3642588295 - 10-2 Work on cash is likely to be more...

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10-2 Work on cash is likely to be more extensive than one might expect because (only 2 required): (1) Although the amount of cash shown on the balance sheet may appear relatively small, the amounts flowing into and out of the cash account during the year are often greater than for any other account. Nearly all business transactions eventually require a cash settlement. Thus, the year-end cash balance is not the only measure of materiality. (2) Cash is the most liquid of assets and offers the greatest temptation for theft, embezzlement, and misappropriation. (3) The examination of cash transactions assists the auditors in the substantiation of many other items in the financial statements because these other items either arise from or result in cash transactions. 10-5 A lockbox system is one in which a post office box is controlled by a company's bank at which cash remittances from customers are received. The bank receives the remittances, immediately credits the cash to the company's bank account, and forwards the remittance advices to the company. 10-15 Upon discovery of an apparent shortage during the count of cash, the first action by the auditors should be to review any computations and recount the funds in question to rule out any possibility of an error in the count. A second step is to give the employee responsible for the fund an opportunity to explain the situation. Discrepancies of a small amount may be disposed of by transfer to an over-and-short account. If the shortage is material and no satisfactory explanation is immediately forthcoming, the matter should promptly be called to the attention of the auditor-in-charge, who will take up the matter with officers of the client company. 10-36 (a) Two potential audit problems are indicated by the schedule. First, the shares of Beta Corp. are not publicly traded. Therefore determining the fair value of the securities will require the use of a valuation model and perhaps a specialist. Second, the Continental Airlines Convertible Bonds are securities with imbedded derivatives. Accordingly, management should account for the option separately. This will require the use of valuation models to determine the values of the bonds and the options separately. It may also require the use of a specialist. (b)
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3642588295 - 10-2 Work on cash is likely to be more...

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