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SUBSTANTIVE TEST OF CASHCHAPTER OBJECTIVESTo know the auditors objectives for the substantive audit of cash in bank and on hand.To learn the nature of the appropriate audit procedures to accomplish the objectives for the audit of cash.Understand the preparation of audit working papers to document the audit procedures for cash. AUDIT OF CASH ON HAND AND IN BANK The following misstatements which result in the improper payment of or failure to receive cash may be uncovered through the tests of controls and substantive tests of transactions.

Failure to bill customerBilling a customer at a price lower than called for by company policyAbstraction of cash receipts from customers before they are recordedDuplicate payment of a vendors invoiceImproper payments of officers personal expensesPayment for merchandise or goods that were not receivedPayment to an employee for more hours than he or she has workedPayment of interest to a related party for an amount far exceeding the going rateAUDIT OBJECTIVES AND PROCEDURESASSERTIONSAUDIT OBJECTIVESAUDIT PROCEDURESI. Existence or occurrenceTo determine whether cash exists at year-end and cash-related transactions occur within the year.

To determine that all cash balances of the client are reflected on the statement of financial position at year-end.Obtain analysis of cash balance and reconcile to the general ledger.Confirm bank balances as of statement of financial position date.Perform cash count procedures for cash on hand.Obtain (prepare) bank reconciliations as of the statement of financial position date.Trace all transfers occurring between banks near year-end.SUBSTANTIVE TESTING OF CASHASSERTIONSAUDIT OBJECTIVESAUDIT PROCEDURESII. CompletenessC. To determine whether all cash transactions are recorded in the proper accounting period.6. Obtain a cutoff bank statement containing transactions several days subsequent to the statement of financial position date. Examine items returned with the cutoff bank statements.7. Prepare proof of cash and reconcile cash transactions occurring during a specified period as they are recorded by the bank and the client.8. Verify the clients cutoff of cash receipts and cash disbursements.ASSERTIONSAUDIT OBJECTIVESAUDIT PROCEDURESIII. Rights and ObligationsD. To determine that cash balances are available for use without restrictions or if with restrictions , properly indicated in the statement of financial position9. Review bank statements and the bank replies to confirmation letters.IV. Valuation or allocationE. To determine if cash is recorded and presented at the proper amount.10. Verify existence of cash in banks under receivership, cash subject to courts restraining orders, in foreign banks and in foreign currency.This is in addition to the foregoing procedures which will enable the auditor to verify proper valuation of cash.ASSERTIONSAUDIT OBJECTIVESAUDIT PROCEDURESV. Presentation and disclosureF. To determine whether cash is presented in accordance with generally accepted accounting principle11. Investigate any checks representing large or unusual payments to related parties.

12. Evaluate proper financial statement presentation and disclosure of cash.DISCUSSION OF SUBSTANTIVE AUDIT PROCEDURESObtain analysis of cash balance and reconcile to the general ledger.

Confirm bank balances as of statement of financial position date.

3. Perform cash count procedures for cash on hand.

In conducting the cash count the auditor should follow these procedures:

Control all cash and negotiable instruments held by the client until funds have been counted.Insist that the custodian of the cash be present throughout the count.Obtain a signed receipt from the custodian on return of the funds to the client.Ascertain that all undeposited checks are payable to the order of the client either directly or through endorsement.

4. Obtain (prepare) bank reconciliations as of the statement of financial position date. The examination of the client-prepared bank reconciliations should also include:

1. Tracing bank balances to bank confirmation responses2. Verifying the validity of the reconciling items3. Scanning the bank statements for erasures and alteration.

5. Trace all transfers occurring between banks near year-end.Kiting is an irregularity involving transfer of cash between banks, check drawn on one bank is deposited in another, several days (called the float period ) usually pass before the check clears the bank on which it is drawn.Obtain a cutoff bank statement containing transactions several days subsequent to the statement of financial position date. This statement should be sent directly by the bank to the auditor. Upon receipt of the statement, the auditor shouldTrace all prior year dated checks to the outstanding checks listed on the bank reconciliation.Trace deposits in transit on the bank reconciliation to deposits on the cutoff statement.Scan the cutoff statement and enclosed data for unusual items.

7. Prepare proof of cash and reconcile cash transactions occurring during a specified period as they are recorded by the bank and the client.

8. Verify the clients cutoff of cash receipts and cash disbursements.

9. Review bank statements and the bank replies to confirmation letters.

10. Verify existence of cash in banks under receivership, cash subject to courts restraining orders, in foreign banks and in foreign currency.

11. Investigate any checks representing large or unusual payments to related parties.

12. Evaluate proper financial statement presentation and disclosure of cash.

Review financial statements to make sureMaterial savings accounts and certificates of deposit are disclosed separately from cash in bank,Cash restricted to certain uses and compensating balances are adequately disclosed, andBank overdrafts are included as current liabilities