Question 1

A cutoff bank statement is used to verify the propriety of the reconciling items shown on the bank reconciliation.

Accepted Answer

A) True 
 B)False

Question 2

Explain the importance of the bank reconciliation to the audit and list some of the items found on the reconciliation.

Accepted Answer

The completion of a monthly bank reconci

Question 3

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 4

When an auditor is unable to inspect and count an entity's investment securities until after the balance sheet date,the bank where the securities are held in a safe-deposit box should be notified on or before the balance sheet date that it will be asked to

Accepted Answer

A)  verify any differences between the contents of the box and the balances in the entity's subsidiary ledger. 
B)  provide a list of securities added and removed from the box between the balance sheet date and the security-count date. 
C)  confirm that there has been no access to the box between the balance sheet date and the security-count date. 
D)  count the securities in the box so that the auditor will have an independent direct verification. 
A)  verify any differences between the contents of the box and the balances in the entity's subsidiary ledger. 
B)  provide a list of securities added and removed from the box between the balance sheet date and the security-count date. 
C)  confirm that there has been no access to the box between the balance sheet date and the security-count date. 
D)  count the securities in the box so that the auditor will have an independent direct verification.

Question 5

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 6

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 7

Jones was engaged to examine the financial statements of Virginia Corporation for the year ended June 30.Having completed an examination of the investment securities,which of the following is the best method of verifying the accuracy of recorded dividend income?

Accepted Answer

A)  Tracing recorded dividend income to cash receipts records and validated deposit slips. 
B)  Utilizing analytical procedures and statistical sampling. 
C)  Comparing recorded dividends with amounts appearing on federal information forms 1099. 
D)  Comparing recorded dividends with a standard financial reporting service's record of dividends. 
A)  Tracing recorded dividend income to cash receipts records and validated deposit slips. 
B)  Utilizing analytical procedures and statistical sampling. 
C)  Comparing recorded dividends with amounts appearing on federal information forms 1099. 
D)  Comparing recorded dividends with a standard financial reporting service's record of dividends.

Question 8

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.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

An auditor usually tests the reasonableness of dividend income from investments in stock of public companies by computing the amounts that should have been received by referring to

Accepted Answer

A)  dividend record books produced by investment advisory services. 
B)  stock indentures published by corporate transfer agents. 
C)  stock ledgers maintained by independent registrars. 
D)  annual audited financial statements issued by the investee companies. 
A)  dividend record books produced by investment advisory services. 
B)  stock indentures published by corporate transfer agents. 
C)  stock ledgers maintained by independent registrars. 
D)  annual audited financial statements issued by the investee companies.

Question 12

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 13

Match the segregation of duties for investments with the misstatement (due to error or fraud)it can help prevent

Accepted Answer

The answer of Match the segregation of duties for investments...

Question 14

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 15

Which of the following control activities would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

Accepted Answer

A)  Senior management verifies that securities in the bank safe-deposit box are registered in the entity's name. 
B)  The internal auditor compares the securities in the bank safe-deposit box with recorded investments. 
C)  The treasurer vouches the acquisition of securities by comparing brokers' advices with canceled checks. 
D)  The controller compares the current market prices of recorded investments with the brokers' advices on file. 
A)  Senior management verifies that securities in the bank safe-deposit box are registered in the entity's name. 
B)  The internal auditor compares the securities in the bank safe-deposit box with recorded investments. 
C)  The treasurer vouches the acquisition of securities by comparing brokers' advices with canceled checks. 
D)  The controller compares the current market prices of recorded investments with the brokers' advices on file.

Question 16

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 17

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 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.

A cutoff bank statement is used to verify the propriety of the reconciling items shown on the bank reconciliation.

Explain the importance of the bank reconciliation to the audit and list some of the items found on the reconciliation.

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

When an auditor is unable to inspect and count an entity's investment securities until after the balance sheet date,the bank where the securities are held in a safe-deposit box should be notified on or before the balance sheet date that it will be asked to

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

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

Jones was engaged to examine the financial statements of Virginia Corporation for the year ended June 30.Having completed an examination of the investment securities,which of the following is the best method of verifying the accuracy of recorded dividend income?

An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily to

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

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

An auditor usually tests the reasonableness of dividend income from investments in stock of public companies by computing the amounts that should have been received by referring to

Match the segregation of duties for investments with the misstatement (due to error or fraud)it can help prevent

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?

Which of the following control activities would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

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?

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

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

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

Which of the following is not one of the auditor's primary objectives in an examination of marketable 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 Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders Equity, and Income Statement Accounts

Completing the Audit Engagement

Reports on Audited Financial Statements

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

Filters

Exam 16: Auditing the Financinginvesting Process: Cash and Investments

A cutoff bank statement is used to verify the propriety of the reconciling items shown on the bank reconciliation.

Explain the importance of the bank reconciliation to the audit and list some of the items found on the reconciliation.

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

When an auditor is unable to inspect and count an entity's investment securities until after the balance sheet date,the bank where the securities are held in a safe-deposit box should be notified on or before the balance sheet date that it will be asked to

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

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

Jones was engaged to examine the financial statements of Virginia Corporation for the year ended June 30.Having completed an examination of the investment securities,which of the following is the best method of verifying the accuracy of recorded dividend income?

An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily to

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

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

An auditor usually tests the reasonableness of dividend income from investments in stock of public companies by computing the amounts that should have been received by referring to

Match the segregation of duties for investments with the misstatement (due to error or fraud)it can help prevent

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?

Which of the following control activities would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

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?

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

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

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

Which of the following is not one of the auditor's primary objectives in an examination of marketable 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 Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders Equity, and Income Statement Accounts

Completing the Audit Engagement

Reports on Audited Financial Statements

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

Filters