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Substantive Testing for Cash Audits

Substantive testing of cash involves tests of completeness, valuation or allocation, and rights and obligations. Tests of completeness include obtaining bank cutoff statements, examining bank reconciliations, and preparing proofs of cash. Tests of valuation or allocation include confirming cash balances directly with banks. Tests of rights and obligations include reading board meeting minutes and verifying authorized bank account signatories.

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14 views1 page

Substantive Testing for Cash Audits

Substantive testing of cash involves tests of completeness, valuation or allocation, and rights and obligations. Tests of completeness include obtaining bank cutoff statements, examining bank reconciliations, and preparing proofs of cash. Tests of valuation or allocation include confirming cash balances directly with banks. Tests of rights and obligations include reading board meeting minutes and verifying authorized bank account signatories.

Uploaded by

Marie
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What Is Involved In Substantive Testing? C.

Completeness

 Tests of transactions
[1]. Obtain bank cutoff statement and determine
 Tests of details of account balances
propriety of year-end outstanding checks and
 Analytical procedures
deposits-in-transit.
In testing transactions, the auditor is concerned
[2]. Examine or prepare year-end bank
with tests of:
reconciliation.
 Omitted transactions and account
understatement (tracing source
documents to the books of entry) [3]. Prepare a proof of cash.
 Invalid or unsupported transactions and
account overstatement (tracing [4]. Perform analytical procedures.
recorded transactions to source
documents). D. Existence or Occurrence (See Valuation or
Allocation)
Substantive Tests of Cash
E. Rights and Obligations
A. Presentation and Disclosure
[1]. Read or review the financial statements to [1]. Read minutes of the board of directors’
verify proper classification. meetings.

[2]. Read or review the financial statements to [2]. Determine existence of compensating
verify disclosures such as those relating to balances, levies, etc.
compensation balances.
[3]. Verify names on accounts through
[3]. Determine the conformity with GAAP. confirmation requests

B. Valuation or Allocation
Substantive Procedures for Cash
[1]. Simultaneously count cash on hand and 1. Confirm cash balances
negotiable securities.
2. Vouch reconciling items to the subsequent
[2]. Confirm directly with the bank:
month’s bank statement
 Account balances
 Direct liabilities to bank
 Contingent liabilities to bank 3. Ask if all bank accounts are included on the
 Letters of credit general ledger
 Security agreements under the Uniform
Commercial Code
 Authorized signatures 4. Inspect final deposits and disbursements for
[3]. Count petty cash fund and reconcile with
proper cutoff
vouchers.

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