1. Chapter 12 Auditing Liquid Assets

2. Cash Accounts Affected General Checking Accounts Cash Management Accounts Imprest Payroll Accounts

3. Marketable Security Accounts Marketable Securities New Types of Financial Instruments Short-Term Cash Management Programs

4. 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

5. Cash Management Techniques Lockboxes EDI and Automated Transfers Cash management agreements with financial institutions Compensating Balances

6. 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

7. Audits of Cash Accounts Understanding and Testing Internal Controls

8. 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

9. Substantive Testing of Cash Balances Independent bank reconciliations Cutoff bank statement Standard bank confirmation Obtaining year-end cutoff information Bank transfer schedules Kiting

10. 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

11. 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