Case Study

Case 9.1

1] The audit of cash is an important part of the audit because of the impact of the cash account on investors. Investors depend on the accuracy of the cash account when it comes to evaluating the financial health of a company. Also, as evidenced by the Parmalat fraud, auditors must use professional skepticism in every part of the audit even those that may seem unimportant or monotonous.

2] Even though test of controls indicate the effectiveness of controls, it is still important to perform substantive audit procedures. This is due to the auditing standards that require some substantive evidence for all significant accounts and assertions. Due to the requirement, substantive tests cannot be ignored or removed from the audit procedures.

3] “6. Appropriateness is the measure of the quality of audit evidence, i.e., its relevance and reliability. To be appropriate, audit evidence must be both relevant and reliable in providing support for the conclusions on which the auditor's opinion is based. 7. Relevance. The relevance of audit evidence refers to its relationship to the assertion or to the objective of the control being tested. 8. Reliability. The reliability of evidence depends on the nature and source of the evidence and the circumstances under which it is obtained.” (PCAOB).

4] Auditing Assertions

1. Accuracy

2. a) Accuracy

b. Accuracy, Valuation and Existence/Occurence

c. Cutoff

d. Cutoff

Case 9.1

e. Cutoff, Classification, Completeness

f. Cutoff, Classification, Accuracy

3. Valuation, Existence/Occurence

4. Classification, Understandibility, Disclosure

5]

1. The Balance Per Bank Statement for Sunnydale Bank Co. does not agree with the Cutoff Bank Statement or Bank reconciliation. It looks as if there is a transposition error. See working paper C-10

Test: The auditor may want to make sure that the person who reconciles the statements is not also handling any other cash functions and also check older statements to...