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CHAPTER 6 AUDIT CASH AND CASH EQUIVALENTS 1/29/2024 1
201106 – Audit Cash and Cash Equivalents LEARNING OBJECTIVES
• Understand the contents and features of Cash and Cash Equivalents
• Analyze the economic transactions and recognize the
audit risks of material misstatements related to Cash and
Cash Equivalents in the financial statements
• Understand the audit process and perform the audit tests for Cash and Cash Equivalents 1/29/2024 2
201106 – Audit Cash and Cash Equivalents CONTENTS OF CHAPTER 6 1 Contents and Features 2 Assertions 3 Internal Control 4 Audit Procedure 1/29/2024 3
201106 – Audit Cash and Cash Equivalents Part 1 CONTENTS AND FEATURES 1/29/2024 4
201106 – Audit Cash and Cash Equivalents CONTENTS
"Cash" is an indicator reflecting the full amount of
existing money of an enterprise at the time of reporting. "Cash" includes:  Cash on hand  Cash in banks  Cash in transit 1/29/2024 5
201106 – Audit Cash and Cash Equivalents CONTENTS Cash on hand:
 Cash on hand includes: Viet Nam Dong (VND),
Foreign Currencies and Monetary Gold.  Account Code: “111”
 This account is used to record revenues, expenses
and balance of the enterprise’s fund. 1/29/2024 6
201106 – Audit Cash and Cash Equivalents CONTENTS Cash in banks:
 Cash in banks includes: Viet Nam Dong (VND),
Foreign Currencies and Monetary Gold.  Account Code: “112”
 This account is used to record current amounts and
increases and decreases in demand deposits of the enterprise in a bank. 1/29/2024 7
201106 – Audit Cash and Cash Equivalents CONTENTS Cash in transit:
 Cash in transit includes: Viet Nam Dong (VND) and Foreign Currencies.  Account Code: “113”
 This account is used to record amounts of money which
an enterprise paid to banks but no credit note or
confirmation of payment to other enterprises has been
received; or the enterprise made wire transfer from their
bank account to other enterprises, but no debit note or
bank statement has been received. 1/29/2024 8
201106 – Audit Cash and Cash Equivalents CONTENTS Cash equivalents:
 Cash equivalents are investments securities held for
the purpose of meeting short-term cash commitments
rather than for investment or other purposes.
 For an investment to qualify as a cash equivalent it
must be readily convertible to a known amount of cash
and be subject to an insignificant risk of changes in value. 1/29/2024 9
201106 – Audit Cash and Cash Equivalents CONTENTS Cash equivalents:
 Therefore, an investment normally qualifies as a cash
equivalent only when it has a short maturity of, say, three
months or less from the date of acquisition
 Cash equivalents may include: bank certificates of
deposit, bankers‘ acceptances, corporate commercial
paper and other money market instruments. 1/29/2024 10
201106 – Audit Cash and Cash Equivalents FEATURES
 Most commonly used as a measure of company's liquidity
 Affect revenues, incomes, expenses, debts and other assets
 There are many transactions occurred with considerable
amounts. Material Misstatements are likely to occur and difficult to detect.
 Cash is very sensitive asset => possibility of frauds is
generally higher than other assets.
=> Inherent risk of cash and cash equivalents is assessed as high. 1/29/2024 11
201106 – Audit Cash and Cash Equivalents Part 2 ASSERTIONS 1/29/2024 12
201106 – Audit Cash and Cash Equivalents
Assertions about classes of transactions and events  Occurrence  Completeness  Accuracy  Cut-off  Classification 1/29/2024 13
201106 – Audit Cash and Cash Equivalents
Assertions about account balances  Existence  Rights and Obligations  Completeness  Valuation and Allocation 1/29/2024 14
201106 – Audit Cash and Cash Equivalents Part 3 INTERNAL CONTROL 1/29/2024 15
201106 – Audit Cash and Cash Equivalents INTERNAL CONTROL
The requirements of internal control:
- Controlling business cycles that affect cash receipts and cash disbursements
- Checking independently by cash-count and bank statements reference 1/29/2024 16
201106 – Audit Cash and Cash Equivalents INTERNAL CONTROL
The principles of internal control:
 Ability and Integrity of employees  Separate responsibility
 Recording timely and adequately revenues and expenses
 Using banking facilities as much as possible, keeping
the amount of cash on hand to a possible minimum
 Taking cash-count and preparing bank reconciliation monthly 1/29/2024 17
201106 – Audit Cash and Cash Equivalents INTERNAL CONTROL
Internal control for cash receipts:
 Collect directly from sales:
• Separating the functions of selling goods and collecting money.
• Cash receipts devices must be used when separation is impossible.
• When devices are also impossible, revenues
management of the day must be done by Daily Sales Report. 1/29/2024 18
201106 – Audit Cash and Cash Equivalents INTERNAL CONTROL
Internal control for cash receipts:
 Collecting debts from debtors:
• Encouraging customers to get receipts when they make payments.
• Regularly performing debt comparison to control the
cash flows and preventing lapping tip.
• Designating specific people who are responsible for
different duties when collecting money via banks. 1/29/2024 19
201106 – Audit Cash and Cash Equivalents INTERNAL CONTROL
Internal control for cash disbursements:
 Paying via banks and minimizing cash payments
 Applying principles of authorization and ratification
 Establishing procedures for approval of cash disbursements
 Monthly comparing with bank statements and preparing bank reconciliation 1/29/2024 20
201106 – Audit Cash and Cash Equivalents