Question 1

Which of the following balance-related objectives applies to auditing the general cash account?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)    D

Question 2

The bank reconciliation:

Accepted Answer

A)  must be done on a daily basis if the client uses electronic banking. 
B)  should be performed by someone independent of the handling or recording of cash receipts. 
C)  should be performed by someone who handles cash disbursements. 
D)  ensures that no cash has been embezzled. 
A)  must be done on a daily basis if the client uses electronic banking. 
B)  should be performed by someone independent of the handling or recording of cash receipts. 
C)  should be performed by someone who handles cash disbursements. 
D)  ensures that no cash has been embezzled. B

Question 3

The standard bank confirmation form has been agreed upon by the:

Accepted Answer

A)  SEC and FASB. 
B)  AICPA and the SEC. 
C)  SEC and the American Bankers' Association. 
D)  AICPA and the American Bankers' Association. 
A)  SEC and FASB. 
B)  AICPA and the SEC. 
C)  SEC and the American Bankers' Association. 
D)  AICPA and the American Bankers' Association. D

Question 4

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 5

The test of details of balances procedure that requires the auditor to trace the book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of:

Accepted Answer

A)  detail tie-in. 
B)  existence. 
C)  completeness. 
D)  accuracy. 
A)  detail tie-in. 
B)  existence. 
C)  completeness. 
D)  accuracy.

Question 6

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 7

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 8

When auditing financial instruments,interest income and dividends can be recomputed and compared to a public source.

Accepted Answer

A) True 
 B)False

Question 9

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 10

A factor that increases inherent risk for financial instruments is the complexity of the relevant accounting standards.

Accepted Answer

A) True 
 B)False

Question 11

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 are 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 12

A proof of cash helps the auditor determine whether all recorded cash receipts were deposited in the bank and whether all recorded cash disbursements were paid by the bank.

Accepted Answer

A) True 
 B)False

Question 13

Auditors sometimes prepare a proof of cash when the client has material internal control weaknesses in cash.List two procedures that the proof of cash determines were or were not done.

Accepted Answer

•All recorded cash receipts were deposit

Question 14

Explain kiting,and discuss how it is performed.

Accepted Answer

Kiting is the transfer of money from one

Question 15

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 16

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 17

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 18

Auditing guidance is provided for auditing accounting estimates specifically for fair values estimates as considerable auditor judgment is involved.

Accepted Answer

A) True 
 B)False

Question 19

Match six of the terms (a-k)with the descriptions/definitions provided below (1-6):
a.Bank reconciliation
b.Branch cash account
c.Cash equivalents
d.Cutoff bank statement
e.General cash account
f.Imprest payroll account
g.Imprest petty cash fund
h.Kiting
i.Proof of cash
j.Standard bank confirmation form
k.Lapping
________ 1.A fund of cash maintained within the company for small cash acquisitions,expenses,or to cash employees' checks.
________ 2.A form approved by the AICPA and American Bankers' Association through which the bank responds to the auditor about bank balance and loan information.
________ 3.Excess cash invested in short-term,highly liquid investments such as time deposits,certificates of deposit,and money market funds.
________ 4.The primary bank account for most organizations.
________ 5.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.
________ 6.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.

Accepted Answer

1.g
2.j
3.

Question 20

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.

Exam 23: Audit of Cash and Financial Instruments

Which of the following balance-related objectives applies to auditing the general cash account?

The bank reconciliation:

The standard bank confirmation form has been agreed upon by the:

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

The test of details of balances procedure that requires the auditor to trace the book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of:

A proof of cash represents:

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,interest income and dividends can be recomputed and compared to a public source.

Which of the following statements is correct?

A factor that increases inherent risk for financial instruments is the complexity of the relevant accounting standards.

A proof of cash helps the auditor determine whether all recorded cash receipts were deposited in the bank and whether all recorded cash disbursements were paid by the bank.

Auditors sometimes prepare a proof of cash when the client has material internal control weaknesses in cash.List two procedures that the proof of cash determines were or were not done.

Explain kiting,and discuss how it is performed.

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

Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation?

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

Auditing guidance is provided for auditing accounting estimates specifically for fair values estimates as considerable auditor judgment is involved.

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

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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 Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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