1. Audit of Cash Prepared by :- Nurulain binti Asri
Nur Athirah binti Abd Hadi
Nur Atiqah Syafiqa binti Rosli
Tuan Noorfarahanim binti Tuan Ibrahim
Prepared for :-
Nor Azam bin Yaacob

2. What are the auditor’s primary concerns with regard to cash?
existence
completeness
physical control
presentation and disclosure

3. perform analytical procedures to test the reasonableness
Cash Audit Procedures
perform analytical procedures
to test the reasonableness
of cash balances

4. Cash Audit Procedures Enquire of management regarding any
cash requirements or restrictions from
debt agreements.

5. What is kiting? Kiting is an irregularity whereby
an overstatement of cash is
created by a cash transfer between
bank accounts.
The deposit is
recorded in cash receipts but
the disbursement is not re-
corded in cash disbursements.

6. Kiting example National Pelangi
On 31/12, Asia’s bookkeeper writes a $5,000 cheque
on the National Bank and deposits the cheque
in the Pelangi Bank account.
National
Pelangi
Asia Co.
12/31
Asia Co.
5000
National

7. Kiting example The bookkeeper records the deposit in the cash
receipts journal but does not record the cheque
in the cash payments journal.
He also fails to list the cheque as outstanding on the
National Bank reconciliation.
cash receipts journal
description _ $$ _
Dec. 31, 2004
Misc. revenue
cash payments journal
Dec.31, 2004
- no activity -

8. Kiting example National will not be aware of National
the cheque until notification from
Pelangi, probably during the
first few days of January.
Pelangi
As a result of the deposit,
Pelangi will increase Asia’s
account on 31/12.
As a consequence, the bank records will reflect a $5,000 cash overstatement for a few days until the cheque clears. December bank statements will also support this overstatement.

9. From an internal control perspective, why does kiting occur?
inadequate segregation of
duties between accounting and
cash custody

10. What effect is changing technology having on the likelihood of kiting?
Kiting is becoming
less likely because
the “float” is
shrinking; i.e.,
cheques clear banks
faster than in the
past.

11. What audit procedures may detect kiting?
tests related to
the cutoff bank
statement and
schedule of
bank transfers

12. Cash Audit Procedures Obtain a bank cutoff statement directly
from the bank.
A bank cutoff
statement is prepared
ten business days after the
balance sheet date.
Most items that were outstand-
ing at year-end have cleared
when the cutoff statement
is prepared (cheques, deposits).

13. Cash Audit Procedures Obtain a bank cutoff statement directly
from the bank.
Trace all cheques, deposits, and other
cash changes from the cutoff statement to
cash receipts and disbursements records,
paying particular attention to dates and
amounts.
Prepare a schedule of bank transfers showing
all transfers between the client’s bank accounts
during the lastweek of the audit period and the first
week of the subsequent period.

14. Cash Audit Procedures The schedule should
be prepared using cash receipts
and payments journals, year-end
reconciliation, year-end bank state-
ment, and cutoff bank statement.
Obtain or prepare a year-end bank reconciliation or proof of cash for each client bank account.

15. Cash Audit Procedures A proof of cash is a working
paper prepared by the auditor to
reconcile the bank’s record of the
client’s beginning balance, cash
deposits, cleared cheques, and
ending balance for the period with
the client’s records.

16. Cash Audit Procedures Trace amounts to the schedule of bank transfers,
cash receipts and payments
journals, year-end reconcilia-
tion, year-end bank statement,
and cutoff bank statement.

17. What will a bank reconciliation help the auditor determine?
whether all client cash receipts have been
deposited
whether all bank deposits have been recorded
in client cash receipts records
whether all client cash payments have been
paid by the bank

18. What will not be detected by a bank reconciliation?
- unrecorded cheques that have not
cleared the bank (possible kiting)
- unrecorded deposits that have not
cleared the bank
- cheques written for incorrect
amounts

19. Cash Audit Procedures
Confirm all cash balances held by third parties, such as banks and other financial institutions.
possibly through
use of the standard
bank confirmation

20. Cash Audit Procedures Count all cash on hand at the client’s
premises. If cash is located in multiple
places, count cash simultaneously to
avoid double counting.

21. Review cutoff of cash receipts and disbursements.
Cash Audit Procedures
Review cutoff
of cash receipts
and
disbursements.

22. Review monthly client-prepared bank reconciliations.
Cash Audit Procedures
Review monthly
client-prepared
bank
reconciliations.

23. Investigate any cheques made out to cash or bearer.
Cash Audit Procedures
Investigate any cheques made out to cash or bearer.
Asia Company
CASH
NATIONAL BANK

24. NSF Cash Audit Procedures
Investigate any cheques that were returned by the bank because the client account had insufficient funds.
Asia Company
NSF
NATIONAL BANK

25. Cash Audit Procedures
Trace a sample of entries from cash receipts journal to a/r subsidiary ledger
___a/r subsidiary
customer _ $$ _
ABC Vending 78,660
5/23/04 payment 23,000
balance ,660
cash receipts journal
description _ $$ _
May 23, 2004
ABC Vending 23,000

26. Cash Audit Procedures
Trace a sample of entries from cash receipts journal
to a/r subsidiary ledger to bank statements
___a/r subsidiary
customer _ $$ _
ABC Vending 78,660
5/23/04 payment 23,000
balance ,660
cash receipts journal
description _ $$ _
May 23, 2004
ABC Vending 23,000
Bank Statement
5/31/04
Deposits:
5/ $23,000

27. Cash Audit Procedures
Trace a sample of entries from cash receipts journal
to a/r subsidiary ledger to bank statements to
deposit slips.
___a/r subsidiary
customer _ $$ _
ABC Vending 78,660
5/23/04 payment 23,000
balance ,660
cash receipts journal
description _ $$ _
May 23, 2004
ABC Vending 23,000
Bank Statement
5/31/04
Deposit
Slip
5/23/04
23,000
Deposits:
5/ $23,000

28. Cash Audit Procedures
Trace a sample of entries from cash payments journal
to a/p subsidiary ledger
cash payments journal
description _ $$ _
January 23, 2004
a/p payment to
MGB Corp. 4,300
a/p subsidiary
vendor _ $$ _
MGB Corp ,780
1/23/04 payment 4,300
balance ,480

29. Cash Audit Procedures
Trace a sample of entries from cash payments journal
to a/p subsidiary ledger to bank statement
cash payments journal
description _ $$ _
January 23, 2004
a/p payment to
MGB Corp
a/p subsidiary
vendor _ $$ _
MGB Corp ,780
1/23/04 payment 4,300
balance ,480
Bank Statement
1/31/04
Deposits:
Payments:
1/ $4300

30. Cash Audit Procedures
Trace a sample of entries from cash payments journal
to a/p subsidiary ledger to bank statement to cancelled cheques.
cash payments journal
description _ $$ _
January 23, 2004
a/p payment to
MGB Corp
a/p subsidiary
vendor _ $$ _
MGB Corp ,780
1/23/04 payment 4,300
balance ,480
Bank Statement
1/31/04
Deposits:
Payments:
1/ $4300
Ace Company
1/23/04
MGB Corp.
4300
NATIONAL BANK

31. Audit of Imprest Petty Cash
Petty cash is a unique account because it is often immaterial in amount
The account is verified because of the potential for defalcation and the client's expectation of auditor consideration when the amount is immaterial

32. Audit of Imprest Petty Cash
Internal control over petty cash
Audit tests for petty cash

33. Internal Control over Petty Cash
The use of an impress fund that is the responsible of one individual
Petty cash funds should be kept separate from all other activities
There should be limits on the amount of any expenditure from petty cash funds
The type of expenditure that can be made from petty cash transactions should be well defined by company policy

34. Internal Control over Petty Cash
When a disbursement is made from petty cash, then require a responsible official's approval on a pre-numbered petty cash form
The total of the actual cash and checks in the fund plus the total unreimbursed petty cash forms should equal the total amount of the petty cash fund stated in the general ledger
Periodically, surprise counts and a reconciliation of the petty cash fund should be made by the internal auditor or other responsible official

35. When the petty cash balance runs low, a check payable to the petty cash custodian should be written on the general cash account for the reimbursement of petty cash
The check should be for exact amount of the pre- numbered vouchers that are submitted as evidence of actual expenditures
These vouchers should be verified by the account payable clerk and cancelled to prevent their reuse

36. Audit Tests for Petty Cash
Determine the client's procedures for handling the fund by discussing internal controls with the custodian and examining the documentation of a few transactions
Obtaining an understanding of internal control, identify internal controls and weaknesses
It is often desirable use a flowchart and an internal control questionnaire, primarily for documentation in subsequent audits

37. The common procedures are to count the petty cash balance and to carry detailed tests of one or two reimbursement transactions
The primary procedures should include footing the petty cash vouchers supporting the amount of the reimbursement, accounting for a sequence of petty cash vouchers, examining the petty cash vouchers for authorization and cancellation, and examining the attached documentation for reasonableness
Typical supporting documentation includes cash register tapes, invoices, and receipts
Petty cash tests can ordinarily be performed at any time during the year
If the balance in the petty cash fund is considered material, it should be counted at the end of the year
Unreimbursed expenditures should be examined as a part of the count to determine whether the amount of unrecorded expenses is material