Original Question: (Do not reply to this one)
How do the client’s controls over cash receipts and disbursements affect the nature and extent of the auditor’s substantive tests of cash balances?
Student Discussions:
Reply to each student posts by commenting about their posts and building on the subject (About 100 words each) APA reference.
APA reference.
1-Joscelyn Goldberg
The client’s controls over cash receipts and disbursements affect the nature and extent of the auditor’s substantive tests of cash balances because cash is generally affected by all business processes. Cash has a direct correlation with revenue and purchasing. If there are strong controls, then it will provide an easier audit of the cash accounts. The auditor will trace balances through the general ledger, obtain cutoff bank statements, and trace deposits in transit, outstanding checks, and other reconciling items (Messier, Glover, & Prawitt, XXXXXXXXXXIf the client lacks controls over cash receipts and disbursements and the auditor suspects fraud, then it will expand the nature and extent of the audit. If the auditor suspects fraud then they will perform extended bank reconciliation procedures, perform proof of cash, and test for kilting (Messier, Glover, & Prawitt, XXXXXXXXXXCash is the beginning and end of a corporation. If an employee is kilting, then that means they will transfer money from one bank account to another and record the transaction improperly on the books. This could negatively impact the company because money is missing, and the extent of the impact is initially unknown.
Reference
Messier, W. F., Glover, S. M., & Prawitt, D. F XXXXXXXXXXAuditing & Assurance Services(10th ed.). New York, NY: McGraw-Hill Education.
2-Brittany Guzman
The client’s controls over cash receipts and disbursements affect the nature of the auditor’s substantive tests in a variety of ways. Developing an audit program thoroughly audits cash balances and cash receipts “is important because it can affect an organization’s profits (Aldridge, n.d.).” They provide complete assertion that the cash receipts have been properly recorded, and cash disbursement transactions have been reported correctly. They also provide authorization assertion that the outgoing checks are signed by the correct, authorized person. The reports in the voucher packet are equally as important. The completion of the bank rec by management shows that the cash book balance of the client matches with the bank’s book balance. The bank reconciliation should be performed by employees who do not handle cash receipts and cash disbursements.
References:
Aldridge, C. (n.d.). Audit Programs for Cash Receipts. Retrieved from Chron: https://smallbusiness.chron.com/audit-programs-cash-receipts-18355.html