Audit Boynton

Modern Auditing:Assurance Services and the Integrity of Financial Reporting, 8th EditionWilliam C. BoyntonCalifornia Polytechnic State University at San Luis ObispoRaymond N. JohnsonPortland State UniversityChapter 18 Auditing Investments and Cash Balances

Chapter Overview

Auditing Investments

Investments Audit Objectives

InvestmentsUnderstanding the Entity and Environment

Analytical Procedures

Inherent Risk

Consideration of Internal Controls Common Documents and RecordsStock certificate

Bond certificate

Bond indenture

Brokers advice

Consideration of Internal Controls Common Documents and RecordsBrokers statement

Books of original entry

Investment subsidiary ledger

Functions and Related ControlsAuthorize Investment TransactionsPurchasing securitiesSelling securities

Receive or Deliver SecuritiesReceiving securitiesSafeguarding securitiesDelivering securitiesReceiving periodic income

Functions and Related ControlsRecord TransactionsRecording purchases, sales, and incomeRecording market adjustments and reclassificationsReviewing purchases, sales, and income transactions

Settle TransactionsReceiving cashDisbursing cashAssessing investment performance and reporting

Preliminary Audit Strategies for Investments

Substantive Tests of InvestmentsInitial Procedures


Tests of Details of Transactions

Substantive Tests of InvestmentsTests of Details of BalancesInspect and Count Securities on HandConfirm Securities Held by OthersRecalculate Investment Revenue Earned

Tests of Details of Accounting EstimatesProper Classification of Investments

Substantive Tests of InvestmentsAuditing the Fair Value of Investments

Tests of Details of Presentation and Disclosure

Study BreakThis document is an engraved, prenumbered form showing the number of bonds owned by a bondholder.Stock certificateBond certificateBond indentureBrokers advice

B. Bond certificate

Study BreakWhile recording investing transactions, all of the following functions need to be carried out, except:Recording purchases, sales, and incomeRecording market adjustments and reclassificationsReviewing purchases, sales, and income transactionsAssessing investment performance and reporting

D. Assessing investment performance and reporting

Study BreakAll of the following are proper classification for investments, except:Held-to-maturity securitiesDaily securitiesTrading securitiesAvailable-for-sale securities

B. Daily securities

Auditing Cash Balances

Cash Balances Audit Objectives

Cash BalancesAnalytical Procedures

Inherent Risk

Consideration of Internal Controls

Preliminary Audit Strategies for Cash Balances

Substantive Tests for Cash BalancesInitial Procedures


Substantive Tests for Cash BalancesTests of Details of TransactionsPerform Cash Cutoff TestsCash Receipts Cash Disbursements

Trace Bank TransfersKitingBank Transfer Schedule

Substantive Tests for Cash BalancesTests of Details of TransactionsCount Cash on HandCash Counts

Tests to Detect LappingConfirm Accounts ReceivableMake a Surprise Cash CountCompare Details of Cash Receipts Journal Entries with the Details of Corresponding Daily Deposit Slips

Substantive Tests for Cash BalancesTests of Details of BalancesConfirm Bank Deposit and Loan BalancesConfirm Other Arrangements with BanksScan, Review, or Prepare Bank ReconciliationsObtain and Use Bank Cutoff Statements

Tests of Details of Presentation and Disclosure

Study BreakCash is related to all of the following cycles, except:Revenue CycleFinancing CycleExpenditure CycleAll of the Above

D. All of the Above

Study BreakThis test of details of transactions for cash balances involves the counting of all undeposited cash receipts and change funds.Perform Cash Cutoff TestsTrace Bank TransfersCount Cash on HandTests to Detect Lapping

C. Count Cash on Hand

Study Break______ is a form of fraud the results in the deliberate misappropriation of cash receipts.KitingCash CountsCompensating Balance Lapping

D. Lapping