MINI PROJECT : AUDIT EVIDENCE GROUP 5 (DAT5B)
COMMERCE DEPARTMENT
DPA50153-AUDIT 2
MINI
PROJECT : AUDIT EVIDENCE (CLO 2)
PROGRAMME: DAT5B
SESSION:1 2021/2022
LECTURER:
MRS JULIANA BINTI MOHD ARIFFIN
Group 5 (DAT5B)
1.
NURUL
NAZIHAH BINTI ABD WALID (10DAT19F1028)
2.
NURUL
SHUHADA BINTI MOHD SHARIFF
(10DAT19F1034)
3.
NURUL
ARDILLA BINTI ABD RAZAK (10DAT19F1022)
4.
NUR
DANIA NATASHA BINTI MOHD ILLIYAS (10DAT19F1059)
Introduction
Scope of this ISA 520.For the
purposes of the ISA, the term “analytical procedures” means evaluations of
financial information through analysis of plausible relationships among both
financial and non-financial data. Analytical procedures also encompass such
investigation as is necessary of identified fluctuations or relationships that
are inconsistent with other relevant information or that differ from expected
values by a significant amount.
Question 1
Why are
analytical procedures of limited use in the audit of the cash balance?
Ø The
analytical procedures are of limited use in the audit of the cash balance
because the cash has a residual nature and therefore it does not have a
relationship with other financial accounts.As a result, the auditor's use of
analytical procedures for auditing cash is limited to comparisons with prior
years' cash balances and to budgeted amounts
Ø Since
cash does not have a predictable relationship with other financial
statement accounts because of its residual nature, therefore, the
auditor’s use of analytical procedures for auditing cash balances
is limited to:
(a)Compare with prior years’ cash balances
and to budgeted amount.
(b)Identify receipts of the next accounting
period and investigate the long outstanding cheques, determine
whether they should be reflected in the balances at year end period.
Analytical Procedures in Audit of Cash
Ø Financial
statement line item like cash doesn’t have a very predictable relationship with
other accounts or non-financial information such as sales with the cost of
goods sold or salaries expense with the number of employees. As a result, there
won’t be many analytical procedures available to use in the audit of
cash.
Ø Auditor
may perform analytical procedures by comparing cash to prior-period and
budgeted figures, as they are useful in alerting to the risks.
Comparing cash to prior-period
Ø Comparing
balances to the prior-period is very useful to examine the fluctuation of cash
between the two periods. This way, we can evaluate the reasons behind any major
fluctuation of cash balances in order to alert to the risks involving cash.
Ø It
is very useful in the audit of petty cash this way. This is due to petty cash
should always be the same as the prior period. For example, in a normal
circumstance, the petty cash balance at the end of last period should be the
same as the petty cash balance at the end of the current period; it is because
of the imprest system.
Ø What
offsets the analytical procedures of limited use in the audit of the cash balance?
-This limited use of analytical procedures is normally
offset by:
(1) extensive tests of controls and/or substantive
tests of transactions for cash receipts and cash disbursements or
(2) extensive tests of the entity's bank
reconciliations
Question 2
Explain why the
standard bank confirmation form does not identify all information about an
entity’s bank account or loan?
ISA 500 states that
reliability of audit evidence is influenced by its source and by its nature.
Comment on the following external confirmation.
1. Bank confirmation
2. Receivable confirmation
3. Confirmation from consignee for inventory held on
behalf of client
4. Confirmation from lawyers.
1. Bank confirmation
Ø Bank
confirmation is a strong evidence as regards existence, ownership and valuation
assertion as it is external confirmation directly received by the auditor.
Ø The
limitation is that it does not provide evidence of completeness assertion for
those accounts not disclosed by the client.
Ø Bank
confirmation is the process to ask for verification or confirmation to the
third party, which is the bank, on the cash accounts and balances that the
company has at the bank.
Ø It
is done through bank confirmation letter which is usually used for inquiry
about outstanding interests, contingent liabilities and guarantees in addition
to the cash amount that the company has with the bank.
Ø Bank
confirmation letter is usually sent out at the early date of the audit
fieldwork as the confirmation process may take sometimes.
Ø The
request for confirmation from the bank may also include loans and other
accounts in addition to the client’s cash.
The following procedures are usually performed for
bank confirmation in audit cash:
Ø Obtain
written authority from the client to have in bank confirmation letter in order
for the bank to disclose the necessary information.
Ø Send
bank confirmation letter in a standard format to the bank
Ø When
the confirmation letter is received from the bank, check whether the bank has
answered all the questions requested for confirmation in the letter
Ø Follow
up all points in the bank letter
The standard bank confirmation form does not identify
all information about an entity's bank deposits or loans because it does
not require bank personnel to conduct a comprehensive, detailed search of the
bank's records beyond the account information requested on the
confirmation
Question 3
Why does an
auditor obtain a cut off bank statement when auditing a bank account?
Bank Statement :
Ø Bank
Statement is a document printed in a paper that being sent by the bank to the
holder or account every month. This is the summary of all transactions happened
in the account of the client during the month. Bank Statement contains account
details of the client, all deposits and withdrawals, and copies of all checks
cleared during the month.
Ø A
cutoff bank statement is obtained to test the reconciling items included in the
bank reconciliation.
Ø A
cutoff bank statement is a partial-period bank statement and the related
canceled checks, duplicate deposit slips, and other documents included in bank
statements, mailed by the bank directly to the CPA firm’s office. The purpose
of the cutoff bank statements is to verify the reconciling items on the
client’s year-end bank reconciliation with evidence that is inaccessible to
the client.
Whenever a cutoff bank statement is not received
directly from the bank, the auditor may verify the bank statement for the month
subsequent to year-end. The audit procedures used for the verification are
as follows:
1.Foot all of the cancelled checks, debit memos,
deposits, and credit memos.
2.Check to see that the bank statement balances when
the totals in 1 are used.
3.Review the items included in 1 to make sure they
were cancelled by the bank in the proper period and do not include any erasures
or alterations.
Conclusion
In conclusion, the analytical procedure is used as an overall
review of financial information in the final review stage of the Audit. The
importance of bank confirmation in an audit to verify the accuracy of some
information in account balances. The cutoff bank statement sent from the bank
shows all transactions in a partial period. Audit procedures are required
before the auditor has sufficient information to decide whether the client's
financial statements fairly represent its financial results, financial position
and cash flows
References
1) Audit Cash | Assertion
| Procedure - Accountinguide
2) Chapter
16 Flashcards | Quizlet
3) https://www.summaryplanet.com/industrial-economics/Audit-of-Cash-and-Bank-Balances.html
4) https://pcaobus.org/oversight/standards/auditing-standards/details/AS2310
5) https://www.mia.org.my/v2/downloads/handbook/standards/ISA/2018/06/01/ISA_520.pdf
Youtube video
Thank You.
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