Question 1

Audit tests of the petty cash fund are typically performed on the balance sheet date.

Accepted Answer

A) True 
 B)False  False

Question 2

The test of details of balances procedure that requires the auditor to foot the outstanding check list and deposits in transit is an attempt to satisfy which audit objective?

Accepted Answer

A)  Cutoff. 
B)  Presentation and disclosure. 
C)  Detail tie-in. 
D)  Completeness. 
A)  Cutoff. 
B)  Presentation and disclosure. 
C)  Detail tie-in. 
D)  Completeness. C

Question 3

Match six of the terms (a-k) with the descriptions/definitions provided below (1-6):
a. Bank reconciliation
b. Branch cash account
c. Cash equivalents
d. Cutoff bank statement
e. General cash account
f. Imprest payroll account
g. Imprest petty cash fund
h. Kiting
i. Proof of cash
j. Standard bank confirmation form
k. Lapping
________ 1. A fund of cash maintained within the company for small cash acquisitions, expenses, or to cash employees' checks.
________ 2. A form approved by the AICPA and American Bankers' Association through which the bank responds to the auditor about bank balance and loan information.
________ 3. Excess cash invested in short-term, highly liquid investments such as time deposits, certificates of deposit, and money market funds.
________ 4. The primary bank account for most organizations.
________ 5. The transfer of money from one bank account to another and improperly recording the transfer so that the amount is recorded as an asset in both accounts.
________ 6. The document usually prepared by client personnel of the differences between the cash balance recorded in the general ledger and the amount in the bank account.

Accepted Answer

1. g
2. j
3. c
4. e
5. h
6. a

Question 4

The audit objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger can be tested by which of the following procedures?

Accepted Answer

A)  Performing tests for kiting. 
B)  Receiving and testing a cutoff bank statement. 
C)  Footing the outstanding checks list and the list of deposits in transit. 
D)  Examining the minutes of the board of directors for restrictions on the use of cash. 
A)  Performing tests for kiting. 
B)  Receiving and testing a cutoff bank statement. 
C)  Footing the outstanding checks list and the list of deposits in transit. 
D)  Examining the minutes of the board of directors for restrictions on the use of cash.

Question 5

To test the client's list of outstanding checks on the bank reconciliation for completeness, the auditor should trace from the list to the checks included with the cutoff bank statement.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following errors would be least likely to be discovered during the tests of the bank reconciliation?

Accepted Answer

A)  Payment was made to an employee for more hours than he worked. 
B)  Cash received by the client subsequent to the balance sheet date was recorded as cash receipts in the current year. 
C)  Payments on notes payable were debited directly to the bank balance by the bank were not entered in the client's records. 
D)  Deposits were recorded in the cash receipts records near the end of the year, deposited in the bank, and were included in the bank reconciliation as a deposit in transit. 
A)  Payment was made to an employee for more hours than he worked. 
B)  Cash received by the client subsequent to the balance sheet date was recorded as cash receipts in the current year. 
C)  Payments on notes payable were debited directly to the bank balance by the bank were not entered in the client's records. 
D)  Deposits were recorded in the cash receipts records near the end of the year, deposited in the bank, and were included in the bank reconciliation as a deposit in transit.

Question 7

The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of:

Accepted Answer

A)  detail tie-in. 
B)  existence. 
C)  completeness. 
D)  cutoff. 
A)  detail tie-in. 
B)  existence. 
C)  completeness. 
D)  cutoff.

Question 8

Which of the following is likely to be detected as part of the audit of the bank reconciliation?

Accepted Answer

A)  Failure to bill a customer 
B)  Duplicate payment of a vendor invoice 
C)  Cash received by the client after year end, but included in cash receipts in the current year 
D)  An embezzlement of cash by intercepting cash receipts from customers before they are recorded 
A)  Failure to bill a customer 
B)  Duplicate payment of a vendor invoice 
C)  Cash received by the client after year end, but included in cash receipts in the current year 
D)  An embezzlement of cash by intercepting cash receipts from customers before they are recorded

Question 9

Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation?

Accepted Answer

A)  Duplicate payment of a vendor's invoice. 
B)  Billing a customer at a lower price than indicated by company policy. 
C)  Failure to record a collection of a note receivable by the bank on the client's behalf. 
D)  Payment to an employee for more than the hours actually worked. 
A)  Duplicate payment of a vendor's invoice. 
B)  Billing a customer at a lower price than indicated by company policy. 
C)  Failure to record a collection of a note receivable by the bank on the client's behalf. 
D)  Payment to an employee for more than the hours actually worked.

Question 10

An imprest petty cash fund would least likely be used to pay for which of the following items?

Accepted Answer

A)  Minor office supplies 
B)  Monthly interest expense 
C)  Stamps for small mailings 
D)  Small contributions to a local charity 
A)  Minor office supplies 
B)  Monthly interest expense 
C)  Stamps for small mailings 
D)  Small contributions to a local charity

Question 11

A proof of cash represents:

Accepted Answer

A)  a test of controls and substantive test of transactions. 
B)  a substantive test of transactions. 
C)  a substantive test of transactions and test of details of balances. 
D)  a test of details of balances. 
A)  a test of controls and substantive test of transactions. 
B)  a substantive test of transactions. 
C)  a substantive test of transactions and test of details of balances. 
D)  a test of details of balances.

Question 12

If an auditor "proves" the bank statement in the month subsequent to the balance sheet date, it is primarily a test for:

Accepted Answer

A)  errors. 
B)  omissions. 
C)  kiting. 
D)  intentional misstatements. 
A)  errors. 
B)  omissions. 
C)  kiting. 
D)  intentional misstatements.

Question 13

Internal controls over year-end cash balances in the general account can be divided into two categories. List the two below.

Accepted Answer

1. Controls over transactions

Question 14

The audit and accounting concern addressed in a monthly proof of cash is with:

Accepted Answer

A)  adjusting account balances. 
B)  reconciling the amounts per books and bank. 
C)  determining the month-end balance. 
D)  identifying cash transfers. 
A)  adjusting account balances. 
B)  reconciling the amounts per books and bank. 
C)  determining the month-end balance. 
D)  identifying cash transfers.

Question 15

Examples of cash equivalents include time deposits, certificates of deposit, and marketable securities.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not a "cash equivalent"?

Accepted Answer

A)  Time deposits 
B)  Certificates of deposit 
C)  Money market funds 
D)  Marketable securities 
A)  Time deposits 
B)  Certificates of deposit 
C)  Money market funds 
D)  Marketable securities

Question 17

A proof of cash is not an effective procedure for identifying which of the following types of misstatements?

Accepted Answer

A)  All recorded disbursements were paid by the bank. 
B)  All recorded cash receipts were deposited. 
C)  All amounts that were paid by the bank were recorded. 
D)  Some checks were written for incorrect amounts. 
A)  All recorded disbursements were paid by the bank. 
B)  All recorded cash receipts were deposited. 
C)  All amounts that were paid by the bank were recorded. 
D)  Some checks were written for incorrect amounts.

Question 18

When the auditor believes the year-end bank reconciliation may be intentionally misstated, it is appropriate to perform extended tests of the year-end bank reconciliation. Assuming the client has a October 31 year-end, these extended tests would not include:

Accepted Answer

A)  comparing all September 30 reconciling items with canceled checks and other documents in the October bank statement. 
B)  comparing all canceled checks and deposit slips in the October bank statement with the October cash disbursements and receipts records. 
C)  carrying out all proper procedures subsequent to the end of the year with the use of the bank cutoff statement. 
D)  determining that all outstanding checks had cleared by the date of the bank cutoff statement. 
A)  comparing all September 30 reconciling items with canceled checks and other documents in the October bank statement. 
B)  comparing all canceled checks and deposit slips in the October bank statement with the October cash disbursements and receipts records. 
C)  carrying out all proper procedures subsequent to the end of the year with the use of the bank cutoff statement. 
D)  determining that all outstanding checks had cleared by the date of the bank cutoff statement.

Question 19

Tests for kiting are performed using only a schedule of intrabank transfers.

Accepted Answer

A) True 
 B)False

Question 20

The direct receipt of a confirmation from every bank with which the client does business is:

Accepted Answer

A)  required by auditing standards for every audit. 
B)  not necessary unless material fraud is suspected. 
C)  recommended but not required by auditing standards. 
D)  necessary for every audit except when there are an unusually large number of active accounts. 
A)  required by auditing standards for every audit. 
B)  not necessary unless material fraud is suspected. 
C)  recommended but not required by auditing standards. 
D)  necessary for every audit except when there are an unusually large number of active accounts.

Exam 23: Audit of Cash Balances

Audit tests of the petty cash fund are typically performed on the balance sheet date.

The test of details of balances procedure that requires the auditor to foot the outstanding check list and deposits in transit is an attempt to satisfy which audit objective?

The audit objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger can be tested by which of the following procedures?

To test the client's list of outstanding checks on the bank reconciliation for completeness, the auditor should trace from the list to the checks included with the cutoff bank statement.

Which of the following errors would be least likely to be discovered during the tests of the bank reconciliation?

The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of:

Which of the following is likely to be detected as part of the audit of the bank reconciliation?

Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation?

An imprest petty cash fund would least likely be used to pay for which of the following items?

A proof of cash represents:

If an auditor "proves" the bank statement in the month subsequent to the balance sheet date, it is primarily a test for:

Internal controls over year-end cash balances in the general account can be divided into two categories. List the two below.

The audit and accounting concern addressed in a monthly proof of cash is with:

Examples of cash equivalents include time deposits, certificates of deposit, and marketable securities.

Which of the following is not a "cash equivalent"?

A proof of cash is not an effective procedure for identifying which of the following types of misstatements?

When the auditor believes the year-end bank reconciliation may be intentionally misstated, it is appropriate to perform extended tests of the year-end bank reconciliation. Assuming the client has a October 31 year-end, these extended tests would not include:

Tests for kiting are performed using only a schedule of intrabank transfers.

The direct receipt of a confirmation from every bank with which the client does business is:

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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