For each of the following substantive tests in the area of cash, indicate the primary management assertion being tested by the auditor based on the Auditing Standards Board (ASB) list of management assertions.
(a) Confirm the cash balance with the clientâs financial institution using the standard bank confirmation.
(b) Mathematically verify the total amount for outstanding checks listed on the clientâs bank reconciliation.
(c) Vouch the amount shown on the clientâs bank reconciliation for deposits in transit to the cutoff bank statement received subsequent to the audit date.
(d) Count the cash the client has on hand.
(e) Inquire of client personnel concerning compensating balances required and/or any other restrictions on the use of cash.
(f) Trace checks returned with the cutoff bank statement received subsequent to the audit date to the outstanding checks listed on the clientâs bank reconciliation.
(g) Prepare a schedule of interbank transfers from five days before the fiscal year end through five days after the fiscal year end.
For each of the following substantive tests in the area of cash, indicate the primary management assertion being tested by the auditor based on the Auditing Standards Board (ASB) list of management assertions.
(a) Confirm the cash balance with the clientâs financial institution using the standard bank confirmation.
(b) Mathematically verify the total amount for outstanding checks listed on the clientâs bank reconciliation.
(c) Vouch the amount shown on the clientâs bank reconciliation for deposits in transit to the cutoff bank statement received subsequent to the audit date.
(d) Count the cash the client has on hand.
(e) Inquire of client personnel concerning compensating balances required and/or any other restrictions on the use of cash.
(f) Trace checks returned with the cutoff bank statement received subsequent to the audit date to the outstanding checks listed on the clientâs bank reconciliation.
(g) Prepare a schedule of interbank transfers from five days before the fiscal year end through five days after the fiscal year end.
Related questions
Management assertions for the financial statements referenced inPCAOB Auditing Standards are:
Existence, occurrence
Completeness
Rights, obligations
Valuation, allocation
Presentation and disclosure
The purpose of tests of controls is to permit the auditor toassess whether properly designed controls operate effectivelyenough to prevent or detect material misstatements that would makethese managements assertions wrong.
Required:
For each of the following audit procedures identify whether theprocedure is:
(a) directed at a control or at an amount ordisclosure, or both, and
(b) what assertion (or assertions) is (are)targeted.
Accounts, Classes of Transactions | Audit Procedure | Directed at: | Assertion: |
|---|---|---|---|
All | Inquire who controls passwords for IT access. | ||
Sales, Receivables, Inventory | Examine document packages for items that have been shipped forinclusion of a customer order, credit approval, and shippingdocument. Make sure the documents are properly matched andcomplete, with all required signatures and trace amounts to thesales journal, accounts receivable subsidiary ledger, and inventoryfiles. | ||
Payroll | For the Hourly Payroll Expense account, multiply the averagenumber of workers times the average number of hours worked per yeartimes the average hourly rate. Compare to the total posted annualamount. | ||
Cash | Inspect the client-prepared bank reconciliation for each monthof the year, recalculate the amounts, examine the supporting bankstatements, and trace the cash amount to the general ledger. | ||
Fixed assets | Obtain a list of fixed assets and physically look at theassets. | ||
Long-term debt | Read the contract related to each of the companyâs long-termborrowings and agree the terms of the contracts to the financialstatements notes. | ||
Cash, Long-term debt | For each item of long-term debt that existed both at thebeginning and end of the year, inspect the debt contracts and thecompanyâs analysis of the discounted debt amount and its analysisof violation of debt covenants and look for whether the detailsagree. Recalculate the amounts, and examine recorded entries andbank statements for cash disbursements for debt repayments. Usingthat information, determine whether the company has been inviolation of any debt covenants during the year. | ||
Prepaid rent | Using the beginning financial statement amount, cash receiptsand cash disbursements evidence, and the lease agreement, calculateyear-end prepaid rent and agree that amount to what is shown in thegeneral ledger. | ||
Inventory | At the end of the last day in the fiscal year, go to theclientâs shipping area and record the last shipment; trace theshipment into the clientâs |
Management assertions for the financial statements referenced inPCAOB Auditing Standards are:
Existence, occurrence
Completeness
Rights, obligations
Valuation, allocation
Presentation and disclosure
The purpose of tests of controls is to permit the auditor toassess whether properly designed controls operate effectivelyenough to prevent or detect material misstatements that would makethese managements assertions wrong.
Required:
For each of the following audit procedures identify whether theprocedure is:
(a) directed at a control or at an amount ordisclosure, or both, and
(b) what assertion (or assertions) is (are)targeted.
Accounts, Classes of Transactions | Audit Procedure | Directed at: | Assertion: |
|---|---|---|---|
All | Inquire who controls passwords for IT access. | ||
Sales, Receivables, Inventory | Examine document packages for items that have been shipped forinclusion of a customer order, credit approval, and shippingdocument. Make sure the documents are properly matched andcomplete, with all required signatures and trace amounts to thesales journal, accounts receivable subsidiary ledger, and inventoryfiles. | ||
Payroll | For the Hourly Payroll Expense account, multiply the averagenumber of workers times the average number of hours worked per yeartimes the average hourly rate. Compare to the total posted annualamount. | ||
Cash | Inspect the client-prepared bank reconciliation for each monthof the year, recalculate the amounts, examine the supporting bankstatements, and trace the cash amount to the general ledger. | ||
Fixed assets | Obtain a list of fixed assets and physically look at theassets. | ||
Long-term debt | Read the contract related to each of the companyâs long-termborrowings and agree the terms of the contracts to the financialstatements notes. | ||
Cash, Long-term debt | For each item of long-term debt that existed both at thebeginning and end of the year, inspect the debt contracts and thecompanyâs analysis of the discounted debt amount and its analysisof violation of debt covenants and look for whether the detailsagree. Recalculate the amounts, and examine recorded entries andbank statements for cash disbursements for debt repayments. Usingthat information, determine whether the company has been inviolation of any debt covenants during the year. | ||
Prepaid rent | Using the beginning financial statement amount, cash receiptsand cash disbursements evidence, and the lease agreement, calculateyear-end prepaid rent and agree that amount to what is shown in thegeneral ledger. | ||
Inventory | At the end of the last day in the fiscal year, go to theclientâs shipping area and record the last shipment; trace theshipment into the clientâs records. |
Management assertions for the financial statements referenced inPCAOB Auditing Standards are:
Existence, occurrence
Completeness
Rights, obligations
Valuation, allocation
Presentation and disclosure
The purpose of tests of controls is to permit the auditor toassess whether properly designed controls operate effectivelyenough to prevent or detect material misstatements that would makethese managements assertions wrong.
Required:
For each of the following audit procedures identify whether theprocedure is:
(a) directed at a control or at an amount ordisclosure, or both, and
(b) what assertion (or assertions) is (are)targeted.
Accounts, Classes of Transactions | Audit Procedure | Directed at: | Assertion: |
|---|---|---|---|
All | Inquire who controls passwords for IT access. | ||
Sales, Receivables, Inventory | Examine document packages for items that have been shipped forinclusion of a customer order, credit approval, and shippingdocument. Make sure the documents are properly matched andcomplete, with all required signatures and trace amounts to thesales journal, accounts receivable subsidiary ledger, and inventoryfiles. | ||
Payroll | For the Hourly Payroll Expense account, multiply the averagenumber of workers times the average number of hours worked per yeartimes the average hourly rate. Compare to the total posted annualamount. | ||
Cash | Inspect the client-prepared bank reconciliation for each monthof the year, recalculate the amounts, examine the supporting bankstatements, and trace the cash amount to the general ledger. | ||
Fixed assets | Obtain a list of fixed assets and physically look at theassets. | ||
Long-term debt | Read the contract related to each of the companyâs long-termborrowings and agree the terms of the contracts to the financialstatements notes. | ||
Cash, Long-term debt | For each item of long-term debt that existed both at thebeginning and end of the year, inspect the debt contracts and thecompanyâs analysis of the discounted debt amount and its analysisof violation of debt covenants and look for whether the detailsagree. Recalculate the amounts, and examine recorded entries andbank statements for cash disbursements for debt repayments. Usingthat information, determine whether the company has been inviolation of any debt covenants during the year. | ||
Prepaid rent | Using the beginning financial statement amount, cash receiptsand cash disbursements evidence, and the lease agreement, calculateyear-end prepaid rent and agree that amount to what is shown in thegeneral ledger. | ||
Inventory | At the end of the last day in the fiscal year, go to theclientâs shipping area and record the last shipment; trace theshipment into the clientâs records. |
