Case Study

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Week 7 Case Study – Audit of Cash

Advance Auditing Concepts & Standards

Auditing cash is seen as a routine part of the audit and is often assigned to new hires or even interns. Investors and creditors rely on the accuracy of the cash account in looking at the financials of the company. Cash is also included in reports used to calculate stock price.

It is important to perform substantive audit procedures for ending cash balance even when test indicate that controls are operating effectively because auditing standards require some substantive evidence, like dollars in the account balance, for all significant accounts.

The necessary ingredients for audit evidence to be considered “appropriate” is the measurement of the quality of the audit evidence. Audit evidence must be relevant and reliable.

The following are the audit steps and the primary assertion targeted by the procedure.

Audit Step Assertion

1 Accuracy

2A Accuracy

2B Completeness, Valuation, and Existence/Occurrence

2C Cutoff

2D Cutoff

2E Cutoff

2F Cutoff

3 Valuation, and Existence/Occurrence

4 Classification and Disclosure

There are four issues or concerns in this case. Here are some additional tests that could be performed to gain evidence as to whether or not the case account is materially misstated. For concern 1, the auditor may want to ensure that the person who prepares the bank reconciliation doesn’t perform any other duties related to the cash function and he can test previous reconciliations to see if this is a common problem or a one-time mistake. For concern 2, checks take time to clear, depending on when the recipient cashes the check. The auditor could see if the client has written checks to this individual in the past and look into their payment history. If check was for a large amount, the auditor could contact the recipient of the check and request confirmation that the check was actually received. For concern 3, the auditor could...