Modern

Modern Auditing:
Auditing:

Assurance
Assurance Services
Services and
and the
the Integrity
Integrity
th
of
Financial
Reporting,
8
of Financial Reporting, 8th Edition
Edition
William C. Boynton

California Polytechnic State

University at San Luis Obispo

Raymond N. Johnson
Portland State University

Chapter 18 Auditing Investments and Cash Balances

Chapter
Chapter Overview
Overview

Auditing
Auditing Investments
Investments

Investments
Investments Audit
Audit Objectives
Objectives

Investments
Investments
Understanding the Entity and
Environment

Analytical Procedures

Inherent Risk

Consideration
Consideration of
of Internal
Internal Controls
Controls
Common
Common Documents
Documents and
and Records
Records
Stock certificate

Bond certificate

Bond indenture

Brokers advice

Consideration
Consideration of
of Internal
Internal Controls
Controls
Common
Common Documents
Documents and
and Records
Records
Brokers statement

Books of original entry

Investment subsidiary ledger

Functions
Functions and
and Related
Related Controls
Controls
Authorize Investment Transactions
Purchasing securities
Selling securities

Receive or Deliver Securities

Receiving securities
Safeguarding securities
Delivering securities
Receiving periodic income

Functions
Functions and
and Related
Related Controls
Controls
Record Transactions

Recording purchases, sales, and income

Recording market adjustments and
reclassifications
Reviewing purchases, sales, and income
transactions

Settle Transactions

Receiving cash
Disbursing cash
Assessing investment performance and
reporting

Preliminary
Preliminary Audit
Audit Strategies
Strategies for
for
Investments
Investments

Substantive
Substantive Tests
Tests of
of Investments
Investments
Initial Procedures

Analytical Procedures

Tests of Details of Transactions

Substantive
Substantive Tests
Tests of
of Investments
Investments
Tests of Details of Balances

Inspect and Count Securities on Hand

Confirm Securities Held by Others
Recalculate Investment Revenue Earned

Tests of Details of Accounting

Estimates

Proper Classification of Investments

Substantive
Substantive Tests
Tests of
of Investments
Investments
Auditing the Fair Value of
Investments

Tests of Details of Presentation and

Disclosure

Study
Study Break
Break
1. This document is an engraved,
prenumbered form showing the
number of bonds owned by a
bondholder.
A.
B.
C.
D.

Stock certificate
Bond certificate
Bond indenture
Brokers advice

B. Bond certificate

Study
Study Break
Break
2. While recording investing transactions,
all of the following functions need to be
carried out, except:
A. Recording purchases, sales, and income
B. Recording market adjustments and
reclassifications
C. Reviewing purchases, sales, and income
transactions
D. Assessing investment performance and
reporting
D. Assessing investment performance and
reporting

Study
Study Break
Break
3. All of the following are proper
classification for investments,
except:
A.
B.
C.
D.

Held-to-maturity securities
Daily securities
Trading securities
Available-for-sale securities

B. Daily securities

Auditing
Auditing Cash
Cash Balances
Balances

Cash
Cash Balances
Balances Audit
Audit Objectives
Objectives

Cash
Cash Balances
Balances
Analytical Procedures

Inherent Risk

Consideration of Internal Controls

Preliminary
Preliminary Audit
Audit Strategies
Strategies for
for
Cash
Cash Balances
Balances

Substantive
Substantive Tests
Tests for
for Cash
Cash
Balances
Balances
Initial Procedures

Analytical Procedures

Substantive
Substantive Tests
Tests for
for Cash
Cash
Balances
Balances
Tests of Details of Transactions
Perform Cash Cutoff Tests
Cash Receipts
Cash Disbursements

Trace Bank Transfers

Kiting
Bank Transfer Schedule

Substantive
Substantive Tests
Tests for
for Cash
Cash
Balances
Balances
Tests of Details of Transactions
Count Cash on Hand
Cash Counts

Tests to Detect Lapping

Confirm Accounts Receivable

Make a Surprise Cash Count
Compare Details of Cash Receipts Journal
Entries with the Details of Corresponding
Daily Deposit Slips

Substantive
Substantive Tests
Tests for
for Cash
Cash
Balances
Balances
Tests of Details of Balances

Confirm Bank Deposit and Loan Balances

Confirm Other Arrangements with Banks
Scan, Review, or Prepare Bank
Reconciliations
Obtain and Use Bank Cutoff Statements

Tests of Details of Presentation and

Disclosure

Study
Study Break
Break
4. Cash is related to all of the
following cycles, except:
A.
B.
C.
D.

Revenue Cycle
Financing Cycle
Expenditure Cycle
All of the Above

D. All of the Above

Study
Study Break
Break
5. This test of details of transactions
for cash balances involves the
counting of all undeposited cash
receipts and change funds.
A.
B.
C.
D.

Perform Cash Cutoff Tests

Trace Bank Transfers
Count Cash on Hand
Tests to Detect Lapping

C. Count Cash on Hand

Study
Study Break
Break
6. ______ is a form of fraud the
results in the deliberate
misappropriation of cash receipts.
A.
B.
C.
D.

Kiting
Cash Counts
Compensating Balance
Lapping

D. Lapping