evaluate the sufficiency of substantive procedures

Running head: AUDIT PROCEDURES FOR CASH
AUDIT PROCEDURES FOR CASH
Name of the Student
Name of the University
Author note

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Executive Summary
The aim of this report is to analyze the weaknesses in existing internal controls of Alpine
Cupcakes Inc. The report also focuses on the audit procedures performed by the auditor and the
probable weakness in audit procedure after reviewing the test of controls.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Table One:...................................................................................................................................3
Table Two....................................................................................................................................6
Conclusion.......................................................................................................................................7
References and Bibliography:..........................................................................................................8

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Introduction
The purpose of the report is to analyze the efficiency and effectiveness of the internal
control over cash receipts, cash disbursements and bank reconciliation and the audit procedures
performed by the auditors to evaluate the sufficiency of substantive procedures. Substantive
procedures are performed to assess the internal control's appropriateness and sufficiency. This
report aims at highlighting weaknesses in internal control concerning cash, and also focuses on
the audit procedures performed by auditor whether any deficiency exists in their processes.
Discussion
There are weaknesses in their internal control over cash receipts and disbursements, and
there are weaknesses in test of controls applied by auditor, which are discussed below:
Table One:
The discussion for the internal control weaknesses within the organization are explained
as further:
W/P
Area of weakness
(Cash receipts, cash
disbursements, bank
reconciliation)
Describe Weakness
001 Cash receipts: (1) Segregation of duties: The duties are not allocated
adequately, Diana Hayes (Assistant Stores manager),
receives the mail from the customer and without opening
it forwards the mail to store manager. This creates chaos,
and there is no assurance whether she opens or not. There
must be proper work allocation; the mail should flow

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directly to Miguel Lopez to avoid any confusion and to
endanger the confidentiality of the content.
(2) Lack of Preservation of Remittance advice: The stores'
manager does not preserve the remittances advice, but it
will help them to match the payment with invoices. He
should examine the advices while posting into customer
accounts the respective cash receipts. The documents
must be preserved since they do not follow the online
method.
(3) Proper endorsement: For adequate endorsement, he
should write the full name of company and after that
should add "For deposit only."
(4) Deposits posting: Deposits are made the next business
day, and they are not posted to customers account
immediately.
(5) Physical control over cash and deposit slips: Miguel
keeps the deposits slip, and even checks openly, they
should keep them at a safe place and lock it up inside.
Diana Hayes keeps the money at her desk overnight, there
are chances of pilferage.
002 Cash disbursements
Process
(1) Miguel is the only person involved in receiving,
recording, and holding checks and is also involved in a
purchase requisition; he should not be included in

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purchase requisition process.
(2) There were unreconiled amount which was at the end of
the month was passed as an adjusting entry, it is
inappropriate.
(3) Miguel should not sign the blank cheques in advance; it
will result in misappropriation of funds.
(4) There is no physical control over cheques, and Priscilla
also keeps blank cheque on a shelf in her office, it might
lead to embezzlement of money.
(5) When Priscilla receives invoices from a new vendor, she
adds the vendor information into accounts payable, which
is inappropriate.
003 Bank Reconciliation (1) Writing off the unreconciled balance (older than 3 months)
as the miscellaneous expense is not acceptable.
(2) Lindsay while listing outstanding checks only includes check
number and amount, he must include issue date as well as
vendor's name, to avoid the backdated check mishap.
(3) The adjusting journal entry is passed for recording any
month-end transaction is incorrect and is not as per the
requirements.

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Table Two
The audit procedures performed by the auditor are inefficient, and they did not perform
all the audit steps extensively.
W/P Issue
XYZ001 1. The firm did not make an audit plan to assess the risk of material misstatement; in this
way, they will not be able to detect any mistake due to any fraud.
2. The firm did not document their audit plan, audit plan and performed audit procedures
must be recorded as they assist in future references and shows the authentication of work
performed.
3. There was no meeting held between top management and auditor to discuss the scope of
audit and to assess if any limitation imposed by management on scope of audit or any
procedures.
4. The auditor was not able to adequately monitor the level of supervision by the accounts
department over the financial statements, and could not assess the inadequacy by
departments.
5. The auditor did not identify any areas where there was possibility of fraud and did not
perform any additional procedures.
6. He should have reported to the management about the backdated cheques and should have
asked them to make the required corrections, but he did not.
7. The auditor did not select the organization's areas which were to be individually inspected
and evaluation of risk management program for evaluating internal control.
8. The auditor did not search for the unrecorded liabilities; neither asked for written

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representations from management.
9. He did not perform additional procedures for unreconciled bank balance (54,866.67) and
did not disapprove the adjustment journal entry.
10. The auditor must have figured it out that the Miguel was in charge of every process,
from purchase requisition to cash management to asset management, there was a possibility
of fraud and embezzlement of funds.
11. The conclusion that internal control was effective for cash receipts and disbursement was
incorrect.
12. there was no proper segregation of duties which is a basic requirement to assess internal
control, and then he must have performed other substantive procedures.
13. the physical control over cheques, cash, and deposits slip were not existing and was
entirely neglected by the management and by the auditor as well.
14. The auditor did not assess whether there were any defined Cash Management Policy.
15. The auditor failed to examine the bank statement to evaluate the correct bank balance
and to find the differences.
Conclusion
However, it is to be concluded that the internal controls existing in Alpine Cupcakes Inc
are weak and the audit procedures performed by the auditor are inefficient to detect the
effectiveness and efficiency of internal controls. The audit procedures are not sufficient, and the
conclusion made by the audit firm was incorrect. There were no cash management policies by
the company and neither there were definite audit plan and procedures.