Question 1

Which of the following is correct concerning "window dressing" for cash?

Accepted Answer

A) A segregation of duties within the cash function effectively eliminates its occurrence. 
B) It generally involves manipulation of inventory. 
C) It is illegal,and an audit is designed to provide reasonable assurance of its detection. 
D) It may increase but not falsify cash position. 
A) A segregation of duties within the cash function effectively eliminates its occurrence. 
B) It generally involves manipulation of inventory. 
C) It is illegal,and an audit is designed to provide reasonable assurance of its detection. 
D) It may increase but not falsify cash position.

Question 2

Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements?

Accepted Answer

A) Understatement of outstanding checks. 
B) Overstatement of outstanding checks. 
C) Understatement of deposits in transit. 
D) Overstatement of bank services charges. 
A) Understatement of outstanding checks. 
B) Overstatement of outstanding checks. 
C) Understatement of deposits in transit. 
D) Overstatement of bank services charges.

Question 3

Control over the receipt of cash sales is best achieved when two or more employees participate in each transaction.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following has made it difficult to engage in kiting in recent years?

Accepted Answer

A) Electronic processing of checks. 
B) The use of machine readable account numbers on checks. 
C) The consolidation of financial institutions. 
D) The use of payroll processers. 
A) Electronic processing of checks. 
B) The use of machine readable account numbers on checks. 
C) The consolidation of financial institutions. 
D) The use of payroll processers.

Question 5

Which of the following is the best audit procedure for the detection of lapping?

Accepted Answer

A) Comparison of postings of cash receipts to accounts with the details of cash deposits. 
B) Confirmation of the cash balance. 
C) Reconciliation of the cash account balances. 
D) Preparing a proof of cash. 
A) Comparison of postings of cash receipts to accounts with the details of cash deposits. 
B) Confirmation of the cash balance. 
C) Reconciliation of the cash account balances. 
D) Preparing a proof of cash.

Question 6

When a client engages in transactions involving derivatives,the auditor should:

Accepted Answer

A) Review agreements underlying the derivative. 
B) Confirm with the client's broker whether the derivatives are for trading purposes. 
C) Notify the audit committee about the risks involved in derivative transactions. 
D) Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative. 
A) Review agreements underlying the derivative. 
B) Confirm with the client's broker whether the derivatives are for trading purposes. 
C) Notify the audit committee about the risks involved in derivative transactions. 
D) Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative.

Question 7

Internal control over marketable securities is enhanced when:

Accepted Answer

A) Securities are held by the cashier. 
B) Securities are registered in the name of the custodian. 
C) Detailed records of securities are maintained by the custodian of the securities. 
D) Custody of securities is maintained by a stockbroker or bank. 
A) Securities are held by the cashier. 
B) Securities are registered in the name of the custodian. 
C) Detailed records of securities are maintained by the custodian of the securities. 
D) Custody of securities is maintained by a stockbroker or bank.

Question 8

For purposes of an audit of financial statements,electronic confirmation of cash balances:

Accepted Answer

A) Is acceptable when properly controlled. 
B) Is acceptable,but only when combined with a non-electronic approach. 
C) Is only acceptable for immaterial accounts. 
D) Is not acceptable. 
A) Is acceptable when properly controlled. 
B) Is acceptable,but only when combined with a non-electronic approach. 
C) Is only acceptable for immaterial accounts. 
D) Is not acceptable.

Question 9

Which of the following is not a control that generally is established over cash transactions?

Accepted Answer

A) Separating cash handling from recordkeeping. 
B) Centralizing the receipt of cash. 
C) Depositing each day's receipts intact. 
D) Obtaining a receipt for every disbursement. 
A) Separating cash handling from recordkeeping. 
B) Centralizing the receipt of cash. 
C) Depositing each day's receipts intact. 
D) Obtaining a receipt for every disbursement.

Question 10

In the audit of a client's financial statements,the auditors must be concerned with the possibility that client personnel might be engaged in kiting or lapping.
a.Define lapping and describe an audit procedure that might detect lapping.
b.Define kiting and describe an audit procedure that might detect kiting.

Accepted Answer

a.Lapping is the concealment of a cash s

Question 11

An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%.This procedure most likely could indicate that:

Accepted Answer

A) Fourth quarter payroll taxes were properly accrued and recorded,but were not paid until early in the subsequent year. 
B) Unrealized gains from increases in the value of available-for-sale securities were recorded in the income account for trading securities. 
C) The annual provision for uncollectible accounts expense was inadequate because of worsening economic conditions. 
D) Notice of an increase in property tax rates was received by management,but was not recorded until early in the subsequent year. 
A) Fourth quarter payroll taxes were properly accrued and recorded,but were not paid until early in the subsequent year. 
B) Unrealized gains from increases in the value of available-for-sale securities were recorded in the income account for trading securities. 
C) The annual provision for uncollectible accounts expense was inadequate because of worsening economic conditions. 
D) Notice of an increase in property tax rates was received by management,but was not recorded until early in the subsequent year.

Question 12

The auditors should count small petty cash funds at year-end to make sure that balance is not overstated on the financial statements.

Accepted Answer

A) True 
 B)False

Question 13

Flemco has made a series of transfers between bank accounts near year-end,some through inter-bank wired transfers and some through checks.You have audited the wired transfers and agree that they have been properly stated and now have the following schedule of transfers between cash accounts made using checks.You may assume that dates per bank are correct,and that dates per books are the dates the transactions were recorded in the books.
   
 
Analyze each of the above transfers and determine whether you believe each causes total cash to most likely be correct,overstated,or understated as of year-end.
 $$\begin{array} { | c | c | l | } 
\hline \text { Question \# } & \begin{array} { c } 
\text { Check } \
\text { number }
\end{array} & \begin{array} { l } 
\text { As a result of the transfer, } \
\text { total cash at December } 31 \
\text { appears to be }
\end{array} \
\hline 1 & 4040 & \
\hline 2 & 3270 & \
\hline 3 & 4041 & \
\hline 4 & 3271 & \
\hline 5 & 700 & \
\hline
\end{array}$$

Accepted Answer

1.Understated.The entry is recorded as h

Question 14

Mailroom personnel of a company should prepare a control listing of incoming cash receipts and deposit them intact daily.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not a control over cash disbursements?

Accepted Answer

A) Disbursements should be made by check. 
B) A check protecting machine should be used. 
C) Documents supporting the payment of a disbursement should be canceled by the person preparing the check to prevent reuse. 
D) Voided checks should be defaced and filed with paid checks. 
A) Disbursements should be made by check. 
B) A check protecting machine should be used. 
C) Documents supporting the payment of a disbursement should be canceled by the person preparing the check to prevent reuse. 
D) Voided checks should be defaced and filed with paid checks.

Question 16

Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees?

Accepted Answer

A) A bank lockbox system. 
B) Approval of all disbursements by an individual independent of cash receipts. 
C) Monthly bank cutoff statements. 
D) Prenumbered remittance advices. 
A) A bank lockbox system. 
B) Approval of all disbursements by an individual independent of cash receipts. 
C) Monthly bank cutoff statements. 
D) Prenumbered remittance advices.

Question 17

Which of the following cash transfers is most likely to result in a misstatement of cash at December 31,20X7?

$\quad $ $\quad $  $\quad $$\quad $ $\quad $  $\quad $$\text { Bank Transfer Schedule }$
 $\quad $ $\quad $  $\quad $$\begin{array}{llcc}\text { Disbursement}&\quad\quad\quad\quad\quad\text { Receipt}\end{array}$
$\quad $$\begin{array}{llcc}
\text { Recorded } && \text { Recorded } & \text { Received by } \
\text { in books } & \text { Paid by bank } & \text { in books } & \text { bank }
\end{array}$
A-$\begin{array}{llcc}
12/31/X7&\quad1/44/X8&\quad12/31/X7&\quad12/31/X7
\end{array}$ 
B-$\begin{array}{llcc}
1/4/X8&\quad\quad 1/5/X8&\quad\quad12/31/X7&\quad1/4/X8
\end{array}$  
C-$\begin{array}{llcc}
12/31/X7&\quad\quad 1/5/X8&\quad\quad12/31/X7&\quad1/4/X8
\end{array}$  
D-$\begin{array}{llcc}
1/4/X8&\quad\quad 1/11/X8&\quad\quad1//X&\quad1/4/X8
\end{array}$

Accepted Answer

A) Transfer A. 
B) Transfer B. 
C) Transfer C. 
D) Transfer D. 
A) Transfer A. 
B) Transfer B. 
C) Transfer C. 
D) Transfer D.

Question 18

In which of the following areas are the auditors least likely to use the work of a specialist?

Accepted Answer

A) Determining the value of complex financial instruments. 
B) Assessing control risk for clients using complex derivatives for hedging. 
C) Determination of the existence of a complex financial instrument. 
D) Valuing an equity investment that must be valued using a complex valuation model. 
A) Determining the value of complex financial instruments. 
B) Assessing control risk for clients using complex derivatives for hedging. 
C) Determination of the existence of a complex financial instrument. 
D) Valuing an equity investment that must be valued using a complex valuation model.

Question 19

Kiting would least likely be detected by:

Accepted Answer

A) Analyzing details of large cash deposits around year-end. 
B) Comparing customer remittance advices with recorded disbursements in the cash disbursements journal. 
C) Preparing a four-column bank reconciliation for all major cash accounts. 
D) Preparing a schedule of interbank transfers by using the client's records and bank statements around year-end. 
A) Analyzing details of large cash deposits around year-end. 
B) Comparing customer remittance advices with recorded disbursements in the cash disbursements journal. 
C) Preparing a four-column bank reconciliation for all major cash accounts. 
D) Preparing a schedule of interbank transfers by using the client's records and bank statements around year-end.

Question 20

By preparing a four-column bank reconciliation ("proof of cash")for the last month of the year,an auditor will generally be able to detect:

Accepted Answer

A) An unrecorded check written at the beginning of the month which was cashed during the period covered by the reconciliation. 
B) A cash sale which was not recorded on the books and was stolen by a bookkeeper. 
C) An embezzlement of unrecorded cash receipts on receivables before they had been deposited into the bank. 
D) A credit sale which has been recorded twice in the sales journal. 
A) An unrecorded check written at the beginning of the month which was cashed during the period covered by the reconciliation. 
B) A cash sale which was not recorded on the books and was stolen by a bookkeeper. 
C) An embezzlement of unrecorded cash receipts on receivables before they had been deposited into the bank. 
D) A credit sale which has been recorded twice in the sales journal.

Which of the following is correct concerning "window dressing" for cash?

Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements?

Control over the receipt of cash sales is best achieved when two or more employees participate in each transaction.

Which of the following has made it difficult to engage in kiting in recent years?

Which of the following is the best audit procedure for the detection of lapping?

When a client engages in transactions involving derivatives,the auditor should:

Internal control over marketable securities is enhanced when:

For purposes of an audit of financial statements,electronic confirmation of cash balances:

Which of the following is not a control that generally is established over cash transactions?

An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%.This procedure most likely could indicate that:

The auditors should count small petty cash funds at year-end to make sure that balance is not overstated on the financial statements.

Mailroom personnel of a company should prepare a control listing of incoming cash receipts and deposit them intact daily.

Which of the following is not a control over cash disbursements?

Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees?

In which of the following areas are the auditors least likely to use the work of a specialist?

Kiting would least likely be detected by:

By preparing a four-column bank reconciliation ("proof of cash")for the last month of the year,an auditor will generally be able to detect:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Audit Planning, understanding the Client, assessing Risks, and Responding

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Accounts Receivable, notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property,plant,and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Reports

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, operational, and Compliance Auditing

Filters

Exam 10: Cash and Financial Investments

Which of the following is correct concerning "window dressing" for cash?

Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements?

Control over the receipt of cash sales is best achieved when two or more employees participate in each transaction.

Which of the following has made it difficult to engage in kiting in recent years?

Which of the following is the best audit procedure for the detection of lapping?

When a client engages in transactions involving derivatives,the auditor should:

Internal control over marketable securities is enhanced when:

For purposes of an audit of financial statements,electronic confirmation of cash balances:

Which of the following is not a control that generally is established over cash transactions?

An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%.This procedure most likely could indicate that:

The auditors should count small petty cash funds at year-end to make sure that balance is not overstated on the financial statements.

Mailroom personnel of a company should prepare a control listing of incoming cash receipts and deposit them intact daily.

Which of the following is not a control over cash disbursements?

Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees?

In which of the following areas are the auditors least likely to use the work of a specialist?

Kiting would least likely be detected by:

By preparing a four-column bank reconciliation ("proof of cash")for the last month of the year,an auditor will generally be able to detect:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Audit Planning, understanding the Client, assessing Risks, and Responding

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Accounts Receivable, notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property,plant,and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Reports

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, operational, and Compliance Auditing

Filters