Introduction
1. Cash is one of the most important assets of a business.
2. Because of the very nature of cash, it is considered a high-risk area or most vulnerable to misappropriation
than other assets.
3. It requires good internal controls and careful monitoring.
- Safeguards
4. Due to its high degree of inherent risk, more audit time is devoted to the audit than indicated by its peso
amount.
Management Assertions
Assertions are representations made by the entity’s management.
When auditing an account balance, the auditor should use assertions for:
1. Classes of transactions
2. Account balances
3. Presentation and Disclosures
The auditor uses assertions in assessing risks – inherent, control, and detection risks, by considering the
different types of potential misstatements that may occur and thereby designing audit procedures that are
responsive to the assessed risks.
3 Categories of Management Assertions
CATEGORY 1 CATEGORY 2 CATEGORY 3
Classes of Transactions and Events Account Balances Presentation and Disclosures
(OCACC) (ERVC) (OCCA)
Occurrence Existence Occurrence and Rights
Completeness Rights and Obligations and Obligations
Accuracy Completeness Completeness
Cut-off Valuation and Allocation Classification and
Classification Understandability
Accuracy and Valuation
NOTE:
Category 1: assertions pertain to assertions in the Statement of Comprehensive Income
Category 2: assertions pertain to assertions in the Statement of Financial Position
Category 3: assertions pertain to the whole Financial Statements
CATEGORY 1 (OCCAC)
Assertions:
1. Occurrence – transactions and events that have been recorded have occurred and pertain to entity
2. Completeness – all transactions and events that should have been recorded have been recorded
3. Accuracy – amounts and other data relating to recorded transactions and events have been recorded
appropriately
4. Cut-off – transactions and events have been recorded in the correct accounting period
5. Classification – transactions and events have been recorded in the proper accounts
CATEGORY 2 (ERCV)
Assertions:
1. Existence – assets, liabilities and equity interests exist
2. Rights and Obligations – the entity holds or controls the tights to assets, and liabilities are the obligations of
the entity
3. Completeness – all assets, liabilities and equity interests that should have been recorded have been
recorded
4. Valuations and Allocation – assets, liabilities and equity interests are included in the financial statements at
appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded
CATEGORY 3 (OCCA)
Assertions:
1. Occurrence and Rights and Obligations – disclosed events, transactions, and other matters have been
occurred and pertain to the entity
2. Completeness – all disclosures that should have been included in the financial statements have been
included
3. Classification and Understandability – financial information appropriately presented and described, and
disclosures are clearly expressed
4. Accuracy and Valuation – financial and other information are disclosed fairly and at appropriate amounts
Audit Objectives in Auditing Cash and Cash Equivalents
Assertions:
1. Existence – all cash on the statement of financial position at a given date is held by the entity or by others
(ex. a bank) for the entity
2. Completeness – all cash owned by the entity at the reporting date is included on the statement of financial
position
3. Valuation and Allocation – cash, including bank balances, is stated at realizable value and agrees with
supporting schedules
4. Rights and Obligations – the entity owns, or has a legal right to, and has unrestricted use on all the cash on
the statement of financial position at the reporting date.
5. Presentation and Disclosure – cash, including bank balances, is properly described, and disclosed in the
financial statements, including notes, in accordance with PFRS.
- Lines of credit, loan guarantees, compensating agreement, and other restrictions (liens) on cash
balances are appropriately identified and disclosed.
Primary Substantive Test/Audit Procedures for Cash
NOTE: Before performing the substantive testing in any account, ALWAYS reconcile first the amount in the trial
balance/unaudited FS versus the amount in the general ledger or general ledger/subsidiary ledger recon (If
applicable).
