Colleen Jacob ACC 374 Grand Teton Candy Company Cash Audit Workpaper Review Report Cash Confirmation

Process Steps taken by auditors: Identify the material cash balances held in bank accounts. This step has been completed properly. The auditor obtained the list of accounts from the trial balance and documented that there is only one cash account with a material balance, the operating cash account. Have the client create a cash confirmation for their main checking account. Make sure the confirmation indicates that it is to be returned directly to Cisneros & Wilcox, CPA's. The cash confirmation has been prepared and signed by the client. The confirmation states that the bank should return the confirmation directly to the auditor. A positive confirmation has been chosen and the bank will need to fill in the balances. This was an appropriate choice for the type of confirmation, because it eliminates the risk that a bank would ignore a negative confirmation and the auditor would misconstrue the lack of response to mean there were no discrepancies. Create and document the cash confirmation process in a cash confirmation control listing. This was done. The auditor has maintained copy of the confirmation and a record of when it was mailed and when it was returned. The auditor needs to send out confirmations to the bank. This process was not done correctly. - The notes indicate that the confirmations were mailed by Darla Newton, the clients receptionist. They should have been mailed by the auditors. By allowing the client to send the confirmation, this allows for the possibility that the client could manipulate the form prior to mailing it. - There is no evidence that the auditor checked that the address the client gave for the bank was accurate prior to sending the confirmation; this should have been done to prevent the possibility of the client providing a false address. When confirmations are received, review the confirmation and follow up on any items noted or comments made by the bank. Confirmation was received, but there are some problems: - The form was mailed back to the client, not directly to the auditors. The auditor should contact the bank and send a second confirmation, asking them to be sure to return it directly to them, not to GTCC. They should also make sure that it is the original form that is returned, not a copy that could have been manipulated. - The cash balance per the confirmation does not tie out to the trial balance. This needs to be investigated further and followed up on. There was a note on the confirmation regarding the fact that GTCCs cash is restricted. The only follow up that was documented regarding this issue is that the auditor spoke to Meredith Driggs (management). She said the cash was not restricted, so the auditor just took her word for it. This conflicting information needs to be investigated further to find out

Colleen Jacob ACC 374 Grand Teton Candy Company Cash Audit Workpaper Review Report whether the cash is actually restricted or not, and the auditor needs to be sure that this is properly disclosed in the financial statements if need be. Other issues: - There is no indication that the auditor has checked for cutoff dates. To check for cutoff, auditors should check for any cash on hand from prior years end and possibly trace deposits to credited A/R; they can also compare cash receipts with cash deposited in bank. Bank Reconciliation Steps taken by the auditors: Obtain bank reconciliation This step was completed. The auditor obtained the December bank reconciliation prepared by the client for the cash operating account. Perform the following procedures to perform substantive testing on the bank reconciliation: (1) Test the reconciliation for clerical accuracy. There is no specific evidence this has been done, and there were some potential clerical errors (ex: the typo on the interest earned amount) that indicate this was not done. (2) Tie the reconciliation to TB: Tie the balance per the books on the bank reconciliations to the trial balance. This has been done, the balance per the books on the bank reconciliation ties out to the trial balance of the cash account. (3) Tie the balance per the bank to the cash confirmation. The balance per the bank (502,421.30) does not tie out to amount on cash confirmation (498,128.30). The auditors should further investigate and resolve this discrepancy. (4) Tie the outstanding checks to the outstanding check listing. The outstanding checks on the bank reconciliation tie to the outstanding check listing. (5) Test deposits in transit: Trace the deposits in transit to the January cutoff statement and to the cash receipts journal for December. Deposits in transit on bank reconciliation = 95,810.20. This amount ties out to the January cutoff statement and traces to the sum of the December cash receipts journal entries during the last week of December. (6) Test other items: Other Items: Tie any bank fees, interest earned, or other reconciling items to the December bank statement. $32.00 Bank charge for new checks ties to December bank statement $25.00 Monthly service fee ties to December bank statement $539.90 Interest earned does not match the December bank statement, bank statement shows interest earned = $53.99. The extra zero/decimal place on the bank reconciliation is most likely a typo/clerical error. The auditor needs to investigate this further and have the client correct the bank reconciliation. This also may mean that the auditor needs

Colleen Jacob ACC 374 Grand Teton Candy Company Cash Audit Workpaper Review Report to consider increasing the assessed level of control risk, since the reconciliation was signed off as reviewed by Meredith Driggs (VP of Finance) and this error had not been caught. $4,779.50 NSF checks ties to December bank statement $20.00 NSF Fee ties to December bank statement $485.91 Unreconcilable difference noted the auditor states this is immaterial, and did not investigate any further. However, the SAD threshold is $323.17 per the audit workpapers, so this difference should go on the SAD listing. The auditor needs to follow up regarding this unreconcilable difference. Test the outstanding checks on the November bank reconciliation as follows: Trace the total of outstanding checks from the reconciliation to the outstanding checks register. The November bank reconciliation is not even included in work papers, so this does not appear to have been done. The auditor should obtain the November bank reconciliation so they can perform this test. Trace the outstanding checks (date, amount, check number) from the outstanding check register to clearance on the December bank statement. Check #6799, written 11/28 for $2,187.50 and all checks preceding that still had not cleared on the December statement (12 checks total un-cleared). These checks need to be further investigated; the client possibly needs to stop payment on the old checks, etc. The fact that these checks are un-cleared and nothing has been done about it shows that the client is not diligently clearing up issues that they discover when completing the monthly bank reconciliation, which is something the auditors need to take into consideration. Reconcile the outstanding check register from November by beginning with the outstanding checks total for October, adding checks written in November from the client's cash disbursements records, and subtracting checks clearing on the bank statement in November. This was not done. The auditor instead reconciled the outstanding check register from December by performing the following calculation: November ending balance: $ 20,654.43 + December checks written: 345,411.24 - Checks clearing in Dec: 36,033.93 December ending balance: 330,031.74 The auditor needs to re-perform the calculation using the proper method so that they can reconcile the outstanding check register from November. Investigate any checks that are still outstanding from the October outstanding check register. This has not been done; there was no further investigation into old outstanding checks. Scan the bank statements, client check registers, bank confirmations and cash reconciliations and follow up on any unusual items noted. Auditor noted no unusual items and did not follow up on any issues, however: -December bank statement includes a check written to Diego Martinez (the Accounting Manager) for $4,999. This amount is just under the $5,000 limit that needs to be co-signed. This fact, along with GTCCs control weaknesses in the cash disbursement process and the fact that

Colleen Jacob ACC 374 Grand Teton Candy Company Cash Audit Workpaper Review Report Diego has easy access to checks makes this suspicious. This is potential fraud and should be investigated further. -The total of the cash receipts journal, less deposits in transit = $371,061.80 $95,810.20 = $275,251.60. However the total deposits for the month of December, per the bank statement, are only $86,369.40. This needs to be investigated further by the auditors, to find out why this discrepancy exists and why all of the cash receipts that were recorded were not deposited. Depending on the results of further investigation, the client may need to make an adjusting entry to correct the cash receipts journal. - Issues with bank confirmation: Stamp indicates it was returned to the client, not directly to auditors. Also, the bank indicated that it was a non-interest bearing account, but per the accounts bank statement, it does earn interest. Additionally, the balance indicated by the bank on confirmation does not agree to the December bank statement. All of these issues need to be followed up on and resolved by the auditor. *Other issues: - On the bank reconciliation, the balance per books after all reconciling items does not match the balance per bank statement. This variance needs to be looked into and either an adjusting entry needs to be made to the clients books or the bank reconciliation needs to be fixed so that it ties out to the bank statement balance. - Auditor noted that when they added up cash receipts for the last week of December, the amount was $96,810.20, which is $1,000 more than the amount on the clients bank reconciliation. However, when I added up the cash receipts for the last week of December, I came up with a total of $95,810.20, which matches the bank reconciliation. This shows the auditor calculated incorrectly and possibly carelessly. Similarly, the auditor performed the wrong calculation in the work papers when they were supposed to reconcile the outstanding checks from November; they reconciled the December totals instead. Errors such as these show that the auditor is not being careful when carrying out the audit procedures, and this needs to be corrected, and the auditor needs to be sure they are exercising proper care in their work. - Another problem with the audit work is that there is no detailed descriptions of the audit procedures performed and the scope of the audit as well as the purpose of the procedures are not included in the working papers. -The conclusions made for the cash confirmation and the bank reconciliation are not detailed enough for any interested parties to obtain satisfactory information.