Flashcards in Cash Deck (16):
Why would an auditor send a confirmation request to a bank where the reporting entity's account was closed-out during the year?
to determine that the balance is actually zero and that a fraud is not being carried out on a supposedly closed account
Why does the auditor verify the balances shown in a bank reconciliation?
if the reconciling items can be verified, the evidence will support the existence and completeness
What is the difference between lapping and kiting?
lapping - cash is stolen on receipt from a customer's account later cash from a second customer is credited to the first to cover the theft
Kiting - attempt to overstate cash by transferring cash from one account to another
What is a bank confirm?
a request of bank by the auditor for information about client relationships and balances
What information is provided to the auditor by a bank confirmation?
balances owned or owed by the client at the end of the reporting period. info about existing client accounts, loans, interest rates, and security agreements
used to substantiate reported balances for cash and notes payable, verify accrued interest balances and disclosures
Who signs the bank confirmation request?
signed by client, mailed by auditor with direction to return directly to the auditor
How is the cash bank balance substantiated from the bank reconciliation?
looking at the bank confirmation, year end bank statement or cut-off statement
How is the cash book balance substantiated from the bank reconciliation?
looking at the general ledger
How are the outstanding checks substantiated from the bank reconciliation?
verified by examining checks that clear after year end in a subsequent statement or cut-off statement
How are the deposits in transit substantiated from the bank reconciliation?
verified by examining deposits that are made after year end in a subsequent statement or cut-off statement
What is a bank cut-off statement?
partial-period bank statement usually the first 7 - 10 days after the end of the client's year usually sent directly to the CPA by the banking institution
What evidence is provided by a bank cut-off statement?
copies of checks, duplicate deposit slips, and other documents normally included in a bank statement that occurred in the first 7 - 10 days in the subsequent period
What are some of the process controls related to the receipt of cash and checks?
immediately record cash receipts after the mail is received under dual control one opens the mail and the other manage accumulation of checks/cash being received
ensure all checks are made payable to the company
stamp all checks "For Deposit only" and prepare a listing of the batch of checks
make the bank deposit each day as soon as possible
send a validated bank slip directly to an independent party for recording
independent party prepare all bank reconciliations
What is cash usually not counted in an audit of nonfinancial entities? If it is what rules should be followed?
the amount of cash on hand is rarely material, frequent counting of the cash by the entity also provides little evidence is proved by another cash count
if it is counted, all cash and liquid assets should be counted at that time, a person with custody should count while the auditor observes
Who is usually responsible for generating the bank deposit slip?