Question 1

Auditors usually design bank confirmations that address the client's specific circumstances.

Accepted Answer

A) True 
 B)False

Question 2

The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of:

Accepted Answer

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

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Explain the purpose of testing the client's bank reconciliation,and discuss the major audit procedures involved.

Accepted Answer

The purpose of testing the client's reco

Question 5

A schedule of investment activity will include all but:

Accepted Answer

A)  the purchases and sales. 
B)  ending balances. 
C)  the gains and losses. 
D)  the opinion of management as to the suitability of the investment to the company. 
A)  the purchases and sales. 
B)  ending balances. 
C)  the gains and losses. 
D)  the opinion of management as to the suitability of the investment to the company.

Question 6

The auditors test the client's monthly bank reconciliation to verify whether the client's recorded bank balance is the same amount as the actual cash in the bank.Which of the following would not explain a difference between the company's cash balance and the bank's balance for the client?

Accepted Answer

A)  Deposits in transit 
B)  Checks are written by the client in the same month the checks clear the bank. 
C)  Other reconciling items 
D)  Outstanding checks 
A)  Deposits in transit 
B)  Checks are written by the client in the same month the checks clear the bank. 
C)  Other reconciling items 
D)  Outstanding checks

Question 7

"Failure to bill a customer" is an example of an error that results in the failure to receive cash,but would not be discovered as part of the audit of the bank reconciliation.State three other examples of errors or irregularities that result in the improper payment of,or failure to receive,cash,but that would not be discovered during the audit of the bank reconciliation.How are these types of misstatements normally uncovered in the audit?

Accepted Answer

•An embezzlement of cash by interception

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Internal controls over year-end cash balances in the general account can be divided into two categories.List the two below.

Accepted Answer

1.Controls over transactions c

Question 10

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)  Footing the outstanding checks list and the list of deposits in transit 
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)  Footing the outstanding checks list and the list of deposits in transit 
D)  Examining the minutes of the board of directors for restrictions on the use of cash

Question 11

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 12

Which of the following items would not normally appear on bank reconciliations?

Accepted Answer

A)  Balance per bank 
B)  List of deposits in transit 
C)  Outstanding deposits 
D)  Outstanding checks 
A)  Balance per bank 
B)  List of deposits in transit 
C)  Outstanding deposits 
D)  Outstanding checks

Question 13

Auditors are not always required to obtain bank confirmations.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 16

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 17

In an effort to satisfy the completeness objective,the auditor could perform which of the following test of details of balance procedures?

Accepted Answer

A)  Trace the book balance on the reconciliation to the general ledger. 
B)  Trace outstanding checks to subsequent period bank statements. 
C)  Perform a four-column proof of cash. 
D)  Review financial statements to make sure that material savings accounts and certificates of deposit are disclosed separately. 
A)  Trace the book balance on the reconciliation to the general ledger. 
B)  Trace outstanding checks to subsequent period bank statements. 
C)  Perform a four-column proof of cash. 
D)  Review financial statements to make sure that material savings accounts and certificates of deposit are disclosed separately.

Question 18

When the auditor sends a confirmation to the broker-dealer,they are testing the balance-related audit objective of:

Accepted Answer

A)  detail tie-in. 
B)  existence. 
C)  cutoff. 
D)  rights. 
A)  detail tie-in. 
B)  existence. 
C)  cutoff. 
D)  rights.

Question 19

If a bank does not respond to a bank confirmation request,the auditor would most likely:

Accepted Answer

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

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 a 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

Auditors usually design bank confirmations that address the client's specific circumstances.

The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of:

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

Explain the purpose of testing the client's bank reconciliation,and discuss the major audit procedures involved.

A schedule of investment activity will include all but:

The auditors test the client's monthly bank reconciliation to verify whether the client's recorded bank balance is the same amount as the actual cash in the bank.Which of the following would not explain a difference between the company's cash balance and the bank's balance for the client?

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

Internal controls over year-end cash balances in the general account can be divided into two categories.List the two below.

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?

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.

Which of the following items would not normally appear on bank reconciliations?

Auditors are not always required to obtain bank confirmations.

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:

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

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.

In an effort to satisfy the completeness objective,the auditor could perform which of the following test of details of balance procedures?

When the auditor sends a confirmation to the broker-dealer,they are testing the balance-related audit objective of:

If a bank does not respond to a bank confirmation request,the auditor would most likely:

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 a October 31 year-end,these extended tests would not include:

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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