AUDIT OF CASH AND

CASH EQUIVALENTS
Jonalyn C. Salo, CPA
Objectives:
To determine that:
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
 CASH ACCOUNTS

 Cash on Hand
 Cash in Bank
 Marketable Securities
CASH ON HAND
 Petty Cash Fund
 CASH IN BANK
1. General Cash Accounts
 Main cash account
 Regular cash receipts and disbursements

2. Imprest Cash Accounts

 Stipulated amount of money to be used for
a specific purpose
3. Cash Management Accounts
 moving excess cash into and out of short-
term savings account to generate
extra returns
 MARKETABLE SECURITIES
1. Securities Held as Temporary Investments
 Short term debit (bonds) or equity (stocks) securities

2. Short Term Cash Management Securities

 Treasury bills, commercial papers

3. Other Short-Term Hybrid-Type Securities

 Derivatives
RELEVANT ASSERTIONS
 CASH
1. Existence
 The cash balance may not exist in the
company’s bank accounts

2. Valuation
 The cash balance held in foreign currencies
may not have been translated properly

3. Presentation and Disclosure

 There may be restrictions on the cash
balance that were not properly disclosed.
 MARKETABLE SECURITIES
1. Existence/Occurrence
 Management may sell company owned securities for their own benefit

2. Completeness
 Investments from the current period may be recorded in the subsequent period

3. Valuation
 Management fails to appropriately mark marketable securities to fair market value

4. Presentation and Disclosure

 Management fails to present and disclose the marketable securities on its proper asset class
 RELEVANT DOCUMENTS
Cash Receipts Journal
Cash Disbursements Journal
Petty cash vouchers
Bank Statements
Certificate of Time Deposits
Certificate of Marketable Securities
Bank reconciliation
 AUDIT PROCEDURES
 Conduct a cash count of undeposited collections, petty cash and other funds.
 Obtain custodian’s signature to acknowledge return of items counted.
 Trace undeposited collections counted to bank reconciliation, subsequently traced to bank
deposits
 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

 Reconcile items counted with general ledger balances.
 AUDIT PROCEDURES
 Obtain cutoff bank statement showing the client’s transactions within
the bank at least one week after the reporting date
 Confirm bank balance by direct correspondence with all banks in
which the client has/had deposits and loans during the year.
 Investigate checks outstanding for a long period of time
 Obtain a list of interbank transfers of funds a few days before and after
the reporting date
 Test reasonableness of cutoff by comparing dates of checks returned
with the cutoff bank statement to dates of recording in the cash
disbursements register and tracing receipts recorded to a few days
before reporting date to bank deposit
LET’S TRY!
Which of the following misstatements is most likely to be uncovered during an audit of a
client’s bank reconciliation?
A. Duplicate payment of a vendor’s invoice.
B. Billing a customer at a lower price than indicated by company policy.
C. Failure to record a collection of a note receivable by the bank on the client’s behalf.
D. Payment to an employee for more than the hours actually worked
LET’S TRY!
Which of the following items should be included in the cash balance at December 31, 2021?
I. A check payable to the company, dated January 3, 2022 in payment of a saleCHECK
POST DATED made in
December 2021

UNRELEASED CHECK
II. A check payable to a vendor, dated and recorded in the Company’s books on December 31,
2021, but not released until January 4, 2022.
 BUCKLE UP YOUR SEATS!
The following are the cash balances of LEONOR, INC. at December 31, 2021:
 Undeposited collections (in currency and coins)P40,200
 Current account – unrestricted 620,000
 Disbursement checks written and recorded in December 2021 but are to be released to the
payees in January 2022-130,000
 Restricted time deposits (expected use in June 2022) 2,000,000
 Leonor, Inc. has agreed to maintain a P200,000 compensating balance in its unrestricted
current account in accordance with the loan covenant.
How much should Leonor, Inc. report as cash on its December 31, 2021 , statement of
financial position?
P790,200
 TO SUM UP…
 Cash accounts are classified as on hand, in bank
and marketable securities
 When auditing cash, applicable assertions are
EXISTENCE, VALUATION AND DISCLOSURE
while for marketable securities are EXISTENCE,
COMPLETENESS,VALUATION AND
DISCLOSURE.
 There are relevant documents to be examined during
the audit such as journals, bank statements, bank
certificates and bank reconciliation
 Different audit procedures are to be done in the
course of audit such as test of completeness and
reasonableness.
THE REAL DEAL
 Your audit of the December 31, 2021, financial statements of
DIONISIO CORP. reveals the following:
 Current account at Prime Bank P (30,000)
 Current account at Prudent Bank 135,000
 Treasury bills (acquired 3 months before maturity) 300,000
 Treasury bills (maturity date is Dec. 31, 2011) 1,500,000
 Payroll account 390,000
Foreign bank account – restricted (translated using the
December 31, 2010, exchange rate) 2,000,000
 Postage stamps 1,250
 Employee’s postdated check 4,500
 IOU from the vice-president 8,000
 Credit memo from a supplier for a purchase return 8,100
 Traveler’s check 21,000
 Money order 12,900
Petty cash fund (3,000 in currency and expense receipts for
P12,000)
What amount would be reported as “cash and cash equivalents” on
the statement of financial position on December 31, 2021?