Question

Journal- Principles- Ch 6.pdf

Does it make sense for the same person who prepares the daily cash deposits for the company to also perform the monthly bank reconciliation (in your answer, be sure to name any specific internal control procedures that may be applicable)?

Describe the different types of audit opinions.

Answer 1

IMPORTANCE OF BANK RECONCILIATION STATEMENT

it is an essential tool for internal cash flows.

It helps detect errors, frauds, and irregularities that occurred, if any, at the time of passing entries in the cash book or the bank passbook, whether intentionally or unintentionally.

since frauds can be detected on the preparation of the bank reconciliation statement, therefore, the accounts will be careful while preparing and maintaining the records of the business enterprise; hence it works as an important mechanism of internal control

the reconciliation will bring out any errors that may have been committed either in the cash book or in the bank passbook

any undue delay in the clearance of cheques will be shown up the reconciliation

regular reconciliation discourses the staff of the customer or even that of bank embezzlement( there have been many cases when the cashier merely made entries in the cash book but never deposited the cash in the bank, they were to get away with it only because of lack of reconciliation

it helps find out the actual position of the bank balance and helps find the cause of difference between in the balances of both books. It may arise because of the timing differences and differences arising due to errors in recording the entries.

BECAUSE OF THE ABOVE IT IS IMPORTANT TO PREPARE THE BANK RECONCILIATION STATEMENT AT THE END OF MONTH

B) it will be a problem that if the same person who prepares daily cash reports also prepares the bank reconciliation statement, it effect internal check that is work carried out by one person should be automatically checked by another person if the same person does the two things it is not possible to check his work leads to making frauds and errors

for example, if the person who prepares cash deposit did any fraud or error, he cants recognized with a bank reconciliation statement even he finds the mistakes he did not show because of job loss option, etc

internal control procedure of SEPARATION OF DUTIES will effect by separating of duties there will be fewer chances to commit fraud or error by a single employee

no single person should not have independent control over any important aspects of business, and all the acts of one person should be under the review of another then only it adds strength to the internal control system;m otherwise leads to weakness

it also affects the PERIODIC RECONCILIATION of the internal control procedure. The purpose of reconciling will be useless because it can't find the difference between cash book and bank statement by comparing with the bank reconciliation statement

C) DIFFERENT TYPES OF AUDIT OPINIONS ARE

the auditor's opinion can be broadly be divided into two categories

a) unqualified opinion

b) modified opinion - qualified

- adverse

- disclaimer

1) UNQUALIFIED OPINION; auditor, expresses unqualified opinion when he concludes that financial statements are prepared in all material respects as per applicable financial reporting framework

to obtain reasonable assurance about the misstatement, he should consider the sufficient and appropriate audit evidence, materiality of uncorrected misstatements, adequacy of disclosures, consistency of accounting policies reasonable in estimates reliability and relevance financial information, and also consider overall presentation of financial statement to be fair

however, he expresses modified opinion when he

- concludes that the financial statements as a whole are not free from the material misstatements or

- is unable to obtain sufficient and appropriate evidence to form a conclusion

QUALIFIED OPINION; auditor expresses qualified opinion when he concludes that there is a material misstatement in the financial statement, but it is not so pervasive, and he is unable to obtain evidence concerning a material matter, but it is not pervasive

major opinions are qualified only because accounting itself has some limitations like estimations etc., but he should mention reasons or basis for qualified opinion

ADVERSE OPINION; he expresses an adverse opinion when he concludes that financial statements are materially misstated, and the effect of such statements is so material and pervasive on the financial statement that only qualified opinion will be insufficient, and he will express an adverse opinion

DISCLAIMER OF OPINION: auditor express this opinion when his inability to obtain sufficient appropriate evidence is so material and pervasive, and that qualification is insufficient he is not able to obtain sufficient and appropriate evidence, and thus the auditor does not express his opinion on the financial statement.

When his scope is limited by the management and not possible to perform the alternate procedure, and the effect is material and pervasive, he shall either resign or express a disclaimer.