INTERNAL CONTROL CHECK LIST: Cash Receipts

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INTERNAL CONTROL CHECK LIST Cash Receipts

• Remittances deposited intact daily.
• Receipts recorded daily by DIP.
• Receipted deposit slips matched to other cash
  details, as Remittance Advices.
• Monthly bank reconciliations of all cash
  accounts by DIP.
• Approved pre-numbered documentation required
  subsidiary ledgers support.

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INTERNAL CONTROL CHECK LIST Cash Receipts

• Credit memos non-cash credits (e.g., bad debt
  write-offs) properly authorized.
• Approved documentation security codes required
  for computer inputs to Cash, A/R and Inventory.
• Sales Tabulations reviewed, approved, and
  reconciled to Customer Orders and Unfilled
  Orders Files, Unbilled shipments.
• Cash Sales Tabulations compared to plans
  budgets, etc.

3
Cash Receipts Audit Objectives

• Existence completeness
• Presentation disclosure
• Bank overdrafts
• Restricted balances
• Compensating balances

4
Audit Evidence Procedures for Cash Receipts

• Bank confirmation
• Bank reconciliation
• Cutoff bank statement
• Cash receipts cutoff tests
• Proof of cash
• Analysis of interbank transfers
• Vouch receipt before after year-end

5
Beware of Kiting!

• Kitingrecording a bank transfer as a deposit in
  the receiving bank while failing to show a
  deduction from the bank account on which the
  transfer check is drawn.

6
Warning Signs

• Bartered advertising
• Inflated sales/fictitious accounts receivable
• Inadequate loan loss reserves
• Early revenue recognition

7
Audit Program Summary for Cash Receipts
Transactions

• Prepare a Proof of Cash for test month(s).
• Trace cash receipts from/to A/R subsidiary
  records, deposit list detail, bank
  statements, Cash Receipts tabulations.
• Tie-in details totals to General Ledger.
• Test for kiting, lapping, window dressing.
• Verify authorizations for non-cash credits to
  Accounts Receivable.
• Write memo with your opinion.

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AUDIT PROGRAM Cash (1/4)

• Test prescribed controls for legal, procedural
  policy compliances.
• Observe counts of all cash funds
  signed receipt for same (workpaper
  in ink) tie-in to G/L.
• Prove all Bank Reconciliations for all
  accounts of the year tie-in to G/L.
• Test mathematics of Reconciliations.

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AUDIT PROGRAM Cash (2/4)

• Request cut-off bank statements
  compare details to reconciliations.
• Test year-end cut-off procedures
  consistency with accounts receivable.
• Test for inactive accounts, lapping,
  kiting window dressing, using Interbank
  Transfers work papers.
• Verify pre-numbering where applicable.

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AUDIT PROGRAM Cash (3/4)

• Mail positive confirmations to all banks
  used during the year.
• List and investigate all exceptions.
• Tie-in all non-cash details (e.g., notes)
  to appropriate work papers.
• Calculate related accruals.
• Consider second, third requests.
• Consider an FYE Proof of Cash.

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AUDIT PROGRAM Cash (4/4)

• Perform analytical procedures
  calculate significant ratios, trends.
• Scan for and investigating the unusual.
• Analyze for fraud if control absent or
  weak, or as deemed necessary.
• Clear all exceptions project sampling.
• Write a memo with your opinion.

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AFTER ALL CAPITONS, the In-charge CPA will

• Review for GAAP consistency and/or violations.
• Consider materiality, potential for fraud,
  misleading data.
• Make decisions as to Presentations, Footnotes,
  Disclosures.
• Draft the Audit Report.

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End of Chapter 11