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Audit and Assurance Concept and Application Chapter 1

Here are the answers to the questions: 1. Adjusted Petty Cash Fund balance on December 31, 2020 is Php 12,347 (Php 30,000 - Php 16,250 + Php 3,500 - Php 5,203) 2. Petty cash shortage on December 31, 2020 is Php 5,203 (Php 30,000 - Php 12,347) 3. Adjusted Cash in Bank - BDO balance on December 31, 2020 is Php 615,610 (Php 748,320 - Php 22,500 + Php 5,720 - Php 3,500 + Php 67,300 - Php 230,000 +

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83 views

Audit and Assurance Concept and Application Chapter 1

Here are the answers to the questions: 1. Adjusted Petty Cash Fund balance on December 31, 2020 is Php 12,347 (Php 30,000 - Php 16,250 + Php 3,500 - Php 5,203) 2. Petty cash shortage on December 31, 2020 is Php 5,203 (Php 30,000 - Php 12,347) 3. Adjusted Cash in Bank - BDO balance on December 31, 2020 is Php 615,610 (Php 748,320 - Php 22,500 + Php 5,720 - Php 3,500 + Php 67,300 - Php 230,000 +

Uploaded by

Ceejay Frillarte
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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AUDIT AND ASSURANCE –

CONCEPT AND APPLICATION


Audit of Cash and Cash Equivalents
AUDIT OF CASH AND CASH
EQUIVALENTS

Audit Objective

1. Cash balances at the end of the reporting period


represent cash and cash items on hand, in transit to, or
in depository banks;
2. Cash transactions have been properly recorded;
3. Cash balances are properly described and classified,
and adequate disclosure with respect to amounts
restricted as to withdrawal are made in the financial
statements.
AUDIT OF CASH AND CASH
EQUIVALENTS

Audit Procedure
1. Conduct a cash count of undeposited collections, petty
cash and other funds
 Obtain custodian’s signature to acknowledge return of
items counted
 Reconcile items counted with general ledger balances

 Trace undeposited collections counted to bank


reconciliation
 Coordinate cash count with count of marketable
securities and other negotiable assets of the client
 Obtain confirmation of year-end fund balances of cash
not counted in branches or other offices
AUDIT OF CASH AND CASH
EQUIVALENTS

Audit Procedure
2. Confirm bank balances by direct correspondence with all banks in which the
client has had deposits and loans during the year
3. Obtain or prepare bank reconciliation
 Check arithmetical accuracy of reconciliation

 Trace balance per book to bank statement and compare with amount confirmed
by bank
 Trace balance per bank to bank statement and compare with amount confirmed
by bank
 Establish authenticity of reconciling items by reference to their respective
sources.
 Investigate checks outstanding for a long period of time

 Investigate any unusual reconciling items

 Where internal control over cash is weak, consider preparing a proof of cash
reconciliation
AUDIT OF CASH AND CASH
EQUIVALENTS

Audit Procedure
4. Obtain cutoff bank statement showing the client’s
transactions within the bank at least one week after the
reporting date, and;
 Trace year-end reconciling otems, like:

Deposit of the year-end undeposited collections;


Completeness of year-end outstanding checks;
Correction of bank errors
 Examining supporting documents of year-end
outstanding checks that did not clear in the cut-off
statements
AUDIT OF CASH AND CASH
EQUIVALENTS

Audit Procedure
5. Obtain a list of interbank transfers of funds a few days
before and after the reporting date.
 Vouch supporting documents

 Ascertain that the related receipt and disbursements


were booked by the client within the same day or at
least within the same months
AUDIT OF CASH AND CASH
EQUIVALENTS

Audit Procedure
6. Test reasonableness of cutoff by:
 Comparing dates of checks returned with the cutoff
bank statement to dates of recording in the cash
disbursements register
 Tracing receipts recordd to a few days before reporting
date to bank deposits.
AUDIT OF CASH AND CASH
EQUIVALENTS

Audit Procedure
7. Inspect saving account passbook and certificates of
deposit
 Reconcile with book balances

 Update interest earned posting on passbooks, if


necessary.
 Compare balances with bank confirmation reply.

8. Determine any restrictions on availability of cash


9. Determine propriety of financial statement presentation
and adequacy of disclosures.
AUDIT OF CASH AND CASH
EQUIVALENTS

Problem No. 1
In connection with your audit of the financial statements of ABC Company for
the year ended December 31, 2020, you gathered the following information.

1. The company maintains its current account with the BDO. The Bank
Statement on December 31, 2020 showed a balance of Php 638,340.

Your audit of the company’s account with BDO disclosed the following:

1. A check for Php 22,500 received from a customer whose account is current
had been deposited and then returned by the bank on December 28, 2020. No
entry was made for the return of this check. The customer replaced the check
on January 15, 2021.

2. A check for Php 5,720 was cleared by the bank as Php 7,520. The bank
made the correction on January 2, 2021.
AUDIT OF CASH AND CASH
EQUIVALENTS

Problem No. 1 - Cont


3. A check for Php 3,500 representing payment of an employee advance was
received and deposited on December 27, 2020, but was not recorded until January
3, 2021.

4. Post dated checks totaling Php 67,300 were included in the deposits in transit.
These represent collections of current accounts receivable from customers. The
checks were actually deposited on January 5, 2021.

5. Various debit memos for drafts purchased for payment of importation of


equipment totaling Php 230,000 were not yet recorded. These purchases were
previously set up as accounts payable. Said equipment arrived in December 2020.

6. Interest earned on the bank balances for the 4th quarter of 2020, amounting to Php
1,950 was not recorded.

7. Bank service charges totaling Php 1,260 were not recorded.


AUDIT OF CASH AND CASH
EQUIVALENTS
Problem No. 1 - Cont
3. Deposit in transit and outstanding checks at December 31, 2020 totaled Php 136,250 and
Php 276,380, respectively.

2. Various expenses from the company’s imprest petty cash fund dated December 2020
totaled Php 16,250, while those dated January 2021 amounted to Php 5,903. Another
disbursement from the fund dated December 2020 was a cash advance to an employee
amounting to Php 3,500. A Replenishment of the petty cash fund was made on January 8,
2021.

3. The Company’s trial balance on December 31, 2020 includes the following accounts:

Cash in Bank – BDO Bank Php 748,320


Cash in Bank – Earth Bank Php 700,000
(Restricted for plant expansion and to be disburse on 2021)
Petty Cash Fund Php 30,000
Time Deposit, place Dec 20 2020 and due March 20, 2021
Php 1,000,000
Money Market Placement – BPI Bank Php 4,000,000
AUDIT OF CASH AND CASH
EQUIVALENTS

Problem No. 1 - Cont


Question 1 – What is the adjusted Petty Cash Fund balance
on December 31, 2020?

Question 2 – The petty cash shortage on December 31,


2020 is?

Question 3 – What is the adjusted Cash in Bank – BDO


Balance on December 31, 2020

Question 4 – The entry to adjust the Cash in Bank – BDO


account shall be?

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