Solution_ARENS_Auditing13eAEB_SM_CH23_1.docVIP

Chapter 23 Audit of Cash Balances Review Questions 23-1 The appropriate tests for the ending balance in the cash accounts depend heavily on the initial assessment of control risk, tests of controls, and substantive tests of transactions for cash receipts. The companys controls over cash receipts assist the auditor in determining that cash received is promptly deposited, that receipts recorded are proper, that customer accounts are promptly updated, and that the cash cutoff at year-end is proper. If the results of the evaluation of internal control, the tests of controls, and the substantive tests of transactions are adequate, it is appropriate to reduce the tests of details of balances for cash, especially for the detailed tests of bank reconciliations. On the other hand, if the tests indicate that the clients controls are deficient, extensive year-end testing may be necessary. 23-2 The appropriate tests for the ending balance in the cash accounts depend heavily on the initial assessment of control risk, tests of controls, and substantive tests of transactions for cash disbursements. The companys controls over cash disbursements assist the auditor in determining that cash disbursed is for approved company purposes, that cash disbursements are promptly recorded in the proper amount, and that cash cutoff at year-end is proper. If the results of the evaluation of internal control, the tests of controls, and the substantive tests of transactions are adequate, it is appropriate to reduce the tests of details of balances for cash, especially for the detailed tests of bank reconciliations. On the other hand, if the tests indicate that the clients controls are inadequate, extensive year-end testing may be necessary. An example in which the conclusions reached about the controls in cash disbursements would affect the tests of cash balances would be: If controls over the issuance of blank checks, the review of payees, amounts, and supporting documentation, the sig