Question 1

Prices in an active market for identical assets is a level ________ fair value estimate.

Accepted Answer

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

Question 2

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

Question 3

Which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash?

Accepted Answer

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

Question 4

The audit objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger can be tested by which of the following procedures?

Accepted Answer

A)  performing tests for kiting 
B)  receiving and testing a cutoff bank statement 
C)  proving the bank reconciliation as to additions and subtractions, including all reconciling items 
D)  examining the minutes of the board of directors for restrictions on the use of cash 
A)  performing tests for kiting 
B)  receiving and testing a cutoff bank statement 
C)  proving the bank reconciliation as to additions and subtractions, including all reconciling items 
D)  examining the minutes of the board of directors for restrictions on the use of cash

Question 5

The starting point for the verification of the balance in the general bank account is to obtain

Accepted Answer

A)  a bank reconciliation from the client. 
B)  the client's cash account from the general ledger. 
C)  a cutoff bank statement directly from the bank. 
D)  the client's year-end bank statement. 
A)  a bank reconciliation from the client. 
B)  the client's cash account from the general ledger. 
C)  a cutoff bank statement directly from the bank. 
D)  the client's year-end bank statement.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

When an audit client uses a service organization to manage their investment activity,

Accepted Answer

A)  the auditor can always rely on the internal controls of the service organization. 
B)  the auditor must state in their audit opinion that the client uses a service organization. 
C)  the auditor can rely on the internal controls of the service organization if the service organization's auditor issues a report on their internal control. 
D)  the auditor must rely on the service organization to determine the fair level 1, 2, and 3 estimates. 
A)  the auditor can always rely on the internal controls of the service organization. 
B)  the auditor must state in their audit opinion that the client uses a service organization. 
C)  the auditor can rely on the internal controls of the service organization if the service organization's auditor issues a report on their internal control. 
D)  the auditor must rely on the service organization to determine the fair level 1, 2, and 3 estimates.

Question 8

The methodology for auditing year-end cash is generally the same as the auditing for all other balance sheet accounts.

Accepted Answer

A) True 
 B)False

Question 9

A common test of details the auditor should perform with regards to determining if cash is appropriately described and presented in the financial statements is to review the Board of Director minutes and loan agreements for any restrictions on cash.

Accepted Answer

A) True 
 B)False

Question 10

When auditing the general cash account, receipt of a standard bank confirmation is the starting point for verifying the company's general cash account balance.

Accepted Answer

A) True 
 B)False

Question 11

Many of the auditor's audit procedures in the audit of cash center around the client's bank confirmations.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is a correct statement?

Accepted Answer

A)  The proof of cash receipts is a test of the balance in the cash account at a point in time. 
B)  The proof of cash disbursements is effective for discovering a check written for the incorrect amount for which the dollar amount in cash disbursements is also incorrect. 
C)  It is extremely difficult for an auditor to detect thefts of cash, especially omitted transactions and account balances. 
D)  Segregation of duties is not an important control procedure for cash in a small business. 
A)  The proof of cash receipts is a test of the balance in the cash account at a point in time. 
B)  The proof of cash disbursements is effective for discovering a check written for the incorrect amount for which the dollar amount in cash disbursements is also incorrect. 
C)  It is extremely difficult for an auditor to detect thefts of cash, especially omitted transactions and account balances. 
D)  Segregation of duties is not an important control procedure for cash in a small business.

Question 13

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 banks is referred to as kiting.

Accepted Answer

A) True 
 B)False

Question 14

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 15

When assessing risks affecting cash,

Accepted Answer

A)  if a business defers preparing bank reconciliations for long periods, the value of the control is reduced and may affect the auditor's assessment of control risk for cash. 
B)  most companies are likely to have significant client business risks affecting their cash balances. 
C)  there is a low inherent risk for the existence and completeness objectives for cash. 
D)  all of the above are accurate statements. 
A)  if a business defers preparing bank reconciliations for long periods, the value of the control is reduced and may affect the auditor's assessment of control risk for cash. 
B)  most companies are likely to have significant client business risks affecting their cash balances. 
C)  there is a low inherent risk for the existence and completeness objectives for cash. 
D)  all of the above are accurate statements.

Question 16

Positive pay reduces potential check fraud by matching account number, check number, and dollar amounts of each check presented for payment against the electronic records of checks provided by the company.

Accepted Answer

A) True 
 B)False

Question 17

The reason for testing the client's bank reconciliation is to verify whether the client's recorded bank balance is the same amount as the actual cash in bank, except for deposits in transit, checks outstanding, and other reconciling items. The information needed to complete the tests of the reconciliation is provided by the

Accepted Answer

A)  client's records and ledgers for the year under audit. 
B)  cutoff bank statement. 
C)  client's records and ledgers for the subsequent year. 
D)  canceled checks for the year under audit. 
A)  client's records and ledgers for the year under audit. 
B)  cutoff bank statement. 
C)  client's records and ledgers for the subsequent year. 
D)  canceled checks for the year under audit.

Question 18

The most important balance-related audit objectives in the audit of cash include all except which of the following?

Accepted Answer

A)  existence 
B)  accuracy 
C)  completeness 
D)  occurrence 
A)  existence 
B)  accuracy 
C)  completeness 
D)  occurrence

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

Based on the schedule of interbank transfers above, which of the cash transfers would appear as a deposit in transit 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

Exam 23: Audit of Cash and Financial Instruments

Prices in an active market for identical assets is a level ________ fair value estimate.

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

Which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash?

The audit objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger can be tested by which of the following procedures?

The starting point for the verification of the balance in the general bank account is to obtain

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

When an audit client uses a service organization to manage their investment activity,

The methodology for auditing year-end cash is generally the same as the auditing for all other balance sheet accounts.

A common test of details the auditor should perform with regards to determining if cash is appropriately described and presented in the financial statements is to review the Board of Director minutes and loan agreements for any restrictions on cash.

When auditing the general cash account, receipt of a standard bank confirmation is the starting point for verifying the company's general cash account balance.

Many of the auditor's audit procedures in the audit of cash center around the client's bank confirmations.

Which of the following is a correct statement?

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 banks is referred to as kiting.

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

When assessing risks affecting cash,

Positive pay reduces potential check fraud by matching account number, check number, and dollar amounts of each check presented for payment against the electronic records of checks provided by the company.

The most important balance-related audit objectives in the audit of cash include all except which of the following?

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

Based on the schedule of interbank transfers above, which of the cash transfers would appear as a deposit in transit on the December 31, 2015 bank reconciliation?

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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