Cash sales
Involvement of two or more employees
Cash Registers
Electronic point of sales systems
Collections of receivables
Initial listing of cash receipts
Custody and depositing of cash receipts
Maintenance of customer account records
Reconciliation of customers’ ledgers with control accounts
Mailing monthly statements to customers
Collection activity and past-due accounts
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Cash and Financial InvestmentsChapter 10 Internal Control Over --Cash ReceiptsCash salesInvolvement of two or more employeesCash RegistersElectronic point of sales systemsCollections of receivablesInitial listing of cash receiptsCustody and depositing of cash receiptsMaintenance of customer account recordsReconciliation of customers’ ledgers with control accountsMailing monthly statements to customersCollection activity and past-due accounts2 Internal Control--Cash DisbursementsSegregation of duties Payment by check or electronic funds transferMatch of purchase order and receiving documents with vendor’s invoiceReview of supporting documents by authorized check signerCancel of supporting documentsAuthorized check signer should mail checks 34 Objectives for the Audit CashConsider the inherent risks related to cash, including fraud risksConsider internal control over cash transactionsSubstantiate the existence of recorded cashEstablish the completeness of recorded cashDetermine that the client has rights to recorded cashDetermine that the presentation and disclosure of cash, including restricted funds, are appropriate56Potential Misstatements--Cash DisbursementsInaccurate recording of a purchase or disbursementDuplicate recording and payment of purchasesUnrecorded disbursements7Substantive Tests for Cash Balances8Objectives for the Audit of Financial InvestmentsConsider the inherent risks, including fraud risksConsider internal control over financial investmentsDetermine the existence of recorded financial investments and that the client has rights to the investmentsEstablish the completeness of recorded financial investmentsDetermine that the valuation of financial investments is in accordance with GAAPDetermine that the presentation and disclosure of financial investments are appropriate9Controls Over Financial InvestmentsEstablishment of formal investment policiesReview and approval of investment activities by the investment committee of the board of directorsSeparation of duties among employeesAuthorizing purchases and salesHaving custody of the securitiesMaintaining recordsDetailed records of all securities owned and the related revenue from interest and dividendsRegistration in the name of the companyPeriodic physical inspection of securitiesDetermination of accounting for complex instruments by competent personnel10Potential Misstatements--Financial InvestmentsMisstatement of recorded value of investmentsUnauthorized investment transactionsIncomplete recording of investmentsInadequate disclosure of the nature of investment activities11Considerations in Auditing Derivatives and SecuritiesSpecialized skills may be needed to evaluate:Information systems Service organization controlsApplication of complex accounting principlesEstimates of fair valuesInherent and control risks for speculation and hedging activities12Considerations in Auditing Derivatives and Securities—Cont.May present the entity with a high degree of business risk (e.g., risk of losses)May involve complex accounting and valuation methodsRules for maintaining acquiring and maintaining a derivative as a hedge are complexMay be difficult to identify because they may be acquired without an outlay of assets until a future date13Substantive Tests of Financial Investments 14
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