfers are journalized through the cash receipts journal. SUBSTANTIVE AUDIT PROCEDURES FOR CASH BALANCE Lillian Stockton, the treasurer, prepares monthly bank reconciliations for both bank accounts. You obtained from Don McKenna a copy of the reconciliations for each bank for the month of December, 2011. You also obtain from Don selected portions of the cash receipts and cash disbursements journals. You have received from the banks the confirmations and cut-off bank statements that were requested January 3, 2012. The cut-off bank statements cover the period from January 1 to January 14, 2012. On December 31, 2011, you were on the client’s premises for the purpose of counting any undeposited cash receipts and the petty cash fund at year-end. The cashier, Pam Lewis, has charge of the petty cash fund. You obtain control of it, counted it, recorded your count, and returned it to Pam, obtaining a receipt for its return. Pam also prepares......

Words: 3441 - Pages: 14

Free Essay

Audits

...Accountancy University of Waterloo Waterloo ON N2L 3G1 October 2004 Atlas Cold Storage Inc. It had been a stressful summer for the executives and board of Atlas Cold Storage; in fact it had not been a summer at all. But Joseph Wiley as Chair of the Audit Committee and representative on the board of Atlas’s largest unit holder, TD Capital, felt the pressure most acutely. Although it was August 29th and summer was over, a new phase of the Atlas saga was about to start now that the press announcement was being proofed for the final time. When investors returned from their Labour Day weekend they would know what he had been living with for months -- that Atlas’s financial results would need to be significantly restated. It had all started with the anonymous letter sent to the Ontario Securities Commission (OSC) on April 28, 2003. Had the letter not gone to the OSC perhaps the situation could have been dealt with internally without a need to announce to the public that the financial statements were wrong, very wrong. But with the letter they were forced to tell the auditors, Ernst and Young (E&Y) who insisted on coming in to review the books, again -- no doubt afraid that they might get sued for issuing a clean audit opinion on financial statements that were materially incorrect. To make matters worse, the independent board members insisted that E&Y should not do the investigation, claiming the auditors were not independent enough. Those board......

Words: 3608 - Pages: 15

Premium Essay

Lakeside Audit Case

...Audit Lakeside Case October 13, 2015 1. An engagement letter is an essential aspect in establishing an understanding between the client and the audit firm. This documentation is required in order to identify the objective and scope of the audit, outline the specific responsibilities of management and the audit firm, identify inherent limitation of the audit, ascertain the applicable financial reporting framework, and the expected forms Engagement letters are necessary in settling disputes between auditor and management. When management signs the written engagement letter, they are entered into an executor contract with the auditor. In the engagement letter presented by Abernethy and Chapman, the audit firm clearly outlined the following responsibilities for Lakeside management: 1) The financial Statements 2) Establish and Maintain internal controls over financial reports 3) Identify and ensure compliance with laws and regulations applicable to its activities 4) Make all financial records and related information available to auditors 5) At the end of the engagement, providing a representation letter Abernethy and Chapman outlined the following responsibilities for the auditor: 1) Audit financial statements for purpose of establishing an opinion on the financial position, results of operations, and cash flows in compliance with GAAP. 2) Obtain reasonable, not absolute, assurance that financial statements are free of material misstatements,......

Words: 2603 - Pages: 11

Premium Essay

Audit

...risk-based audit, adequate planning is of paramount importance as it allows to direct the audit effort towards the areas expected to be most at risk of material misstatement. Additionally, adequate planning helps identify and resolve problems on a timely basis and allows the auditor to organize the engagement, including selecting suitably experienced team members to deal with specific risks, so that it can be performed in an effective and efficient manner. ISA 300 in particular requires setting out an overall audit strategy and a detailed audit plan. The overall audit strategy should indicate the scope of the work, the resources to be allocated to specific high-risk areas in terms of experienced staff or hours and the timing of the work. A more detailed audit plan follows on from the approach identified in the audit strategy and indicates the audit procedures to be performed in respect of specific items in the financial statements and their timing. The audit strategy and the audit plan are not necessarily separate documents or processes as they are strictly interrelated. For example the results of initial risk assessment procedures, like the entity’s business risk assessment or the assessment of internal control, will inform the planning for further audit procedures and, vice versa, the outcome of detailed audit procedures may be so different from what expected at the time of planning to require a modification of the audit strategy and audit plan. As such, the audit strategy......

Words: 5723 - Pages: 23

Premium Essay

Audit Cash and Investments Audit

...AUDITING CASH AND INVESTMENTS 1. CASH Audit objects : - existence  recorded cash balances exist at the balance sheet date. - completeness  recorded cash balances include the effects of all cash trans-actions that have occurred; year – end transfer of cash between banks are recorded in the proper period. - rights and obligations  the entity has legal title to all cash balances shown at the balance sheet date. - valuation  recorded cash balances are realizable at the amounts stated on the balance sheet and agree with supporting schedules. - presentation and disclosure  cash balances are properly identified and clas-sified in the balance sheet; lines of credit, loan guarantees and other re-strictions on cash balances are appropriately disclosed. !!! REMARKS: o A high volume of cash transactions result in a high inherent risk. o Controls over cash transactions are usually strong and are tested in connec-tion with the audits of sales and purchases. o Regular bank reconciliations are an important control over the prevention and detection of fraud and error. o The use of “imprest” accounts for petty cash and for payroll and dividend cheques is a further control over safeguarding cash balances. o Cash balances are usually relatively small but significant because of their importance for liquidity. o The small balance means that auditors tend to adopt a predominantly sub-stantive approach to the audit of cash balances. o Analytical procedures are little used......

Words: 1397 - Pages: 6

Premium Essay

Automated Cash Registers, Scanners, or Other Digital Devices.

...goals. Lessons learned (Appendix 1) during NICI II implementation have been widely considered in the development of NICIII. In this phase, emphasis will be placed on the development of services in the following five focus areas:      Skills development aims to develop a high quality skill and knowledge base leveraging ICT Private Sector Development aims to develop a vibrant, competitive, and innovative ICT sector/ ICT enabled private sector Community Development aims to empower and transform communities through improved access to information and services E-Government (e-GOV) aims to improve government operational efficiency and service delivery Cyber Security (CS) aims to secure Rwanda’s cyberspace and information assets These focus areas will accelerate services development and fuel continued growth. This document is divided into the following four parts: Part 1 sets out the overview of the NICI process since its inception in 2000. It also provides a background of Rwanda’s current ICT status in relation to the global context: national development strategies, ICT vision, achievements, challenges and opportunities. Part 2 highlights the methodology employed in NICI III formulation and provides the rationale, description, mission and objectives for each of the five focus areas. Part 3 elaborates each NICI III project by outlining its purpose, description, activities, expected outcomes and outcome indicators. The projects defined will be......

Words: 28160 - Pages: 113