Case 2.4 Capitalbank Corp.

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Case 2.4 CapitalBanc Corporation

1. When auditing cash, which of the management assertions discussed in SAS No. 106, “Audit Evidence,” are of primary concern to the auditor? Why?

When auditing cash, there are a number of management assertions discussed in SAS No. 106 that are of primary concern to auditors. Existence: Auditors must make sure that the cash being audited exists. In the CNB case, the cash that was apparently locked away in the cabinet did not exist until money was borrowed from elsewhere to cover for it. Completeness: The amounts stated on the books must be proven complete. The full amount stated in the books should be counted to confirm that the balance is complete. Valuation and Allocation: Cash balances need to be properly allocated to the proper accounts. In the CNB case, the money was improperly allocated in the bank vault. The auditors should have known there was something wrong with the cash balance when the bank employees said that the money was kept in a separate cabinet.

3. Identify mistakes or oversights made by Arthur Andersen personnel while auditing the cash funds at the 177th Street Branch.

The auditors made several mistakes or oversights.
For one, why did Lukenda not see it as necessary to secure the premises? After not gaining entry to the locked cabinet within the bank’s main vault, the Arthur Andersen staff should have placed audit seals on the doors of the cabinet or secured it in another way in order to keep anybody from accessing the cabinet for the time being. The auditors were aware that segregating a large amount of cash in a locked cabinet was not a common banking procedure as it was not earning any interest, which heavily hinted at an internal control issue – why did this not raise any flags? When the auditors finally completed the cash count of the $2.7 million, they didn’t recount any of this or the other branches cash funds to verify that really all cash was accounted for. In confirming that there was...
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