Question 1

Examining brokers' advices for a sample of securities purchased during the year is a test for the assertion of:

Accepted Answer

A) completeness. 
B) disclosure. 
C) valuation and allocation. 
D) rights and obligations. 
A) completeness. 
B) disclosure. 
C) valuation and allocation. 
D) rights and obligations.

Question 2

An auditor usually tests the reasonableness of dividend income from investments in stock of public companies by computing the amounts that should have been received by referring to:

Accepted Answer

A) comparisons of current-year dividend income with the reported income from prior years. 
B) stock indentures published by corporate transfer agents. 
C) stock ledgers maintained by independent registrars. 
D) annual audited financial statements issued by the investee companies. 
A) comparisons of current-year dividend income with the reported income from prior years. 
B) stock indentures published by corporate transfer agents. 
C) stock ledgers maintained by independent registrars. 
D) annual audited financial statements issued by the investee companies.

Question 3

It is generally more efficient to follow a substantive strategy for auditing investments.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following control activities would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

Accepted Answer

A) Senior management verifies that securities in the bank safe-deposit box are registered in the entity's name. 
B) Maintenance of a securities ledger that records all securities owned by the entity. 
C) The treasurer vouches the acquisition of securities by comparing brokers' advices with canceled checks. 
D) The controller compares the current market prices of recorded investments with the brokers' advices on file. 
A) Senior management verifies that securities in the bank safe-deposit box are registered in the entity's name. 
B) Maintenance of a securities ledger that records all securities owned by the entity. 
C) The treasurer vouches the acquisition of securities by comparing brokers' advices with canceled checks. 
D) The controller compares the current market prices of recorded investments with the brokers' advices on file.

Question 5

The auditor's use of analytical procedures for auditing cash is limited.

Accepted Answer

A) True 
 B)False

Question 6

An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily to:

Accepted Answer

A) verify the cash balance reported on the bank confirmation inquiry form. 
B) verify reconciling items on the entity's bank reconciliation. 
C) detect lapping. 
D) detect kiting. 
A) verify the cash balance reported on the bank confirmation inquiry form. 
B) verify reconciling items on the entity's bank reconciliation. 
C) detect lapping. 
D) detect kiting.

Question 7

Match the segregation of duties for investments with the misstatement (due to error or fraud)it can help prevent. 
-The valuation-monitoring function is separate from the acquisition function

Accepted Answer

A) An individual can improperly record securities values or not report the values to management 
B) An individual can conceal a theft of securities 
C) An individual can conceal any defalcation that would normally be detected by reconciliation of subsidiary records with general ledger control accounts 
D) An individual can make fictitious transactions 
A) An individual can improperly record securities values or not report the values to management 
B) An individual can conceal a theft of securities 
C) An individual can conceal any defalcation that would normally be detected by reconciliation of subsidiary records with general ledger control accounts 
D) An individual can make fictitious transactions

Question 8

An interbank transfer schedule:

Accepted Answer

A) is another name for the proof of cash. 
B) helps the auditor test for kiting. 
C) is on a standard bank confirmation. 
D) is used to examine entity bank reconciliations. 
A) is another name for the proof of cash. 
B) helps the auditor test for kiting. 
C) is on a standard bank confirmation. 
D) is used to examine entity bank reconciliations.

Question 9

The least crucial element of internal control over cash is:

Accepted Answer

A) separation of cash record-keeping from custody of cash. 
B) preparation of the monthly bank reconciliation. 
C) batch processing of checks. 
D) separation of cash receipts from cash disbursements. 
A) separation of cash record-keeping from custody of cash. 
B) preparation of the monthly bank reconciliation. 
C) batch processing of checks. 
D) separation of cash receipts from cash disbursements.

Question 10

In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the entity's name, an auditor most likely gathers evidence in support of management's financial statement assertions regarding:

Accepted Answer

A) existence. 
B) rights and obligations. 
C) completeness. 
D) existence, rights and obligations, and completeness. 
A) existence. 
B) rights and obligations. 
C) completeness. 
D) existence, rights and obligations, and completeness.

Question 11

In establishing the existence and ownership of a long-term investment in stock of a publicly traded company, an auditor should inspect the securities or:

Accepted Answer

A) correspond with the investee company to verify the number of shares owned. 
B) inspect the audited financial statements of the investee company. 
C) confirm the number of shares owned that are held by an independent custodian. 
D) determine that the investment is carried at the lower-of-cost-or-market. 
A) correspond with the investee company to verify the number of shares owned. 
B) inspect the audited financial statements of the investee company. 
C) confirm the number of shares owned that are held by an independent custodian. 
D) determine that the investment is carried at the lower-of-cost-or-market.

Question 12

The first step in auditing petty cash is to gain an understanding of the entity's controls over petty cash. Describe some important controls an entity should have over its petty cash fund.

Accepted Answer

1. Accounts payable clerks should review

Question 13

An imprest cash account is used for specific purposes and contains a stipulated amount of money.

Accepted Answer

A) True 
 B)False

Question 14

If the entity maintains custody of its investments, the auditor normally examines the actual securities.

Accepted Answer

A) True 
 B)False

Question 15

An imprest cash account is:

Accepted Answer

A) used for investing in marketable securities. 
B) the principal cash account for an entity. 
C) one that contains a stipulated amount of money and is used for limited purposes. 
D) the principal checking account for a branch of an entity. 
A) used for investing in marketable securities. 
B) the principal cash account for an entity. 
C) one that contains a stipulated amount of money and is used for limited purposes. 
D) the principal checking account for a branch of an entity.

Question 16

Level 1 inputs are more risky and difficult to audit than Level 3 inputs to a valuation model.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting between intercompany banks?

Accepted Answer

A) Review the composition of authenticated deposit slips. 
B) Review subsequent bank statements received directly from the banks. 
C) Prepare a schedule of bank transfers. 
D) Prepare year-end bank reconciliations. 
A) Review the composition of authenticated deposit slips. 
B) Review subsequent bank statements received directly from the banks. 
C) Prepare a schedule of bank transfers. 
D) Prepare year-end bank reconciliations.

Question 18

If fraud is suspected, auditors may complete all of the following procedures except:

Accepted Answer

A) testing for kiting. 
B) footing the bank reconciliation and the outstanding checks listing. 
C) performing a proof of cash. 
D) performing extended bank reconciliation procedures, including detailed examination of reconciling items. 
A) testing for kiting. 
B) footing the bank reconciliation and the outstanding checks listing. 
C) performing a proof of cash. 
D) performing extended bank reconciliation procedures, including detailed examination of reconciling items.

Question 19

The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town bank. How would the auditor discover this manipulation?

Accepted Answer

A) Confirming all December 31 bank balances. 
B) Counting the cash working fund at the close of business on December 31. 
C) Preparing independent bank reconciliations as of December 31. 
D) Preparing and detail testing a bank transfer schedule. 
A) Confirming all December 31 bank balances. 
B) Counting the cash working fund at the close of business on December 31. 
C) Preparing independent bank reconciliations as of December 31. 
D) Preparing and detail testing a bank transfer schedule.

Question 20

All of the following can assist the auditor in testing the existence assertion for investment securities except:

Accepted Answer

A) physical examination. 
B) comparing fair value to cost. 
C) confirmation with the issuer. 
D) confirmation with the custodian. 
A) physical examination. 
B) comparing fair value to cost. 
C) confirmation with the issuer. 
D) confirmation with the custodian.

Exam 16: Auditing the Financinginvesting Process: Cash and Investments

Examining brokers' advices for a sample of securities purchased during the year is a test for the assertion of:

An auditor usually tests the reasonableness of dividend income from investments in stock of public companies by computing the amounts that should have been received by referring to:

It is generally more efficient to follow a substantive strategy for auditing investments.

Which of the following control activities would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

The auditor's use of analytical procedures for auditing cash is limited.

An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily to:

Match the segregation of duties for investments with the misstatement (due to error or fraud)it can help prevent. -The valuation-monitoring function is separate from the acquisition function

An interbank transfer schedule:

The least crucial element of internal control over cash is:

In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the entity's name, an auditor most likely gathers evidence in support of management's financial statement assertions regarding:

In establishing the existence and ownership of a long-term investment in stock of a publicly traded company, an auditor should inspect the securities or:

The first step in auditing petty cash is to gain an understanding of the entity's controls over petty cash. Describe some important controls an entity should have over its petty cash fund.

An imprest cash account is used for specific purposes and contains a stipulated amount of money.

If the entity maintains custody of its investments, the auditor normally examines the actual securities.

An imprest cash account is:

Level 1 inputs are more risky and difficult to audit than Level 3 inputs to a valuation model.

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting between intercompany banks?

If fraud is suspected, auditors may complete all of the following procedures except:

The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town bank. How would the auditor discover this manipulation?

All of the following can assist the auditor in testing the existence assertion for investment securities except:

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

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