Question 1

When auditing petty cash, the emphasis should be on testing controls over petty cash transactions rather than the ending balance in the account.

Accepted Answer

A) True 
 B)False

Question 2

In addition to confirming bank balances of your audit client, a bank confirmation would normally contain:

Accepted Answer

A)  the client's bank loans with due date, interest rate, and collateral requested. 
B)  the client's credit history as regards to paying back loans. 
C)  the client's managements bank account information. 
D)  the client's business prospects. 
A)  the client's bank loans with due date, interest rate, and collateral requested. 
B)  the client's credit history as regards to paying back loans. 
C)  the client's managements bank account information. 
D)  the client's business prospects.

Question 3

The most important controls for petty cash relate to:

Accepted Answer

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

Question 4

The starting point for the verification of the balance in the general bank account is to obtain a bank cut-off statement.

Accepted Answer

A) True 
 B)False

Question 5

The process of transferring money from one bank account to another and improperly recording the transaction is referred to as:

Accepted Answer

A)  kiting. 
B)  lapping. 
C)  scamming. 
D)  embezzling. 
A)  kiting. 
B)  lapping. 
C)  scamming. 
D)  embezzling.

Question 6

The three most important audit objectives for cash are accuracy, existence, and classification.

Accepted Answer

A) True 
 B)False

Question 7

Many of the auditor's audit procedures in the audit of cash center around the client's bank confirmations.

Accepted Answer

A) True 
 B)False

Question 8

Based on the schedule of interbank transfers above, which of the cash transfers indicates an error in cash cutoff at December 31, 2007?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 9

If a bank does not respond to a bank confirmation request, the auditor would most likely:

Accepted Answer

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

Question 10

"Failure to bill a customer" is an example of an error that results in the failure to receive cash, but would not be discovered as part of the audit of the bank reconciliation. State three other examples of errors or irregularities that result in the improper payment of, or failure to receive, cash, but that would not be discovered during the audit of the bank reconciliation. How are these types of misstatements normally uncovered in the audit?

Accepted Answer

• An embezzlement of cash by interceptio

Question 11

If internal controls over cash-related transactions are adequate, the auditor is justified in reducing the audit tests for the year-end bank reconciliation.

Accepted Answer

A) True 
 B)False

Question 12

On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account in bank B to cover a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this form of kiting by:

Accepted Answer

A)  examining the composition of deposits in both bank A and bank B subsequent to year-end. 
B)  examining paid checks returned with the bank statement of the next account period after year-end. 
C)  preparing, from the cash disbursements records, a summary of bank transfers for one week prior to and subsequent to year-end. 
D)  comparing the detail of cash receipts as shown by the client's cash receipts records with the detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year-end. 
A)  examining the composition of deposits in both bank A and bank B subsequent to year-end. 
B)  examining paid checks returned with the bank statement of the next account period after year-end. 
C)  preparing, from the cash disbursements records, a summary of bank transfers for one week prior to and subsequent to year-end. 
D)  comparing the detail of cash receipts as shown by the client's cash receipts records with the detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year-end.

Question 13

A proof of cash is effective at identifying which of the following misstatements?

Accepted Answer

A)  checks written for incorrect amounts 
B)  checks issued to invalid vendors 
C)  fraudulent checks 
D)  Checks recorded by the books for an amount different than the check. 
A)  checks written for incorrect amounts 
B)  checks issued to invalid vendors 
C)  fraudulent checks 
D)  Checks recorded by the books for an amount different than the check.

Question 14

Explain the purpose of testing the client's bank reconciliation, and discuss the major audit procedures involved.

Accepted Answer

The purpose of testing the client's reco

Question 15

A proof of cash helps the auditor determine whether all recorded cash receipts were deposited in the bank and whether all recorded cash disbursements were paid by the bank.

Accepted Answer

A) True 
 B)False

Question 16

The client may mail the bank confirmation requests if the auditor believes doing so will increase the likelihood that the confirmation will be returned promptly.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following items would not normally appear on bank reconciliations?

Accepted Answer

A)  Balance per bank 
B)  List of deposits in transit 
C)  Outstanding deposits 
D)  Outstanding checks 
A)  Balance per bank 
B)  List of deposits in transit 
C)  Outstanding deposits 
D)  Outstanding checks

Question 18

Auditors usually design bank confirmations that address the client's specific circumstances.

Accepted Answer

A) True 
 B)False

Question 19

Based on the schedule of interbank transfers above, which of the cash transfers would not appear as an outstanding check on the December 31, 2007 bank reconciliation?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 20

Ordinarily, all deposits-in-transit listed on the year-end bank reconciliation should appear as deposits on the cutoff bank statement.

Accepted Answer

A) True 
 B)False

Exam 23: Audit of Cash Balances

When auditing petty cash, the emphasis should be on testing controls over petty cash transactions rather than the ending balance in the account.

In addition to confirming bank balances of your audit client, a bank confirmation would normally contain:

The most important controls for petty cash relate to:

The starting point for the verification of the balance in the general bank account is to obtain a bank cut-off statement.

The process of transferring money from one bank account to another and improperly recording the transaction is referred to as:

The three most important audit objectives for cash are accuracy, existence, and classification.

Many of the auditor's audit procedures in the audit of cash center around the client's bank confirmations.

Based on the schedule of interbank transfers above, which of the cash transfers indicates an error in cash cutoff at December 31, 2007?

If a bank does not respond to a bank confirmation request, the auditor would most likely:

If internal controls over cash-related transactions are adequate, the auditor is justified in reducing the audit tests for the year-end bank reconciliation.

On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account in bank B to cover a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this form of kiting by:

A proof of cash is effective at identifying which of the following misstatements?

Explain the purpose of testing the client's bank reconciliation, and discuss the major audit procedures involved.

A proof of cash helps the auditor determine whether all recorded cash receipts were deposited in the bank and whether all recorded cash disbursements were paid by the bank.

The client may mail the bank confirmation requests if the auditor believes doing so will increase the likelihood that the confirmation will be returned promptly.

Which of the following items would not normally appear on bank reconciliations?

Auditors usually design bank confirmations that address the client's specific circumstances.

Based on the schedule of interbank transfers above, which of the cash transfers would not appear as an outstanding check on the December 31, 2007 bank reconciliation?

Ordinarily, all deposits-in-transit listed on the year-end bank reconciliation should appear as deposits on the cutoff bank statement.

The Demand for Audit and Other Assurance Services

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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

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Completing the Audit

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