Why is the general cash account considered significant in almost all audits?
because it is included in nearly every transaction cycle and highly susceptible to theft or misstatement
the general cash account records virtually all receipts and disbursements, so errors and frauds here can impact many other accounts and cycles
What are the types of cash accounts that you are likely to encounter when you audit a client’s cash, as
identified on the balance sheet? 5
- general cash account
- imprest payroll acount
- branch bank account
- imprest petty cash fund
- cash equivalents
What are some of the major risks of error or fraud in the cash cycle? 6
- theft or misappropriation of cash
- errors in bank reconciliation or recording transactions
- improper cutoff
- payments to fictitious vendors employees
- kiting (recording trasnfer as cahs in both banks to overstate balance)
- fraudulent reporting
Why is cash almost always inherently risky? What assertion does this affect?
highly liquid and easily stolen or misstated, making it inherently risky in nearly all audits.
primarily effects the existence assertions since the main concern is whether the cash actually exists and is owned by the client
What is the most important control when evaluating year-end cash?
independent bank reconciliation, which ensures recorded balances agree with bank
Why is the monthly bank reconciliation by an independent person an important internal control over cash
balances? What individuals or job functions should be independent?
provides independent check that cash per books matches with bank records, helping detect errors, theft, or unauthorized transactions
person performing it should be independent of cash handling and recording, meaning they should not be the one who issues cheques, record cash receipts, or access accounting records
Why, in most audits, are the cash accounts audited 100% with little reliance on analytical procedures?
because they are easily verified through bank reconciliations and confirmations, so auditors test them in full rather than relying on analytics
Describe audit procedures (test of details of account balances) you could perform on the cash balance and
the relevant audit assertion addressed
- verify mathematical accuracy of the bank reconciliation - valuation
- trace bank balance to bank confirmation or cutoff statement - existence
- trace deposits in transit to subsequent bank statements - completeness
- trace outstanding cheques to later bank clearings - completeness/ existence
- review reconciling items for proper treatment - valuation
- confirm all cash balances directly with banks - existence and rights
What should the general cash account balance on the confirmation be compared to?
compared to the balance per bank on the client’s bank reconciliation
NOT DIRECETLY TO THE GENERAL LEDGER
this ensures differences like outstanding cheques or deposits in transit are properly reconciled
Describe the purpose of the subsequent (cut-off) bank statement.
subsequent cut off bank statement helps verify the accuracy of the year end bank reconciliation
confirms outstanding cheques and deposits in transit cleared soon after year end which ensures proper cutoff and completeness of cash transactions
Describe the steps you are likely to use when auditing a client’s bank reconciliation. For each step identified,
consider the assertion you are addressing. 6
- verify mathamatical accuracy - valuation
- trace balance per bank to bank confirmation/ cutoff statement - existence
- trace deposits in transit to subsequent bank statement - completeness
- trace outstanding cheques to later bank clearings - completeness/ existence
- investigate reconciling items for proper treatment - valuation
- agree adjusted balance to the general ledger – accuracy and valuation
If there is suspicion of fraud, what additional procedures are you likely to perform? 4
- extended testing of bank reconciliation
- proof of cash
- tests of interbank transfers (kiting)
- increased confirmations or surprise cash accounts
Define kiting and explain procedures you would use to ensure that it has not taken place.
kiting is a fraudulent practice where money is transferred between bank accounts and recorded as cash in both accounts to overstate the balance
procedures to detect kiting:
- list all interbank transfers a few days before and after year end
- trace each transfer to the accounting records and both bank statements
- ensure cheques drawn before year-end are not recorded as deposits in another bank before they clear
- verify deposits in transit and outstanding cheques are recorded in the correct period
Explain how you would audit electronic transactions (automatic deposits, funds transferred)
Tracing deposits and transfers to electronic bank statements to confirm existence and accuracy.
Comparing POS or payroll system reports to bank deposits to ensure completeness.
Reviewing controls over electronic funds transfers (authorization, access).
Ensuring independent reconciliation of electronic deposits and withdrawals to prevent fraud
Explain how you would audit petty cash.
Count the cash on hand and reconcile it to the imprest balance → Existence & Valuation.
Examine petty cash vouchers/receipts for authorization and valid business purpose → Occurrence & Accuracy.
Check reimbursements and replenishments are recorded properly → Completeness.
Ensure the custodian is independent of recording duties → Control effectiveness
Why is it important to confirm all cash account balances including those accounts that have been closed
during the year?
Because unconfirmed or closed accounts may still contain undisclosed balances, restrictions, or liabilities (like overdrafts or guarantees).
Confirming all accounts, even closed ones, ensures completeness and existence of reported cash and identifies any unrecorded obligations
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Chap 4 reading guide17
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chapt 5 reading guide32
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chap 6 reading guide17
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Chapter 7 reading guide12
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Chapter 8 reading guide27
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Chapter 9 reading guide15
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Chapter 10 reading guide3
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Chapter 1 reading guide14
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Chapter 2 reading guide13
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Chapter 3 reading guide16
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Midterm review cards8
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Chapter 11 reading guide11
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Chapter 12 reading guide17
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Chapter 13 reading guide10
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Chapter 14 reading guide10
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Chapter 17 reading guide16
