Question 1

Tracing outstanding checks to subsequent period bank statements tests the cutoff audit objective.

Accepted Answer

A) True 
 B)False

Question 2

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 3

________ is an automated fraud detection tool offered by most banks.

Accepted Answer

A)  Positive pay 
B)  A bank confirmation 
C)  Fraud buster 
D)  Check matching 
A)  Positive pay 
B)  A bank confirmation 
C)  Fraud buster 
D)  Check matching

Question 4

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 5

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 6

The majority of financial instruments are valued using:

Accepted Answer

A)  cost. 
B)  fair value estimates. 
C)  lower of cost or market. 
D)  realizable value. 
A)  cost. 
B)  fair value estimates. 
C)  lower of cost or market. 
D)  realizable value.

Question 7

When auditing financial instruments:

Accepted Answer

A)  the auditor usually performs more extensive substantive testing to reduce reliance on controls. 
B)  analytical procedures are critical in assessing the year-end balances for financial instruments. 
C)  the auditor relies on statements and broker's advices from investment managers to test purchases and sales as long as controls were deemed effective. 
D)  tests of transactions are generally not performed. 
A)  the auditor usually performs more extensive substantive testing to reduce reliance on controls. 
B)  analytical procedures are critical in assessing the year-end balances for financial instruments. 
C)  the auditor relies on statements and broker's advices from investment managers to test purchases and sales as long as controls were deemed effective. 
D)  tests of transactions are generally not performed.

Question 8

A partial-period bank statement and the related canceled checks,duplicate deposit slips,and other documents included in bank statements,mailed by the bank directly to the CPA firm's office,is called:

Accepted Answer

A)  a four-column proof of cash. 
B)  a year-end bank statement. 
C)  a cutoff bank statement. 
D)  a short-period bank statement. 
A)  a four-column proof of cash. 
B)  a year-end bank statement. 
C)  a cutoff bank statement. 
D)  a short-period bank statement.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Business risks associated with financial instruments are the same for all companies.

Accepted Answer

A) True 
 B)False

Question 11

In addition to confirming bank balances of your audit client,a bank confirmation would normally contain:

Accepted Answer

A)  the client's bank loans with due date, interest rate, and collateral requested. 
B)  the client's credit history as regards to paying back loans. 
C)  the client's managements bank account information. 
D)  the client's business prospects. 
A)  the client's bank loans with due date, interest rate, and collateral requested. 
B)  the client's credit history as regards to paying back loans. 
C)  the client's managements bank account information. 
D)  the client's business prospects.

Question 12

An imprest petty cash fund:

Accepted Answer

A)  is a bank account. 
B)  is used for large, unusual purchases. 
C)  is usually reimbursed at least once a week for good internal control. 
D)  is being replaced by pre-approved purchase cards in many companies. 
A)  is a bank account. 
B)  is used for large, unusual purchases. 
C)  is usually reimbursed at least once a week for good internal control. 
D)  is being replaced by pre-approved purchase cards in many companies.

Question 13

A proof of cash includes a reconciliation of cash receipts deposited in the bank with the cash disbursements records for a given period.

Accepted Answer

A) True 
 B)False

Question 14

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 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 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 17

A proof of cash is effective at identifying which of the following misstatements?

Accepted Answer

A)  Checks written for incorrect amounts 
B)  Checks issued to invalid vendors 
C)  Fraudulent checks 
D)  Checks recorded in the books for an amount different from that on the check 
A)  Checks written for incorrect amounts 
B)  Checks issued to invalid vendors 
C)  Fraudulent checks 
D)  Checks recorded in the books for an amount different from that on the check

Question 18

The auditor must extend the audit procedures in the audit of year-end cash when there are inadequate internal controls.

Accepted Answer

A) True 
 B)False

Question 19

When dealing with financial instruments,the most difficult balance-related audit objective to test is:

Accepted Answer

A)  existence. 
B)  accuracy. 
C)  rights. 
D)  realizable value. 
A)  existence. 
B)  accuracy. 
C)  rights. 
D)  realizable value.

Question 20

The auditor needs to have an understanding of the client's internal controls over determining fair value estimates.

Accepted Answer

A) True 
 B)False

Exam 23: Audit of Cash and Financial Instruments

Tracing outstanding checks to subsequent period bank statements tests the cutoff audit objective.

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

________ is an automated fraud detection tool offered by most banks.

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

When auditing financial instruments,analytical procedures can be used to:

The majority of financial instruments are valued using:

When auditing financial instruments:

A partial-period bank statement and the related canceled checks,duplicate deposit slips,and other documents included in bank statements,mailed by the bank directly to the CPA firm's office,is called:

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

Business risks associated with financial instruments are the same for all companies.

In addition to confirming bank balances of your audit client,a bank confirmation would normally contain:

An imprest petty cash fund:

A proof of cash includes a reconciliation of cash receipts deposited in the bank with the cash disbursements records for a given period.

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

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

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

A proof of cash is effective at identifying which of the following misstatements?

The auditor must extend the audit procedures in the audit of year-end cash when there are inadequate internal controls.

When dealing with financial instruments,the most difficult balance-related audit objective to test is:

The auditor needs to have an understanding of the client's internal controls over determining fair value estimates.

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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