Question 1

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 2

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.

Question 3

Following are situations that an auditor might find by means of tests of controls or tests of details of cash balances for a company with a December year end.
A) The accountant did not record or deposit a cash receipt for $50 000 that was received on December 28. Cash is prelisted by the receptionist.
B) Cheques prepared up to January 6 were dated December 31 and recorded in the cash disbursements journal.
C) A cheque was issued for office supplies that were never received by the client. Required: List a substantive audit procedure that could uncover each of the preceding situations.

Accepted Answer

A)Trace the prelisting of cash to the ca

Question 4

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 5

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

Question 6

The general cash account is considered significant in almost all audits

Accepted Answer

A)  where the ending balance is material. 
B)  where either the beginning or ending balance is material. 
C)  even when the ending balance is immaterial. 
D)  except those of not-for-profit organizations. 
A)  where the ending balance is material. 
B)  where either the beginning or ending balance is material. 
C)  even when the ending balance is immaterial. 
D)  except those of not-for-profit organizations.

Question 7

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 8

A) Describe each of the major types of cash accounts maintained by business entities.
B) Discuss the advantages of using an imprest bank account for payroll transactions.

Accepted Answer

A)•General cash account. This is the foc

Question 9

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 10

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 11

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.

Question 12

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 13

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 14

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 15

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 16

A) Distinguish between i) risks of error, ii) risks of fraud, and iii) risks of inadequate presentation or disclosure of financial information.
B) For each of the three types of risks described in
A) provide three examples of major risks of error or fraud in the cash cycle.

Accepted Answer

A)Errors are accidental misstatement whi

Question 17

The most important internal control for petty cash is

Accepted Answer

A)  the use of an imprest fund that is the responsibility of one individual. 
B)  keeping it in a safe or locked drawer. 
C)  keeping the amount of cash to a minimum. 
D)  accessibility so that cheques won't have to be written for small amounts. 
A)  the use of an imprest fund that is the responsibility of one individual. 
B)  keeping it in a safe or locked drawer. 
C)  keeping the amount of cash to a minimum. 
D)  accessibility so that cheques won't have to be written for small amounts.

Question 18

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 19

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 20

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 ans

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

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

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

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

The general cash account is considered significant in almost all audits

A four-column proof of cash can be performed for

A) Describe each of the major types of cash accounts maintained by business entities. B) Discuss the advantages of using an imprest bank account for payroll transactions.

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

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

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

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

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

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

A) Distinguish between i) risks of error, ii) risks of fraud, and iii) risks of inadequate presentation or disclosure of financial information. B) For each of the three types of risks described in A) provide three examples of major risks of error or fraud in the cash cycle.

The most important internal control for petty cash is

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

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

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

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

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

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

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

The general cash account is considered significant in almost all audits

A four-column proof of cash can be performed for

A) Describe each of the major types of cash accounts maintained by business entities. B) Discuss the advantages of using an imprest bank account for payroll transactions.

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

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

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

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

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

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

A) Distinguish between i) risks of error, ii) risks of fraud, and iii) risks of inadequate presentation or disclosure of financial information. B) For each of the three types of risks described in A) provide three examples of major risks of error or fraud in the cash cycle.

The most important internal control for petty cash is

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

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

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