Question 1

Which of the following is not confirmed on the standard confirmation form used for cash balances at financial institutions?

Accepted Answer

A)  Cash checking account balances. 
B)  Cash savings account balances. 
C)  Loans payable. 
D)  Securities held for the client by the financial institution. 
A)  Cash checking account balances. 
B)  Cash savings account balances. 
C)  Loans payable. 
D)  Securities held for the client by the financial institution.

Question 2

In October, three months before year-end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to miscellaneous revenue. The most effective method for detecting this type of error is:

Accepted Answer

A)  Foot the cash receipts journal for October. 
B)  Send a bank confirmation as of year-end. 
C)  Prepare a bank reconciliation as of year-end. 
D)  Prepare a bank transfer schedule as of year-end. 
A)  Foot the cash receipts journal for October. 
B)  Send a bank confirmation as of year-end. 
C)  Prepare a bank reconciliation as of year-end. 
D)  Prepare a bank transfer schedule as of year-end.

Question 3

An auditor may obtain information on the December 31 month-end balance per bank in which of the following? $$\begin{array} { | c | c | c | } 
\hline & \begin{array} { c } 
\text { Standard } \
\text { Confirmation } \
\text { Form }
\end{array} & \begin{array} { c } 
\text { January } \
{ 1 - 1 0 } \
\text { Cutoff } \
\text { Statement }
\end{array} \
\hline \text { A. } & \text { Yes } & \text { Yes } \
\hline \text { B. } & \text { Yes } & \text { No } \
\hline \text { C. } & \text { No } & \text { Yes } \
\hline \text { D. } & \text { No } & \text { No } \
\hline
\end{array}$$

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 4

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

Accepted Answer

A)  An unrecorded check written at the beginning of the month which was cashed during the period covered by the reconciliation. 
B)  A cash sale which was not recorded on the books and was stolen by a bookkeeper. 
C)  An embezzlement of unrecorded cash receipts on receivables before they had been deposited into the bank. 
D)  A credit sale which has been recorded twice in the sales journal. 
A)  An unrecorded check written at the beginning of the month which was cashed during the period covered by the reconciliation. 
B)  A cash sale which was not recorded on the books and was stolen by a bookkeeper. 
C)  An embezzlement of unrecorded cash receipts on receivables before they had been deposited into the bank. 
D)  A credit sale which has been recorded twice in the sales journal.

Question 5

Which of the following statements is not correct?

Accepted Answer

A)  Cash is important to the audit process because of its vulnerability to misappropriation, despite the fact that the balance at the balance sheet date may be immaterial. 
B)  Payroll cash account balances kept on an imprest basis are more easily controlled than others not so kept. 
C)  Confirmation of cash should only be performed as of the balance statement date because the auditor expresses an opinion as of that date. 
D)  Reviewing interbank transfers is important to the auditor because of the possibility that the client may be engaged in kiting. 
A)  Cash is important to the audit process because of its vulnerability to misappropriation, despite the fact that the balance at the balance sheet date may be immaterial. 
B)  Payroll cash account balances kept on an imprest basis are more easily controlled than others not so kept. 
C)  Confirmation of cash should only be performed as of the balance statement date because the auditor expresses an opinion as of that date. 
D)  Reviewing interbank transfers is important to the auditor because of the possibility that the client may be engaged in kiting.

Question 6

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally not 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 unrecorded check cashed during that month. 
D)  A bank charge during the month not recorded on the books. 
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 unrecorded check cashed during that month. 
D)  A bank charge during the month not recorded on the books.

Question 7

Control over the receipt of cash sales is best achieved when two or more employees participate in each transaction.

Accepted Answer

A) True 
 B)False

Question 8

Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation?

Accepted Answer

A)  Prepare a bank transfer schedule using the client's cash receipts and cash disbursements journal. 
B)  Receive a cutoff statement directly from the client's bank. 
C)  Prepare a four column bank reconciliation using the year-end bank statement. 
D)  Confirm the year-end balance using the standard form to confirm account balance information with financial institutions. 
A)  Prepare a bank transfer schedule using the client's cash receipts and cash disbursements journal. 
B)  Receive a cutoff statement directly from the client's bank. 
C)  Prepare a four column bank reconciliation using the year-end bank statement. 
D)  Confirm the year-end balance using the standard form to confirm account balance information with financial institutions.

Question 9

Properly designed internal control will permit the same employee to:

Accepted Answer

A)  Receive and deposit checks, and also approve write-offs of customer accounts. 
B)  Approve vouchers for payment, and also receive and deposit cash. 
C)  Reconcile the bank statements, and also receive and deposit cash. 
D)  Sign checks, and also cancel supporting documents. 
A)  Receive and deposit checks, and also approve write-offs of customer accounts. 
B)  Approve vouchers for payment, and also receive and deposit cash. 
C)  Reconcile the bank statements, and also receive and deposit cash. 
D)  Sign checks, and also cancel supporting documents.

Question 10

The auditors' count of the client's cash should be coordinated to coincide with the:

Accepted Answer

A)  Consideration of the internal controls with respect to cash. 
B)  Close of business on the balance sheet date. 
C)  Count of investment securities. 
D)  Count of inventories. 
A)  Consideration of the internal controls with respect to cash. 
B)  Close of business on the balance sheet date. 
C)  Count of investment securities. 
D)  Count of inventories.

Question 11

You are working on the Bemco audit. Assume that each of the four sections of this question are unrelated. Bill Wedman, another staff member, has given you the following list of what he refers to as "internal control deficiencies" and has asked you to review each point and make sure that you agree that each is an internal control deficiency. \(\begin{array}{|l|l|c|c|}
\hline
&&\text{Agree, this is a control deficiency}&\text{Disagree, this is not a control deficiency}\
\hline \text { 1. } & \text { Voided checks are torn up and destroyed. } & 0 & 0 \
\hline \text { 2. } & \begin{array}{l}
\text { Separate sequences of prenumbered checks are used tor each bank } \
\text { account. }
\end{array} & 0 & 0 \
\hline \text { 3. } & \begin{array}{l}
\text { The purchasing department manager and assistant manager are the } \
\text { authorized check signers. }
\end{array} & 0 & 0 \
\hline \text { 4. } & \text { No checks are made payable to cash. } & 0 & 0 \
\hline 5. &\text{The authorized check signers reconcile bank accounts.}& 0 & 0 \
6.&\text{All cash receipts (checks) received through the mail are prelisted by the two}& 0 & 0 \
&\text{ individuals who open the mail.}\
\hline 7.& \text{All cash receipts received through the mail are restrictively endorsed when}\
&\text{received.}& 0 & 0 \
\hline 8.& \text{When a disbursement is made based on paper supporting documents, those}\
& \text{supporting documents are canceled by the indwidual who signs the check.}& 0 & 0 \\hline
\end{array}\)

Accepted Answer

1. Agree. Voided checks should be so mar

Question 12

Banks may process electronic "substitute checks" in place of customer written hard copy checks due to the:

Accepted Answer

A)  Check Clearing for the 21st Century Act. 
B)  Public Company Accounting Oversight Board's Standard No. 2. 
C)  Foreign Corrupt Practices Act. 
D)  Sarbanes-Oxley Act. 
A)  Check Clearing for the 21st Century Act. 
B)  Public Company Accounting Oversight Board's Standard No. 2. 
C)  Foreign Corrupt Practices Act. 
D)  Sarbanes-Oxley Act.

Question 13

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

Question 14

As one of the year-end audit procedures, the auditor instructed the client's personnel to prepare a confirmation request for a bank account that had been closed during the year. After the client's treasurer has signed the request, it was mailed 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 15

The Parmalat fraud case involved:

Accepted Answer

A)  A fraudulent cash confirmation. 
B)  Kiting of funds between banks in India and banks in Pakistan. 
C)  A bank reconciliation performed by the client that systematically understated cash. 
D)  Major unrecorded disbursements for equipment. 
A)  A fraudulent cash confirmation. 
B)  Kiting of funds between banks in India and banks in Pakistan. 
C)  A bank reconciliation performed by the client that systematically understated cash. 
D)  Major unrecorded disbursements for equipment.

Question 16

Flemco has made a series of transfers between bank accounts near year-end, some through inter-bank wired transfers and some through checks. You have audited the wired transfers and agree that they have been properly stated and now have the following schedule of transfers between cash accounts made using checks. You may assume that dates per bank are correct, and that dates per books are the dates the transactions were recorded in the books.   Analyze each of the above transfers and determine whether you believe each causes total cash to most likely be correct, overstated, or understated as of year-end.

Accepted Answer

1. Understated. The entry is recorded as

Question 17

The auditors should count small petty cash funds at year-end to make sure that balance is not understated on the financial statements.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not a control that generally is established over cash receipts?

Accepted Answer

A)  To prevent abstraction of cash, a control listing of cash receipts should be prepared by mailroom personnel. 
B)  To insure accurate posting, the accounts receivable clerk should post the customers' receipts from customers' checks. 
C)  To insure accuracy of the accounts receivable records, the records should be reconciled monthly to the accounts receivable controlling account. 
D)  To prevent theft of cash, receipts should be deposited daily. 
A)  To prevent abstraction of cash, a control listing of cash receipts should be prepared by mailroom personnel. 
B)  To insure accurate posting, the accounts receivable clerk should post the customers' receipts from customers' checks. 
C)  To insure accuracy of the accounts receivable records, the records should be reconciled monthly to the accounts receivable controlling account. 
D)  To prevent theft of cash, receipts should be deposited daily.

Question 19

Which of the following is not a control over cash disbursements?

Accepted Answer

A)  Disbursements should be made by check. 
B)  A check protecting machine should be used. 
C)  Documents supporting the payment of a disbursement should be canceled by the person preparing the check to prevent reuse. 
D)  Voided checks should be defaced and filed with paid checks. 
A)  Disbursements should be made by check. 
B)  A check protecting machine should be used. 
C)  Documents supporting the payment of a disbursement should be canceled by the person preparing the check to prevent reuse. 
D)  Voided checks should be defaced and filed with paid checks.

Question 20

Confirmations for cash balances should be mailed only to the financial institutions with which the client has a cash balance at year-end.

Accepted Answer

A) True 
 B)False

Which of the following is not confirmed on the standard confirmation form used for cash balances at financial institutions?

In October, three months before year-end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to miscellaneous revenue. The most effective method for detecting this type of error is:

An auditor may obtain information on the December 31 month-end balance per bank in which of the following? Standard Confirmation Form January 1-10 Cutoff Statement A. Yes Yes B. Yes No C. No Yes D. No No

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

Which of the following statements is not correct?

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally not be able to detect:

Control over the receipt of cash sales is best achieved when two or more employees participate in each transaction.

Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation?

Properly designed internal control will permit the same employee to:

The auditors' count of the client's cash should be coordinated to coincide with the:

Banks may process electronic "substitute checks" in place of customer written hard copy checks due to the:

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

The Parmalat fraud case involved:

The auditors should count small petty cash funds at year-end to make sure that balance is not understated on the financial statements.

Which of the following is not a control that generally is established over cash receipts?

Which of the following is not a control over cash disbursements?

Confirmations for cash balances should be mailed only to the financial institutions with which the client has a cash balance at year-end.

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

Which of the following is not confirmed on the standard confirmation form used for cash balances at financial institutions?

In October, three months before year-end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to miscellaneous revenue. The most effective method for detecting this type of error is:

An auditor may obtain information on the December 31 month-end balance per bank in which of the following? Standard Confirmation Form January 1-10 Cutoff Statement A. Yes Yes B. Yes No C. No Yes D. No No

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

Which of the following statements is not correct?

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally not be able to detect:

Control over the receipt of cash sales is best achieved when two or more employees participate in each transaction.

Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation?

Properly designed internal control will permit the same employee to:

The auditors' count of the client's cash should be coordinated to coincide with the:

Banks may process electronic "substitute checks" in place of customer written hard copy checks due to the:

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

The Parmalat fraud case involved:

The auditors should count small petty cash funds at year-end to make sure that balance is not understated on the financial statements.

Which of the following is not a control that generally is established over cash receipts?

Which of the following is not a control over cash disbursements?

Confirmations for cash balances should be mailed only to the financial institutions with which the client has a cash balance at year-end.

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