Audit II for print 21.docx

Audit II for print 21.docx - Auditing II Department of...

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Auditing II Department of Accounting & Finance CHAPTER ONE AUDIT OBJECTIVES AND PROCEDURES FOR CASH AUDIT 1.0. Learning objectives At the end of this chapter, learners should be able to: Show the relationship of cash in the bank to the various transaction cycles. Identify the major types of cash accounts maintained by business entities. Design and perform audit tests of the general cash account. Recognize when to extend audit tests of the general cash account to test further for material fraud. Design and perform audit tests of the imprest payroll bank account. Design and perform audit tests of imprest petty cash. Explain the nature of cash receipts and disbursements. Explain the fundamental internal controls over each receipts and cash disbursement. Describe the nature of appropriate procedures to accomplish the objectives of cash audit. 1.1. Introduction Dear Learners! At this point it is important to know that cash is the only account included in every cycle except inventory and warehousing. It makes sense to study this audit area last because the evidence accumulated for cash balances depends heavily on the results of the tests in other cycles. For example, if the auditors’ understanding of internal control and tests of controls and substantive tests of transactions in the acquisition and payment cycle cause them to believe that it is appropriate to reduce assessed control risk to low, they can reduce detailed tests of the ending balance in cash. If, however, auditors conclude that assessed control risk should be higher, extensive year-end testing may be necessary. Cash is important because of its susceptibility to theft, and cash can also be significantly misstated. This chapter highlights the linkage of cash in the bank to transaction cycles and describes substantive tests of the cash balance. Thus, in this chapter we are going to examines the College of Business &Economics Arba Minch University Page 1
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Auditing II Department of Accounting & Finance audit of cash. For the audit of cash much reliance is placed on third party confirmation of cash balance. You should bear in mind that the control of cash is of prime importance in any business. The overall objective of the audit of cash is to determine that cash is fairly presented in conformity with generally accepted accounting principles. In most audits, the primary assertions that generate audit risk for cash are existence, completeness, right and obligation, and presentation and disclosure. 1.2. Cash in the bank and transaction cycles The item cash reported in the financial statements represents currency on hand and cash on deposit in Bank accounts, including certificate of deposit, time deposits, and saving accounts.
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