1.

Imprest system
A system of internal control where collections are deposited intact in a bank and disbursements
are made through the issuance of checks.

In relation to (1): Petty Cash Fund

Companies establish petty cash fund for disbursement of small amounts where the issuance of
check is not practical. The imprest system is usually employed by companies. (amounts are
disbursed through the use of petty cash vouchers and recording of disbursement from the cash
in bank account is made only upon replenishment following the imprest system of internal
control - all disbursements are made through issuance of checks.) Alternatively, companies may
also use the fluctuating method (recording disbursements against the petty cash account)

2. Documents related to the audit of cash

a) Cash count sheet
- A cash count sheet is a business accounting document which is used to carry out a physical
inventory count of cash. It provides a summary of the cash counted by denomination, quantity
and amount. The cash count sheet can be used to total the amount of cash counted and
compares this to the cash book value, and record any difference between the two.

b) Standard bank confirmation (covers both existence and completeness)

- a form that requests information on two types of balances - deposits and loans. The form
requests financial institutions to indicate any exceptions to the information noted, and to
confirm any additional account or loan balance information that comes to their attention while
completing the form.

c) Bank reconciliation
- a statement which brings into agreement the cash balance per ledger and cash balance per
bank.

d) Proof of cash
- an expanded reconciliation in that it includes proof of receipts and disbursements. This
approach may be useful in discovering possible discrepancies in handling cash particularly when
cash receipts have been recorded but have not been deposited.

3. Misstatements affecting the audit of cash

a) Kiting (fraudulent financial reporting)

- a form of fraud that is done by delaying the posting of the credit portion in a cash transfer
transaction from one bank to another bank. This is usually done at year-ends to window-dress
the balance of cash. This is possible because it takes some days to clear a check with the bank on
which it is drawn.
- Kiting may be detected by preparing a bank transfer schedule, by preparing four-column bank
reconciliation or by obtaining a bank cut-off statement.
b) Window dressing (fraudulent financial reporting)

- is a practice of opening the books of accounts beyond the close of the reporting period for the
purpose of showing a better financial position and performance. In a very broad sense, it is any
deliberate misstatement of assets, liabilities, equity, income and expenses.

c) Lapping (misappropriation of assets)

- an embezzlement scheme that involves the theft of cash collections from customers and the
shortage is concealed by delaying the recording of subsequent cash receipts.

- consists of misappropriating a collection from one customer and concealing this defalcation by
applying a subsequent collection made from another customer. This involves a series of
postponements of the entries for the collection of receivables.

4
Until a record of cash received has been made, removing cash is one of the easiest forms of fraud
to commit and among the hardest to detect because records do not reflect what has occurred.

Answers will vary. Three possible examples are the following:

> A cashier in a retail establishment who does not ring up a transaction on the cash register can
generally take the cash without detection. Ringing up the transaction adds the receipt to the
total cash receipts, which can be compared to the cash on hand.

> An employee who has access to cash receipts and maintains accounts receivable records can
record a sale at an amount lower than the invoice amount. When the customer pays, the
employee takes the difference between the invoice and the amount recorded as a receivable.
> An employee who makes the cash deposit and also prepares the bank reconciliation can
withhold cash and hide the shortage by overstating deposits in transit on the bank statement,
underfooting the list of outstanding checks, or omitting outstanding checks from the outstanding
check list. Routinely testing bank reconciliations should uncover this form of fraud.

9
a) Compare cash receipts entry to deposit ticket receipted by bank.'
b) Prepare a proof of cash.
c) Prepare a bank transfer schedule
1. Description
a. Cash count sheet
- A cash count sheet is a business accounting document which is used to carry out a physical
inventory count of cash. It provides a summary of the cash counted by denomination, quantity
and amount. The cash count sheet can be used to total the amount of cash counted and
compares this to the cash book value, and record any difference between the two.

b. Standard bank confirmation (covers both existence and completeness)

- a form that requests information on two types of balances - deposits and loans. The form
requests financial institutions to indicate any exceptions to the information noted, and to
confirm any additional account or loan balance information that comes to their attention while
completing the form.

c. Bank reconciliation
- a statement which brings into agreement the cash balance per ledger and cash balance per
bank.

d. Proof of cash
- an expanded reconciliation in that it includes proof of receipts and disbursements. This
approach may be useful in discovering possible discrepancies in handling cash particularly when
cash receipts have been recorded but have not been deposited.

e. Kiting (fraudulent financial reporting)

- a form of fraud that is done by delaying the posting of the credit portion in a cash transfer
transaction from one bank to another bank. This is usually done at year-ends to window-dress
the balance of cash. This is possible because it takes some days to clear a check with the bank on
which it is drawn.
- Kiting may be detected by preparing a bank transfer schedule, by preparing four-column bank
reconciliation or by obtaining a bank cut-off statement.

f. Window dressing (fraudulent financial reporting)

- is a practice of opening the books of accounts beyond the close of the reporting period for the
purpose of showing a better financial position and performance. In a very broad sense, it is any
deliberate misstatement of assets, liabilities, equity, income and expenses.
g. Lapping (misappropriation of assets)
- an embezzlement scheme that involves the theft of cash collections from customers and the
shortage is concealed by delaying the recording of subsequent cash receipts.

- consists of misappropriating a collection from one customer and concealing this defalcation by
applying a subsequent collection made from another customer. This involves a series of
postponements of the entries for the collection of receivables.
(Delos Reyes, Delia J.)

(Valix, Conrado T.)

(Valix, Conrado T.)

(Delos Reyes, Delia J.)

(Delos Reyes, Delia J.)

(Valix, Conrado T.)

(Delos Reyes, Delia J.)

(Valix, Conrado T.)

Source

(Delos Reyes, Delia J.)

(Valix, Conrado T.)

(Valix, Conrado T.)

(Delos Reyes, Delia J.)

(Delos Reyes, Delia J.)

(Valix, Conrado T.)

(Delos Reyes, Delia J.)

(Valix, Conrado T.)

 Carnelian Company
Petty Cash Count Sheet
January 5, 2022

Bills and Coins:

Denomination Quantity Total
500.00 25.00 12,500.00
100.00 54.00 5,400.00
50.00 85.00 4,250.00
20.00 8.00 160.00
10.00 6.00 60.00
5.00 19.00 95.00
1.00 7.00 7.00
0.25 12.00 3.00
Checks:
Date Drawer Payee Amount
Dec 23, 2021 Lupin Company, Customer Carnelian Company 1,300.00
Dec 28, 2021 Jolo Moi, Employee Carnelian Company 2,500.00
Jan 4, 2022 Eugene Company, Customer Carnelian Company 2,200.00
Jan 4, 2022 Mylles Yuri, Employee Carnelian Company 1,000.00

IOUs: (vale slip)

Date Employee Amount
Dec. 29, 2021 Robert Reyes 1,100.00
Jan. 4, 2022 Janice Mabuhay 1,400.00

Unreplenished Petty Cash Vouchers:

Date Nature Amount
Dec 28, 2021 Supplies 250.00
Dec 29, 2021 Representation 500.00
Jan 4, 2021 Transportation 150.00
Jan 5, 2021 Supplies 125.00
Total Count

Cash Accountability:
Imprest Balance 40,000.00
Envelope: Employee Contribution 800.00
Undeposited Cash Sales 5,000.00
Undeposited Check Collections from Customers 3,500.00
Cash Overage (Shortage)

I certify that the above fund of P34,020 was counted in my presence by (Name of auditor) of
(Name of accounting firm) on January 5, 2021 at 9:00 am and was returned to me intact.

(Sgd) Cashier
Prepared by and date:
Reviewed by and date:

PAJE: (2) December 31, 2021

Various Expenses 750.00

Advances 1,100.00
Cash Short 16,300.00
Petty Cash Fund 18,150.00

Imprest Balance 40,000.00

Adjustments (based on the entry) (18,150.00)
Adjusted 21,850.00

Bills and Coins 16,675.00

Accomodation Check (December) 2,500.00
Accommodation Check (January) 1,000.00
IOU (January) 1,400.00
Unreplenished PCV (January) 275.00
Adjusted (3) as of December 31, 2021 21,850.00

Guide Questions for Probing (Q&A after the presentation)

> Imprest System v. Fluctuating (Difference v. Imprest)
> What audit procedures are done in the audit of petty cash fund? Why is it necessary
to remove or exclude non-fund items from the petty cash fund account?
Accommodation Check (accommodation***)
What is the difference between accommodation check and IOUs? (company check or personal/employee check, consequence

Cash Count Sheet (When is it prepared? - date of count; Who prepares and Why? - auditor; What is importance of certificatio
Should the auditor do the count or should the auditor just observe the count? (to avoid fraud), why is it necessary to be coun
Why did we credit the petty cash fund for unreplenished PCV? (to correctly state the PCF value, to recognized expenses)

Cash Accounted For v. Cash Accountability?

Envelope?; Employee Contribution; Salary of Employee

Why is the cash shortage debited? What is the nature of the account? What will happen to that account? (suspense account)
 Accountability of the custodian

Items actually accounted for:

(1.00) Bills and coins 19,350.00
(2.00) Unreplenished vouchers 750.00
(3.00) IOUs 1,100.00
(4.00) Accommodation checks 2,500.00
CASH SHORTAGE

(1.00) Bills and coins

22,475.00
As counted in January 5
Add: Employee accommodation checks, January
Add: IOUs, January
Add: Expense vouchers, January
Less: Cash sales
7,000.00 Less: Unclaimed employee contribution
Bills and coins, 12/31

(2.00) Unreplenished vouchers, December

Dec 28, 2021 Supplies
2,500.00 Dec 29, 2021 Representation
Total

(3.00) IOUs, December

Dec. 29, 2021 Robert Reyes

(4.00) Accommodation checks, December

1,025.00 Dec 28, 2021 Jolo Moi, Employee
33,000.00

49,300.00
(16,300.00)
(1)
 Description:
Actual cash as of January 5,
Disbursed in December, cash as of December (good check for deposit as of December)
Disbursed in January, cash a
Disbursed in January, cash a
Disbursed in January, cash a
-

/employee check, consequences - shortage, employee fraud, mishandling of funds… shortage of cash for use)

hat is importance of certification and why is it signed by the custodian? - proof of return
why is it necessary to be counted in the presence of the custodian? (Check and balance/witness), why signed by the custodian? (proof of
, to recognized expenses)

t account? (suspense account) -> rec from custodian, mis exp/loss, valid expense
40,000.00

23,700.00
16,300.00

22,475.00
1,000.00 not yet disbursed from PCF as of December; still cash as of 12/31
1,400.00 not yet disbursed from PCF as of December; still cash as of 12/31
275.00 not yet disbursed from PCF as of December; still cash as of 12/31
(5,000.00) not accountability of custodian, but mixed with bills and coins
(800.00) not accountability of custodian, but mixed with bills and coins
19,350.00

250.00
500.00
750.00

1,100.00

2,500.00
d by the custodian? (proof of count, return)
 Pasta Masarap
Bank Reconciliation Statement
December 31, 2021

Book
Unadjusted balance 7,235,000.00
Credit Memo - Bank Transfer 550,000.00
Debit Memo - NSF Check (100,000.00)
Stale check (#10005) 185,000.00
Book Error - overstatement of receipts (5,000.00)
Book Error - understatement of disbursements (90,000.00)
Book Error - Unrecorded Disbursement (200,000.00)
Undelivered check #10011 280,000.00
Adjusted balance (1) 7,855,000.00

Initial Balance 300,000.00

Collections 7,302,000.00
Disbursements (5,870,000.00)
Cash on hand - End 1,732,000.00
Per count 1,300,000.00
Cash Shortage (Overage ) 432,000.00

PAJE: (2)
Cash in Bank 620,000.00
Cash Shortage 432,000.00
Accounts Receivable 100,000.00
Accounts Payable 175,000.00
Revenue 545,000.00
Cash on Hand 432,000.00

Cash in Bank 7,855,000.00

Cash on Hand 1,300,000.00
Total Cash (Audited FS) (3) 9,155,000.00

Guide Questions for Probing (Q&A after the presentation)

> What lapses in the internal controls have you noticed/observed in this case?
> Why is it necessary to reduce the gap between the time of collections and deposits?
> What can the company do to reduce the gap?
> Why is periodic bank reconciliation necessary?
> What are the potential risks involved in the audit of online banking transactions?
> Is it a good practice to have one deposit slip per deposit transaction?
 asarap
tion Statement
31, 2021
Cash Collections (April - June)
Bank
Unadjusted balance 4,984,000.00
Deposit in Transit 3,251,000.00
Outstanding Checks (#10008 & #10011) (380,000.00)
Adjusted balance (1) 7,855,000.00

s and deposits?

ansactions?
 Bank Transfer Schedule
Disbursement Receipt
Recorded Recorded
Paid by bank Received by bank
in books in books
1 01/05/22 01/04/22 12/31/21 01/04/22
2 12/31/21 01/04/22 12/31/21 01/04/22
3 01/04/22 12/31/21 01/05/22 12/31/21
4 12/31/21 01/05/22 01/05/22 01/05/22

Guide Questions for Probing (Q&A after the presentation)

> What are the documents necessary to prepare a bank transfer schedule?
> Why is the bank transfer schedule usually prepared on top of the regular bank reconciliations?
 (2) - Overstatment/Kiting (Disbursement not recorded)
Correct (OC and DIT per bank respectively)
No effect (But error/Unrecorded per books respectively)
(1) - Understatement (Receipt not recorded)

r schedule?
the regular bank reconciliations?
 BPI BDO
Available balance 10,000.00 - 10,000.00
EXPECTATION Issuance of check - 10,000.00 10,000.00
Ending balance - 10,000.00 10,000.00

BPI BDO
Available balance 10,000.00 - 10,000.00
KITING Issuance of check - 10,000.00
Ending balance 10,000.00 10,000.00 20,000.00

BANK RECON OUTSTANDING CHECK DEPOSIT IN TRANSIT