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WALLY’S BILLBOARD & SIGN SUPPLY The Audit of Cash

Walter Johnson founded Wally's Billboard & Sign Supply, Inc. four years ago. This service assists
companies in finding locations for their billboards and signs. They have also started designing signage
lately. Wally, who once worked in marketing for a large corporation, observed that his neighborhood
lacked a sign and billboard company with specific expertise. Leaning on his prior experiences, he made
the decision to launch his own company.

Wally's company has now requested assistance from Taylor & Jones, LLP in order to grow. For
the past two years, Taylor & Jones have assisted them with financial matters. Bill Thompson, a senior
auditor, and you have been requested to examine the company's cash balances. Bill has already
investigated the company's financial management practices and discovered that everything appears to be
working OK. However, you want to check with the banks to make sure the company's financial flow is
unrestricted by outside parties. The company maintains three bank accounts: one for income and general
spending, one for payroll, and one for emergency savings.

1. Why is the audit of cash an important part of the audit?

Auditing cash is important because cash is like the lifeblood of a company. It's the cash
that a company uses to cover its expenses, such as salaries and bills. Conducting a cash audit
entails verifying that the funds the organization claims to possess are, in fact, there and being
utilized appropriately. A corporation may face serious problems if there are errors or issues with
the way it manages its cash flow. It could indicate that the business is having trouble paying its
creditors and staff on time, which could damage its reputation and make it difficult for it to
continue operating.

2. Bill performed tests of controls for all transaction cycles with good results. Why is it
important to also perform substantive audit procedures for the ending cash balance even
when tests of controls over transactions that affect the cash account indicate that those
controls are operating effectively?

Performing substantive audit procedures for the ending cash balance is important even
when tests of controls show that everything's going smoothly with how transactions affecting the
cash account are handled. This is due to the possibility that errors or fraud could still occur,
despite the company's effective money handling procedures, and have an impact on the total
cash balance. In-depth auditing processes check that there are no inaccuracies or dishonest
activities that could affect the cash balance and that the figures are accurate. In simple terms,
these processes serve as a second set of eyes to guarantee the reliability and correctness of the
financial data. Even though Bill tested the controls for every transaction cycle, relying solely on it
could be misleading and contain insufficient assertion because human error happens and there's
a chance that financial information, including missing balances, incorrect amounts entered, and
exaggerated misstatements, will be overlooked.

3. According to the auditing standards, what are the necessary ingredients for audit
evidence to be considered “appropriate”?

According to auditing standards No. 15, for evidence to be considered "appropriate," it

needs to have a few key qualities. It should, first and foremost, come from reliable sources and
be trustworthy and reliable. This implies that the data must be unbiased and free of bias or
manipulation. Furthermore, the material must be relevant to the auditor's investigation. It must be
directly relevant to the areas being looked at and aid in drawing conclusions regarding the
financial statements or other topics being looked at.

4. For each procedure listed in the audit program (schedule C 2), indicate the primary
assertion(s) targeted by the procedure.
A. Obtain cut-off bank statements and confirmations returned by the bank, scan, and
review.
a. Completeness
b. Accuracy
B. Test the mathematical accuracy of each bank reconciliation.
a. Accuracy
C. Trace the line item “balance per bank statement” on each bank reconciliation to the
related bank confirmation and to the cut-off bank statement.
a. Completeness
b. Accuracy
 D. Trace the check number and amount of outstanding items on each bank
reconciliation to the corresponding cut-off bank statement
a. Existence
E. Trace the date, check number, ad amount of outstanding items on each bank
reconciliation to the corresponding entry in the cash disbursement journal.
a. Cut-off
b. Accuracy
F. Trace the amount of any deposits in transit on the bank reconciliation to the cut-off
bank statement and then to the cash receipt journal. Investigate unexpected timing
differences. Trace the amount of any deposits in transit on the bank reconciliation to
the cut-off bank statement and then to the cash receipt journal. Investigate
unexpected timing differences.
a. Cut-off
G. Trace the line item “undeposited cash receipts” from each bank reconciliation to the
undeposited cash receipts list.
a. Accuracy
H. In the presence of client personnel count cash on hand following proper procedure
a. Existence
b. Valuation
I. Inquire with management about cash restrictions and review response for disclosure
needs.
a. Rights
b. Obligations

5. For each error, concern, or adjustment you listed on the Audit Summary (schedule C 3),
briefly describe at least one additional test you could perform to gain evidence as to
whether or not the cash account is materially misstated.

Working Paper Reference Errors, Concern, or Test to Gain Audit Evidence

Adjustments
C-5, C-7, C-8 Check 5730 – Advertising from
young promotions – has not
been cleared by Woodland
bank which means that it was
not included in its cut-off bank
statement and bank
reconciliation.
C-7 & C-8 A deposit of $1,055 was
transacted during December
31, 2018, and is found in the
bank reconciliation made by
the client; however, Woodland
National Bank appeared to
have a delay on clearing the
deposit on January 9, 2019.
C-9, C-10, & C-11 A balance per bank statement
provided in the bank
reconciliation made by the
client amounted to $3,652 and
later found out that what was
stated in the confirmation of
account balance information
and the cut-off bank statement
made by Sunnydale Banking
To address the situation the
auditors’ main objective is to
obtain sufficient and
appropriate evidences to
accurately reflect the expenses
in the financial statements, with
this, auditors may request
documentations from Young
Promotions like invoices or
receipts to clarify and verify
whether advertising expense
does exists. Auditors may also
communicate to Woodland
Bank to get information as to
why these transactions were
not included in the bank’s
record.
The best test auditors to do is
perform a cut-off test, with this
auditors may be able to verify
the accuracy of recorded
transactions at the end of the
reporting period, ensuring that
they have recorded
transactions in the correct
accounting period.
To verify the balance between
the bank statement provided by
the client and the balance
stated in the bank statement
form Sunnydale Banking Co.
Auditors may conduct
confirmation or bank
reconciliation test. Requesting
confirmation will help verify the
 Co. has amounted to $3,625. accuracy of the balance, with
this auditors may be able to
gather details about the
balances on specific dates and
other relevant information.
Auditors may also perform a
bank reconciliation test to
compare records from the
client’s and the bank to identify
if it was a transcription error or
a fraudulent action.
C12 The document is faxed Auditors may directly contact
meaning it is not the original the bank and to verify the
document and neither a copy accuracy and authenticity of
of the original document. the faxed document, auditors
can request confirmation from
the bank and demand for
specific details from the faxed
document. Auditors may also
review other supporting
documentations, like bank
statements, transaction
records, to validate the
information contained in the
faxed document.

6. The AICPA and the American Banker’s Association developed a standardized bank
confirmation form—see working paper C 6. What is the purpose for confirming information
in item number two on the bank confirmation form? Identify the accounts and related audit
assertion(s) to which the information in item number two is relevant.

A bank confirmation letter is a document that is filled out to provide users and auditors
with crucial and trustworthy evidence regarding the cash that a company has on hand at the
bank. It assists in verifying the authenticity, completeness, and accuracy of the cash by
comparing it to what the business claims to have in its financial records. This letter verifies
information on loans, pending transactions, and the amount of money in the company's accounts.
It also serves as a sort of audit to see whether the business is trustworthy with the sums of
money it claims to have and is handling its finances appropriately. The second part of the letter
focuses on the bank's responsibility to the company, especially regarding loans. It's critical that
the business comprehends its financial responsibilities, particularly with regard to loans and
collateralized assets. The overall goal of this letter is to substantiate the company's financial
statements as authentic and trustworthy, guaranteeing that the data is transparent, accurate, and
equitable.

7. What audit procedures might you perform if you were to decide that the risk of fraud
involving the cash account was relatively high for this client?

When there's a high risk of fraud with a client's cash, auditors have to do specific checks
to stop fraud from causing harm. A typical audit is known as a "bank reconciliation," in which
auditors contrast the amount of money recorded in the company's books with the bank's
statement. This assists in identifying errors or fraudulent transactions. An additional audit is
known as a proof of cash, in which auditors review all financial documents from the beginning of
the year to the present. This aids in verifying that every transaction is authentic and
comprehensive. Both checks aid auditors in identifying any indications of fraud, such as falsified
documents or incorrect quantities of money coming in or going out.

8. Perform an online search for "electronic bank confirmations." Summarize in one page or
less what you learn about recent developments in the use of web-based bank
confirmations. Include a brief discussion of the advantages of electronic confirmations in
your write-up.

Recent developments in the use of web-based bank confirmations have focused on

leveraging technology to enhance the efficiency, security, and reliability of the confirmation
process. The use of secure web platforms made expressly for electronic confirmations, which
provide features like encryption, multi-factor authentication, and digital signatures to guarantee
the integrity and secrecy of confirmation requests and responses, is one noteworthy
development.

Moreover, developments in automation and data integration have made it possible for
banking systems and audit software to integrate seamlessly, giving auditors direct access to
relevant financial data and the ability to electronically seek confirmations. This integration
eliminates the possibility of errors associated with human data entry, accelerates the confirmation
process, and reduces manual work.

Additionally, the increasing use of cloud-based solutions has made it easier for
respondents and auditors to collaborate and communicate. This has made it possible to follow the
status of confirmations in real time, set up automated reminders, and save confirmation
paperwork in one place. This encourages accountability, openness, and prompt processing of
requests for confirmation.

Furthermore, the efficacy of fraud detection processes is being increased by employing

advances in artificial intelligence and data analytics to evaluate confirmation responses and spot
anomalies or red flags that might require additional research.

In overall, new advancements in web-based bank confirmations show a dedication to

using technology to boost the security, correctness, and effectiveness of the confirmation
procedure, which will ultimately raise the caliber and dependability of financial statement audits.