đề án audit for cash items in financial statement

Cut-off  To ensure that cash receipts and cash disbursement transactions are correctly recorded in the proper period... Overview about cash items - It is needed to discuss about the typ

Audit Project

TABLE OF CONTENTS

INTRODUCTION 2

LIST OF TABLES 4

CHAPTER I: THE CONCEPTUAL RESPONSIBLITIES AND FRAMWORK, REGULATIONS TO AUDIT THE CASH BALANCES IN FINANCIAL STATEMENT 5

1.1 Objectives for the audit of cash balances 5

1.2 The features of cash accounting in each enterprise: 6

1.2.1 Overview about cash items 6

1.2.2 General criteria regarding of accounting for cash of the audit clients 8 1.3 Internal control for cash receipts and disbursements 9

1.3.1 Fundamental requirements to control the cash items: 9

1.3.2 Objectives and performance of internal control for cash items 11

CHAPTER II: STEPS TO AUDIT CASH BALANCE 13

2.1 Audit Planning 13

2.1.1 Understanding about the client’s business and Industry 13

2.1.2 Assessing the client risk affecting cash 14

2.2 Design and perform audit program 15

2.2.1 Design and perform Test of control: 15

2.2.2 Design and perform substantive test 17

2.3 Complete the audit and prepare the audit’s report 19

2.3.1 Review the events occurring after the balance sheet date 19

2.3.2 Assess going concern assumption 20

2.3.3 Assess the results 21

2.3.4 Review the audit record 21

2.3.5 Audit report 21

CHAPTER III: ASSESSMENT AND RECOMMENDATION ABOUT THE INPLEMENTATION OF AUDIT IN VIETNAM 23

3.1 Assessment 23

3.1.1 Advantages 23

3.1.2 Disadvantages 23

3.2 Recommendation to improve the audit process 24

CONCLUSION 27

Audit Project

INTRODUCTION

In the trend of economic globalization, Vietnam has transformed itself and hasearned achievements about the significant development of economics andsociety, those are admitted and appreciated internationally In the marketeconomy, the economic and financial activities are required to be equitable,transparent and public That is actually necessary for investors, entrepreneurs,traders and Government High reliability of the financial Information to use,consider to make investment decisions, business decisions or to decideeconomic issues relating to finance, local budget, Government Therefore,they can only be assured, boldly making economic and financial decisionswhen the information provided by the accountant is assessed and verified by aprofessional organization or independent specialist That is audit activities bythe auditors complement

Cash plays an important role in the enterprise, as a means of tool makes allbusiness operations be ongoing and regular Cash relates to trading activities,payment and other financial operations of the business Thus, Cash itemsaffect most of the items on financial reports, especially the accounting balancesheet, cash flow statement Also due to the characteristics of high liquidity,lightweight, easy transportation, large amount of cash in receipt and paymentcycles, it is easy to have fraud and error Therefore cash items always containpotential risks and become one of the material items

As the importance of audit financial statements and role of cash items Imentioned above, I choose the topic: “Audit the cash items in the financialstatements” for my assignment to discover the phase to complement audit anddiscuss about the practical activities in Vietnam

This project is divided into 3 chapters:

 Chapter 1: The conceptual responsibilities and framework, regulations

to audit the cash balances in financial statement

 Chapter 2: Step to audit cash balances

 Chapter 3: Assessment and recommendation about the implementation

of audit in Vietnam

Due to my limited professional knowledge and time, there would be someinevitable errors and defects in the project

I sincerely thank xxx for the understanding and enthusiastic guidance for me

to complete this project

Audit Project

CHAPTER I: THE CONCEPTUAL RESPONSIBLITIES AND FRAMWORK, REGULATIONS TO AUDIT THE CASH BALANCES IN FINANCIAL STATEMENT

1.1 Objectives for the audit of cash balances

- The purpose of an audit is to provide financial statement users with anopinion by the auditor on whether the financial statement are presentedfairly, in all material respects, in accordance with the applicable financialaccounting framework

- The audit of cash is considered an important part of an audit mainly due

- Therefore, auditors have to give comment about the truthfulness andfairness of the recorded information regarding to cash items through theaccumulation of appropriate evidence to support the regarding assertion

Assertions Descriptions

1 Existence  To ensure that the cash is actually in

existence and belong to the company at a

given date or at the year-end date

2 Completeness  To ensure that there is no unrecorded cash.

3 Accuracy  To ensure cash at bank stated on the

reconciliation is accurate.

4 Cut-off  To ensure that cash receipts and cash

disbursement transactions are correctly recorded in the proper period.

5 Presentation

and disclosure

 To ensure that the cash balance and relatedstatement of comprehensive income entries arecorrectly disclosed in the financial statements

in accordance with legislation and accountingstandards

6 Detail tie-in  Cash in the bank as stated on the

reconciliation foots correctly and agrees with

the general ledger.

1.2 The features of cash accounting in each enterprise:

1.2.1 Overview about cash items

- It is needed to discuss about the types of cash accounts commonly used

by most company because the auditing approach to each varies Auditorsare likely to learn about the various types of cash balance when theyobtain an understanding of the client’s business

- Cash items relate to most of transactions such as purchasing, sales,payment and the financial operation of the company, so these cash itemsaffect to assets items, and other items as revenue, expenses, payable , andvice versa Moreover, cash is used to calculate the important ratio toanalyze and assess the solvency of the business Also, the fluctuation,decrease and increase of cash inflow or outflow due to occurredtransaction reflects how the company use money efficiently or not

- It is apparent to see the role of cash items through the relationshipbetween cash and other cycle in the following table:

Audit Project

- There are 3 types of cash accounts:

 Cash on hand (Account 111):

 This account is used to record receipts, disbursements andbalance of the enterprise‘s fund, including: Vietnamese dong,foreign currencies and monetary gold Only received,dispatched or inventoried cash, foreign currencies, monetarygold shall be recorded to account 111 – Cash

 When receiving or dispatching cash fund, receipt slips,payment slips with signatures of payees and payers,competent persons are required in accordance with accountingsource document Deposit order and payment order must beattached in special cases

 Cash in bank (Account 112):

 This account shall be used to record current amounts andincreases and decreases in demand deposits of the enterprise

in a bank Credit notes, debit notes or bank statementsenclosed with original documents (payment order, collectionorder, depository transfer check, certified check, etc) shall berecorded to Account 112 "Cash in bank"

 When receiving documents sent from the bank, the accountantmust collate them with enclosed original documents If there

is any difference between figures in enterprise's ledger, inoriginal documents and in the bank‘s documents, theenterprise must notify the bank to collate, verify and promptlyhandle At the end of the month, if it fails to uncover thereasons for differences, the accountant shall record according

to the bank's figures stated in debit notes, credit notes orbank's statements

 Cash in transits

 This account shall be used to record amounts of money which

an enterprise paid to the State bank, the State Treasury, ortransferred by post to a bank, but no credit note orconfirmation of payment to other enterprises has beenreceived; or the enterprise made wire transfer from their bank

account to other enterprises, but no debit note or bankstatement has been received.

1.2.2 General criteria regarding of accounting for cash of the audit

clients

- Cash item in the audit client is a large item and very important, it affectsthe liquidity as well as the solvency of the maturity debt, long term debt.Cash item is an indispensable element in the operation of the business, so

it has material influence on financial statements, audit reports Because ofits susceptibility to theft and significantly misstatement, if the internalcontrol is not efficient, that is an opportunity to exist loophole for frauddeclarations of how much money spent, and withdrawn for personalpurposes Therefore, to detect to fraud and errors that may incur in thecompany, it is needed to examine the cash accounting of clients tocomply with the regulations or not The following standard is general forcash items in all companies that need to be comply with:

- Enterprises that use foreign currency in production and businessactivities, must be converted into Vietnam dong at the actual exchangerate or average exchange rate interbank that State Bank of Vietnamannounced at the time when the transaction incurred When the foreigncurrency on hand or foreign currency in banks are disbursed, theexchange rate is determined based on the actual exchange rates of foreigncurrencies with a suitable method such as first in first out, last in firstout , the average exchange rate At the end of the accounting year, thecash and bank deposits in foreign currency must be revalued at theaverage exchange rate in the interbank at the closing date

- The monetary gold shall be re-evaluated according to the buying prices

on the domestic market at the time in which the financial statement isprepared The buying prices on the domestic market are prices announced

by the State bank In case the State bank fails to announce gold prices, the buying-prices announced by enterprise entitled to trade in gold

buying-as prescribed shall be chosen

Audit Project

- Cash in transit are accounted for in the following cases: Receiving cash orcheck is sent directly to the bank, payment via post office, collecting salestax to the treasury

- The accounts for cash items will be debited regarding of the increase ofcash, and be credited regarding of the decrease of cash

- The receipts and payments in enterprise’s funds are required to havecollection orders or payment order with the signature of manager, or theauthorized person, and chief accounting According to the collectionorders and payment orders, the accountants make the receipt slips and thepayment slips Then, these documents are sent to treasurers, based onthem, treasurers proceed to receive or pay cash and sign, stamp thesupporting documents (payment slips, receipt slips) These signed andstamped document are used to record in the cash book report and thensubmit report funds and fund documents attached to cash accounting.Treasurer must regularly check the data on cash book compared with theactual cash amount and with the accounting data If you noticediscrepancies to find the cause and take measures for timely handling

- For cash in bank, evidences for accounting to post entries to bank accountare the debit note, credit note or bank statement accompanied by theoriginal documents (certified checks, standing orders, encashmentorders, ) When accountants receive incoming documents from banks,they need to compare with the original documents attached, identifyreceipts and payment content to post accounting entries accurately.Accountant for cash in bank opens the detail of books for monitoringeach type of bank deposits, foreign currency, gold, silver, precious stones

at each bank in terms of quantity and value

1.3 Internal control for cash receipts and disbursements

1.3.1 Fundamental requirements to control the cash items:

- Cash management is one of the important activities of the enterprise’sfinancial manager, related to the management of accounts receivable,inventory and accounts payable, thus related to financial solvency Cash

management is actually using that money most effectively to meet all theother related demands of the business.

- Integrity and ability of employees: is the first factor to ensure an effectiveInternal Control since employees directly perform the task of keepingmoney in a bank deposit, record entries in accounting books Besidesthere should be cross-checked the assignment of different tasks amongemployees to limit the fraud or intentional collusion to steal money fromcorporate funds

- Segregation of Duties: Separate the task of keeping cash with updatingthe accounting books Cash accountants do not have to keep money,while cash treasurer do not have to approach the accounting books.Enterprises should establish the company policy about stocktaking,specific responsibilities for individuals in the term of cash controlling inthe fund

- All transaction related to receipt and payment, preserve and conserve cash

is the treasurer’s responsibilities Treasurer is appointed by director and

be responsible for maintaining the cash fund Treasurer must not asksomeone else to assist In a necessary circumstance, he(she) mustauthorize a person to do the job that be agreed in signed document by thedirector of the enterprise Treasurer must regularly check the fund,guarantee that cash must be consistent with the balance in the cash book.Every day, after the receipt and payment of cash, the treasurer shallrecord in the cash book immediately, and submit reports to the fundsaccountant at the end of each day

- There are policies to match the remaining cash budget with the financialsituation of the company

- It is needed to separate the functions of payment approval and signingchecks

- Focus on collecting clues: due to the sensitivity of the money sominimizing the ability of cash loss is to reduce the number of thecashiers

- Monitoring cash collection activities about time and place where to getcash by setting up a list of receipts

Audit Project

- Petty cash is only use for sundry expenses For the larger expenditure, it

is required to issue the checks, pay by cash in bank, not pay by petty cash.This policy is due to the highly possibility of fraud from payment bypetty cash

- The billing document must be continuously numbered before use

- The receipt cash is required to record in time and completely, record atthat time it occurs to limit the misappropriation Otherwise, cash should

be transferred immediately to the bank or cash fund

- At the end of the month, accountants shall compare the recorded data andthe actual data: compare the balance and occurred number on a ledger,subsidiary ledger, reconciliation of cash accounts with actual cashcounted records Ending balance of bank confirmation about the bankaccount must match with ending balance of bank account on the ledger

1.3.2 Objectives and performance of internal control for cash items

- Indepedent bank reconciliation.

Receipt slips are reconciled

and signed

- examining and reconciling the originaldocument and sign the receipt slips

The received cash was fully

recorded in the cash book

and journals

- using numbered bills or lists of receiving cashaccompanied with the regime of timelyreceiving reports

- Confirming the checks directly

Cash is recorded correctly

in the cash book, ledger

account

- Internal reconciliation

Objectives of internal

Each cash payments have - Segregation of duties between petty cash

The amount of cash is

approved and recorded

- Prepare monthly bank reconciliation

All payment transactions

are properly examine

- Internal examination with the calculating process of cash payments

- Reconciling with bank statement monthly

Payments amount is

classified correctly

- Having adequte account diagram

- Internal examination with classification process

The amount is recorded

on time

- Regulations on the update of payments in the cash book after making payment slips

- Internal examine

Cash is recorded correctly

in the cash book, ledger

account

- Internal examine

CHAPTER II: STEPS TO AUDIT CASH BALANCE

2.1 Audit Planning

2.1.1 Understanding about the client’s business and Industry

- Learn about the environment within the clients, auditors find outinformation about the nature of the client as:

 Name of the company

 Contact information

 Accounting software

 License, and information related to operation activities

 Number of employees

 Accounting standard and policies that company complies with

- Learn about the external environment, auditors find out information aboutthe characteristics of the industry that company involve in:

 Products and production line

 Information about the market (target customers, maincompetitors, market share,…)

 Property, plant and equipment

- Learn about the client’s internal control and assess the general controlsystem

 Observation and inspection relating to client activities,operations, documents, reports and premises

 Learning the policy, regulation of clients, and checking thedocuments and completed general ledger