Question 1

Which of the following is a common analytical procedure that may detect misstatements in cash?

Accepted Answer

A)  calculation of inventory turnover and gross profit 
B)  review of amounts included in the earnings-per-share calculations 
C)  comparison of outstanding cheques and deposits in transit with the prior year bank reconciliation 
D)  comparison of gross sales on a month by month basis with the prior year 
A)  calculation of inventory turnover and gross profit 
B)  review of amounts included in the earnings-per-share calculations 
C)  comparison of outstanding cheques and deposits in transit with the prior year bank reconciliation 
D)  comparison of gross sales on a month by month basis with the prior year C

Question 2

Because cash is the most desirable asset for people to steal, it has a higher

Accepted Answer

A)  inherent risk. 
B)  control risk. 
C)  detection risk. 
D)  materiality. 
A)  inherent risk. 
B)  control risk. 
C)  detection risk. 
D)  materiality. A

Question 3

The process of transferring money from one bank account to another and improperly recording the transaction in both accounts is called

Accepted Answer

A)  lapping. 
B)  embezzling. 
C)  kiting. 
D)  a scam. 
A)  lapping. 
B)  embezzling. 
C)  kiting. 
D)  a scam. C

Question 4

Under what circumstances would an auditor prepare a proof of cash?

Accepted Answer

A)  When the client has material internal control weaknesses in cash. 
B)  When control risk is set at minimum. 
C)  When inherent risk in cash is considered to be low. 
D)  When an enterprise resource system is in use for processing of cash transactions. 
A)  When the client has material internal control weaknesses in cash. 
B)  When control risk is set at minimum. 
C)  When inherent risk in cash is considered to be low. 
D)  When an enterprise resource system is in use for processing of cash transactions.

Question 5

When examining the bank reconciliation for the imprest payroll account, it is normal for the only reconciling item to be

Accepted Answer

A)  outstanding cheques. 
B)  direct deposits from customers. 
C)  outstanding deposits. 
D)  corrections to payroll amounts. 
A)  outstanding cheques. 
B)  direct deposits from customers. 
C)  outstanding deposits. 
D)  corrections to payroll amounts.

Question 6

A four-column proof of cash can be performed for

Accepted Answer

A)  one or more interim months. 
B)  the entire year. 
C)  the last month of the year. 
D)  any specified time period for which bank statements are available and which the auditor chooses to designate. 
A)  one or more interim months. 
B)  the entire year. 
C)  the last month of the year. 
D)  any specified time period for which bank statements are available and which the auditor chooses to designate.

Question 7

Bank reconciliations are normally verified on a 100-percent basis. Testing the reasonableness of the cash balance is therefore

Accepted Answer

A)  less important than for most other audit areas. 
B)  more important than for other audit areas. 
C)  equally as important as other audit areas. 
D)  less important than for the audit of other assets but more important than the audit of liabilities. 
A)  less important than for most other audit areas. 
B)  more important than for other audit areas. 
C)  equally as important as other audit areas. 
D)  less important than for the audit of other assets but more important than the audit of liabilities.

Question 8

If the auditor does not obtain a cutoff statement directly from the bank for testing, an alternative procedure that the auditor can use is to

Accepted Answer

A)  account for a continuity of cheques that covers the year end. 
B)  reconcile cash paid to the cash disbursements journal for the last month of the year. 
C)  reconcile cash received to the cash receipts journal for the last month of the year. 
D)  prove the bank statement for the period after the year end. 
A)  account for a continuity of cheques that covers the year end. 
B)  reconcile cash paid to the cash disbursements journal for the last month of the year. 
C)  reconcile cash received to the cash receipts journal for the last month of the year. 
D)  prove the bank statement for the period after the year end.

Question 9

A) Explain what is meant by kiting and discuss how it is performed.
B) Discuss how an auditor can test for kiting.

Accepted Answer

A)Kiting is transferring money from one

Question 10

What is the purpose of an extended test of the bank reconciliation?

Accepted Answer

A)  to verify whether all transactions included in the journals for the last month of the year were correctly allocated to the bank reconciliation 
B)  to compensate for material weaknesses in internal control with respect to segregation of duties 
C)  to increase detection risk for the audit of cash 
D)  to verify whether specific transactions that flowed through the cash account were correctly recorded 
A)  to verify whether all transactions included in the journals for the last month of the year were correctly allocated to the bank reconciliation 
B)  to compensate for material weaknesses in internal control with respect to segregation of duties 
C)  to increase detection risk for the audit of cash 
D)  to verify whether specific transactions that flowed through the cash account were correctly recorded

Question 11

Stella is auditing the electronic receipts and payments. The extent of her audit work conducted on the bank reconciliation will

Accepted Answer

A)  be less extensive than if the company did not engage in electronic receipts and payments. 
B)  be more extensive than if the company did not engage in electronic receipts and payments. 
C)  depend on the assessed quality of internal controls. 
D)  be significantly diminished if Stella can determine that the receipts and payments come from a reputable bank with proper internal controls. 
A)  be less extensive than if the company did not engage in electronic receipts and payments. 
B)  be more extensive than if the company did not engage in electronic receipts and payments. 
C)  depend on the assessed quality of internal controls. 
D)  be significantly diminished if Stella can determine that the receipts and payments come from a reputable bank with proper internal controls.

Question 12

A branch bank account is helpful for

Accepted Answer

A)  limiting the impact of a fraud. 
B)  improving internal controls. 
C)  empowering the different branches of the company. 
D)  building public relations in local communities. 
A)  limiting the impact of a fraud. 
B)  improving internal controls. 
C)  empowering the different branches of the company. 
D)  building public relations in local communities.

Question 13

A) Explain what is meant by a cutoff bank statement and discuss the purpose of the cutoff bank statement in the audit of cash.
B) Explain the purpose of testing the client's bank reconciliation and discuss the major audit procedures involved.

Accepted Answer

A)A cutoff bank statement is a partial-p

Question 14

What is an important benefit of independent preparation of bank reconciliations?

Accepted Answer

A)  an opportunity to independently check that cheques have two signatures 
B)  the client being able to check that the bank is processing transactions correctly 
C)  the ability to internally verify cash receipt and disbursement transactions 
D)  the best time to carefully account for cheques issued 
A)  an opportunity to independently check that cheques have two signatures 
B)  the client being able to check that the bank is processing transactions correctly 
C)  the ability to internally verify cash receipt and disbursement transactions 
D)  the best time to carefully account for cheques issued

Question 15

In addition to the possibility of kiting, inaccurate handling of bank transfers could result in

Accepted Answer

A)  a misclassification between cash and accounts receivable. 
B)  an incorrect balance in the accounts receivable account. 
C)  a misclassification between cash and accounts payable. 
D)  an incorrect balance in the bank loan account. 
A)  a misclassification between cash and accounts receivable. 
B)  an incorrect balance in the accounts receivable account. 
C)  a misclassification between cash and accounts payable. 
D)  an incorrect balance in the bank loan account.

Question 16

From an audit perspective, an imprest bank account at a client can

Accepted Answer

A)  require less time for the audit of general cash. 
B)  increase audit risk. 
C)  result in an increase in control risk. 
D)  improve client internal controls. 
A)  require less time for the audit of general cash. 
B)  increase audit risk. 
C)  result in an increase in control risk. 
D)  improve client internal controls.

Question 17

Which of the following misstatements could be detected as part of the tests of a bank reconciliation?

Accepted Answer

A)  payment of interest to a related party at an incorrect rate 
B)  exclusion of mortgage interest receivable from the balance sheet 
C)  deposits recorded as cash receipts at the end of year, but included as outstanding deposits (deposits in transit) 
D)  a defalcation of cash by interception of collections before they are recorded 
A)  payment of interest to a related party at an incorrect rate 
B)  exclusion of mortgage interest receivable from the balance sheet 
C)  deposits recorded as cash receipts at the end of year, but included as outstanding deposits (deposits in transit) 
D)  a defalcation of cash by interception of collections before they are recorded

Question 18

The auditor uses a proof of cash to determine whether

Accepted Answer

A)  internal controls over cash have been functioning effectively in the period under audit. 
B)  all recorded cash receipts were deposited and whether all recorded cash disbursements were paid by the bank. 
C)  accounts receivable was properly recorded and whether cash receipts transactions were properly recorded. 
D)  accounts payable was properly recorded and whether cash disbursement transactions were properly recorded. 
A)  internal controls over cash have been functioning effectively in the period under audit. 
B)  all recorded cash receipts were deposited and whether all recorded cash disbursements were paid by the bank. 
C)  accounts receivable was properly recorded and whether cash receipts transactions were properly recorded. 
D)  accounts payable was properly recorded and whether cash disbursement transactions were properly recorded.

Question 19

Jane works for Middle Co. She is responsible for opening the mail and preparing the bank deposit for cheques received, which she then gives to the owner. After the owner has deposited the cash, he gives Jane the stamped bank deposit slip, which she uses to record the cash received in the accounts receivable records. How does this allocation of responsibilities affect the audit process?

Accepted Answer

A)  The auditor should increase control testing with respect to the accuracy assertion. 
B)  The auditor should do substantive tests (compare the deposit slips to the accounts receivable records). 
C)  The auditor should consider the possibility of material fraud. 
D)  The auditor should increase control testing with respect to the completeness assertion. 
A)  The auditor should increase control testing with respect to the accuracy assertion. 
B)  The auditor should do substantive tests (compare the deposit slips to the accounts receivable records). 
C)  The auditor should consider the possibility of material fraud. 
D)  The auditor should increase control testing with respect to the completeness assertion.

Question 20

Outline the audit procedures that would be performed when testing electronic receipts and payments.

Accepted Answer

Procedures would include:
•agreeing elec

Which of the following is a common analytical procedure that may detect misstatements in cash?

Because cash is the most desirable asset for people to steal, it has a higher

The process of transferring money from one bank account to another and improperly recording the transaction in both accounts is called

Under what circumstances would an auditor prepare a proof of cash?

When examining the bank reconciliation for the imprest payroll account, it is normal for the only reconciling item to be

A four-column proof of cash can be performed for

Bank reconciliations are normally verified on a 100-percent basis. Testing the reasonableness of the cash balance is therefore

If the auditor does not obtain a cutoff statement directly from the bank for testing, an alternative procedure that the auditor can use is to

A) Explain what is meant by kiting and discuss how it is performed. B) Discuss how an auditor can test for kiting.

What is the purpose of an extended test of the bank reconciliation?

Stella is auditing the electronic receipts and payments. The extent of her audit work conducted on the bank reconciliation will

A branch bank account is helpful for

A) Explain what is meant by a cutoff bank statement and discuss the purpose of the cutoff bank statement in the audit of cash. B) Explain the purpose of testing the client's bank reconciliation and discuss the major audit procedures involved.

What is an important benefit of independent preparation of bank reconciliations?

In addition to the possibility of kiting, inaccurate handling of bank transfers could result in

From an audit perspective, an imprest bank account at a client can

Which of the following misstatements could be detected as part of the tests of a bank reconciliation?

The auditor uses a proof of cash to determine whether

Outline the audit procedures that would be performed when testing electronic receipts and payments.

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 17: Audit of Cash Balances

Which of the following is a common analytical procedure that may detect misstatements in cash?

Because cash is the most desirable asset for people to steal, it has a higher

The process of transferring money from one bank account to another and improperly recording the transaction in both accounts is called

Under what circumstances would an auditor prepare a proof of cash?

When examining the bank reconciliation for the imprest payroll account, it is normal for the only reconciling item to be

A four-column proof of cash can be performed for

Bank reconciliations are normally verified on a 100-percent basis. Testing the reasonableness of the cash balance is therefore

If the auditor does not obtain a cutoff statement directly from the bank for testing, an alternative procedure that the auditor can use is to

A) Explain what is meant by kiting and discuss how it is performed. B) Discuss how an auditor can test for kiting.

What is the purpose of an extended test of the bank reconciliation?

Stella is auditing the electronic receipts and payments. The extent of her audit work conducted on the bank reconciliation will

A branch bank account is helpful for

A) Explain what is meant by a cutoff bank statement and discuss the purpose of the cutoff bank statement in the audit of cash. B) Explain the purpose of testing the client's bank reconciliation and discuss the major audit procedures involved.

What is an important benefit of independent preparation of bank reconciliations?

In addition to the possibility of kiting, inaccurate handling of bank transfers could result in

From an audit perspective, an imprest bank account at a client can

Which of the following misstatements could be detected as part of the tests of a bank reconciliation?

The auditor uses a proof of cash to determine whether

Outline the audit procedures that would be performed when testing electronic receipts and payments.

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters