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Unformatted text preview: Chapter 22 Audit of Cash Balances Review Questions 22-4 The controller's approach is to reconcile until the balance agrees. The shortcoming of this approach is that it does not include a review of the items that flow through the account and it opens the door for the processing of improper items. Such items as checks payable to improper parties, reissuance of outstanding checks to improper parties, and kiting of funds would not be discovered with the controller's approach. The controller's procedures should include the following: a. Examination of all checks clearing with the statement (including those on previous month's outstanding check list) and comparison of payee and amount to the cash disbursements journal. b. Test of cash receipts to determine that they are deposited within a reasonable amount of time. c. Follow-up on old outstanding checks so that they can be recognized as income after it is determined that they will not be cashed, and no liability exists. 22-5 Bank confirmations differ from positive confirmations of accounts receivable in that bank confirmations request several specific items of information, namely: 1. The balances in all bank accounts. 2. Restrictions on withdrawals. 3. The interest rate on interest-bearing accounts. 4. Information on liabilities to the bank for notes, mortgages, or other debt. Positive confirmations of accounts receivable request of the buyer to confirm an account balance stated on the confirmation form or designate a different amount with an explanation. The auditor anticipates few exceptions to accounts receivable confirmations, whereas with bank confirmations he expects differences that the client must reconcile. Bank confirmations should be requested for all bank accounts, but positive confirmations of accounts receivable are normally requested only for a sample of accounts. If bank confirmations are not returned, they must be pursued until the auditor is satisfied as to what the requested information is. If positive confirmations of accounts receivable are not returned, second and maybe third requests may be made, but thereafter, follow-ups are not likely to be pursued. Alternative procedures, such as examination of subsequent payments or other support of customers' accounts may then be used....
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This note was uploaded on 10/07/2011 for the course ACCOUNTING 4220 taught by Professor Brown during the Spring '11 term at UMBC.
- Spring '11