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Explain the relationships among the initial assessed control risk, tests of controls and substantive tests of transactions for cash receipts, and the tests of details of cash balances.
Identify the relation among the initial assessed control risk, test of controls and substantive tests of transaction for cash receipts and test of details of cash balances.
Explanation of Solution
Cash account is affected by the transaction in most of the cycles. Since, there is relationship between the transaction in various cycles and ending cash account balance of the company, the auditor has to wait to audit the ending cash balance until the results of test of control, substantive test of transactions and test of details analysis of all the transactions are completed and analyzed. The test of cash balances includes bank reconciliation of imprest petty cash, general cash account etc. If the auditor feels the internal control and test of controls and substantive transaction in the acquisition and payment cycle is appropriate to reduce the assessed control risk, they can reduce detailed test of the ending cash balances. However if auditor concludes that the assessed control risk is high, extensive test such as extended bank reconciliation procedures, proof of cash or test of interbank transfers are necessary.
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Chapter 23 Solutions
AUDITING+ASSURANCE 12MONTH ACCESS CARD
- The following data were selected from the records of Fluwars Company for the year ended December 31, current year: Balances at January 1, current year: Accounts receivable (various customers) $ 111,500 Allowance for doubtful accounts 11,200 The company sold merchandise for cash and on open account with credit terms 1/10, n/30, without a right of return. The following transactions occurred during the current year: Sold merchandise for cash, $252,000. Sold merchandise to Abbey Corp; invoice amount, $36,000. Sold merchandise to Brown Company; invoice amount, $47,600. Abbey paid the invoice in (b) within the discount period. Sold merchandise to Cavendish Inc.; invoice amount, $50,000. Collected $113,100 cash from customers for credit sales made during the year, all within the discount periods. Brown paid its account in full within the discount period. Sold merchandise to Decca Corporation; invoice amount, $42,400. Cavendish paid its account in full after the…arrow_forwardI want the correct answer with accountingarrow_forwardSolve with explanation and accounting questionarrow_forward
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