CASH COUNT ‘This step in the audit should be done when the cash fund balances are determined to be iaterial, The auditor should be familiar with the company's cash handling routine and shoutd have known the locations and the funds that should be counted, The auditor should act with tact in order to intain a cordial relationship with the clien’s personnel. For companies with several funds and in only one location, the funds should be placed under control and simultaneously counted. Keep in mind the possibility of fund substitution by collusion or otherwise, ‘The fund should be counted only in the CONTINUOUS presence of the custodian or responsible representative of the company. The count sheet should bear the acknowledgment of the custodian on the fact that the fund was counted in his presence and were retuned infact with the complete name ‘written out in block letters underneath the signature ‘The count sheet should be prepared in INK and NOT in pencil, This will preclude problems that could arise later on, Any correction made should be initialed both by the staff member who made the ‘count and the custodian, If the custodian’s accountability include postdated checks, the same should be counted since they may be used to cover up discrepancies. If the count revealed breakdown in controls or if there is a discrepancy, a letter should be prepared as soon as possible with appropriate comments, ‘An inventory of accountable forms should be done which relates to the cash fund, This will deter any possibility of using such forms to cover temporary shortages. If the count is made on van salesmen, count the merchandise inventory as well since they are part ofthe accountability of the same, Undeposited collections should be deposited without delay. In the follow ups, the auditor should include in the worksheet the disposition of these funds. This can be done by tracing deposited collections tothe subsequent bank-validated deposit slips. Unreplenished disbursements should be traced to subsequent payments of petty cash replenishments. ‘When you do the simulated cash count, have on hand the following forms: cash count sheet and inventory of accountable formsCASH COUNT SITUATION On January 6, 20NY, at 9:15 A.M. you made a surprise count of the petty cash under the custody of Cynthia Payumo, You simultaneously controlled the funds under the custody of the cashier. You found out that only the petty cash is under her custody. However, she also handles collections. You _ were presented the cash box containing bills and coins and you proceeded to list them in the Ccountsheet. The cash box contains the following: 100.00 bills 50,00 bills 20.00. bills 10.00 bill 5.00. bill, 2.00. bills 1.00. coins 0,50 coi 0.28 coins 0.10 coins 0.03. 0.01 coins I ‘The box also contains the unreplenished disbursements documents as follows: On December 22, 20CY, the messenger, Protacio Ligon, spent for transportation fare P7.00, ‘This is documented by PCV No. 1156, PCV 1157 was forthe purchase of supplies like ballpens, pads. tissue papers and rubber bands for PS3.75, PCV 1158 was issued for the reimbursement of food bills by the administrative officer for P270.51. PCV 1159 was for advances made by the president to be used in entertaining the foreign supplier Mr, Sakosan, of Osaka Machineries, Ltd, amounting to P1,000, All of these vouchers were duly signed except for PCV No, 1156, since it was a documentation ‘ofa prior amount given to the messenger, All were properly approved by the general manager and duly indicated in the documents. These disbursements were all made after the last replenishment of the petty ccash made last December 20, 20CY through Check Voucher No, 2734 PCIB Check No, 294567. That set ‘of document was properly done and in order, Simultaneously, you counted the collections and found the following: 50 100.00 bills 700 50.00 bills Metro Bank Check No. 513477 for P8,750.84 Allied Bank Check No, 748467 for P10.843.27 ‘When you scanned the cash register, you found out that the collections to be deposited that day rofer to the following Official Receipts: ‘OR No, 0475 was issued to Martinez, Mining for P45,000 OR No. 0476 was issued to Monson & Monson for P 8,750.84 OR No. 0477 was issued to LC Construction for P10,843.2724 ‘You also found note in the box containing the collections, that P4.500 was taken by the general ‘manager with the approval of the president. This amount will be paid fo the Manila Peninsula for the hotel bills of the foreign visitor. After the cash count, you made an inventory of accountable forms and found them (0 be as follows Invoices of $0 sheots per booklet - 15 booklets whose last used invoice was 1475. The sequence was all right Official Receipts of $0 sheets per booklet - 20 booklets the last used official receipt was 0477 Release Order 10 booklets of 50 sheets per booklet - last used was 4725, PCIB Checks $ booklets of $0 checks each - last used was 294570 China Bank Checks 7 booklets of 50 checks each -last used 3847564 Prepare the cash count sheet and the cash count letter. Be sure that you have an audit program for the cash count,CASH BALANCI Ss ‘The audit objectives for cash are to determine that the recorded cash 1) exists, 2) is owned by the company and 3) is fairly stated. ‘The audit should also be directed as such that any existing restrictions as (0 availability or use of the cash and any assets pledged are identified for disclosure in the ites to financial statements, For cash on hand, the procedures to be used by the auditor are already taken up during the cash counts. All funds in the books are 10 be determined and listed so that these can be counted and verified For bank balances, the auditor should know whether the account includes property of others like employees’ association funds or company’ properties not recorded in the books. Obtain copies of bank reconciliation for all bank accounts, The auditor should perform the bank reconciliation steps as follows: 1, Foot the reconciliation 2, Compare the book balance per reconciliation against the general ledger. Compare the bank balance per reconciliation with the bank statement 3. Check whether paid checks and debit memos, evidencing bank transfers appearing in these ‘bank statements appear in the bank reconciliation as outstanding items, 4, Compare check number and amounts of outstanding checks per reconciliation with the cash disbursement book fo ascertain they were previously recorded 5. Trace deposits in transit per reconciliation to bank statements and the cash receipts books. Examine the covering bank validated deposi slips to see whether these funds were deposited on or prior to cut off and whether there are delays between cash receipt and deposit dates. 6. Vouch significant reconciling items, Investigate also any significant and unusual. items appearing in subsequent month’s bank statements that remain unaccounted for after performing the bank reconciliation, Investigate old outstanding checks and consider if there is need to revert them to cash and record the corresponding liabilities, Make a general review of the cash transaction near the year end like reduction of notes payables, payment of officer's accounts etc. appearing oat of ordinary Send confirmation request to all banks. Determine by reviewing bank confirmation replies, Joan agreements, bond indentures, minutes or other relevant documents if there are restrictions on the availability or use of cash balances. Determine if any assets are pledged as security List down checks drawn payable 10 "cash" or "bearer". These should be discussed with yanagement as (0 its nature, purpose and authorization. Consider need to comment in the management letter,26 CASH BALANCE SITUATION On Jamary 12, 20NY, you were given by the accountant copy of the bank reconciliation prepared by his staff. In your audit, you did the procedures enunciated by the audit program paying particular attention fo unusual situations. ‘The bank balance agroes with the balance as found in the bank statement furnished you ‘Together with the bank statements, you examined the enclosed bank documents and found outa bank debit memorandum which refers to the foreign currency transfer fo Japan. to Osaka Machineries as partial payment of accounts. The amount is already net of the 7 1/2% withholding tax required by the National Internal Revenue Code which they had remitted on the same day they made the transfer (ie, December I: 20CY), In your analysis, you compared the entries in the cash receipt books and the only unmatched official receipt was OR # 0470 dated December 27, 20CY. ‘Another debit memorandum indicates that the bank has made a charge to the current account in the amount of 150.00 representing cost of documentary stamps affixed to the checkbook as well as cost of checkbooks purchased by the company. ‘Then you compared the cash disbursement books against the checks issued which has cleared the bank and revealed that check nos. 294559, 294563, 294565, 294567 and 294568 were already issued as at December 31, 20CY. (On the basis of the above indicated transactions, prepare the cash balance audit workpapers for PCB.TRANS ORIENTAL HEAVY EQUIPMENT CENTER INC. BANK RECONCILIATION-PCIB DECEMBER 31, 20CY Per bank - December 31, 20CY Debit memo regarding the remittance to Osaka Machineries charged to current account Deposit in transit as follows (OR #0470 12027087 Alarcon Const. Co. Outstanding checks 294559 Manila Electric Corporation 294563 De las Alas Fajardo & Co, 294565. Nicfur Development Company 294567 Computer Sales Corporation 294568 M. B. Brokerage Corporation Per Books ~ December 31, 20CY 2 150,467.28 100,500.00 20,400.00 150.00 (2,456.00) (10,000.00) ( 15.328.79) (96,000.00) (12,404.91) 45,328.18)28 CASH BALANCE SITUATION II (On January 15, 20NY. the accountant again gave you a copy of the bank reconciliation prepared by his staf, Now it was for the China Bank account, With the statement from China Bank was a credit memorandum indicating in_ compl the circumstances of PN # 34587, Upon investigation you found out that the company’ i working capital loan from the China Banking Corporation. This loan is duly authorized by the Board ‘of Directors. Ina meeting, called for the purpose, the Board has authorized the president to negotiate with the bank to secure a working capital loan, The copy of the board resolution was not available at the time since it was with the corporate lawyer yet, However, the copy of the bank document indicates the collaterals to be the equipment for rent, and the continuing guaranty of the stockholders of the company Another debit memorandum was in the file indicating that the company has secured clearan from Central Bank to buy $2,000 worth of foreign currency for use in the travel activity of the president who went {0 Japan on the first week of January to attend a conference with the supplier regarding working arrangements. (On the basis of the above indicated transactions, prepare the cash balance audit for China Bank.‘TRANS ORIENTAL HEAVY EQUIPMENT CENTER INC. BANK RECONCILIATION - CBC DECEMBER 31, 20CY Per bank - December 31, 20CY Debit memo regarding purchase of check books Proceeds of loan with China Bank for working capital - PN # 34587 date December 28, 20CY at 27% per annum net of bank charges of P9,875,75 Debit memo on the purchase of dollars at 18.95 per dollar including bank charges amounting to P2.349.28 Per books - December 31, 20CY 29 57,522.70 134.75 ( 90,124.25) 40,249.28 P 7,802.4830 BANK CONFIRMATION REQUEST ‘The audit manual indicates the need to send confirmation request to the depositary banks in order to ascertain the correctness thereof, ‘The form that will be used includes most of the significant information needed by the auditors about the financial transactions made by the company with the depositary bank. The reply to the request should be sent directly (0 the auditor since the possibility of tampering with the reply (for window dressing purposes) may be made. It is recommended that the auditor himself should do the mailing of the request after the form is signed by the client ‘The request may be made at about the year end since it will take time before the request is received by the bank. There will then be sufficient time for follow-ups with the bank as regards reply 10 the indicated request, In this game, we will be sending bank confirmation requests to the two depositary banks, The form should be filled up by the client or the auditor himself and signed by the signatories thereof ‘You are required to accomplish the confirmation request forms for the two banks. Copies of t form are attached to the practice st.31 LETTER TO LAWYERS Sufficient competent evidential matters referred to in the auditing standards necessitates auditor's correspondence with the legal counsel of the company’ as to litigations and suits they may. be a party to. This act endeavors to determine the existence of contingencies and also on the review of any subsequent event necessary (0 the proper interpretation of the financial statements, ‘The request to the lawyer should be timed in such a way that the reply could be on hand way rior to the release of the statement as any significant information generated therefrom would be ieeded in the proper disclosure of the information therein. Affer a reply is received, the auditor should evaluate it especially with respect to Titigations involving significant amounts and the basis or merits of the case. He should consider the nature of the litigation and the magnitude of the amounts involved and if necessary follow up of such matters is in order. If the reply pose certain uncertainties, it may be necessary for the auditor to correspond with the lawyer by setting up a conference with him together with the client ‘The opinion of the auditor may have to be affected by the reply of the lawyer particularly if the litigation is of such magnitude that the financial statement could be misinterpreted, Ifthe reply indicates that the effect of any possible outcome of the case is immaterial, the auditor may render an unqualified opinion. Other than that a written assurance from the lawyer may be necessary for the issuance of an ‘unqualified report If, because of the privilege communication between clientawyer, the Iawyer limits the information given to the auditor and as such the disclosure requirement could not be met, it may be necessary to consider such limitation as scope limitation of the audit and unless a revised letter-reply is received, a qualified opinion or even adverse opinion may'be rendered by the auditor. In disclosing information based on the lawyer's reply, care must be taken so that the lawyer's conclusion or meaning is not changed If the lawyer's reply contains indication prohibiting the quoting in whole or in part of the content ofthe leter reply, it could be viewed by the auditor as scope limitation and unless it is revised or consent of the lamyer is obtained, unqualified opinion may not be given.