Question 1

Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation?

Accepted Answer

A) Duplicate payment of a vendor's invoice 
B) Billing a customer at a lower price than indicated by company policy 
C) Failure to record a collection of a note receivable by the bank on the client's behalf 
D) Payment to an employee for more than the hours actually worked 
A) Duplicate payment of a vendor's invoice 
B) Billing a customer at a lower price than indicated by company policy 
C) Failure to record a collection of a note receivable by the bank on the client's behalf 
D) Payment to an employee for more than the hours actually worked

Question 2

A proof of cash includes a reconciliation of cash receipts deposited in the bank with the cash disbursements records for a given period.

Accepted Answer

A) True 
 B)False

Question 3

Bank reconciliation audit tests are designed to detect misstatements other than through the improper payment of cash or failure to receive cash normally would not be detected as part of the tests of the bank reconciliation.List below at least THREE misstatements that are designed to be detected by bank reconciliation.

Accepted Answer

Failure to include a check that has not

Question 4

Which of the following items would not normally appear on bank reconciliations?

Accepted Answer

A) Balance per bank 
B) List of deposits in transit 
C) Outstanding deposits 
D) Outstanding checks 
A) Balance per bank 
B) List of deposits in transit 
C) Outstanding deposits 
D) Outstanding checks

Question 5

A proof of cash receipts is not useful for uncovering the theft of cash receipts or the recording and deposit of an improper amount of cash.

Accepted Answer

A) True 
 B)False

Question 6

The direct receipt of a confirmation from every bank with which the client does business is:

Accepted Answer

A) required by auditing standards for every audit. 
B) not necessary unless material fraud is suspected. 
C) recommended but not required by auditing standards. 
D) necessary for every audit except when there are an unusually large number of active accounts. 
A) required by auditing standards for every audit. 
B) not necessary unless material fraud is suspected. 
C) recommended but not required by auditing standards. 
D) necessary for every audit except when there are an unusually large number of active accounts.

Question 7

Completeness is an important objective for derivative financial instruments.

Accepted Answer

A) True 
 B)False

Question 8

A proof of cash involves a combination of substantive tests of transactions and tests of details of balances.

Accepted Answer

A) True 
 B)False

Question 9

The most important objectives for financial instruments are existence and consistency.

Accepted Answer

A) True 
 B)False

Question 10

Auditors will often prepare a proof of cash when the client has material internal control weaknesses in cash receipts and cash disbursements.The purpose of the proof of cash is to determine the client's accounting records for cash are reliable.List below the four requirements the proof of cash is designed to provide for the auditor.

Accepted Answer

All recorded cash receipts were deposite

Question 11

List two common tests of details of balances procedures the auditor would perform when testing for the balance-related audit objective of realizable value.

Accepted Answer

Verify quoted market prices
Test managem

Question 12

Auditors are not always required to obtain bank confirmations.

Accepted Answer

A) True 
 B)False

Question 13

The auditor must extend the audit procedures in the audit of year-end cash when there are inadequate internal controls.

Accepted Answer

A) True 
 B)False

Question 14

The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of:

Accepted Answer

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

Question 15

A factor that increases inherent risk for financial instruments is the complexity of the relevant accounting standards.

Accepted Answer

A) True 
 B)False

Question 16

Auditors sometimes prepare a proof of cash when the client has material internal control weaknesses in cash.List two procedures that the proof of cash determines were or were not done.

Accepted Answer

•All recorded cash receipts were deposit

Question 17

Ordinarily, all deposits-in-transit listed on the year-end bank reconciliation should appear as deposits on the cutoff bank statement.

Accepted Answer

A) True 
 B)False

Question 18

Analytical procedures may be used to assess the year-end balances for financial instruments.

Accepted Answer

A) True 
 B)False

Question 19

Listing all bank transfers made a few days before and after the balance sheet date and tracing each to the accounting records for proper recording is a useful approach to test for:

Accepted Answer

A) kiting. 
B) lapping. 
C) income smoothing. 
D) channel stuffing. 
A) kiting. 
B) lapping. 
C) income smoothing. 
D) channel stuffing.

Question 20

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 indicates an error in cash cutoff at December 31, 2013?

Accepted Answer

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

Exam 23: Audit of Cash and Financial Instruments

Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation?

A proof of cash includes a reconciliation of cash receipts deposited in the bank with the cash disbursements records for a given period.

Which of the following items would not normally appear on bank reconciliations?

A proof of cash receipts is not useful for uncovering the theft of cash receipts or the recording and deposit of an improper amount of cash.

The direct receipt of a confirmation from every bank with which the client does business is:

Completeness is an important objective for derivative financial instruments.

A proof of cash involves a combination of substantive tests of transactions and tests of details of balances.

The most important objectives for financial instruments are existence and consistency.

List two common tests of details of balances procedures the auditor would perform when testing for the balance-related audit objective of realizable value.

Auditors are not always required to obtain bank confirmations.

The auditor must extend the audit procedures in the audit of year-end cash when there are inadequate internal controls.

The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of:

A factor that increases inherent risk for financial instruments is the complexity of the relevant accounting standards.

Auditors sometimes prepare a proof of cash when the client has material internal control weaknesses in cash.List two procedures that the proof of cash determines were or were not done.

Ordinarily, all deposits-in-transit listed on the year-end bank reconciliation should appear as deposits on the cutoff bank statement.

Analytical procedures may be used to assess the year-end balances for financial instruments.

Listing all bank transfers made a few days before and after the balance sheet date and tracing each to the accounting records for proper recording is a useful approach to test for:

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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