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BethG
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True / False: Cash is an area automatically considered a high fraud risk.
True
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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
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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
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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.
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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.
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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
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Which three assertions are most important when auditing the cash cycle?
- Completeness
- Valuation and Allocation
- Existence
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When auditing the cash balance, how does the auditor verify the assertions?
- Bank confirmations and
- Bank reconciliations
- ...cover all the assertions
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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
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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.
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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
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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
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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
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What disclosures are required for the cash cycle?
- Policy defining cash and cash equivalents
- Restrictions on cash
- ** sinking fund requirements
- ** compensating balance requirements
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