Cash and Cash Equivalents

• Conceptual Framework for Financial Reporting defines asset as economic resources controlled by the entity as result of past events
• Financial Instrument is formed by a contract
• Financial Liability is also known as Equity Instrument
• financial asset is in the holder's pov
• IFRS 9 took effect on January 1, 2018 and superseded the following:

  • IAS 32
  • IAS 39
• IFRS 9 establishes the financial reporting principles for financial assets and financial liabilities, particularly their classification and measurement
• Financial assets arises from a contract that entitles the holder to receive cash or another financial asset
• cash and cash equivalents, loans and receivables, investment in debt securities, investment in equity securities, and derivatives are examples of financial assets.
• Financial liabilities arises form a contract to pay cash, or exchange financial asset or financial liability
• accounts payable, notes payable, bonds payable, mortgage payable, and contractual obligations to issue equity instruments are examples of financial liabilities
• according to the Conceptual Framework, the recognition of financial statement elements depend on the attributes of relevance and faithful representation.
• IFRS 9 provides that an entity shall recognize a financial asset when and only when the entity becomes a party to a contractual provisions of the instrument.
• IFRS 9 Financial Instruments took effect on January 1, 2018 and superseded IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement
• IFRS 9 Financial Instruments

  • Establishes the financial reporting principles for financial assets and financial liabilities, particularly their classification and measurement
  • Applies to all financial instruments except interests in subsidiaries, associates and joint ventures, those arising from employee benefit plans, leases, share-based payment transactions, those that are required to be classified as equity instruments, and those arising from contracts with customers that are specifically accounted for under IFRS 15 Revenue from Contracts with Customers
• Cash

  Any item used as a standard medium of exchange
• Criteria to be recognized as cash

  • The cash item must be UNRESTRICTED and must be IMMEDIATELY AVAILABLE for use in current operations
• Undeposited cash collections


  Currencies (bills and coins), customer's checks, traveler's checks, manager's checks, cashier's checks, bank drafts, money order
• Working funds


  Petty cash fund, change fund, payroll fund, dividend fund, tax fund, interest fund
• Demand deposits


  Checking account, savings account
• Cash is generally measured at FACE VALUE, which is the amortized cost and fair value at the same time
• Cash equivalents

  Short-term (normally 3 months or less), highly liquid financial instruments that are so near their maturity that there is an insignificant risk of change in value due to fluctuation of interest rates
• The determination of the maturity date starts from the date of acquisition of the instrument and not from the date indicated in the face of the instrument
• Internal control

  Everything that controls risks to an organization
• Internal control

  The company's first line of defense against errors and fraud
• Internal control

  The organizational plan and all related measures to safeguard assets, ensure the accuracy and reliability of accounting records, promote operational efficiency, and encourage adherence to prescribed managerial policies
• Internal controls help minimize if not eliminate risks such as fraud and errors
• Fraud


  Intentional wrongdoing
• Competent, reliable and ethical personnel

  Employees must meet the qualifications for the job, can work under pressure and dependable and of high ethical standards
• Assignment of responsibilities


  Employees must have a set of clearly defined responsibilities
• Separation of duties


  No one person should be in complete control of the transaction from the time it is initiated up to the time it is concluded
• Audits

  Transactions must be regularly checked for compliance, among others (financial audit, operations audit, compliance audit)
• Pre-numbered documents

  All transactions must be accounted for
• Electronic devices


  Use of electronic and digital storage devices for more security; The lesser the manual intervention is, the better
• Collusion - two or more persons working together may circumvent internal control
• Cost - the stricter the internal control, the more costly
• Identifying Internal Controls


  Consider the question: "WHAT CAN GO WRONG?"
• Bank Reconciliation

  A bank reconciliation is prepared to explain the difference between the cash balances per records (book) and the cash balance per bank statement
• Timing Difference


  Differences are normally caused by items already taken up by one party but not yet taken up by the other
• Errors


  Differences are normally caused by error committed by either party
• Most entities control purchases and cash disbursements by formalizing a process of verification and approval of payments