Question 1

Which of the following is a correct statement?

Accepted Answer

A)  A 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)  A 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 2

Which of the following is likely to be detected as part of the audit of the bank reconciliation?

Accepted Answer

A)  Failure to bill a customer 
B)  Duplicate payment of a vendor invoice 
C)  Cash received by the client after year end, but included in cash receipts in the current year 
D)  An embezzlement of cash by intercepting cash receipts from customers before they are recorded 
A)  Failure to bill a customer 
B)  Duplicate payment of a vendor invoice 
C)  Cash received by the client after year end, but included in cash receipts in the current year 
D)  An embezzlement of cash by intercepting cash receipts from customers before they are recorded

Question 3

The starting point for testing the ending balance of financial instruments accounts is to obtain a gain or loss schedule for the year.

Accepted Answer

A) True 
 B)False

Question 4

Bank reconciliation audit tests are designed to detect misstatements other than through the improper payment of cash or failure to receive cash normally would not be detected as part of the tests of the bank reconciliation.List below at least THREE misstatements that are designed to be detected by bank reconciliation.

Accepted Answer

Failure to include a check that has not

Question 5

The process of transferring money from one bank account to another and improperly recording the transaction is referred to as:

Accepted Answer

A)  kiting. 
B)  lapping. 
C)  scamming. 
D)  embezzling. 
A)  kiting. 
B)  lapping. 
C)  scamming. 
D)  embezzling.

Question 6

Presentation and disclosure objectives are important when auditing financial instruments.

Accepted Answer

A) True 
 B)False

Question 7

The three most important audit objectives for cash are accuracy,existence,and classification.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following verifications would generally not be performed by the auditor in the month subsequent to the balance sheet date?

Accepted Answer

A)  Foot the lists of all canceled checks, debit memos, deposits, and credit memos. 
B)  Verify the bank statement balances when the footed totals are used. 
C)  Verify the book statement balances tie to the cash receipts and disbursements journals for the year under audit. 
D)  Review the items included in the footings to make sure that they were cancelled by the bank 
A)  Foot the lists of all canceled checks, debit memos, deposits, and credit memos. 
B)  Verify the bank statement balances when the footed totals are used. 
C)  Verify the book statement balances tie to the cash receipts and disbursements journals for the year under audit. 
D)  Review the items included in the footings to make sure that they were cancelled by the bank

Question 9

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 10

Examples of cash equivalents include time deposits,certificates of deposit,and marketable securities.

Accepted Answer

A) True 
 B)False

Question 11

The majority of financial instruments are valued at the lower of cost or market.

Accepted Answer

A) True 
 B)False

Question 12

The bank reconciliation control is enhanced when a qualified employee reviews the monthly reconciliation as soon as possible after its completion.

Accepted Answer

A) True 
 B)False

Question 13

Auditors will often prepare a proof of cash when the client has material internal control weaknesses in cash receipts and cash disbursements.The purpose of the proof of cash is to determine the client's accounting records for cash are reliable.List below the four requirements the proof of cash is designed to provide for the auditor.

Accepted Answer

All recorded cash receipts were deposite

Question 14

The following information applies to the questions below:
Listed below are four interbank cash transfers, indicated by the numbers 1, 2, 3, and 4, of a client for late December 2013 and early January 2014:  
-Based on the schedule of interbank transfers above,which of the cash transfers would appear as a deposit in transit on the December 31,2013 bank reconciliation?

Accepted Answer

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

Question 15

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 16

All of the following would not be uncovered by a bank reconciliation except for:

Accepted Answer

A)  duplicate payment of a vendor's invoice. 
B)  improper payments of officers' personal expenditures. 
C)  payments on notes payable debited directly to the the bank account by the bank but not recorded on the books. 
D)  payment to an employee for more hours than he worked. 
A)  duplicate payment of a vendor's invoice. 
B)  improper payments of officers' personal expenditures. 
C)  payments on notes payable debited directly to the the bank account by the bank but not recorded on the books. 
D)  payment to an employee for more hours than he worked.

Question 17

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 18

Assessing internal controls related to financial instruments may be necessary in order to reduce audit risk to an acceptable level.

Accepted Answer

A) True 
 B)False

Question 19

Auditors are likely to prepare a proof of cash when the client has:

Accepted Answer

A)  material control weaknesses in cash receipts and cash disbursements. 
B)  material control weaknesses in accounts receivable and revenue. 
C)  material control weaknesses in accounts payable and inventory. 
D)  material control weaknesses in payroll. 
A)  material control weaknesses in cash receipts and cash disbursements. 
B)  material control weaknesses in accounts receivable and revenue. 
C)  material control weaknesses in accounts payable and inventory. 
D)  material control weaknesses in payroll.

Question 20

Describe each of the major types of cash accounts maintained by business entities.

Accepted Answer

•General cash account.This is the focal

Exam 23: Audit of Cash and Financial Instruments

Which of the following is a correct statement?

Which of the following is likely to be detected as part of the audit of the bank reconciliation?

The starting point for testing the ending balance of financial instruments accounts is to obtain a gain or loss schedule for the year.

The process of transferring money from one bank account to another and improperly recording the transaction is referred to as:

Presentation and disclosure objectives are important when auditing financial instruments.

The three most important audit objectives for cash are accuracy,existence,and classification.

Which of the following verifications would generally not be performed by the auditor in the month subsequent to the balance sheet date?

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:

Examples of cash equivalents include time deposits,certificates of deposit,and marketable securities.

The majority of financial instruments are valued at the lower of cost or market.

The bank reconciliation control is enhanced when a qualified employee reviews the monthly reconciliation as soon as possible after its completion.

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

All of the following would not be uncovered by a bank reconciliation except for:

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

Assessing internal controls related to financial instruments may be necessary in order to reduce audit risk to an acceptable level.

Auditors are likely to prepare a proof of cash when the client has:

Describe each of the major types of cash accounts maintained by business entities.

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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