Chapter 12 Auditing Liquid Assets
Cash Accounts Affected General Checking Accounts Cash Management Accounts Imprest Payroll Accounts
Marketable Security Accounts Marketable Securities New Types of Financial Instruments Short-Term Cash Management Programs
Planning for Audits of Cash and Marketable Securities Materiality and Risk Considerations Volume of activity Liquidity Automated Systems Importance in meeting debt covenants Inherent Risk Control Risk
Cash Management Techniques Lockboxes EDI and Automated Transfers Cash management agreements with financial institutions Compensating Balances
Evaluating Control Risk: Cash Accounts Appropriate internal controls would include: Separation of duties Restrictive endorsements Independent reconciliation control procedures Computerized control totals and edit tests Authorization of transactions Prenumbered & turnaround documents Periodic internal audits Competent, well-trained employees
Audits of Cash Accounts Understanding and Testing Internal Controls
Substantive Testing of Cash Balances Specific risks that should be assessed Transactions in the wrong period Account balance misstated due to fraud Company manipulation of accounts Cash is embezzled and therefore not recorded
Substantive Testing of Cash Balances Independent bank reconciliations Cutoff bank statement Standard bank confirmation Obtaining year-end cutoff information Bank transfer schedules Kiting
Operational Audits of Cash ProceduresProcedures handling of cash receipts excess or idle funds effectiveness of cash management and cash budgeting financial arrangements with financial institutions compliance of treasury activities electronic transfers controls to minimize risk of loss of cash timely payments
Marketable Securities and Financial Instruments Audits of marketable securities Audits of other short-term securities New financial instruments and marketable securities Special concerns regarding liquidity