Chap010-LN

Chap010-LN - Chapter 10 Cash and Investment Business...

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Chapter 10: Cash and Investment Business Processes CHAPTER 10 Cash and Investment Business Processes After studying this chapter, you should be able to: 1. Describe the cash and investment business processes. 2. Explain the transactions in the processes. 3. Understand generally accepted accounting principles (the applicable financial reporting framework) for recording investments, valuing investments at year-end, and recognizing gains and losses on investment sales. 4. Understand misstatements (errors and fraud) that could be expected in the cash and investment processes. 5. Explain financial statement assertions for accounts in the business processes. 6. Identify relevant assertions for significant accounts in the cash and investment business processes. 7. Describe the procedures that auditors use to gather evidence for internal controls in the process. 8. Understand the methods that auditors use to gather substantive evidence using substantive tests of transactions, analytical procedures, and substantive tests of balances. 9. Explain the disclosure requirements for accounts in the business processes. Chapter 10: Cash and Investment Business Processes Chapter Highlights This chapter provides a description of the cash and investment business processes first from the accounting perspective and then from the auditing perspective. The accounts and the accounting transactions are reviewed as is the financial accounting framework under U.S. GAAP and International Financial Reporting Standards (IFRS). Once the accounting for the cash and investment processes are examined, management’s assertions for the financial statements are discussed and the potential misstatements are evaluated. The relevant assertions identified for these processes help to establish the tests of controls and substantive tests with special sections focusing on the fair value of investments, the standard bank confirmation, bank reconciliations and the cutoff bank statement. The chapter then summarizes how the auditor determines whether the evidence collected is sufficient and appropriate to make an audit conclusion about the cash and investment processes and then presents the disclosures for the financial statements. To better understand the accounting transactions for these processes, T-accounts and journal entries are used in the beginning of the chapter. Exhibit 10-5 provides an example of an Internal Control Questionnaire and Exhibit 10-6 provides the Financial Information for the continuing BCS Example illustrating tests of controls and substantive tests. In addition, there are examples of a Standard Bank Confirmation in Exhibit 10-7, Bank Reconciliation in Exhibit 10-8, and a Bank Transfer Schedule in Exhibit 10-9. Actual financial statement disclosures are found in Exhibit 10-10. Chapter Outline
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Chap010-LN - Chapter 10 Cash and Investment Business...

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