Question 1

Electronic data interchange (EDI) represents the electronic transfer of

Accepted Answer

A)  funds. 
B)  business documents. 
C)  data between accounting systems of the company's entities. 
D)  information between the bank and the company. 
A)  funds. 
B)  business documents. 
C)  data between accounting systems of the company's entities. 
D)  information between the bank and the company.

Question 2

During his examination of a January 19, 2015 cutoff bank statement, an auditor noticed that the majority of cheques listed as outstanding at December 31, 2014 had not cleared the bank. This would indicate

Accepted Answer

A)  a high probability of lapping. 
B)  a high probability of kiting. 
C)  that the cash disbursements journal had been held open past December 31, 2014. 
D)  that the cash disbursements journal had been closed prior to December 31, 2014. 
A)  a high probability of lapping. 
B)  a high probability of kiting. 
C)  that the cash disbursements journal had been held open past December 31, 2014. 
D)  that the cash disbursements journal had been closed prior to December 31, 2014.

Question 3

The auditor has determined exchange rates used by the client to present cash in foreign currencies and has recalculated the amounts. Which audit assertion is associated with this audit procedure?

Accepted Answer

A)  existence 
B)  valuation 
C)  allocation 
D)  classification 
A)  existence 
B)  valuation 
C)  allocation 
D)  classification

Question 4

Sandra is analyzing the cash cycle of her audit client. Which of the following could indicate a liquidity problem?

Accepted Answer

A)  obsolete inventory 
B)  high level of inventory 
C)  inventory on consignment 
D)  backordered inventory 
A)  obsolete inventory 
B)  high level of inventory 
C)  inventory on consignment 
D)  backordered inventory

Question 5

When are short-term investments that are readily converted to cash included in the cash account in the financial statements?

Accepted Answer

A)  if they are held in local currency (i.e., Canadian dollars) 
B)  when there is little risk of change in value 
C)  when they are under the control of the treasury department 
D)  if interest has been paid up to the year end date 
A)  if they are held in local currency (i.e., Canadian dollars) 
B)  when there is little risk of change in value 
C)  when they are under the control of the treasury department 
D)  if interest has been paid up to the year end date

Question 6

A) "Failure to bill a customer" is an example of an error that results in the failure to receive cash, but would not be discovered as part of the audit of the bank reconciliation. State three other examples of errors or irregularities that result in the improper payment of, or failure to receive, cash, but would not be discovered during the audit of the bank reconciliation. How are these types of misstatements normally uncovered in the audit?
B) State three examples of errors or irregularities that normally would be uncovered during the audit of the bank reconciliation.

Accepted Answer

A)Many answers are possible.Student answ

Question 7

On a bank transfer schedule, if a cash disbursement was recorded in the current fiscal year and the receipt in the subsequent fiscal year, this might be

Accepted Answer

A)  the best way to record this type of transaction. 
B)  an indication of increased inherent risk with respect to cash. 
C)  an attempt to cover a cash shortage. 
D)  an indication of an error in recording information by the bank. 
A)  the best way to record this type of transaction. 
B)  an indication of increased inherent risk with respect to cash. 
C)  an attempt to cover a cash shortage. 
D)  an indication of an error in recording information by the bank.

Question 8

The test of balances procedure that requires the auditor to trace the unadjusted book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of

Accepted Answer

A)  detail tie-in. 
B)  existence. 
C)  completeness. 
D)  accuracy. 
A)  detail tie-in. 
B)  existence. 
C)  completeness. 
D)  accuracy.

Question 9

Which of the following statements best describes the position of cash on the balance sheet at most organizations that utilize effective cash management practices?

Accepted Answer

A)  Cash is usually immaterial. 
B)  Cash is usually highly material. 
C)  Cash is usually dispersed among many different accounts. 
D)  Cash is usually affected by many different capital asset accounts. 
A)  Cash is usually immaterial. 
B)  Cash is usually highly material. 
C)  Cash is usually dispersed among many different accounts. 
D)  Cash is usually affected by many different capital asset accounts.

Question 10

A significant part of the total audit that relates to cash is the audit of

Accepted Answer

A)  physical inventory on hand using an inventory count. 
B)  assessment of the accounting policies in use. 
C)  substantive testing of the ending accounts payable balance. 
D)  sales and collections, payables payments, and payroll payments. 
A)  physical inventory on hand using an inventory count. 
B)  assessment of the accounting policies in use. 
C)  substantive testing of the ending accounts payable balance. 
D)  sales and collections, payables payments, and payroll payments.

Question 11

Disbursements on the bank transfer schedule should be correctly included in or excluded from year-end bank reconciliations as outstanding cheques. Understating outstanding cheques on the bank reconciliation indicates

Accepted Answer

A)  the possibility of kiting. 
B)  a cutoff error in the bank account. 
C)  an understatement of the bank balance. 
D)  an increase in inherent risks associated with cash. 
A)  the possibility of kiting. 
B)  a cutoff error in the bank account. 
C)  an understatement of the bank balance. 
D)  an increase in inherent risks associated with cash.

Question 12

The auditor has examined the financial statements, particularly the cash flow statement, and the notes to the financial statements to determine that all relevant information is presented clearly. Which audit assertion is associated with this audit test?

Accepted Answer

A)  classification 
B)  allocation 
C)  understandability 
D)  valuation 
A)  classification 
B)  allocation 
C)  understandability 
D)  valuation

Question 13

Which of the following is an essential internal control in the cash cycle?

Accepted Answer

A)  use of two signatures on payroll cheques and payables cheques 
B)  independent receipt of the bank statement from the bank 
C)  careful accounting of the continuity of cheques returned from the bank 
D)  independent preparation of bank reconciliations 
A)  use of two signatures on payroll cheques and payables cheques 
B)  independent receipt of the bank statement from the bank 
C)  careful accounting of the continuity of cheques returned from the bank 
D)  independent preparation of bank reconciliations

Question 14

Testing to ensure that bank transfers are recorded in both the receiving and disbursing banks helps to detect evidence

Accepted Answer

A)  that would reduce inherent risk to a minimum. 
B)  associated with an attempt to conceal a theft of cash. 
C)  that increases reliability with respect to the accuracy of the transfer schedule. 
D)  that would warrant decreasing control risk to a minimum. 
A)  that would reduce inherent risk to a minimum. 
B)  associated with an attempt to conceal a theft of cash. 
C)  that increases reliability with respect to the accuracy of the transfer schedule. 
D)  that would warrant decreasing control risk to a minimum.

Question 15

The audit procedure that requires the auditor to record the last cheque number used on the last day of the year and subsequently trace to the outstanding cheques and the cash disbursements journal is performed to satisfy the audit objective of

Accepted Answer

A)  detail tie-in. 
B)  existence. 
C)  completeness. 
D)  allocation. 
A)  detail tie-in. 
B)  existence. 
C)  completeness. 
D)  allocation.

Question 16

On the last day of the fiscal year, the cash disbursements clerk drew a company cheque on bank A and deposited the cheque in the company account in bank B to cover a previous theft of cash. The disbursement had not been recorded. The auditor will best detect this form of kiting by

Accepted Answer

A)  comparing the detail of cash receipts as shown by the cash receipts records with the detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year-end. 
B)  preparing from the cash disbursements book a summary of bank transfers for one week prior to and subsequent to year-end. 
C)  examining the composition of deposits in both bank A and B subsequent to year-end. 
D)  examining paid cheques returned with the bank statement of the next account period after year-end. 
A)  comparing the detail of cash receipts as shown by the cash receipts records with the detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year-end. 
B)  preparing from the cash disbursements book a summary of bank transfers for one week prior to and subsequent to year-end. 
C)  examining the composition of deposits in both bank A and B subsequent to year-end. 
D)  examining paid cheques returned with the bank statement of the next account period after year-end.

Question 17

Toasted Tomato is a restaurant in Ottawa. You walk by this restaurant frequently and noticed it is usually empty. When you came in to do the audit, you were surprised to see that they had a large cash balance and high sales. Toasted Tomato might

Accepted Answer

A)  have a going concern issue. 
B)  be engaging in money laundering. 
C)  have lower business risk than initially anticipated. 
D)  have weak internal controls. 
A)  have a going concern issue. 
B)  be engaging in money laundering. 
C)  have lower business risk than initially anticipated. 
D)  have weak internal controls.

Question 18

In an effort to satisfy the completeness objective, the auditor could perform which of the following test of details of balance procedures?

Accepted Answer

A)  Trace the book balance on the reconciliation to the general ledger. 
B)  Trace outstanding cheques to subsequent period bank statements. 
C)  Obtain and test a cutoff bank statement. 
D)  Review financial statements to make sure that material savings accounts and certificates of deposit are disclosed separately. 
A)  Trace the book balance on the reconciliation to the general ledger. 
B)  Trace outstanding cheques to subsequent period bank statements. 
C)  Obtain and test a cutoff bank statement. 
D)  Review financial statements to make sure that material savings accounts and certificates of deposit are disclosed separately.

Question 19

Serena is the assistant controller of Opus Inc. As a result of a recent expansion, the controller has been very busy and delegated the signing authority for cheques to Serena. Further, due to the cash accountant leaving on maternity leave, Serena was asked to perform the bank reconciliation until they found someone to replace the cash accountant.
Serena is a qualified accountant and has been able to handle all of these additional tasks. However, she asked her boss for a raise to compensate her for the additional responsibilities that she currently has. Her boss indicated that this was only temporary and the company could not afford a raise for now.
Serena created a vendor in the system with her home address. She has been paying this vendor $2000 for the past 3 months as a means of compensating herself. This theft has yet to be discovered by Opus.
Required:
A) What internal controls are missing that enable the theft to occur?
B) What audit procedures might detect the theft?

Accepted Answer

A)Poor segregation of duties is the main

Question 20

The starting point for the verification of the balance in the general bank account is to obtain

Accepted Answer

A)  the client's December bank statement and reconcile it. 
B)  a bank reconciliation from the client. 
C)  a cutoff bank statement directly from the bank. 
D)  the client's cash account balance from the general ledger. 
A)  the client's December bank statement and reconcile it. 
B)  a bank reconciliation from the client. 
C)  a cutoff bank statement directly from the bank. 
D)  the client's cash account balance from the general ledger.

Electronic data interchange (EDI) represents the electronic transfer of

During his examination of a January 19, 2015 cutoff bank statement, an auditor noticed that the majority of cheques listed as outstanding at December 31, 2014 had not cleared the bank. This would indicate

The auditor has determined exchange rates used by the client to present cash in foreign currencies and has recalculated the amounts. Which audit assertion is associated with this audit procedure?

Sandra is analyzing the cash cycle of her audit client. Which of the following could indicate a liquidity problem?

When are short-term investments that are readily converted to cash included in the cash account in the financial statements?

On a bank transfer schedule, if a cash disbursement was recorded in the current fiscal year and the receipt in the subsequent fiscal year, this might be

The test of balances procedure that requires the auditor to trace the unadjusted book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of

Which of the following statements best describes the position of cash on the balance sheet at most organizations that utilize effective cash management practices?

A significant part of the total audit that relates to cash is the audit of

Disbursements on the bank transfer schedule should be correctly included in or excluded from year-end bank reconciliations as outstanding cheques. Understating outstanding cheques on the bank reconciliation indicates

The auditor has examined the financial statements, particularly the cash flow statement, and the notes to the financial statements to determine that all relevant information is presented clearly. Which audit assertion is associated with this audit test?

Which of the following is an essential internal control in the cash cycle?

Testing to ensure that bank transfers are recorded in both the receiving and disbursing banks helps to detect evidence

The audit procedure that requires the auditor to record the last cheque number used on the last day of the year and subsequently trace to the outstanding cheques and the cash disbursements journal is performed to satisfy the audit objective of

On the last day of the fiscal year, the cash disbursements clerk drew a company cheque on bank A and deposited the cheque in the company account in bank B to cover a previous theft of cash. The disbursement had not been recorded. The auditor will best detect this form of kiting by

Toasted Tomato is a restaurant in Ottawa. You walk by this restaurant frequently and noticed it is usually empty. When you came in to do the audit, you were surprised to see that they had a large cash balance and high sales. Toasted Tomato might

In an effort to satisfy the completeness objective, the auditor could perform which of the following test of details of balance procedures?

The starting point for the verification of the balance in the general bank account is to obtain

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

Electronic data interchange (EDI) represents the electronic transfer of

During his examination of a January 19, 2015 cutoff bank statement, an auditor noticed that the majority of cheques listed as outstanding at December 31, 2014 had not cleared the bank. This would indicate

The auditor has determined exchange rates used by the client to present cash in foreign currencies and has recalculated the amounts. Which audit assertion is associated with this audit procedure?

Sandra is analyzing the cash cycle of her audit client. Which of the following could indicate a liquidity problem?

When are short-term investments that are readily converted to cash included in the cash account in the financial statements?

On a bank transfer schedule, if a cash disbursement was recorded in the current fiscal year and the receipt in the subsequent fiscal year, this might be

The test of balances procedure that requires the auditor to trace the unadjusted book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of

Which of the following statements best describes the position of cash on the balance sheet at most organizations that utilize effective cash management practices?

A significant part of the total audit that relates to cash is the audit of

Disbursements on the bank transfer schedule should be correctly included in or excluded from year-end bank reconciliations as outstanding cheques. Understating outstanding cheques on the bank reconciliation indicates

The auditor has examined the financial statements, particularly the cash flow statement, and the notes to the financial statements to determine that all relevant information is presented clearly. Which audit assertion is associated with this audit test?

Which of the following is an essential internal control in the cash cycle?

Testing to ensure that bank transfers are recorded in both the receiving and disbursing banks helps to detect evidence

The audit procedure that requires the auditor to record the last cheque number used on the last day of the year and subsequently trace to the outstanding cheques and the cash disbursements journal is performed to satisfy the audit objective of

On the last day of the fiscal year, the cash disbursements clerk drew a company cheque on bank A and deposited the cheque in the company account in bank B to cover a previous theft of cash. The disbursement had not been recorded. The auditor will best detect this form of kiting by

Toasted Tomato is a restaurant in Ottawa. You walk by this restaurant frequently and noticed it is usually empty. When you came in to do the audit, you were surprised to see that they had a large cash balance and high sales. Toasted Tomato might

In an effort to satisfy the completeness objective, the auditor could perform which of the following test of details of balance procedures?

The starting point for the verification of the balance in the general bank account is to obtain

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