Chapter 14 Audit of Cash and Bank Balances.docx

Chapter 14 Audit of Cash and Bank Balances.docx

《Chapter 14 Audit of Cash and Bank Balances.docx》由会员分享，可在线阅读，更多相关《Chapter 14 Audit of Cash and Bank Balances.docx（14页珍藏版）》请在冰豆网上搜索。

Chapter14AuditofCashandBankBalances

Chapter14AuditofCashandBankBalances

LEARNINGOBJECTIVES

1.Understandtheinternalcontrolsovercustodyofcash.

2.Designandperformaudittestsofcashandbankbalances.

3.Recognizethepossiblefraudanderrorsofcashandbankbalances.

4.Recognizetheextendedauditproceduresofthegeneralcashaccounttotestfurtherformaterialfraud.

1.ImportanceandAssertionsfortheAuditofCashandBankBalances

1.1Importanceoftheauditofcashandbankbalances（Pilot,Jun13）

1.1.1Theauditofcashisconsideredanimportantpartofanauditmainlyduetotworeasons:

（a）Almostallbusinesstransactionswillbeultimatelysettledthroughthecashaccounts,theauditofcashaccountsalsoassistsintheverificationofotherassetandliabilityaccountsaswellasrevenueandexpenses.

（b）Cashisthehighlyliquidassetinacompanyanditisanareaofhighinherentrisksincethereisarelativelyhighriskofmisappropriation.

1.2Assertionsforauditingcashandbankbalances（Pilot）

1.2.1Theassertionsforauditingcashandbankbalancesareasfollows:

Assertions

Descriptions

1.Existence

●Toensurethatthecashisactuallyinexistenceandbelongtothecompanyatagivendateorattheyear-enddate.

2.Completeness

●Toensurethatthereisnounrecordedcash.

3.Accuracy

●Toensurecashatbankstatedonthereconciliationisaccurate.

4.Cut-off

●Toensurethatamountsarecorrectlyrecordedintheproperperiod.

5.Presentationanddisclosure

●Toensurethatthecashbalanceandrelatedstatementofcomprehensiveincomeentriesarecorrectlydisclosedinthefinancialstatementsinaccordancewithlegislationandaccountingstandards.

6.Detailtie-in

●Cashinthebankasstatedonthereconciliationfootscorrectlyandagreeswiththegeneralledger.

2.InternalControlsforCashandBankBalances

2.1Inherentrisks

2.1.1Unlesstheclient’sbusinessisaretailbusinesswhichinvolvessignificantamountofcashbalancesdaily,thecashbalanceisusuallyimmaterialinmostaudit.

2.1.2Fromagoodinternalcontrolpointofview,animprestpettycashfundisusuallymaintained.Itisoperatedbyestablishedafixedamountofpettycashfundtransferredfromthebusiness’sgeneralcashinbankaccount.

2.1.3Cashismoresusceptibletotheft;therefore,thereishighinherentriskfortheexistence,completeness,andaccuracyobjectives.

2.1.4Internalcontrolobjectivesforcash:

Controlobjectives

Description

Existence

（i）Divisionofdutiesamongcustody,recording,authorizationandreplenishingpettycashfund.

（ii）Imprestpettycashfundsysteminexistencetocontrolpettycash.（accuracy,existenceandcompleteness）

（iii）Alldisbursementsshouldbeauthorizedandclaimsbeonapprovedforms（occurrence）.

（iv）Independentcashcountsonaregularandsurprisebasis.

Completeness

（i）Prenumberedpettycashvouchersshouldbeusedforwithdrawingcashfromthefundandalimitshouldbeplacedonthesizeofreimbursements.

2.1.5Controlactivitiesforchequereceipts:

（Jun14）

（a）Segregationofdutiesinthehandlingofchequereceiptsandrecording.

（b）Immediatepreparationofincomingchequelistingandendorsementofincomingcheques.

（c）Timelydepositofcheques,preferablyonadailybasis.

（d）Cashreceiptjournalvoucherspreparedfromchequelistinganpay-inslipsandapprovedbysenioraccountingstaffbeforeinputintocashbook.

（e）Periodicbankreconciliationspreparedbyanindependentaccountingstaffmembers.

（f）Independentreviewofbankreconciliation.

3.SubstantiveProcedures

3.1Analyticalprocedures

3.1.1Sincecashdoesnothaveapredictablerelationshipwithotherfinancialstatementaccountsbecauseofitsresidualnature,therefore,theauditor’suseofanalyticalproceduresforauditingcashbalancesislimitedto:

（a）Comparewithprioryears’cashbalancesandtobudgetedamount.

（b）Identifyreceiptsofthenextaccountingperiodandinvestigatethelongoutstandingcheques,determinewhethertheyshouldbereflectedinthebalancesatyearendperiod.

3.2Substantiveproceduresofcashreceiptsandpaymentstransactions

3.2.1Thesubstantiveprocedures:

AuditObjectives

SubstantiveProcedures

1.Occurrence/Existence

●Selectsamplesofcashreceiptsfromcashbookandtracetoremittanceadvices,pay-inslips,andbankstatement.

●Selectsamplesofcashpaymentsfromcashbookandtracetopaymentvouchers（withsupportingdocuments）andbankstatements.

●Scanthroughtheentriesandtracealltheunusualitems,likecontraitems,stoppedpaymentitemsandcancelledcheques,tosupportdocumentsandauthorization.

2.Completeness

●Traceasampleofremittanceadvicesandpay-insliptocashreceiptjournal.

●Traceasampleofpaymentvouchers（withsupportingdocuments）tocashbook.

3.Accuracy

●Agreethetotalofcashreceiptsandpaymentstogeneralledger.

4.Valuation

●Compareasampleofremittanceadviceswithamountincashreceiptsrecordedinthecashbook.

●Compareasampleof（cancelled）chequeswithamountsincashrecordedinthecashbook.

5.Cut-off

●Comparethedatesforrecordingasampleofcashtransactionswiththedatesofcashdepositedinbankorchequessent.

6.Classification

●Examineasampleofcashreceiptsandpaymentstransactionsforproperclassification.

3.3Testofdetailsofcashbalances

3.3.1Thesubstantiveproceduresfortestofdetailsofcashbalances

AuditObjectives

SubstantiveProcedures

1.Occurrence,completenessandvaluation

●Agreebalanceonbankconfirmationwithbankreconciliationandcashbook.

●Tradedepositsintransits,outstandingchequesandotherreconcilingitemstocut-offbankstatements.

2.Accuracy

●Checkcalculationofbankreconciliationandagreewithbookbalanceoncashbookandgeneralledger.

3.Cut-off

●Forcashreceipts,observecashcountforthelastdayoftheyearendandtracedepositstocashreceiptsjournalandcut-offbanksstatement.

●Forcashdisbursement,recordthelastchequeissuedattheyearenddateandtracetocashpaymentsinthecashbook;andtraceoutstandingchequesonbankreconciliationandinvestigateanychequeclearingafteralongdelay.

4.Classification,presentationanddisclosure

●Reviewboardofdirectors’minutes,bankletter,loanagreementorotherdocumentsforanyrestrictionsoncash.

●Ensurebankloansandoverdraftsarenotoffsetagainstpositivebankbalancesinthefinancialstatements.

4.BankReconciliation

4.1Auditprocedureoftestingbankreconciliation（Pilot,Jun10,Jun13,Jun14）

（a）Testthemathematicalaccuracyofthebankreconciliationandagreethebalanceinthecashbook.

（b）Agreethebankbalanceonthebankreconciliationwiththebalanceonbankconfirmation.

（c）Tracethedepositsintransitonthebankreconciliationtothecut-offbankstatementcoveringaweekafterthedateonwhichthebankaccountisreconciled.

（d）Agreeanychargesincludedonthebankstatementtothebankreconciliation.

（e）Agreetheadjustedbookbalanceonthecashaccountleadschedule.

（f）Tracebanktransfersforlastweekoffinancialyearunderreviewandfirstweekofthefollowingyearforpropercut-off.

（g）Identifyirregularitemsandobtainnecessaryexplanation.

5.BankConfirmation

5.1Importanceofbankconfirmation

（Pilot）

5.1.1Thesendingofbankconfirmationisimportanttoauditingofcashforthefollowingreasons:

（a）Directconfirmationofbankbalancesgivestheauditorindependent,third-partyevidence.

（b）Thebanklettermayrevealdetailsofsecurity,borrowingsandcontingentliabilitieswhichneedtobedisclosedinthefinancialstatements.

（c）Informationobtainedfrombankconfirmationrequestsassiststheauditorindischarginghisresponsibilitiestoobtainsufficientappropriateauditevidencebyprovidingexternalevidenceinrelationtosuchmattersastheexistence,completenessandvaluationofassetsandliabilities.

（d）Theauditormayneedtocarryoutadditionaltestsonmattersafterreviewingtherepliesfrombanks.

5.2Sendingbankconfirmation

5.2.1Whentheauditordeterminestosendbankconfirmation,thefollowingmattersshouldbeconsidered:

（a）Theformatoftheletterisusuallystandardandagreedbetweenthebankingandauditingprofessions（HKSA505（Clarified）ExternalConfirmations,Appendix2:

StandardBankConfirmationRequestForm）.

（b）Ensurethatallbanksthattheclientdealswitharecircularized.

（c）Theentityistocompleteandsigntheauthorizationonthebankconfirmationrequest,requestingitscompletionbythebankandthendirectlyreturntotheauditor.

（d）Thebalanceforeachbankaccountshouldbeagreedtothefollowingitems:

（i）bankreconciliation

（ii）interestchargestointerestexpenseaccountinthegeneralledger

（iii）detailsofloanstothedisclosureinthestatementoffinancialpositiontoensureitiscorrectlyclassifiedintothecurrentandnon-currentelements

（e）Ifthebankdoesnotrespondtoaconfirmationrequest,theauditorshouldsendasecondrequestorasktheclienttoremindthebankonthismatter.

Question1

YouhaveworkedontheauditforCompanyAforafewyearsandthisyearyouareinchargeoftheaudit.Anewlyrecruitedaccountinggraduatewhohasnopracticalexperienceisassignedasyourassistant.Youhavealreadyconductedtestsofcontrolsforthetransactioncyclesandcontrolrisksareassessedasrelativelylowforthesecycles.Youdecidethefirsttasktosetforyourassistantistheverificationofcashatbankandinhand.Aleadschedulestatingallthebankbalancesandcashinhandbalanceofthecurrentandlastyears,bankstatementsandbankreconciliationstatemen