Presentation on theme: "Audit of Cash Prepared by :- Nurulain binti Asri"— Presentation transcript:
1 Audit of Cash Prepared by :- Nurulain binti Asri Nur Athirah binti Abd HadiNur Atiqah Syafiqa binti RosliTuan Noorfarahanim binti Tuan IbrahimPrepared for :-Nor Azam bin Yaacob
2 What are the auditor’s primary concerns with regard to cash? existencecompletenessphysical controlpresentation and disclosure
3 perform analytical procedures to test the reasonableness Cash Audit Proceduresperform analytical proceduresto test the reasonablenessof cash balances
4 Cash Audit Procedures Enquire of management regarding any cash requirements or restrictions fromdebt agreements.
5 What is kiting? Kiting is an irregularity whereby an overstatement of cash iscreated by a cash transfer betweenbank accounts.The deposit isrecorded in cash receipts butthe disbursement is not re-corded in cash disbursements.
6 Kiting example National Pelangi On 31/12, Asia’s bookkeeper writes a $5,000 chequeon the National Bank and deposits the chequein the Pelangi Bank account.NationalPelangiAsia Co.12/31Asia Co.5000National
7 Kiting example The bookkeeper records the deposit in the cash receipts journal but does not record the chequein the cash payments journal.He also fails to list the cheque as outstanding on theNational Bank reconciliation.cash receipts journaldescription _ $$ _Dec. 31, 2004Misc. revenuecash payments journalDec.31, 2004- no activity -
8 Kiting example National will not be aware of National the cheque until notification fromPelangi, probably during thefirst few days of January.PelangiAs a result of the deposit,Pelangi will increase Asia’saccount 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 ofduties between accounting andcash custody
10 What effect is changing technology having on the likelihood of kiting? Kiting is becomingless likely becausethe “float” isshrinking; i.e.,cheques clear banksfaster than in thepast.
11 What audit procedures may detect kiting? tests related tothe cutoff bankstatement andschedule ofbank transfers
12 Cash Audit Procedures Obtain a bank cutoff statement directly from the bank.A bank cutoffstatement is preparedten business days after thebalance sheet date.Most items that were outstand-ing at year-end have clearedwhen the cutoff statementis prepared (cheques, deposits).
13 Cash Audit Procedures Obtain a bank cutoff statement directly from the bank.Trace all cheques, deposits, and othercash changes from the cutoff statement tocash receipts and disbursements records,paying particular attention to dates andamounts.Prepare a schedule of bank transfers showingall transfers between the client’s bank accountsduring the lastweek of the audit period and the firstweek of the subsequent period.
14 Cash Audit Procedures The schedule should be prepared using cash receiptsand payments journals, year-endreconciliation, 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 toreconcile the bank’s record of theclient’s beginning balance, cashdeposits, cleared cheques, andending balance for the period withthe client’s records.
16 Cash Audit Procedures Trace amounts to the schedule of bank transfers, cash receipts and paymentsjournals, 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 beendepositedwhether all bank deposits have been recordedin client cash receipts recordswhether all client cash payments have beenpaid by the bank
18 What will not be detected by a bank reconciliation? - unrecorded cheques that have notcleared the bank (possible kiting)- unrecorded deposits that have notcleared the bank- cheques written for incorrectamounts
19 Cash Audit ProceduresConfirm all cash balances held by third parties, such as banks and other financial institutions.possibly throughuse of the standardbank confirmation
20 Cash Audit Procedures Count all cash on hand at the client’s premises. If cash is located in multipleplaces, count cash simultaneously toavoid double counting.
21 Review cutoff of cash receipts and disbursements. Cash Audit ProceduresReview cutoffof cash receiptsanddisbursements.
22 Review monthly client-prepared bank reconciliations. Cash Audit ProceduresReview monthlyclient-preparedbankreconciliations.
23 Investigate any cheques made out to cash or bearer. Cash Audit ProceduresInvestigate any cheques made out to cash or bearer.Asia CompanyCASHNATIONAL BANK
24 NSF Cash Audit Procedures Investigate any cheques that were returned by the bank because the client account had insufficient funds.Asia CompanyNSFNATIONAL BANK
25 Cash Audit ProceduresTrace a sample of entries from cash receipts journal to a/r subsidiary ledger___a/r subsidiarycustomer _ $$ _ABC Vending 78,6605/23/04 payment 23,000balance ,660cash receipts journaldescription _ $$ _May 23, 2004ABC Vending 23,000
26 Cash Audit ProceduresTrace a sample of entries from cash receipts journalto a/r subsidiary ledger to bank statements___a/r subsidiarycustomer _ $$ _ABC Vending 78,6605/23/04 payment 23,000balance ,660cash receipts journaldescription _ $$ _May 23, 2004ABC Vending 23,000Bank Statement5/31/04Deposits:5/ $23,000
27 Cash Audit ProceduresTrace a sample of entries from cash receipts journalto a/r subsidiary ledger to bank statements todeposit slips.___a/r subsidiarycustomer _ $$ _ABC Vending 78,6605/23/04 payment 23,000balance ,660cash receipts journaldescription _ $$ _May 23, 2004ABC Vending 23,000Bank Statement5/31/04DepositSlip5/23/0423,000Deposits:5/ $23,000
29 Cash Audit ProceduresTrace a sample of entries from cash payments journalto a/p subsidiary ledger to bank statementcash payments journaldescription _ $$ _January 23, 2004a/p payment toMGB Corpa/p subsidiaryvendor _ $$ _MGB Corp ,7801/23/04 payment 4,300balance ,480Bank Statement1/31/04Deposits:Payments:1/ $4300
30 Cash Audit ProceduresTrace a sample of entries from cash payments journalto a/p subsidiary ledger to bank statement to cancelled cheques.cash payments journaldescription _ $$ _January 23, 2004a/p payment toMGB Corpa/p subsidiaryvendor _ $$ _MGB Corp ,7801/23/04 payment 4,300balance ,480Bank Statement1/31/04Deposits:Payments:1/ $4300Ace Company1/23/04MGB Corp.4300NATIONAL BANK
31 Audit of Imprest Petty Cash Petty cash is a unique account because it is often immaterial in amountThe 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 cashAudit tests for petty cash
33 Internal Control over Petty Cash The use of an impress fund that is the responsible of one individualPetty cash funds should be kept separate from all other activitiesThere should be limits on the amount of any expenditure from petty cash fundsThe 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 formThe 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 ledgerPeriodically, 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 cashThe check should be for exact amount of the pre- numbered vouchers that are submitted as evidence of actual expendituresThese 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 transactionsObtaining an understanding of internal control, identify internal controls and weaknessesIt 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 transactionsThe 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 reasonablenessTypical supporting documentation includes cash register tapes, invoices, and receiptsPetty cash tests can ordinarily be performed at any time during the yearIf the balance in the petty cash fund is considered material, it should be counted at the end of the yearUnreimbursed expenditures should be examined as a part of the count to determine whether the amount of unrecorded expenses is material