1. Auditing the Financing/Investing Process: Cash and Investments
Chapter 16
Auditing the Financing/Investing Process: Cash and Investments
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LO# 1
Cash and the Effect of Major Accounting Transactions/Business Processes
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3. Types of Bank Accounts Types of Bank Accounts
LO# 2
Types of Bank Accounts
General Cash Account
Imprest Cash Accounts
Branch Accounts
Types of Bank Accounts
In order to optimize its cash flow, an entity implements procedures for accelerating the collection of cash receipts and delaying the payment of cash disbursements, to the extent delay is appropriate.
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4. Substantive Analytical Procedures—Cash
LO# 3&4
Because of the residual nature of the cash account, the auditor’s use of substantive analytical procedures for auditing cash is limited to . . .
comparisons with prior years’ cash balances.
comparisons with budgeted amounts.
This limited applicability of substantive analytical procedures is normally offset by (1) extensive tests of controls and/or substantive tests of transactions for cash receipts and disbursements or (2) extensive tests of the entity’s bank reconciliations.
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5. Substantive Tests of Details of Transactions and Balances
LO# 3&4
Substantive Tests of Details of Transactions and Balances
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6. Balance-Related Assertions
LO# 3&4
Balance-Related Assertions
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7. Auditing the General Cash Account
LO# 5
Auditing the General Cash Account
Copy of Bank Reconciliation
To audit a cash account, the auditor should obtain these items.
Standard Bank Confirmation
Cutoff Bank Statement
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8. Fraud-Related Audit Procedures
LO# 6
Fraud-Related Audit Procedures
Extended Bank Reconciliation Procedures
Proof of Cash
Tests for Kiting
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9. Disclosure Issues for Cash
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10. Auditing Investments Common Stock Preferred Stock Debt Securities
LO# 7
Auditing Investments
Common Stock
Preferred Stock
Debt Securities
Hybrid Securities
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11. Control Risk Assessment—Investments
LO# 8
Control Risk Assessment—Investments
Here are some of the more important assertions for investments.
Occurrence and Authorization
Completeness
Accuracy and Classification
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12. LO# 9
Segregation of Duties
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13. Substantive Procedures for Testing Investments
LO# 10
Substantive Procedures for Testing Investments
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14. Advanced Module: Auditing Fair Value Measurements
LO# 11
Advanced Module: Auditing Fair Value Measurements
ASC Topic 820 Levels
Level 1: Valuations based on quoted prices in active markets for identical assets. Also known as “marking to market.”
Level 2: Valuations based on directly or indirectly observable market data for similar assets. Also known as “marking to matrix.”
Level 3: Valuations based on management’s best judgment and involve management’s assumptions. Also known as “marking to model.”
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15. Advanced Module: Auditing Fair Value Measurements
LO# 11
Advanced Module: Auditing Fair Value Measurements
Obtain an understanding of how management makes the fair value measurements.
Consider whether specialized skills or knowledge are required.
Test the entity’s fair value measurements.
Evaluate the reasonableness of the fair value measurements.
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16. End of Chapter 16
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