True / False: Cash is an area automatically considered a high fraud risk.
True
Describe "lapping"
Today's cash receipts cover yesterday's theft.
Employee takes a customer's payment (say $100). The next day a different customer pays $100 toward their acct. The employee endorses the check, applies to the first acct, making it look like it was paid. Repeat
What 2 characteristics regarding balances vs deposits is indicative of check kiting?
(1) Low average balance compared to high level of deposits.
(2) The disbursement is posted from the disbursing account after the deposit is made in the receiving acct
Describe "kiting"
A check drawn on one bank is deposited in another bank and no record is made of the disbursement in the balance of the first bank until after year-end.
What is the result of kiting on the FS?
An intentional overstatement of cash as the cash is simultaneously reflected in 2 different bank accounts.
What is the textbook-version (perfect world) internal control used in the cash cycle?
Segregation of duties
Separation of cash handling, record keeping, and reconciliation of bank statements
Which three assertions are most important when auditing the cash cycle?
Completeness
Valuation and Allocation
Existence
When auditing the cash balance, how does the auditor verify the assertions?
Bank confirmations and
Bank reconciliations
...cover all the assertions
When using a bank confirmation, to whom should it be sent and what evidence is the auditor trying to obtain?
Send to all banks with which the client has done business during the year regardless of whether there is a year-end bank balance.
Looking for balances of: loans, contingent liabilities, discounted notes, pledged collateral, guarantee or security agreements, as well as cash savings or checking balances
What is a cut-off bank statement?
Obtained by the auditor from the bank. The cut-off statements covers the 10-15 day period after year-end.
The cut-off statement is used to verify that checks outstanding at year-end have actually cleared. The auditor should investigate those that have not.
When auditing the cash receipts or disbursements, how does the auditor verify the completeness assertion?
Trace
** (Receipts) remittance advices to the journal and deposit slips
** (Disbursements) canceled checks to the journal
When auditing the cash receipts or disbursements, how does the auditor verify the Valuation, Allocation, Accuracy assertions?
Receipts: foot deposit slips and remittance advices and compare to the journal and bank statement
Disbursements: agree all the documents in a voucher package to the journal and cancelled check
When auditing the cash receipts or disbursements, how does the auditor verify the Existence and Occurrence assertions?
Vouch
** (Receipts) entries in the journal to remittance advices, deposit slips, and bank statement
** (Disbursements) entries in the journal to canceled checks, voucher package, and bank statement