Week 8 – Assignment
Case Study – 9.1 – Wally’s Billboard & Sign Supply

1. The audit of cash is considered an important part of an audit due to the below reasons: * Almost all business transactions will be ultimately settled through the cash accounts * Cash can be either and asset or a liability * The audit of cash accounts assists in the verification of other asset and liability accounts as well as revenue and expenses * Cash is the highly liquid asset in a company and it is an area of high inherent risk since there is a relatively high risk of misappropriation. * Investors rely on the accuracy of cash in evaluating the company’s financial well being The audit steps for cash are a routine part of an audit, therefore this part is usually assigned to new staff members or interns. However, professional skepticism should be present when reviewing cash or any other part of an audit, whether routine or not. (Hinton, Lecture Notes)

2. It is very important when an auditor develops an audit program to include thorough procedures for auditing cash balances, as it has a direct effect on an organization's profits. The auditor must perform audit procedures of the internal controls of the company to detect any shortcomings. In addition, the auditor will perform substantive tests of details, tests to detect lapping, and analytical procedures in order to verify that there is no material misstatement and to provide evidence to support the assertion that the financial records of an entity are complete, valid, and accurate. (Aldridge) For this case, the auditor has concluded things are operating effectively through the test of controls of transactions, but they still would need to complete the substantive testing.

So the following activities should be conducted in substantive testing of cash balances:
A. “Presentation and Disclosure