AUDIT PROGRAM FOR CASH1

Audit Objectives
To determine that:
a) Cash balances at the end of the reporting period represent cash and cash items on hand, in
transit to, or in depository banks.
b) Cash transactions have been properly recorded.
c) Cash balances are properly described and classified and adequate disclosures with
respect to amounts restricted as to withdrawal are made in the financial statements.
Audit Procedures
1) Conduct a cash count of undeposited collections, petty cash, and other funds.
o Obtain custodians signature to acknowledge return of items counted
o Reconcile items counted with general ledger balances
o Trace undeposited collections counted to bank reconciliations
o Follow up dispositions of items in cash counted:
Undeposited collections should be traced to bank deposits
Checks accommodated in petty cash should be deposited after the count to
establish their validity
IOUs in the petty cash should be confirmed and traced to collections in the
next payroll period
Expense vouchers should be traced to the succeeding replenishment voucher
o Coordinate cash count with count of marketable securities and other negotiable assets
of the client
o Obtain confirmation of year-end fund balances of cash not counted in branches or
other offices
2) Confirm bank balance by direct correspondence with all banks in which the client has had
deposits and loans during the year
3) Obtain bank reconciliation
o Check arithmetical accuracy of reconciliation
o Trace balance per book to the general ledger balance of cash account
o Trace balance per bank to bank statement and compare with amount confirmed by
bank
o Establish authenticity of reconciling items by reference to their respective sources
like bank debit or credit advices or duly approved journal vouchers
o Investigate checks outstanding for a long period of time
o Investigate any unusual reconciling items
o Where internal control over cash is weak, consider preparing a proof of cash
reconciliation
4) Obtain cutoff bank statement showing the clients transactions with the bank at least one
week after the reporting date and:
o Trace year-end reconciling items such as deposit of the year-end undeposited
collections; completeness of year-end outstanding checks and corrections of bank
errors
o Examine supporting documents of year-end outstanding checks that did not clear in
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Roque, G. (2014). CPA Examination Reviewer: Auditing Problems. Conanan Educational Supply: Manila

the cutoff bank statement

5) Obtain a list of interbank transfers of funds a few days before and after the reporting date
o Vouch supporting documents
o Ascertain that the related receipts and disbursements were booked by the client within
the same date or at least within the same month
6) Test reasonableness of cutoff by:
Comparing dates of checks returned with cutoff bank statement to dates of recording
in the cash disbursements register
Tracing receipts recorded a few days before the reporting date to bank deposits
7) Inspect savings account passbook and certificates of deposits
o Reconcile with book balances
o Update interest earned posting on passbooks, if necessary
o Compare balances with bank confirmation reply
8) Determine any restrictions on availability of cash
9) Determine propriety of financial statement presentation and adequacy of disclosures
Internal Control Questionnaire for Cash2
Date of Examination: As of _________________________
Prepared by: __________________________Date: ________________________
Received by: _________________________
Date: ________________________
Yes

No

N/A

2. Are receiving reports prepared for each item received and copies
transmitted to inventory custodians? To purchasing? To the
accounting department?

3. Are purchases made for employees authorized through regular

purchases procedures?

4. Are quantity and quality of goods received determined at the time

of receipt by receiving personnel independent of the purchasing
department?

5. Are vendors invoices matched against purchase orders and

receiving reports before a liability is recorded?

6. Do managers compare actual expenses to budget?

7. Are vouchers canceled with a PAID stamp when paid?

8. Are shipping documents authorized and prepared for goods

returned to vendors?

9. Are invoices approved for payment by a responsible officer?

Completeness
10. Are the purchase order forms pre-numbered and the numerical
sequence checked for missing documents?

11. Are receiving forms pre-numbered and the numerical sequence

checked for missing documents?

12. Is the accounts payable department notified of goods returned to

vendors?

Recurrence
1. Are the purchasing department, accounting department, receiving
department and shipping department independent of each other?

Thomson Reuters: http://static.store.tax.thomsonreuters.com/static/samplePages/Sample_Checkpoint_BIAM.pdf

Remarks

13. Are vendors invoices listed immediately on receipt?

14. Are unmatched receiving reports reviewed frequently and

investigated for proper recording?

15. Is statistical analysis used to examine overall purchasing levels?

16. Are vendors monthly statements reconciled with individual

accounts payable accounts?

Accuracy
17. Are competitive bids received and reviewed for certain items?

Verification
19. Are purchase prices approved by a responsible purchasing officer?

20. Is accounts payable reconciled to the general ledger every period?

21. Are monthly statements reviewed by senior officials?

18. Are all purchases made only on the basis of approved purchase
requisitions?

Classification
22. Do the chart of accounts and the accounting manual give
instructions for classifying debit entries when purchases are
recorded?
23. Are journal entries authorized at appropriate levels?
Cut-Off
24. Does the accounting manual give instructions to
purchases/payable entries on the date of receipt of goods?

date

MULTIPLE CHOICE QUESTIONS3

1) Which of the following is most likely to be considered a risk factor relating to
fraudulent financial reporting?
a. Domination of management by top executives
b. Large amounts of cash processed
c. Negative cash flows from operations
d. Small high-dollar inventory items
2) An auditor suspects that certain client employees are ordering merchandise for
themselves over the Internet without recording the purchase or receipt of the
merchandise. When vendors invoices arrive, one of the employees approves the
invoices for payment. After the invoices are paid, the employee destroys the
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3)

4)

5)

6)

7)

invoices and related vouchers. In gathering evidence regarding the fraud, the
auditor most likely would select items for testing from the file of all
a. Cash Disbursement
b. Approved vouchers
c. Receiving reports
d. Vendors invoices
Assume that a company has a control deficiency regarding the processing of
cash receipts. Reconciliation of cash accounts by a competent individual
otherwise independent of the cash function might make the likelihood of a
significant misstatement due to the control deficiency remote. In this situation,
reconciliation may be referred to as what type of control?
a. Compensating
b. Preventive
c. Adjustive
d. Nonroutine
Which of the following procedures would an auditor most likely to perform to
test controls relating to managements assertion about the completeness of cash
receipts for cash sales at a retail outlet?
a. Observe the consistency of the employees use of cash registers and tapes
b. Inquire about employees access to recorded but undeposited cash
c. Trace deposits in the cash receipts journal to the cash balance in the
general ledger
d. Compare the cash balance in the general ledger with the bank
confirmation request
Sound internal control dictates that immediately upon receiving checks from
customers by mail, a responsible employee should
a. Add the checks to the daily cash summary
b. Verify that each check is supported by a prenumbered sales invoice
c. Prepare a duplicate listing of checks received
d. Record the checks in the cash receipts journal
An auditor suspects that a clients cashier is misappropriating cash receipts for
personal use by lapping customer checks received in the mail. In attempting to
uncover this embezzlement scheme, the auditor most likely would compare the
a. Dates checks are deposited per bank statements with the dates remittance
credits are recorded
b. Daily cash summaries with the sums of the cash receipts journal entries
c. Individual bank deposit slips with the details of monthly bank statements
d. Dates uncollectible accounts are authorized to be written off with the
dates the write-offs are actually recorded
Upon receipt of customers checks in the mailroom, a responsible employee
should prepare a remittance listing that is forwarded to the cashier. A copy of the
listing should be sent to the
a. Internal auditor to investigate the listing for unusual transactions
b. Treasurer to compare the listing with the monthly bank statement
c. Accounts receivable bookkeeper to update the subsidiary accounts
receivable records

d. Entitys bank to compare the listing with the cashiers deposit slip
8) In testing controls over cash disbursements, an auditor most likely would
determine that the person who signs checks also
a. Reviews the monthly bank reconciliation
b. Returns the checks to accounts payable
c. Is denied access to the supporting documents
d. Is responsible for mailing the checks
9) Which of the following sets of information does an auditor usually confirm on
one form?
a. Accounts payable and purchase commitments
b. Cash in bank and collateral for loans
c. Inventory on consignment and contingent liabilities
d. Accounts Receivable and Accrued Interest Receivable
10) The usefulness of the standard bank confirmation request may be limited
because the bank employee who completes the form May
a. Not believe that the bank is obligated to verify confidential information
to a third party
b. Sign and return the form without inspecting the accuracy of the clients
bank reconciliation
c. Not have access to the clients cutoff bank statement
d. Be unaware of all the financial relationships that the bank has with the
client
11) An auditor most likely would limit substantive audit of sales transaction when
control risk is assessed as low for the occurrence assertion concerning sales
transactions and the auditor has already gathered evidence supporting
a. Opening and closing inventory balances
b. Cash receipts and accounts receivables
c. Shipping and Receiving activities
d. Cutoffs of sales and purchases
12) An auditor should trace bank transfers for the last part of the audit period and
first part of the subsequent period to detect whether
a. The cash receipts journal was held open for a few days after the year end
b. The last checks recorded before the year-end were actually mailed by the
year-end
c. Cash balances were overstated because of kiting
d. Any unusual payments to or receipts from related parties occurred
13) To gather evidence regarding the balance per bank in a bank reconciliation, an
auditor would examine all of the following except
a. Cutoff bank statement
b. Year-end bank statement
c. Bank confirmation
d. General ledger
14) A cash shortage may be concealed by transporting funds from one location to
another or by converting negotiable assets to cash. Because of this, which of the
following is vital?
a. Simultaneous confirmations

b. Simultaneous bank reconciliations

c. Simultaneous verification
d. Simultaneous surprise cash count
15) The primary purpose of sending a standard confirmation request to financial
institutions with which the client has done business during the year to
a. Detect kiting activities that may otherwise not be discovered
b. Corroborate information regarding deposit and loan balances
c. Provide the date necessary to prepare a proof of cash
d. Request information about contingent liabilities and secured transactions
ANSWERS
1) C
2) A
3) A
4) A
5) C
6) A
7) C
8) D
9) B
10) D
11) B
12) C
13) D
14) C
15)