Question 1

Which of the following is not included in Phase I of the auditing of year-end general cash balances?

Accepted Answer

A)  Identify client business risks affecting cash. 
B)  Design and perform tests of controls and substantive tests of transactions. 
C)  Set performance materiality and assess inherent risk. 
D)  Assess control risk. 
A)  Identify client business risks affecting cash. 
B)  Design and perform tests of controls and substantive tests of transactions. 
C)  Set performance materiality and assess inherent risk. 
D)  Assess control risk.

Question 2

A proof of cash is not an effective procedure for identifying which of the following types of misstatements?

Accepted Answer

A)  All recorded disbursements were paid by the bank. 
B)  All recorded cash receipts were deposited. 
C)  All amounts that were paid by the bank were recorded. 
D)  Some checks were written for incorrect amounts. 
A)  All recorded disbursements were paid by the bank. 
B)  All recorded cash receipts were deposited. 
C)  All amounts that were paid by the bank were recorded. 
D)  Some checks were written for incorrect amounts.

Question 3

When auditing financial instruments, analytical procedures can be used to

Accepted Answer

A)  test the reasonableness of interest and dividend income. 
B)  test the year-end balance. 
C)  determine if the financial instruments were properly valued. 
D)  determine if the gain or loss on the sales were properly computed. 
A)  test the reasonableness of interest and dividend income. 
B)  test the year-end balance. 
C)  determine if the financial instruments were properly valued. 
D)  determine if the gain or loss on the sales were properly computed.

Question 4

Based on the schedule of interbank transfers above, which of the cash transfers would not appear as an outstanding check on the December 31, 2015 bank reconciliation?

Accepted Answer

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

Question 5

Auditors are likely to prepare a proof of cash when the client has

Accepted Answer

A)  material internal control weaknesses in cash. 
B)  material internal control weaknesses in accounts receivable and revenue. 
C)  material internal control weaknesses in accounts payable and inventory. 
D)  material internal control weaknesses in payroll. 
A)  material internal control weaknesses in cash. 
B)  material internal control weaknesses in accounts receivable and revenue. 
C)  material internal control weaknesses in accounts payable and inventory. 
D)  material internal control weaknesses in payroll.

Question 6

Cutoff is more important in testing transactions as a client may want to record a gain or a loss on the sale at the end of the year.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Explain what is meant by a cutoff bank statement, and discuss the purpose of the cutoff bank statement in the audit of cash.

Accepted Answer

A cutoff bank statement is a partial-per

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Cash is the only account included in every cycle except inventory and warehousing.

Accepted Answer

A) True 
 B)False

Question 11

An auditor is reviewing the minutes of board meetings to determine whether any securities are pledged as collateral. This test of the detail of balances relates to the audit objective of

Accepted Answer

A)  rights. 
B)  cutoff. 
C)  realizable value. 
D)  classification. 
A)  rights. 
B)  cutoff. 
C)  realizable value. 
D)  classification.

Question 12

Match between columns
                        Premises: the primary bank account for most organizations
the transfer of money from one bank account to another and improperly recording the transfer so that the amount is recorded as an asset in both accounts
the document usually prepared by client personnel of the differences between the cash balance recorded in the general ledger and the amount in the bank account
a form approved by the AICPA and American Bankers' Association through which the bank responds to the auditor about bank balance and loan information
a fund of cash maintained within the company for small cash acquisitions expenses or to cash employees' checks
excess cash invested in short-term highly liquid investments such as time deposits certificates of deposit and money market funds

Accepted Answer

The Answer of bank reconciliation and cash equivalents and imprest is...

Question 13

Examples of cash equivalents include time deposits, certificates of deposit, and marketable securities.

Accepted Answer

A) True 
 B)False

Question 14

If an auditor waits until the subsequent period bank statement is available to verify reconciling items, it is primarily a test for

Accepted Answer

A)  errors. 
B)  omissions. 
C)  kiting. 
D)  intentional misstatements. 
A)  errors. 
B)  omissions. 
C)  kiting. 
D)  intentional misstatements.

Question 15

Which of the following cycles does not affect cash in bank?

Accepted Answer

A)  capital acquisitions cycle 
B)  inventory and warehousing 
C)  payroll and personnel cycle 
D)  acquisitions and disbursements 
A)  capital acquisitions cycle 
B)  inventory and warehousing 
C)  payroll and personnel cycle 
D)  acquisitions and disbursements

Question 16

When auditing financial instruments, a confirmation is sent to the broker-dealer

Accepted Answer

A)  only if the client has poor internal controls. 
B)  to confirm interest and dividends. 
C)  to provide assurance on realizable value. 
D)  to confirm year-end holdings. 
A)  only if the client has poor internal controls. 
B)  to confirm interest and dividends. 
C)  to provide assurance on realizable value. 
D)  to confirm year-end holdings.

Question 17

Procedures that may uncover fraud in the cash receipts area include

Accepted Answer

A)  confirmation of accounts payable. 
B)  comparison of purchase orders to invoices. 
C)  tests performed to detect lapping. 
D)  all of the above. 
A)  confirmation of accounts payable. 
B)  comparison of purchase orders to invoices. 
C)  tests performed to detect lapping. 
D)  all of the above.

Question 18

The test of details of balances procedure that requires the auditor to foot the outstanding check and electronic payment list and deposits in transit is an attempt to satisfy which audit objective?

Accepted Answer

A)  cutoff 
B)  presentation and disclosure 
C)  detail tie-in 
D)  completeness 
A)  cutoff 
B)  presentation and disclosure 
C)  detail tie-in 
D)  completeness

Question 19

List at least three misstatements that are designed to be detected by a bank reconciliation.

Accepted Answer

1. Failure to include a check that has n

Question 20

When the auditor believes the year-end bank reconciliation may be intentionally misstated, it is appropriate to perform extended tests of the year-end bank reconciliation. Assuming the client has an October 31 year-end, these extended tests would not include

Accepted Answer

A)  comparing all September 30 reconciling items with canceled checks and other documents in the October bank statement. 
B)  comparing all canceled checks and deposit slips in the October bank statement with the October cash disbursements and receipts records. 
C)  carrying out all proper procedures subsequent to the end of the year with the use of the bank cutoff statement. 
D)  determining that all outstanding checks had cleared by the date of the bank cutoff statement. 
A)  comparing all September 30 reconciling items with canceled checks and other documents in the October bank statement. 
B)  comparing all canceled checks and deposit slips in the October bank statement with the October cash disbursements and receipts records. 
C)  carrying out all proper procedures subsequent to the end of the year with the use of the bank cutoff statement. 
D)  determining that all outstanding checks had cleared by the date of the bank cutoff statement.

Exam 23: Audit of Cash and Financial Instruments

Which of the following is not included in Phase I of the auditing of year-end general cash balances?

A proof of cash is not an effective procedure for identifying which of the following types of misstatements?

When auditing financial instruments, analytical procedures can be used to

Based on the schedule of interbank transfers above, which of the cash transfers would not appear as an outstanding check on the December 31, 2015 bank reconciliation?

Auditors are likely to prepare a proof of cash when the client has

Cutoff is more important in testing transactions as a client may want to record a gain or a loss on the sale at the end of the year.

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

Explain what is meant by a cutoff bank statement, and discuss the purpose of the cutoff bank statement in the audit of cash.

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

Cash is the only account included in every cycle except inventory and warehousing.

An auditor is reviewing the minutes of board meetings to determine whether any securities are pledged as collateral. This test of the detail of balances relates to the audit objective of

Examples of cash equivalents include time deposits, certificates of deposit, and marketable securities.

If an auditor waits until the subsequent period bank statement is available to verify reconciling items, it is primarily a test for

Which of the following cycles does not affect cash in bank?

When auditing financial instruments, a confirmation is sent to the broker-dealer

Procedures that may uncover fraud in the cash receipts area include

The test of details of balances procedure that requires the auditor to foot the outstanding check and electronic payment list and deposits in transit is an attempt to satisfy which audit objective?

List at least three misstatements that are designed to be detected by a bank reconciliation.

When the auditor believes the year-end bank reconciliation may be intentionally misstated, it is appropriate to perform extended tests of the year-end bank reconciliation. Assuming the client has an October 31 year-end, these extended tests would not include

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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