Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

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. B

Question 3

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. C

Question 4

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 5

For each test of transactions and each test of account balances for investments listed below, identify the assertion for which the test provides evidence.
1. Determine whether there has been any permanent impairment in the value of the cost basis of an individual security.
2. Inspect securities if they are maintained by the entity or obtain a confirmation from an independent custodian.
3. Search for purchases of securities by examining transactions for a few days after year-end.
4. Examine brokers' advices for a sample of securities purchased during the year.

Accepted Answer

1. Valuation and all

Question 6

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 7

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

Accepted Answer

A)  The cashier posts the receipts to the accounts receivable subsidiary ledger cards. 
B)  The cashier makes the daily deposit at a local bank. 
C)  The cashier prepares the daily deposit. 
D)  The cashier endorses the checks. 
A)  The cashier posts the receipts to the accounts receivable subsidiary ledger cards. 
B)  The cashier makes the daily deposit at a local bank. 
C)  The cashier prepares the daily deposit. 
D)  The cashier endorses the checks.

Question 8

Which of the following is not one of the auditor's primary objectives in an examination of marketable securities?

Accepted Answer

A)  To determine whether securities are authentic. 
B)  To determine whether securities are the property of the entity. 
C)  To determine whether securities actually exist. 
D)  To determine whether securities are properly classified on the balance sheet. 
A)  To determine whether securities are authentic. 
B)  To determine whether securities are the property of the entity. 
C)  To determine whether securities actually exist. 
D)  To determine whether securities are properly classified on the balance sheet.

Question 9

Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees?

Accepted Answer

A)  A bank lockbox system. 
B)  Prenumbered remittance advices. 
C)  Monthly bank reconciliations. 
D)  Daily deposit of cash receipts. 
A)  A bank lockbox system. 
B)  Prenumbered remittance advices. 
C)  Monthly bank reconciliations. 
D)  Daily deposit of cash receipts.

Question 10

Tracing a sample of remittance advices to entries in the cash receipts journal tests which of the following assertions for cash?

Accepted Answer

A)  Occurrence. 
B)  Completeness. 
C)  Authorization. 
D)  Cutoff. 
A)  Occurrence. 
B)  Completeness. 
C)  Authorization. 
D)  Cutoff.

Question 11

Identify 3 of the 6 tests an auditor uses on the bank reconciliation.
(Only 3 are required for the student's answer)

Accepted Answer

• Test the mathematical accuracy of the

Question 12

An auditor testing long-term investments would ordinarily use substantive analytical procedures as the primary audit evidence to support the reasonableness of the

Accepted Answer

A)  Valuation of marketable equity securities. 
B)  Classification of gains and losses on the disposal of securities. 
C)  Completeness of recorded investment income. 
D)  Existence and ownership of investments. 
A)  Valuation of marketable equity securities. 
B)  Classification of gains and losses on the disposal of securities. 
C)  Completeness of recorded investment income. 
D)  Existence and ownership of investments.

Question 13

For each assertion about cash listed below, give an example of a test of transactions for (1) cash receipts and (2) cash disbursements.
a. Classification.
b. Occurrence.
c. Authorization.
d. Completeness.

Accepted Answer

Student answers will vary:
a.1. Cash rec

Question 14

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the

Accepted Answer

A)  Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records. 
B)  Securities are registered in the name of the trust company, rather than the entity itself. 
C)  Interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities. 
D)  Trust company places the securities in a bank safe-deposit vault under the custodian's exclusive control. 
A)  Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records. 
B)  Securities are registered in the name of the trust company, rather than the entity itself. 
C)  Interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities. 
D)  Trust company places the securities in a bank safe-deposit vault under the custodian's exclusive control.

Question 15

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. The petty cash fund should be maintai

Question 16

In a manufacturing company, which one of the following audit procedures would give the least assurance for the existence of the general ledger balance of investment in stocks and bonds at the audit date?

Accepted Answer

A)  Confirmation from the broker. 
B)  Inspection and count of stocks and bonds. 
C)  Vouching all changes during the year to brokers' advices and statements. 
D)  Examination of canceled checks issued in payment of securities purchased. 
A)  Confirmation from the broker. 
B)  Inspection and count of stocks and bonds. 
C)  Vouching all changes during the year to brokers' advices and statements. 
D)  Examination of canceled checks issued in payment of securities purchased.

Question 17

The general cash account is normally the principal account used to disburse payroll.

Accepted Answer

A) True 
 B)False

Question 18

When there is a large number of negotiable securities in multiple locations, careful planning of the physical inspection and count of the securities by the auditor is necessary to guard against

Accepted Answer

A)  Unauthorized negotiation of the securities before they are counted. 
B)  Unrecorded sales of securities after they are counted. 
C)  Substitution of securities already counted at one location for other securities that should be on hand at a different location but are not. 
D)  Substitution of authentic securities with counterfeit securities. 
A)  Unauthorized negotiation of the securities before they are counted. 
B)  Unrecorded sales of securities after they are counted. 
C)  Substitution of securities already counted at one location for other securities that should be on hand at a different location but are not. 
D)  Substitution of authentic securities with counterfeit securities.

Question 19

An imprest cash account is used for specific purposes and generally maintains a very small balance.

Accepted Answer

A) True 
 B)False

Question 20

What should an auditor look for when testing for proper classification of securities?

Accepted Answer

First, the securities need to be properl

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

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

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

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

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

Which of the following is not one of the auditor's primary objectives in an examination of marketable securities?

Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees?

Tracing a sample of remittance advices to entries in the cash receipts journal tests which of the following assertions for cash?

Identify 3 of the 6 tests an auditor uses on the bank reconciliation. (Only 3 are required for the student's answer)

An auditor testing long-term investments would ordinarily use substantive analytical procedures as the primary audit evidence to support the reasonableness of the

For each assertion about cash listed below, give an example of a test of transactions for (1) cash receipts and (2) cash disbursements. a. Classification. b. Occurrence. c. Authorization. d. Completeness.

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the

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.

In a manufacturing company, which one of the following audit procedures would give the least assurance for the existence of the general ledger balance of investment in stocks and bonds at the audit date?

The general cash account is normally the principal account used to disburse payroll.

When there is a large number of negotiable securities in multiple locations, careful planning of the physical inspection and count of the securities by the auditor is necessary to guard against

An imprest cash account is used for specific purposes and generally maintains a very small balance.

What should an auditor look for when testing for proper classification of securities?

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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

Filters

Exam 16: Auditing the Financinginvesting Process: Cash and 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

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

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

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

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

Which of the following is not one of the auditor's primary objectives in an examination of marketable securities?

Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees?

Tracing a sample of remittance advices to entries in the cash receipts journal tests which of the following assertions for cash?

Identify 3 of the 6 tests an auditor uses on the bank reconciliation. (Only 3 are required for the student's answer)

An auditor testing long-term investments would ordinarily use substantive analytical procedures as the primary audit evidence to support the reasonableness of the

For each assertion about cash listed below, give an example of a test of transactions for (1) cash receipts and (2) cash disbursements. a. Classification. b. Occurrence. c. Authorization. d. Completeness.

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the

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.

In a manufacturing company, which one of the following audit procedures would give the least assurance for the existence of the general ledger balance of investment in stocks and bonds at the audit date?

The general cash account is normally the principal account used to disburse payroll.

When there is a large number of negotiable securities in multiple locations, careful planning of the physical inspection and count of the securities by the auditor is necessary to guard against

An imprest cash account is used for specific purposes and generally maintains a very small balance.

What should an auditor look for when testing for proper classification of securities?

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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

Filters