Loans, Bank and Cash: Risks

Matori

ACCA F8 考试：Loans, Bank and Cash: Risks
1. General
Loans may be obtained without entity authorisation and/or in contravention of existing loan agreements.
A loan may become repayable on demand (e.g. due to a breach of covenants). Such loans would be required to be reclassified as current liabilities.
Secured, unsecured and intercompany loans may not be separately disclosed.
Loan interest payable may not be accrued. Interest expense will also be understated.
Loan interest receivable may not be accrued. Interest income will also be understated.
Cash is the most "liquid" of all of a company's assets and is therefore the most susceptible to fraudulent misuse (misappropriation).
Information about assets which are pledged as security for borrowings may not be disclosed in the notes to the financial statements (e.g. in accordance with legal requirements).
Cheques raised and accounted for at the year end (Dr Payables, Cr Cash) may be subsequently cancelled after year end or their despatch unacceptably delayed (i.e. a form of "window dressing").
Cash receipts may be stolen and could be difficult to trace (e.g. if there is "teeming and lading" on accounts receivable balances).
Cheque payments may be misappropriated by forging endorsements if not crossed "a/c payee".
2. Audit Considerations
2.1 Account Balances
Completeness
Bank letter confirming all balances held (including overdrafts).
Allocation and Valuation
Valuation is generally not an issue unless a company engages in foreign currency transactions.
Rights (control)
Bank letter and other direct confirmation letters.
Existence
Direct confirmation (bank letter) of balances and other relevant information from holding institution (e.g. bank).
Direct confirmation of loans made and received.
Cash till balances (retail trade) and petty cash counted.
2.2 Presentation
Disclosures in accordance with GAAP.
Set-off (loans/overdrafts against deposits) only when legally entitled and agreement to do so in the bank contract.
2.3 Transactions
Completeness and Occurrence
Reasonableness test (analytical procedure) on interest receivable/payable (i.e. average deposit/overdraft balance by month