Loans, Bank and Cash: Risks

ACCA F8 考試：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 × monthly interest rate).

Compare balances on significant interest-bearing accounts with prior year and investigate differences (e.g. if balances excluded from current year).

Classification

Verify any allocations of interest expense to asset accounts (e.g. interest on a loan to construct a building is a capital cost).

Cut-off

Confirm that interest expenses and bank charges shown on the bank reconciliation statement are included in accrued expenses.

Verify the cut-off of cash receipts and payments shortly before and after the year end by comparing dates of cashbook recording with dates of deposits and payments according to the bank statement.

Accuracy

Agree interest received (and/or payable) to cash book and bank statement.

Agree interest rates (and related expenses such as bank charges) to loan agreements.