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Audit Program for Cash: Objectives and Procedures

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The audit program for cash contains a statement of the audit objectives, the complete and detailed procedures, and a conclusion. It is adapted from PPC, a division of Thompson Publishing.

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The audit objectives are

a. Cash exists and is owned by the client
b. Cash balances reflect a proper cutoff of receipts and disbursements
c. Cash balances as presented in the balance sheet properly reflect all cash and cash items on hand, in transit, or on deposit with third parties
d. Cash balances are properly classified in the financial statements, and any restrictions on the availability of funds are properly disclosed

Basic procedures

1. Using the standard AICPA bank confirmation form, request confirmation as of the audit date for bank accounts selected. Also request confirmation of material cash in savings institutions, certificates of deposit, and compensating balances. Documents items selected for confirmation and retain returned confirmations. Mail second requests, if necessary.

2. Obtain copies of each account's bank reconciliation for the workpapers

a. Trace the bank balance on the reconciliation to the standard bank confirmation received from the bank

b. Trace the reconciled book balance to the general ledger, trial balance or lead schedule as applicable


Solution Summary

The solution presents a detailed audit program for cash and cash equivalents. It consists of multiple steps with good direction as to how to proceed, as adapted from Thompson Publishing.

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Audit objectives, misstatements: disbursement payable cycle

The following statements are typically found in a questionnaires used by auditors to obtain an understanding of internal control in the acquisition and payment cycle. In using the questionnaire for a client, a "yes" response to a question indicates a possible internal control, whereas a "no" indicates a potential deficiency.

a. For each of the questions, state the transaction-related audit objective(s) being fulfilled if the control is in effect.
b. For each internal control, list a test of control to test its effectiveness.
c. For each of the questions, identify the nature of the potential financial misstatement(s) if the control is not in effect.
d. For each of the potential misstatements in part c, list a substantive audit procedure that can be used to determine whether a material misstatement exists.

1. Is the purchasing function performed by personnel who are independent of the receiving and shipping functions and the payables and disbursing functions?
2. Are all vendors' invoices routed directly to accounting from the mailroom?
3. Are all receiving reports renumbered and the numerical sequence checked by a person independent of check preparation?
4. Are all extensions, footing, discounts, and freight terms on vendors' invoices checked for accuracy?
5. Does a responsible employee review and approve the invoice account distribution before the transaction is entered in the computer?
6. Are checks automatically posted in the cash disbursements journal as they are prepared?
7. AR3e all supporting documents properly cancelled at the time the checks are signed?
8. Is the custody of checks after signature and before mailing handled by an employee independent of all payable, disbursing, cash, and general ledger functions?

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