Question 1

Outline the audit procedures that would be performed when testing electronic receipts and payments.

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Question 2

10)A)Distinguish between i)risks of error,ii)risks of fraud,and iii)risks of inadequate presentation or disclosure of financial information.
B)For each of the three types of risks described in A),provide three examples of major risks of error or fraud in the cash cycle.

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Question 3

When examining the bank reconciliation for the imprest payroll account,it is normal for the only reconciling item to be

Accepted Answer

A) outstanding cheques. 
B) direct deposits from customers. 
C) outstanding deposits. 
D) corrections to payroll amounts.

Question 4

A)Describe each of the major types of cash accounts maintained by business entities.B)Discuss the advantages of using an imprest bank account for payroll transactions.

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Question 5

A)Explain what is meant by a cutoff bank statement and discuss the purpose of the cutoff bank statement in the audit of cash.B)Explain the purpose of testing the client's bank reconciliation and discuss the major audit procedures involved.

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Question 6

There is a greater risk of defalcation for cash than for other types of assets because

Accepted Answer

A) it is easier to steal. 
B) most other assets must be converted to cash to make them usable. 
C) companies usually have weak internal controls surrounding cash. 
D) most employees have access to cash.

Question 7

A four-column proof of cash can be performed for

Accepted Answer

A) one or more interim months. 
B) the entire year. 
C) the last month of the year. 
D) any specified time period for which bank statements are available and which the auditor chooses to designate.

Question 8

Testing to ensure that bank transfers are recorded in both the receiving and disbursing banks helps to detect evidence

Accepted Answer

A) that would reduce inherent risk to a minimum. 
B) associated with an attempt to conceal a theft of cash. 
C) that increases reliability with respect to the accuracy of the transfer schedule. 
D) that would warrant decreasing control risk to a minimum.

Question 9

If the auditor does not obtain a cutoff statement directly from the bank for testing,an alternative procedure that the auditor can use is to

Accepted Answer

A) account for a continuity of cheques that covers the year end. 
B) reconcile cash paid to the cash disbursements journal for the last month of the year. 
C) reconcile cash received to the cash receipts journal for the last month of the year. 
D) prove the bank statement for the period after the year end.

Question 10

You are the auditor of Brody Grass Inc.The CEO expressed a concern that the audit fees for the year were very high.You explained that this is largely due to poor internal controls in the cash and transaction cycle and that the audit fees could decrease if better controls were in place.
Provide 5 examples of general cash account controls that Brody Grass Inc.could implement.

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Question 11

Under what circumstances would an auditor prepare a proof of cash?

Accepted Answer

A) When the client has material internal control weaknesses in cash. 
B) When control risk is set at minimum. 
C) When inherent risk in cash is considered to be low. 
D) When an enterprise resource system is in use for processing of cash transactions.

Question 12

The auditor has determined exchange rates used by the client to present cash in foreign currencies and has recalculated the amounts.Which audit assertion is associated with this audit procedure?

Accepted Answer

A) existence 
B) valuation 
C) allocation 
D) classification

Question 13

From an audit perspective,an imprest bank account at a client can

Accepted Answer

A) require less time for the audit of general cash. 
B) increase audit risk. 
C) result in an increase in control risk. 
D) improve client internal controls.

Question 14

State the important factors the auditor should consider while understanding internal controls for cash.

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Question 15

A major consideration in the audit of the general cash balance is the possibility of fraud.The auditor must extend his or her procedures in the audit of year-end cash to determine the possibility of a material fraud when there are

Accepted Answer

A) large cash balances at the end of the year. 
B) large cash receipts and disbursements during the year. 
C) no imprest accounts used for payroll. 
D) material internal control weaknesses.

Question 16

Disbursements on the bank transfer schedule should be correctly included in or excluded from year-end bank reconciliations as outstanding cheques.Understating outstanding cheques on the bank reconciliation indicates

Accepted Answer

A) the possibility of kiting. 
B) a cutoff error in the bank account. 
C) an understatement of the bank balance. 
D) an increase in inherent risks associated with cash.

Question 17

Which of the following statements best describes the position of cash on the balance sheet at most organizations that utilize effective cash management practices?

Accepted Answer

A) Cash is usually immaterial. 
B) Cash is usually highly material. 
C) Cash is usually dispersed among many different accounts. 
D) Cash is usually affected by many different capital asset accounts.

Question 18

What type of audit test is a proof of cash?

Accepted Answer

A) test of control 
B) test of details 
C) dual-purpose 
D) analytical review

Question 19

A)"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 would not be discovered during the audit of the bank reconciliation.How are these types of misstatements normally uncovered in the audit? B)State three examples of errors or irregularities that normally would be uncovered during the audit of the bank reconciliation.

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The answer of A)"Failure to bill a customer" is an...

Question 20

A)Explain what is meant by kiting and discuss how it is performed.B)Discuss how an auditor can test for kiting.

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The answer of A)Explain what is meant by kiting and...

Exam 17: Audit of Cash Balances