Question 1

In addition to confirming bank balances of your audit client, a bank confirmation would normally contain

Accepted Answer

A)  the client's bank loans with due date, interest rate, and collateral requested. 
B)  the client's credit history as regards to paying back loans. 
C)  the client's managements bank account information. 
D)  the client's business prospects. 
A)  the client's bank loans with due date, interest rate, and collateral requested. 
B)  the client's credit history as regards to paying back loans. 
C)  the client's managements bank account information. 
D)  the client's business prospects. A

Question 2

The majority of financial instruments are valued using

Accepted Answer

A)  cost. 
B)  fair value estimates. 
C)  lower of cost or market. 
D)  realizable value. 
A)  cost. 
B)  fair value estimates. 
C)  lower of cost or market. 
D)  realizable value. B

Question 3

Tracing outstanding checks to subsequent period bank statements tests the cutoff audit objective.

Accepted Answer

A) True 
 B)False  True

Question 4

A major consideration in the audit of the general cash balance is the possibility of fraud. The auditor must extend his or her procedures in the audit of year-end cash to determine the possibility of a material fraud when there are

Accepted Answer

A)  large cash balances at the end of the year. 
B)  large cash receipts and disbursements during the year. 
C)  no imprest accounts used for payroll. 
D)  inadequate internal controls. 
A)  large cash balances at the end of the year. 
B)  large cash receipts and disbursements during the year. 
C)  no imprest accounts used for payroll. 
D)  inadequate internal controls.

Question 5

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

1. Verify quoted market prices.
2. Test

Question 6

The process of transferring money from one bank account to another and improperly recording the transaction is referred to as

Accepted Answer

A)  kiting. 
B)  lapping. 
C)  scamming. 
D)  embezzling. 
A)  kiting. 
B)  lapping. 
C)  scamming. 
D)  embezzling.

Question 7

Which of the following statements is correct?

Accepted Answer

A)  Bank personnel are responsible for providing reasonable assurance that a response to a bank confirmation is accurate. 
B)  Bank personnel are responsible for providing complete assurance that a bank confirmation is complete. 
C)  Bank personnel are not responsible for searching their records for bank balances or loans beyond those included on the bank confirmation. 
D)  Bank personnel are not responsible for providing information related to interest on the bank confirmation. 
A)  Bank personnel are responsible for providing reasonable assurance that a response to a bank confirmation is accurate. 
B)  Bank personnel are responsible for providing complete assurance that a bank confirmation is complete. 
C)  Bank personnel are not responsible for searching their records for bank balances or loans beyond those included on the bank confirmation. 
D)  Bank personnel are not responsible for providing information related to interest on the bank confirmation.

Question 8

Which of the following statements is correct?

Accepted Answer

A)  Auditors must obtain bank confirmations for audits of nonpublic entities. 
B)  Auditors are required to obtain bank confirmations under international auditing standards. 
C)  Auditing standards do not address specific requirements regarding bank confirmations. 
D)  Auditing standards do not require bank confirmations. 
A)  Auditors must obtain bank confirmations for audits of nonpublic entities. 
B)  Auditors are required to obtain bank confirmations under international auditing standards. 
C)  Auditing standards do not address specific requirements regarding bank confirmations. 
D)  Auditing standards do not require bank confirmations.

Question 9

A schedule of investment activity will include all of the following except

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 13

When auditing financial instruments,

Accepted Answer

A)  the auditor usually performs more extensive substantive testing to reduce reliance on controls. 
B)  analytical procedures are critical in assessing the year-end balances for financial instruments. 
C)  the auditor relies on statements and broker's advices from investment managers to test purchases and sales as long as controls were deemed effective. 
D)  tests of transactions are generally not performed. 
A)  the auditor usually performs more extensive substantive testing to reduce reliance on controls. 
B)  analytical procedures are critical in assessing the year-end balances for financial instruments. 
C)  the auditor relies on statements and broker's advices from investment managers to test purchases and sales as long as controls were deemed effective. 
D)  tests of transactions are generally not performed.

Question 14

The auditors test the client's monthly bank reconciliation to verify whether the client's recorded bank balance is the same amount as the actual cash in the bank. Which of the following would not explain a difference between the company's cash balance and the bank's balance for the client?

Accepted Answer

A)  deposits in transit 
B)  Checks are written by the client in the same month the checks clear the bank. 
C)  other reconciling items 
D)  outstanding checks 
A)  deposits in transit 
B)  Checks are written by the client in the same month the checks clear the bank. 
C)  other reconciling items 
D)  outstanding checks

Question 15

Instead of receiving a cutoff bank statement or if online access to client bank account information is not available to the auditor, auditors can wait until the subsequent period bank statement is available to verify reconciling items. Discuss the purpose of reviewing the subsequent period bank statement and list the verifications the auditor performs on this bank statement.

Accepted Answer

The purpose of such a proof is to test w

Question 16

A proof of cash represents

Accepted Answer

A)  a test of controls and substantive test of transactions. 
B)  a substantive test of transactions. 
C)  a substantive test of transactions and test of details of balances. 
D)  a test of details of balances. 
A)  a test of controls and substantive test of transactions. 
B)  a substantive test of transactions. 
C)  a substantive test of transactions and test of details of balances. 
D)  a test of details of balances.

Question 17

In testing the year-end balance in the general cash account, the auditor must accumulate sufficient appropriate evidence to evaluate whether cash, as stated on the balance sheet, is fairly stated and properly disclosed in accordance with six of the nine balance-related audit objectives used for all tests of details of balances. Name those six audit objectives.

Accepted Answer

Existence; completen

Question 18

The auditor is testing for the balance-related audit objective of detail tie-in when they

Accepted Answer

A)  prove the schedule of investment activity as to additions and subtractions. 
B)  perform a physical inspection of the security. 
C)  verify the quoted market prices. 
D)  test management's assumptions related to valuation. 
A)  prove the schedule of investment activity as to additions and subtractions. 
B)  perform a physical inspection of the security. 
C)  verify the quoted market prices. 
D)  test management's assumptions related to valuation.

Question 19

Cash is important because of its susceptibility to theft, and cash can be significantly misstated as illustrated in the China Media Express case.

Accepted Answer

A) True 
 B)False

Question 20

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

1. All recorded cash receipts were depos

Exam 23: Audit of Cash and Financial Instruments

In addition to confirming bank balances of your audit client, a bank confirmation would normally contain

The majority of financial instruments are valued using

Tracing outstanding checks to subsequent period bank statements tests the cutoff audit objective.

A major consideration in the audit of the general cash balance is the possibility of fraud. The auditor must extend his or her procedures in the audit of year-end cash to determine the possibility of a material fraud when there are

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

The process of transferring money from one bank account to another and improperly recording the transaction is referred to as

Which of the following statements is correct?

Which of the following statements is correct?

A schedule of investment activity will include all of the following except

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

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

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.

When auditing financial instruments,

The auditors test the client's monthly bank reconciliation to verify whether the client's recorded bank balance is the same amount as the actual cash in the bank. Which of the following would not explain a difference between the company's cash balance and the bank's balance for the client?

A proof of cash represents

The auditor is testing for the balance-related audit objective of detail tie-in when they

Cash is important because of its susceptibility to theft, and cash can be significantly misstated as illustrated in the China Media Express case.

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 Materiality

Assessing the Risk of Material Misstatement

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

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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