Question 1

The auditors should insist that a representative of the client be present during the physical examination of securities in order to:

Accepted Answer

A)  Lend authority of 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 of 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.

Question 2

The auditors compare information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that:

Accepted Answer

A)  Recorded cash disbursement transactions are properly authorized. 
B)  Proper cash purchase discounts have been recorded. 
C)  Cash disbursements are for goods and services actually received. 
D)  No discrepancies exist between the data on the checks and the data in the journal. 
A)  Recorded cash disbursement transactions are properly authorized. 
B)  Proper cash purchase discounts have been recorded. 
C)  Cash disbursements are for goods and services actually received. 
D)  No discrepancies exist between the data on the checks and the data in the journal.

Question 3

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

Accepted Answer

A)  Review composition of authenticated deposit slips. 
B)  Review subsequent bank statements and canceled checks received directly from the banks. 
C)  Prepare a schedule of bank transfers. 
D)  Prepare year-end bank reconciliations. 
A)  Review composition of authenticated deposit slips. 
B)  Review subsequent bank statements and canceled checks received directly from the banks. 
C)  Prepare a schedule of bank transfers. 
D)  Prepare year-end bank reconciliations.

Question 4

The Standard Form to Confirm Account Balances with Financial Institutions includes information on all of the following except:

Accepted Answer

A)  Date due of a direct liability. 
B)  The principal amount paid on a direct liability. 
C)  Description of collateral for a direct liability. 
D)  The interest rate of a direct liability. 
A)  Date due of a direct liability. 
B)  The principal amount paid on a direct liability. 
C)  Description of collateral for a direct liability. 
D)  The interest rate of a direct liability.

Question 5

Listed below are four interbank cash transfers, indicated by the letters a, b, c and d, of a client for late December 20X1, and early January 20X2. Your answer choice for the next two questions should be selected from this list.   For each of transfers a through d indicate whether cash is understated, unaffected, or overstated by the transfer and provide a brief example of what could cause the situation in which cash is either understated or overstated.

Accepted Answer

a. Unaffected.
b. Unaffected.
c. Underst

Question 6

For purposes of an audit of financial statements, electronic confirmation of cash balances:

Accepted Answer

A)  Is acceptable when properly controlled. 
B)  Is acceptable, but only when combined with a non-electronic approach. 
C)  Is only acceptable for immaterial accounts. 
D)  Is not acceptable. 
A)  Is acceptable when properly controlled. 
B)  Is acceptable, but only when combined with a non-electronic approach. 
C)  Is only acceptable for immaterial accounts. 
D)  Is not acceptable.

Question 7

Lapping of accounts receivable by an employee is not possible when there is adequate segregation of duties with respect to cash disbursements.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  Confirmation from the broker. 
B)  Inspection of year-end brokers' statements. 
C)  Vouching all changes during the year to brokers' advises and statements. 
D)  Examination of paid checks issued in payment of securities purchased. 
A)  Confirmation from the broker. 
B)  Inspection of year-end brokers' statements. 
C)  Vouching all changes during the year to brokers' advises and statements. 
D)  Examination of paid checks issued in payment of securities purchased.

Question 9

Which of the following is the best audit procedure for the detection of lapping?

Accepted Answer

A)  Comparison of postings of cash receipts to accounts with the details of cash deposits. 
B)  Confirmation of the cash balance. 
C)  Reconciliation of the cash account balances. 
D)  Preparing a proof of cash. 
A)  Comparison of postings of cash receipts to accounts with the details of cash deposits. 
B)  Confirmation of the cash balance. 
C)  Reconciliation of the cash account balances. 
D)  Preparing a proof of cash.

Question 10

Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements?

Accepted Answer

A)  Understatement of outstanding checks. 
B)  Overstatement of outstanding checks. 
C)  Understatement of deposits in transit. 
D)  Overstatement of bank services charges. 
A)  Understatement of outstanding checks. 
B)  Overstatement of outstanding checks. 
C)  Understatement of deposits in transit. 
D)  Overstatement of bank services charges.

Question 11

Signed checks should be returned to the cash disbursements clerk for mailing.

Accepted Answer

A) True 
 B)False

Question 12

In many financial statements audits, auditing financial investments involves complex tasks requiring specialized skill and knowledge.
a. List three audit tasks related to the audit of financial investments that may require specialized skill or knowledge.
b. Define the term "financial derivative."
c. List the two general purposes why a client might acquire a financial derivative.

Accepted Answer

a. Audit tasks requiring specialized ski

Question 13

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally be able to detect:

Accepted Answer

A)  An unrecorded deposit made at the bank at the end of the month. 
B)  A second payment of an account payable which had already been paid in full two months earlier. 
C)  An embezzlement of cash receipts not recorded in the cash receipts journal before they had been deposited into the bank. 
D)  A receivable collected that had previously been written off as uncollectible. 
A)  An unrecorded deposit made at the bank at the end of the month. 
B)  A second payment of an account payable which had already been paid in full two months earlier. 
C)  An embezzlement of cash receipts not recorded in the cash receipts journal before they had been deposited into the bank. 
D)  A receivable collected that had previously been written off as uncollectible.

Question 14

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the best evidence on operating effectiveness?

Accepted Answer

A)  Select and examine receiving reports and test whether the related canceled checks are dated no earlier than the receiving reports. 
B)  Select and examine receiving reports and test whether the related canceled checks are dated no later than the receiving reports. 
C)  Select and examine canceled checks and test whether the related receiving reports are dated no earlier than the checks. 
D)  Select and examine canceled checks and test whether the related receiving reports are dated no later than the checks. 
A)  Select and examine receiving reports and test whether the related canceled checks are dated no earlier than the receiving reports. 
B)  Select and examine receiving reports and test whether the related canceled checks are dated no later than the receiving reports. 
C)  Select and examine canceled checks and test whether the related receiving reports are dated no earlier than the checks. 
D)  Select and examine canceled checks and test whether the related receiving reports are dated no later than the checks.

Question 15

A proof of cash is an audit procedure that is performed on almost every engagement.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is correct relating to kiting?

Accepted Answer

A)  It is ordinarily used to understate cash. 
B)  It is more difficult to accomplish in an electronic environment as contrasted to a non-electronic environment. 
C)  It is a lapping approach performed using receivable accounts. 
D)  It is seldom, if ever, used. 
A)  It is ordinarily used to understate cash. 
B)  It is more difficult to accomplish in an electronic environment as contrasted to a non-electronic environment. 
C)  It is a lapping approach performed using receivable accounts. 
D)  It is seldom, if ever, used.

Question 17

Contact with banks for the purpose of opening company bank accounts should normally be the responsibility of the corporate:

Accepted Answer

A)  Board of Directors. 
B)  Treasurer. 
C)  Controller. 
D)  Executive Committee. 
A)  Board of Directors. 
B)  Treasurer. 
C)  Controller. 
D)  Executive Committee.

Question 18

Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees?

Accepted Answer

A)  A bank lockbox system. 
B)  Approval of all disbursements by an individual independent of cash receipts. 
C)  Monthly bank cutoff statements. 
D)  Prenumbered remittance advices. 
A)  A bank lockbox system. 
B)  Approval of all disbursements by an individual independent of cash receipts. 
C)  Monthly bank cutoff statements. 
D)  Prenumbered remittance advices.

Question 19

Which of the following is not a universal rule for achieving internal control over cash?

Accepted Answer

A)  Separate recordkeeping from accounting for cash to the extent possible. 
B)  Deposit each day's cash receipts intact. 
C)  Separate cash handling from recordkeeping. 
D)  Have monthly bank reconciliations prepared by employees not responsible for the issuance of checks. 
A)  Separate recordkeeping from accounting for cash to the extent possible. 
B)  Deposit each day's cash receipts intact. 
C)  Separate cash handling from recordkeeping. 
D)  Have monthly bank reconciliations prepared by employees not responsible for the issuance of checks.

Question 20

Kiting would least likely be detected by:

Accepted Answer

A)  Analyzing details of large cash deposits around year-end. 
B)  Comparing customer remittance advices with recorded disbursements in the cash disbursements journal. 
C)  Preparing a four-column bank reconciliation for all major cash accounts. 
D)  Preparing a schedule of interbank transfers by using the client's records and bank statements around year-end. 
A)  Analyzing details of large cash deposits around year-end. 
B)  Comparing customer remittance advices with recorded disbursements in the cash disbursements journal. 
C)  Preparing a four-column bank reconciliation for all major cash accounts. 
D)  Preparing a schedule of interbank transfers by using the client's records and bank statements around year-end.

The auditors should insist that a representative of the client be present during the physical examination of securities in order to:

The auditors compare information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that:

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

The Standard Form to Confirm Account Balances with Financial Institutions includes information on all of the following except:

For purposes of an audit of financial statements, electronic confirmation of cash balances:

Lapping of accounts receivable by an employee is not possible when there is adequate segregation of duties with respect to cash disbursements.

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

Which of the following is the best audit procedure for the detection of lapping?

Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements?

Signed checks should be returned to the cash disbursements clerk for mailing.

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally be able to detect:

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the best evidence on operating effectiveness?

A proof of cash is an audit procedure that is performed on almost every engagement.

Which of the following is correct relating to kiting?

Contact with banks for the purpose of opening company bank accounts should normally be the responsibility of the corporate:

Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees?

Which of the following is not a universal rule for achieving internal control over cash?

Kiting would least likely be detected by:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Planning the Audit; Linking Audit Procedures to Risk

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Accounts Receivable, Notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property, Plant, and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Filters

Exam 10: Cash and Financial Investments

The auditors should insist that a representative of the client be present during the physical examination of securities in order to:

The auditors compare information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that:

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

The Standard Form to Confirm Account Balances with Financial Institutions includes information on all of the following except:

For purposes of an audit of financial statements, electronic confirmation of cash balances:

Lapping of accounts receivable by an employee is not possible when there is adequate segregation of duties with respect to cash disbursements.

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

Which of the following is the best audit procedure for the detection of lapping?

Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements?

Signed checks should be returned to the cash disbursements clerk for mailing.

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally be able to detect:

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the best evidence on operating effectiveness?

A proof of cash is an audit procedure that is performed on almost every engagement.

Which of the following is correct relating to kiting?

Contact with banks for the purpose of opening company bank accounts should normally be the responsibility of the corporate:

Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees?

Which of the following is not a universal rule for achieving internal control over cash?

Kiting would least likely be detected by:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Planning the Audit; Linking Audit Procedures to Risk

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Accounts Receivable, Notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property, Plant, and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Filters