Question 1

Explain how cash plays a role in all business processes.

Accepted Answer

Cash is received by the entity through t

Question 2

It is generally more efficient to follow a substantive strategy for auditing investments.

Accepted Answer

A) True 
 B)False

Question 3

As one of the year-end audit procedures, the auditor instructed the entity's personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the entity's treasurer had signed the request, it was mailed to the bank by the assistant treasurer. What is the major flaw in this audit procedure?

Accepted Answer

A)  The confirmation request was signed by the treasurer. 
B)  Sending the request was meaningless because the account was closed before the year-end. 
C)  The request was mailed by the assistant treasurer. 
D)  The CPA did not sign the confirmation request before it was mailed. 
A)  The confirmation request was signed by the treasurer. 
B)  Sending the request was meaningless because the account was closed before the year-end. 
C)  The request was mailed by the assistant treasurer. 
D)  The CPA did not sign the confirmation request before it was mailed.

Question 4

Under which of the following circumstances would an auditor be most likely to intensify an examination of a $1,000 petty cash fund maintained on an imprest basis?

Accepted Answer

A)  Reimbursement vouchers are not prenumbered. 
B)  Reimbursement of the fund from the general cash account occurs twice or more each week. 
C)  The custodian occasionally uses the cash fund to cash employee checks. 
D)  The custodian endorses reimbursement checks. 
A)  Reimbursement vouchers are not prenumbered. 
B)  Reimbursement of the fund from the general cash account occurs twice or more each week. 
C)  The custodian occasionally uses the cash fund to cash employee checks. 
D)  The custodian endorses reimbursement checks.

Question 5

A primary purpose of the proof of cash is to

Accepted Answer

A)  Prevent fraud. 
B)  Reconcile actual cash receipts and disbursements to budgeted receipts and disbursements. 
C)  Investigate variances from expected cash balances. 
D)  Ensure that all cash receipts recorded in the cash receipts journal were deposited in the bank account. 
A)  Prevent fraud. 
B)  Reconcile actual cash receipts and disbursements to budgeted receipts and disbursements. 
C)  Investigate variances from expected cash balances. 
D)  Ensure that all cash receipts recorded in the cash receipts journal were deposited in the bank account.

Question 6

An auditor ordinarily should send a standard confirmation request to all banks with which the entity has done business during the year under audit, regardless of the year-end balance, because this procedure

Accepted Answer

A)  Provides for confirmation regarding compensating balance arrangements. 
B)  Detects kiting activities that may not otherwise be discovered. 
C)  Seeks information about indebtedness to the bank. 
D)  Verifies securities held by the bank in safekeeping. 
A)  Provides for confirmation regarding compensating balance arrangements. 
B)  Detects kiting activities that may not otherwise be discovered. 
C)  Seeks information about indebtedness to the bank. 
D)  Verifies securities held by the bank in safekeeping.

Question 7

An entity has a large and active investment portfolio that is kept in a bank safe-deposit box. If the auditor is unable to examine and count the securities at the balance sheet date but will examine and count the securities shortly thereafter, the auditor most likely will

Accepted Answer

A)  Request that the bank confirm to the auditor the contents of the safe-deposit box at the balance sheet date. 
B)  Examine supporting evidence for transactions occurring during the year. 
C)  Count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance sheet date. 
D)  Request that the entity have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date. 
A)  Request that the bank confirm to the auditor the contents of the safe-deposit box at the balance sheet date. 
B)  Examine supporting evidence for transactions occurring during the year. 
C)  Count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance sheet date. 
D)  Request that the entity have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.

Question 8

Which of the following procedures would be most important in the audit of an investment valued at fair value?

Accepted Answer

A)  Compare the balance in the investment account to the prior year. 
B)  Read the footnote disclosure related to the investment. 
C)  Inquire of management's regarding the accuracy and reliability of the underlying data. 
D)  Develop an independent estimate of the fair value measurement. 
A)  Compare the balance in the investment account to the prior year. 
B)  Read the footnote disclosure related to the investment. 
C)  Inquire of management's regarding the accuracy and reliability of the underlying data. 
D)  Develop an independent estimate of the fair value measurement.

Question 9

The least crucial element of internal control over cash is

Accepted Answer

A)  Separation of cash record-keeping from custody of cash. 
B)  Preparation of the monthly bank reconciliation. 
C)  Batch processing of checks. 
D)  Separation of cash receipts from cash disbursements. 
A)  Separation of cash record-keeping from custody of cash. 
B)  Preparation of the monthly bank reconciliation. 
C)  Batch processing of checks. 
D)  Separation of cash receipts from cash disbursements.

Question 10

Which of the following would provide the best form of evidential matter pertaining to the annual valuation of a long-term investment in which the entity owns a 45 percent voting interest?

Accepted Answer

A)  Market quotations of the investee company's stock. 
B)  The current fair value of the investee company's assets. 
C)  Historical costs of the investee company's assets. 
D)  Audited financial statements of the investee company. 
A)  Market quotations of the investee company's stock. 
B)  The current fair value of the investee company's assets. 
C)  Historical costs of the investee company's assets. 
D)  Audited financial statements of the investee company.

Question 11

Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities?

Accepted Answer

A)  An independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possession of the securities. 
B)  The internal auditor verifies the marketable securities in the entity's safe each year on the balance sheet date. 
C)  The independent auditor traces all purchases and sales of marketable securities through the subsidiary ledgers to the general ledger. 
D)  A designated member of the board of directors controls the securities in a bank safe-deposit box. 
A)  An independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possession of the securities. 
B)  The internal auditor verifies the marketable securities in the entity's safe each year on the balance sheet date. 
C)  The independent auditor traces all purchases and sales of marketable securities through the subsidiary ledgers to the general ledger. 
D)  A designated member of the board of directors controls the securities in a bank safe-deposit box.

Question 12

All of the following can assist the auditor in testing the existence assertion for investment securities except:

Accepted Answer

A)  Physical examination. 
B)  Comparing fair value to cost. 
C)  Confirmation with the issuer. 
D)  Confirmation with the custodian. 
A)  Physical examination. 
B)  Comparing fair value to cost. 
C)  Confirmation with the issuer. 
D)  Confirmation with the custodian.

Question 13

A company has additional temporary funds to invest. The Board of Directors decided to purchase marketable securities and assigned the future purchase and sale decisions to a responsible financial executive. The best person(s) to make periodic reviews of the investment activity authorized by that executive should be

Accepted Answer

A)  An investment committee of the Board of Directors. 
B)  The chief operating officer. 
C)  The corporate controller. 
D)  The treasurer. 
A)  An investment committee of the Board of Directors. 
B)  The chief operating officer. 
C)  The corporate controller. 
D)  The treasurer.

Question 14

In establishing the existence and ownership of a long-term investment in stock of a publicly traded company, an auditor should inspect the securities or

Accepted Answer

A)  Correspond with the investee company to verify the number of shares owned. 
B)  Inspect the audited financial statements of the investee company. 
C)  Confirm the number of shares owned that are held by an independent custodian. 
D)  Determine that the investment is carried at the lower-of-cost-or-market. 
A)  Correspond with the investee company to verify the number of shares owned. 
B)  Inspect the audited financial statements of the investee company. 
C)  Confirm the number of shares owned that are held by an independent custodian. 
D)  Determine that the investment is carried at the lower-of-cost-or-market.

Question 15

Kiting is an audit procedure used to test the accuracy of the cash receipts.

Accepted Answer

A) True 
 B)False

Question 16

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the

Accepted Answer

A)  Check register for the last month is reviewed. 
B)  Cutoff bank statement is reconciled. 
C)  Bank confirmation is reviewed. 
D)  Search for unrecorded liabilities is performed. 
A)  Check register for the last month is reviewed. 
B)  Cutoff bank statement is reconciled. 
C)  Bank confirmation is reviewed. 
D)  Search for unrecorded liabilities is performed.

Question 17

In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the entity's name, an auditor most likely gathers evidence in support of management's financial statement assertions regarding

Accepted Answer

A)  Existence. 
B)  Rights and obligations. 
C)  Completeness. 
D)  All of these. 
A)  Existence. 
B)  Rights and obligations. 
C)  Completeness. 
D)  All of these.

Question 18

If the entity maintains custody of its investments, the auditor normally examines the actual securities.

Accepted Answer

A) True 
 B)False

Question 19

The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town bank. How would the auditor discover this manipulation?

Accepted Answer

A)  Confirming all December 31 bank balances. 
B)  Counting the cash working fund at the close of business on December 31. 
C)  Preparing independent bank reconciliations as of December 31. 
D)  Preparing and detail testing a bank transfer schedule. 
A)  Confirming all December 31 bank balances. 
B)  Counting the cash working fund at the close of business on December 31. 
C)  Preparing independent bank reconciliations as of December 31. 
D)  Preparing and detail testing a bank transfer schedule.

Question 20

The auditor should insist that a representative of the entity be present during the physical examination of securities in order to

Accepted Answer

A)  Lend authority to the auditor's directives. 
B)  Detect forged securities. 
C)  Coordinate the return of all securities to proper locations. 
D)  Acknowledge the receipt of securities returned. 
A)  Lend authority to the auditor's directives. 
B)  Detect forged securities. 
C)  Coordinate the return of all securities to proper locations. 
D)  Acknowledge the receipt of securities returned.

Explain how cash plays a role in all business processes.

It is generally more efficient to follow a substantive strategy for auditing investments.

Under which of the following circumstances would an auditor be most likely to intensify an examination of a $1,000 petty cash fund maintained on an imprest basis?

A primary purpose of the proof of cash is to

An auditor ordinarily should send a standard confirmation request to all banks with which the entity has done business during the year under audit, regardless of the year-end balance, because this procedure

An entity has a large and active investment portfolio that is kept in a bank safe-deposit box. If the auditor is unable to examine and count the securities at the balance sheet date but will examine and count the securities shortly thereafter, the auditor most likely will

Which of the following procedures would be most important in the audit of an investment valued at fair value?

The least crucial element of internal control over cash is

Which of the following would provide the best form of evidential matter pertaining to the annual valuation of a long-term investment in which the entity owns a 45 percent voting interest?

Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities?

All of the following can assist the auditor in testing the existence assertion for investment securities except:

In establishing the existence and ownership of a long-term investment in stock of a publicly traded company, an auditor should inspect the securities or

Kiting is an audit procedure used to test the accuracy of the cash receipts.

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the

In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the entity's name, an auditor most likely gathers evidence in support of management's financial statement assertions regarding

If the entity maintains custody of its investments, the auditor normally examines the actual securities.

The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town bank. How would the auditor discover this manipulation?

The auditor should insist that a representative of the entity be present during the physical examination of securities in order to

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

Explain how cash plays a role in all business processes.

It is generally more efficient to follow a substantive strategy for auditing investments.

Under which of the following circumstances would an auditor be most likely to intensify an examination of a $1,000 petty cash fund maintained on an imprest basis?

A primary purpose of the proof of cash is to

An auditor ordinarily should send a standard confirmation request to all banks with which the entity has done business during the year under audit, regardless of the year-end balance, because this procedure

An entity has a large and active investment portfolio that is kept in a bank safe-deposit box. If the auditor is unable to examine and count the securities at the balance sheet date but will examine and count the securities shortly thereafter, the auditor most likely will

Which of the following procedures would be most important in the audit of an investment valued at fair value?

The least crucial element of internal control over cash is

Which of the following would provide the best form of evidential matter pertaining to the annual valuation of a long-term investment in which the entity owns a 45 percent voting interest?

Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities?

All of the following can assist the auditor in testing the existence assertion for investment securities except:

In establishing the existence and ownership of a long-term investment in stock of a publicly traded company, an auditor should inspect the securities or

Kiting is an audit procedure used to test the accuracy of the cash receipts.

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the

In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the entity's name, an auditor most likely gathers evidence in support of management's financial statement assertions regarding

If the entity maintains custody of its investments, the auditor normally examines the actual securities.

The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town bank. How would the auditor discover this manipulation?

The auditor should insist that a representative of the entity be present during the physical examination of securities in order to

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