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

The auditor needs to have an understanding of the client's internal controls over determining fair value estimates.

Accepted Answer

A) True 
 B)False

Question 3

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 4

The bank reconciliation control is enhanced when a qualified employee reviews the monthly reconciliation as soon as possible after its completion.

Accepted Answer

A) True 
 B)False

Question 5

A statement near the bottom of the standard bank confirmation form requires the bank to inform auditors of open lines of credit and compensating balance requirements.

Accepted Answer

A) True 
 B)False

Question 6

Branch bank accounts are useful for building banking relations in local communities.

Accepted Answer

A) True 
 B)False

Question 7

Because cash is the most desirable asset for people to steal, it has a higher

Accepted Answer

A)  control risk. 
B)  inherent risk. 
C)  detection risk. 
D)  liquidity risk. 
A)  control risk. 
B)  inherent risk. 
C)  detection risk. 
D)  liquidity risk.

Question 8

Tests for kiting are performed using only a schedule of intrabank transfers.

Accepted Answer

A) True 
 B)False

Question 9

Factors that impact inherent risk of financial instruments do not include

Accepted Answer

A)  management's objectives related to investment activity. 
B)  the complexity of the securities. 
C)  the cost of the securities. 
D)  the company's prior experience with certain investments. 
A)  management's objectives related to investment activity. 
B)  the complexity of the securities. 
C)  the cost of the securities. 
D)  the company's prior experience with certain investments.

Question 10

Financial instruments

Accepted Answer

A)  include debt securities and money market funds. 
B)  such as derivatives can be used as a way of hedging. 
C)  must be classified as held-to-maturity securities. 
D)  All of the above are correct. 
A)  include debt securities and money market funds. 
B)  such as derivatives can be used as a way of hedging. 
C)  must be classified as held-to-maturity securities. 
D)  All of the above are correct.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

The three most important audit objectives for cash are accuracy, existence, and classification.

Accepted Answer

A) True 
 B)False

Question 13

A proof of cash disbursements is not effective for discovering checks written for an improper amount, fraudulent checks, or misstatements in which the dollar amount appearing in the cash disbursements records is incorrect.

Accepted Answer

A) True 
 B)False

Question 14

The majority of financial instruments are valued using fair value estimates.

Accepted Answer

A) True 
 B)False

Question 15

Financial instruments, which include investments in debt and equity securities as well as derivative instruments, vary in significance across audit clients.

Accepted Answer

A) True 
 B)False

Question 16

A proof of cash is effective at identifying which of the following misstatements?

Accepted Answer

A)  checks written for an improper amount 
B)  checks issued to invalid vendors 
C)  fraudulent checks 
D)  checks recorded in the books for an amount different from that on the check 
A)  checks written for an improper amount 
B)  checks issued to invalid vendors 
C)  fraudulent checks 
D)  checks recorded in the books for an amount different from that on the check

Question 17

The starting point for the verification of the balance in the general bank account is to obtain a bank cut-off statement.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Auditors are not always required to obtain bank confirmations.

Accepted Answer

A) True 
 B)False

Question 20

The auditor is generally concerned about the realizable value and the rights to cash.

Accepted Answer

A) True 
 B)False

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?

The auditor needs to have an understanding of the client's internal controls over determining fair value estimates.

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

The bank reconciliation control is enhanced when a qualified employee reviews the monthly reconciliation as soon as possible after its completion.

A statement near the bottom of the standard bank confirmation form requires the bank to inform auditors of open lines of credit and compensating balance requirements.

Branch bank accounts are useful for building banking relations in local communities.

Because cash is the most desirable asset for people to steal, it has a higher

Tests for kiting are performed using only a schedule of intrabank transfers.

Factors that impact inherent risk of financial instruments do not include

Financial instruments

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

The three most important audit objectives for cash are accuracy, existence, and classification.

A proof of cash disbursements is not effective for discovering checks written for an improper amount, fraudulent checks, or misstatements in which the dollar amount appearing in the cash disbursements records is incorrect.

The majority of financial instruments are valued using fair value estimates.

Financial instruments, which include investments in debt and equity securities as well as derivative instruments, vary in significance across audit clients.

A proof of cash is effective at identifying which of the following misstatements?

The starting point for the verification of the balance in the general bank account is to obtain a bank cut-off statement.

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

Auditors are not always required to obtain bank confirmations.

The auditor is generally concerned about the realizable value and the rights to cash.

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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