AUDITING CASH AND INVESTMENTS

1. CASH
Audit objects :
- existence recorded cash balances exist at the balance sheet date.
- completeness recorded cash balances include the effects of all cash
transactions that have occurred; year end transfer of cash between banks are
recorded in the proper period.
- rights and obligations the entity has legal title to all cash balances shown at
the balance sheet date.
- valuation recorded cash balances are realizable at the amounts stated on the
balance sheet and agree with supporting schedules.
- presentation and disclosure cash balances are properly identified and
classified in the balance sheet; lines of credit, loan guarantees and other
restrictions on cash balances are appropriately disclosed.
!!! REMARKS:
o A high volume of cash transactions result in a high inherent risk.
o Controls over cash transactions are usually strong and are tested in connection
with the audits of sales and purchases.
o Regular bank reconciliations are an important control over the prevention and
detection of fraud and error.
o The use of imprest accounts for petty cash and for payroll and dividend
cheques is a further control over safeguarding cash balances.
o Cash balances are usually relatively small but significant because of their
importance for liquidity.

o The small balance means that auditors tend to adopt a predominantly substantive
approach to the audit of cash balances.
o Analytical procedures are little used in the audit of cash balances.
o Cut off tests are performed in connection with the cut off of sales and
purchases and with the cash count.
o An important item to check is the bank transfers.
o Principal substantive audit procedures applied to balances are: counting cash;
confirming balances with banks; testing and closing bank reconciliation; tracing
outstanding items in the reconciliation to the next periods statement.
o In counting cash, the auditors should control all cash funds and count them in the
presence of the custodian.
o In examining the subsequent periods bank statement, the auditors must consider
the possibility of window dressing.
o Teeming and lading is the concealment of the misappropriation of cash by the
use of subsequent receipts.
o Teeming and lading is facilitated where one individual handles cash and
maintains the sales ledger.
o The auditors should be alert to delays in crediting cheques to debtors and to
discrepancies between duplicate deposit slips and cash receipts journal details.
o Petty cash need not to be audited where the petty cash transactions are
immaterial, although many auditors still do so as a matter of routine.
o Auditing petty cash involves vouching reimbursements and counting the
balance.
o Imprest bank accounts are usually audited by recomciling the balance.
2. INVESTMENTS

Audit objects :
- existence recorded investment balances represent investments that exist at the
balance sheet date; investment revenues, gains and losses resulting from
transactions and events that occurred during the period.
- Completeness all investments are included in the balance sheet investment
account; the profit and loss statement effects of all investment transactions and
events during the period are included in the profit and loss statement accounts.
- Rights and obligations all recorded investments are owned by the reporting
entity.
- Valuation investments are reported on the balance sheet at valuation, lower of
cost or net realizable value or cost, as appropriate for particular investments;
investment revenues, gains and losses are reported at proper amounts.
- Presentation and disclosure investment balances are properly identified and
classified in the financial statements; appropriate disclosures are made
concerning related party investments, the basis for valuating investments and the
pledging of investments as collateral.
!!! REMARKS:
Investments are holdings of securities such as shares and debentures issued
by other entities.
The purpose of holding investments may be to provide a home for funds
currently surplus to operating needs or to secure a relationship with other
entity.
Investments in group entities are required to be consolidated with the
financial statements of the parent entity to produce group financial
statements.

 Inherent risks include the negotiability of documents of title and the proper
classification of securities dependent on management intent.
The infrequency of investment transactions leads to a predominantly
substantive approach to their audit.
The principal controls relate to those over safekeeping and the
maintenance of an investment register.
Tests of details of transactions are relevant in verifying the occurrence of
recorded investment balance.
Securities on hand at the end of the year are verified by count or
confirmation.
The count of securities on entitys premises should be conducted at the
same time as the count of cash.
Securities held in bank safety deposit boxes may be counted before or after
the year end, with reliance placed on bank records to assure there was no
entity access between the date of the count and year end.
The count should confirm all details of security certificates to ensure that
there is no unrecorded substitution.
Investment income can be verified by recalculation for interest and, for
dividends, by referring to the audited financial statements of investees.
Market values are verified by referring of official stock exchange
quotations.
The auditors of the parent entity are responsible for reporting on the
consolidated financial statements and must obtain evidence relating to
relevant balances of other group entities.
The first requirement is to identify group entities and their classification as
subsidiaries, associates and joint ventures.

 Where group entities are audited by other firms, the parent entitys auditors
must perform procedures to determine the reliability of those financial
statements for the purpose of including them in the consolidated financial
statements.
Consolidation adjustments need to be verified, including: fair value
adjustments of acquisitions and the determination of goodwill; elimination
of inter entity balances and transactions; standardization of accounting
policies; translation of foreign currency balances.

REPORTING ON AUDITED FINACIAL STATEMENTS

The disclosure and the presentation requirements of financial statements are
determined by Financial Reporting Standards and statutory and other
requirements.
Financial Reporting Standards must be consistently applied in the preparation
and presentation of financial statements.
The auditors should express a clear written opinion on the financial statements.
The independent auditors report has a standardized format.
The auditors report may be qualified.
Materiality is an important consideration in arriving at an appropriate opinion. A
corollary to concept of materiality is pervasiveness. This relates to the number of
financial statement items affected by a circumstance.
In deciding on the appropriate opinion, the auditors consider if there is a
disagreement with management and sufficient appropriate audit evidence to form
an opinion.

 When a qualified audit opinion is expressed, the opinion section of the auditors
report is modified with the inclusion of a heading summarizing the qualification
which is described in the opinion section if it is a disagreement and within the
basis of opinion section if it is a scope limitation.
Disagreements with management could relate to the selection of and / or the
method of application of accounting policies, the adequacy of disclosure and
compliance with relevant statutory and other requirements.
The audit mandate may impose scope limitations. If, in the auditors judgment,
the outcome of such limitations is necessarily a disclaimer of opinion, the audit
engagement should be declined.
Inherent uncertainties are not capable of reasonable estimation. Where these are
fundamental the uncertainty must be referred to in the basis for opinion section of
the auditors report.
An inconsistency causes the reader to doubt the reliability of information in the
financial statements. A misstatement of fact causes harm to readers.
Subsequent events requiring issue of revised financial statements should be
referred to in the reissued auditors report.
The principal effects of International Auditing Standards on the auditors report
are: use of emphasis of matter for referring to uncertainties and other
modifications to the auditors report that do not constitute a qualification;
reference to auditors reports as being modified or unmodified where modified
includes inclusion of an emphasis of matter.
The auditor has the responsibility to obtain sufficient appropriate evidence to
ensure comparatives are not misstated.

 For opening balances in initial engagements, an unqualified opinion is expressed

if: there is propriety of opening balances; there are no misstatements in opening
balances; accounting policies are consistently applied.
Special conditions apply where financial statements are published electronically
and for reports on summary financial statements, interim reports and preliminary
announcements.