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    Estelloso & Ordaneza

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    Jazzy
    The document discusses objectives and procedures related to auditing cash balances. It aims to establish the auditor's objectives in auditing cash, identify internal controls over cash, apply audit procedures to verify cash balances, and reconcile bank statements. Some key points include verifying cash exists and the client has rights to it, reconciling recorded cash to physical counts, and establishing that cash is properly presented in financial statements.

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    © All Rights Reserved
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    Estelloso & Ordaneza

    Uploaded by

    Jazzy
    26 views35 pages
    The document discusses objectives and procedures related to auditing cash balances. It aims to establish the auditor's objectives in auditing cash, identify internal controls over cash, apply audit procedures to verify cash balances, and reconcile bank statements. Some key points include verifying cash exists and the client has rights to it, reconciling recorded cash to physical counts, and establishing that cash is properly presented in financial statements.

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    The document discusses objectives and procedures related to auditing cash balances. It aims to establish the auditor's objectives in auditing cash, identify internal controls over cash, apply audit procedures to verify cash balances, and reconcile bank statements. Some key points include verifying cash exists and the client has rights to it, reconciling recorded cash to physical counts, and establishing that cash is properly presented in financial statements.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    26 views35 pages

    Estelloso & Ordaneza

    Uploaded by

    Jazzy
    The document discusses objectives and procedures related to auditing cash balances. It aims to establish the auditor's objectives in auditing cash, identify internal controls over cash, apply audit procedures to verify cash balances, and reconcile bank statements. Some key points include verifying cash exists and the client has rights to it, reconciling recorded cash to physical counts, and establishing that cash is properly presented in financial statements.

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    CHAPTER 3

    CASH
    ESTELLOSO & ORDANEZA
    OBJECTIVES:
     State the auditor’s principal objective in
    auditing the cash balances;
     Identify internal control procedures to
    safeguard cash and ensure reliability recorded
    cash transactions;
     Apply audit procedures to establish
    management’s assertions on cash balances;
     Prepare cash count sheet, based on actual
    cash count;
    OBJECTIVES:

     Reconcile bank balances;


     Formulate audit adjustments to bring cash to
    correct balances; and
     Evaluate the appropriateness of the
    presentation of cash balance in the statement
    of financial position; and
    CASH
     CASH INCLUDE MONEY AND OTHER
    NEGOTIABLE INSTRUMENTS THAT IS
    PAYABLE IN MONEY AND ACCEPTABLE
    BY THE BANK FOR DEPOSIT AND
    IMMEDIATE CREDIT. IT INCLUDES CASH
    ON HAND, DEMAND DEPOSIT AND
    OTHER ITEMS THAT ARE
    UNRESTRICTED FOR USE IN THE
    CURRENT OPERATIONS.
    Unrestricted Cash – (PAS 1, par 66) An entity
    shall classify an asset as current when the
    asset is cash or a cash equivalent unless it is
    restricted from being exchange or use to settle
    a liability for at least twelve months after the
    end of reporting period.

    Accordingly, to be reported as cash, an item


    must be unrestricted in use.
    AUDIT OBJECTIVE
     Obtain an understanding of internal control
    procedures adopted by the company to safeguard
    cash;
     Establish the existence of the recorded amount
    cash;
     Establish the completeness of recorded cash;
     Determine that the client has rights to recorded
    cash, and
     Establish that the presentation and disclosure of
    cash is appropriate. ( in accordance to PFRS)
    INTERNAL CONTROL
     Segregation of the custodian function from the
    record keeping functions.
     Segregation of incompatible duties minimizes
    fraud.
     Segregation of duties also may help detect the
    unintentional errors.
     The number of individual involved in the
    transaction must be controlled.
     Individual responsibilities for cash is fixed.
    INTERNAL CONTROL PROCEDURES OVER
    CASH RECEIPTS
    a. No one person should be assigned the function of
    cash handling and record keeping.
    b. Official receipts must be pre-numbered and
    subsequently used.
    c. Official receipts must be deposited intact.
    d. Deposit should be match with the receipts.
    e. Cash sales should be recorded at the point of sale.
    f. Cash register totals and credit card machines should
    be balanced daily. Shortage and overage is
    monitored.
    CONTROL OVER CASH DISBURSEMENTS

    a. All disbursement must be properly authorized


    and adequately documented.
    b. Payment must be made by checks, electronic
    fund transfer, or from petty cash fund.
    c. Issued checks must be sequentially
    numbered.
    d. Checks should be assigned by at least two
    persons to prevent fictitious disbursements;
    CONTROL OVER CASH DISBURSEMENTS

    e. Check signatures shall be the persons in


    appropriate high levels in the organization.
    f. Checks must be payable to specific entries
    (company or person) and must not be made
    payable to cash.
    Periodic bank reconciliation must be made by a
    independent of the authorization, check signing
    function and cash receipts function.
    AUDIT PROCEDURES
     Identify the risks of material or immaterial
    misstatements for cash and gathering audit
    evidence to reduce the risks to acceptable
    level.
     Common risks: not recording the transactions,
    non-existence of the cash balances, and
    inappropriate record of cash in reporting
    period.
     Petty Cash Fund
    -small amount of cash in a fund to pay MINOR
    EXPENSES

    a. Imprest fund system – system of cash which


    requires that all cash receipts should be
    deposited intact and all cash disbursements
    should be made by means of check.
    b. Fluctuating fund system -
    ESTABLISHMENT OF FUND

    Journal entry

    Petty Cash Fund xx


    Cash in Bank xx
     PAYMENT OF EXPENSES
    NO ENTRY

     REPLENISHMENT OF FUND
    Expense (Various) xx
    Cash in Bank xx

     NOTE: Reimbursement should equal to the


    amount/sum of petty cash vouchers submitted
    YEAR-END ADJUSTMENT

    Journal entry:
    Expenses xx
    Petty Cash Fund xx

     NOTE:
    1. To avoid understatement of expenses
    2. To avoid overstatement of assets
    TO INCREASE OR DECREASE PETTY CASH FUND

    Petty Cash Fund xx


    Cash in Bank xx
    (To increase PCF)

    Cash in Bank xx
    Petty Cash Fund xx
    (To decrease PCF)
    CASH SHORTAGE/OVERAGE
     Nominal account that is debited for shortages and
    credited for overages in the Petty Cash Fund
     Error in making change fund or failure to obtain
    receipts for very small amounts
     Incorrect recording of amounts and theft/loss
     Cash shortage is debited to miscellaneous
    expense at the end of the period
     Cash overage is credited to miscellaneous income
    and deposited to general cash account at the end
    of the period and the journal entry is
    Cash xx
    Miscellaneous Income xx
    AUDIT PROCEDURES
     In conducting the cash count, the items counted shall be compared with the
    cashier’s accountability. The items may include the following:
    Currency and coins Pxx
    Checks
    Checks representing collections
    (dated and post-dated) xx
    Checks for disbursements (entrusted to
    custodian) xx
    Properly approved petty cash vouchers
    evidencing payments xx
    IOUs with no supporting vouchers xx
    Total per count Pxx
     The cashier's accountability includes all items entrusted to the
    cashier for which he or she is accountable to the entity or
    another party. The cash custodian may be accountable for the
    following:

    Imprest balance of the cash fund Pxx


    Checks or money items for payment to another
    (Meralco, PLDT, etc.) xx
    Collections temporarily handled by the custodian
    for remittance to the general cashier xx
    Other collections handled by the custodian xx
    Cashier’s accountability Pxx
    BANK RECONCILIATION

    Report that explains the difference between the


    book (company) balance of cash and the cash
    balance reported in the bank statement.
    BANK STATEMENT

    -monthly report provided by the bank to the


    depositor which shows the following:
    o Beginning-of-the-month cash balance
    o Total deposits made by the depositor and other
    bank credits
    o Checks paid by the bank and other charges
    o End-of-month cash balance
    BANK RECONCILING ITEMS

     Deposits in transit/Undeposited collections


     Outstanding checks

     Errors
    BOOK RECONCILING ITEMS

     Debit memos
     Credit memos

     Errors
    DEPOSITS IN TRANSIT/UNDEPOSITED
    COLLECTIONS

     Deposit made near the end of the month and


    recorded on the depositor’s books but is not
    received by the bank in time to be reflected on the
    bank statement (DIT)
     Collections still in the hands of the depositor
    awaiting delivery to the bank for deposit
     Comparing the receipts in the accounting record
    and deposits in the bank statement
     Understate the bank balance
     Added to the bank balance
    OUTSTANDING CHECKS

     Checks written by the company issued to payees


    but have not been cleared or presented to the
    bank for payment
     Comparing written checks during the month as
    reflected in the company’s check voucher or cash
    disbursements book with the cancelled checks
    included in the bank statement
     Overstate the bank balance
     Deducted from the bank balance
    Cancelled checks – checks that the bank has paid
    and deducted from the depositor’s account.
    DEBIT MEMOS

     Charges to the company’s or depositor’s


    account made directly by the bank such as
    returned checks (NSF and technically defective
    checks), bank service charge, charge for the
    cost of check booklets and payment of bank
    loans
     Overstate the book balance

     Deducted from the cash balance perbook


    CREDIT MEMOS

     Deposits or credits made directly by the bank to


    the depositor’s account such as notes collected
    by bank in favor of the depositor, proceeds of
    bank loan and interest earned on the
    depositor’s account and matured time deposits
     Understate the book balance

     Added to the cash balance per book


    FORMS OF BANK RECONCILIARTION

     Adjusted Balance Method

     Book to Bank Balance Method

     Bank to Book Balance Method


    ADJUSTED BALANCEMETHOD
     Under this method, the book balance and the bank
    balance are brought to a correct cash balance that must
    appear on the balance sheet

    PROFORMA RECONCILIATION
    Book balance xx Bank balance xx
    Add: Credit memo xx Add: DIT XX
    Total XX Total xx
    Less: Debit memos xx Less: OC xx
    Adjusted book balance xx Adjusted bank balance xx
    BOOK TO BANK METHOD
     Under this method, the book balance is reconciled with
    the bank balance or the book balance is adjusted to
    equal the bank balance
    PROFORMA RECONCILIATION
    Book balance xx
    Add: Credit memos xx
    Outstanding Checks xx xx
    Total xx
    Less: Debit memos xx
    Deposits in Transit xx xx xx
    Bank balance xx
    BANK TO BOOK METHOD
     Under this method, the bank balance is reconciled with the
    book balance or the bank balance is adjusted to equal the
    book balance

    PROFORMA RECONCILIATION
    Bank balance xx
    Add: Deposits in Transit xx
    Debit memos xx xx
    Total xx
    Less: Outstanding checks xx
    Credit memos xx xx
    Book balance xx
    DEPOSITS IN TRANSIT
    Deposit in transit, beg of the month xx
    Add: Cash receipts reflected in the company’s record during the month*
    xx
    Total xx
    Less: Deposits during the month as reflected in the bank statement**
    xx
    Deposit in transit, end of the month xx

    *The amount does not necessarily represents debits (charges) in the


    company’s records. If the total of charges to the cash account is
    given, any credit memo in PREVIOUS month should be excluded
    ** The amount does not necessarily represent credits in the bank
    statement. If the total of the credits in the bank statement is given,
    any credit memo for the CURRENT MONTH SHOULD BE EXCLUDED
    OUTSTANDING CHECKS

    To compute the outstanding checks:


    Outstanding checks, beg xx
    Add: Checks drawn by the company during the month*
    xx
    Total xx
    Less: Outstanding checks xx
    Outstanding checks, end xx

    *The amount does not necessarily represents credits in the company’s


    records. If the total of the credits to the cash account is given, any
    debit memo in PREVIOUS month should be excluded
    ** The amount does not necessarily represent debits (charges) in the
    bank statement. If the total of charges in the bank statement is
    given, any debit memo for the current MONTH SHOULD BE
    EXCLUDED
    PROOF OF CASH

     Reconciles the beginning and ending balances


    of cash for the month, as well as the recorded
    receipts and disbursements made the bank
    and by the depositor’s company

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