Question 1

Which is not an important objective for financial instruments?

Accepted Answer

A) existence 
B) cutoff 
C) accuracy 
D) realizable value 
A) existence 
B) cutoff 
C) accuracy 
D) realizable value

Question 2

Presentation and disclosure objectives are important when auditing financial instruments.

Accepted Answer

A) True 
 B)False

Question 3

Tests related to realizable value will vary according to the type of security and the associated accounting standard.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following would normally be discovered as part of the audit of the bank reconciliation?

Accepted Answer

A) Failure to bill a customer 
B) Failure to include a deposit in transit on the bank reconciliation 
C) Duplicate payment of a vendor's invoice 
D) Payment to an employee for more hours than she worked 
A) Failure to bill a customer 
B) Failure to include a deposit in transit on the bank reconciliation 
C) Duplicate payment of a vendor's invoice 
D) Payment to an employee for more hours than she worked

Question 5

The general cash account is considered a significant account in almost all audits:

Accepted Answer

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

Question 6

Explain kiting, and discuss how it is performed.

Accepted Answer

Kiting is the transfer of money from one

Question 7

A proof of cash includes four reconciliation tasks.List below two of those tasks.

Accepted Answer

1.Reconcile the balance on the bank stat

Question 8

The standard bank confirmation form has been agreed upon by the:

Accepted Answer

A) SEC and FASB. 
B) AICPA and the SEC. 
C) SEC and the American Bankers' Association. 
D) AICPA and the American Bankers' Association. 
A) SEC and FASB. 
B) AICPA and the SEC. 
C) SEC and the American Bankers' Association. 
D) AICPA and the American Bankers' Association.

Question 9

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

Accepted Answer

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

Question 10

Internal controls over year-end cash balances in the general account can be divided into two categories.List the two below.

Accepted Answer

1.Controls over transactions c

Question 11

All of the following are correct statements regarding business risk and financial instruments except for:

Accepted Answer

A) Business risks associated with financial instruments will vary depending of the aggressiveness of a company's investing activity. 
B) Business risk will be higher for companies investing in less liquid securities. 
C) Financial services firms are exposed to very little risk with their financial instruments. 
D) Business risk for a company will be higher when investments represent a greater proportion of total assets. 
A) Business risks associated with financial instruments will vary depending of the aggressiveness of a company's investing activity. 
B) Business risk will be higher for companies investing in less liquid securities. 
C) Financial services firms are exposed to very little risk with their financial instruments. 
D) Business risk for a company will be higher when investments represent a greater proportion of total assets.

Question 12

To test the client's list of outstanding checks on the bank reconciliation for completeness, the auditor should trace from the list to the checks included with the cutoff bank statement.

Accepted Answer

A) True 
 B)False

Question 13

Securities and contracts will typically be held by the broker-dealer.

Accepted Answer

A) True 
 B)False

Question 14

The following information applies to the questions below:
Listed below are four interbank cash transfers, indicated by the numbers 1, 2, 3, and 4, of a client for late December 2013 and early January 2014:
  
-Based on the schedule of interbank transfers above, which of the cash transfers would not appear as an outstanding check on the December 31, 2013 bank reconciliation?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 15

An imprest petty cash fund:

Accepted Answer

A) is a bank account. 
B) is used for large, unusual purchases. 
C) is usually reimbursed at least once a week for good internal control. 
D) is being replaced by pre-approved purchase cards in many companies. 
A) is a bank account. 
B) is used for large, unusual purchases. 
C) is usually reimbursed at least once a week for good internal control. 
D) is being replaced by pre-approved purchase cards in many companies.

Question 16

A schedule of investment activity will include all but:

Accepted Answer

A) the purchases and sales. 
B) ending balances. 
C) the gains and losses. 
D) the opinion of management as to the suitability of the investment to the company. 
A) the purchases and sales. 
B) ending balances. 
C) the gains and losses. 
D) the opinion of management as to the suitability of the investment to the company.

Question 17

There is significant potential for misstatements and misclassification of financial instruments.

Accepted Answer

A) True 
 B)False

Question 18

When auditing financial instruments, interest income and dividends can be recomputed and compared to a public source.

Accepted Answer

A) True 
 B)False

Question 19

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 checks to subsequent period bank statements. 
C) Perform a four-column proof of cash. 
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 checks to subsequent period bank statements. 
C) Perform a four-column proof of cash. 
D) Review financial statements to make sure that material savings accounts and certificates of deposit are disclosed separately.

Question 20

Which of the following is not a "cash equivalent"?

Accepted Answer

A) Time deposits 
B) Certificates of deposit 
C) Money market funds 
D) Marketable securities 
A) Time deposits 
B) Certificates of deposit 
C) Money market funds 
D) Marketable securities

Exam 23: Audit of Cash and Financial Instruments

Which is not an important objective for financial instruments?

Presentation and disclosure objectives are important when auditing financial instruments.

Tests related to realizable value will vary according to the type of security and the associated accounting standard.

Which of the following would normally be discovered as part of the audit of the bank reconciliation?

The general cash account is considered a significant account in almost all audits:

Explain kiting, and discuss how it is performed.

A proof of cash includes four reconciliation tasks.List below two of those tasks.

The standard bank confirmation form has been agreed upon by the:

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

Internal controls over year-end cash balances in the general account can be divided into two categories.List the two below.

All of the following are correct statements regarding business risk and financial instruments except for:

To test the client's list of outstanding checks on the bank reconciliation for completeness, the auditor should trace from the list to the checks included with the cutoff bank statement.

Securities and contracts will typically be held by the broker-dealer.

An imprest petty cash fund:

A schedule of investment activity will include all but:

There is significant potential for misstatements and misclassification of financial instruments.

When auditing financial instruments, interest income and dividends can be recomputed and compared to a public source.

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

Which of the following is not a "cash equivalent"?

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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