Term
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Definition
Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees?
a) A bank lockbox system
b) Prenumbered remittance advices
c) Monthly bank reconciliations
d) Daily deposit of cash receipts |
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Term
| b) Stamped "paid" by the check signer |
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Definition
To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is:
a) Supported by a vendor's invoice
b) Stamped "paid" by the check signer
c) Prenumbered and accounted for
d) Approved for authorized purchases |
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Term
| d) Is responsible for mailing the checks |
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Definition
In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also:
a) Reviews the monthly bank reconciliation
b) Returns the checks to accounts payable
c) Is denied access to the supporting documents
d) Is responsible for mailing the checks |
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Term
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Definition
To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except:
a) Cutoff bank statement
b) Year-end bank statement
c) Bank confirmation
d) General ledger |
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Term
| c) Coordinate the count of case with the count of marketable securities and other negotiable assets |
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Definition
You have been assigned to the year-end audit of a financial institution and are planning the timing of audit procedures relating to cash. You decide that it would be preferable to:
a) Count the case in advance of the balance sheet date in order to disclose any kiting operations at year-end
b) Coordinate the count of cash with the cutoff of accounts payable
c) Coordinate the count of case with the count of marketable securities and other negotiable assets
d) Count the cash immediately upon the return of the confirmation letters from the financial institution |
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Term
| a) Observe the consistency of the employees' use of cash registers and tapes |
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Definition
Which of the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?
a) Observe the consistency of the employees' use of cash registers and tapes
b) Inquire about employees' access to recorded but undeposited cash
c) Trace deposits in the cash receipts journal to the cash balance in the general ledger
d) Compare the cash balance in the general ledger with the bank confirmation request |
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Term
| a) Processes cash disbursements |
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Definition
Reconciliation of the bank account should not be performed by an individual who also:
a) Processes cash disbursements
b) Has custody of securities
c) Prepares the cash budget
d) Reviews inventory reports |
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Term
| a) Details of bank deposit slips with details of credits to customer accounts |
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Definition
The auditors suspect that a client's cashier is misappropriating cash receipts for personal use by lapping customer check received in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the:
a) Details of bank deposit slips with details of credits to customer accounts
b) Daily cash summaries with the sums of the cash receipts journal entries
c) Individual bank deposit slips with the details of the monthly bank statements
d) Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded |
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Term
| d) Require that the safekeeping function for securities be assigned to a bank or stockbroker that will at as a custodial agent |
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Definition
In order to guard against the misappropriation of company-owned marketable securities, which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities?
a) Require that one trustworthy and bonded employee be responsible for access to the safekeeping area where securities are kept
b) Require that employees who enter and leave the safekeeping area sign and record in a log the exact reason for their access
c) Require that employees involved in the safekeeping function maintain a subsidiary control ledger for securities on a current basis
d) Require that the safekeeping function for securities be assigned to a bank or stockbroker that will at as a custodial agent |
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Term
| a) An investment committee of the board of directors |
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Definition
Hall Company had large amounts of funds to invest on a temporary basis. The board of directors decided to purchase securities and derivatives and assigned the future purchase and sale decisions to a responsible financial executive. The best person or persons to make periodic reviews of the investment activity would be:
a) An investment committee of the board of directors
b) The chief operating officer
c) The corporate controller
d) The treasurer |
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Term
| c) Acknowledge the receipt of securities returned |
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Definition
The auditors who physically examine securities should insist that a client representative be present in order to:
a) Detect fraudulent securities
b) Lend authority to the auditors' directives
c) Acknowledge the receipt of securities returned
d) Coordinate the return of securities to the proper locations |
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Term
| b) Verification by reference to dividend record books |
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Definition
The best way to verify the amounts of dividend revenue received during the year is:
a) Recomputation
b) Verification by reference to dividend record books
c) Confirmation with dividend-paying companies
d) Examination of cash disbursements records |
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Term
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Definition
Most misstatements of assets involve:
a) Overstatement
b) Understatement |
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Term
| b) fictitious check, outstanding check (p 387) |
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Definition
Concerning overstated cash, a shortage may have been concealed by the insertion of a(n) ____ in the cash on have at year-end, or by the omission of a(n)____ from the year-end bank reconciliation
a) outstanding check, fictitious check
b) fictitious check, outstanding check |
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Term
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Definition
The omission of an outstanding check may be indicative of either an error or fraud.
a) True
b) False |
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Term
| e) All of the above are ways to misstate cash (p 389) |
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Definition
Which of the following is not a way to misstate cash?
a) A cashier fails to ring up and record cash sales
b) A bookkeeper accidentally fails to record payment on a receivable
c) A bookkeeper accidentally omits the recording of the receipts from one cash register for the day
d) transferring cash between bank accounts without appropriate recording of the transfer
e) All of the above are ways to misstate cash |
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Term
| d) An employee records an incoming cash receipt and credits an A/R account |
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Definition
Which of the following is not a way to misstate cash?
a) Disbursements for travel and entertainment are improperly included with merchandise purchases
b) A bookkeeper prepares a check for himself and records it as having been issued to a major supplier
c) A disbursement is made to pay an invoice for goods that have not been received
d) An employee records an incoming cash receipt and credits an A/R account
e) In conjunction with unrecorded, deposited, cash receipts, an employee writes and cashes an unrecorded check for the identical amount
f) All of the above are ways to misstate cash |
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Term
| c) Cutoff bank statement (p 395) |
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Definition
A statement covering a specified number of business days following the end of the client's fiscal year is a
a) Financial statement
b) Bank reconciliation
c) Cutoff bank statement
d) None of the above |
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Term
| a) Cutoff bank statement (p 395) |
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Definition
A ____ ____ ____ allows auditors to examine checks listed as outstanding and the details of deposits in transit on the company's reconciliation
a) Cutoff bank statement
b) Bank reconciliation
c) Statement of cash flows
d) None of the above |
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Term
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Definition
A cutoff bank statement provides assurance that the amount of cash shown on the balance sheet was not overstated by omission of one or more checks from the list of checks outstanding.
a) True
b) False |
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Term
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Definition
In examining a cutoff bank statement, auditors will look for any paid checks issued on or before the balance sheet date but not listed as outstanding on the client's year-end bank reconciliation
a) True
b) False |
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Term
| c)Petty cash funds and change funds cannot be counted after the balance (p 396) |
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Definition
Which of the following is false concerning the count of cash on hand?
a) auditors prefer to make a surprise count of petty cash and change funds
b) petty cash funds and change funds can be counted either before or after the balance sheet date
c)Petty cash funds and change funds cannot be counted after the balance sheet date
d)When auditors make a cash count, they should insist that the custodian of the funds be present throughout the count |
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Term
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Definition
Auditors should insist that the custodian of the funds be present throughout the count to avoid the possibility of an employee trying to explain a cash shortage by claiming that the funds were intact when turned over to the auditors.
a) True
b) False |
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Term
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Definition
To substantiate the existence of the amount of cash shown on the balance sheet, the auditor will confirm amounts on deposit and obtain or prepare reconciliations between bank statements and the accounting records
a) True
b) False |
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Term
| d) a standard confirmation form (p 392) |
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Definition
To corroborate the existence of recorded information, auditors will use a(n)
a) bank reconciliation
b) cutoff bank statement
c) the company's financial statements
d) a standard confirmation form |
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Term
| b) False. The confirmation may lead to the discovery of additional accounts or loans and, therefore, it provides limited evidence about the completeness of recorded amounts (p 392) |
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Definition
A standard confirmation form gives no evidence about the completeness of recorded amounts on deposit
a) True
b) False
b) False |
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Term
| b) Auditors will wait to prepare a bank reconciliation until they can begin their fieldwork after the close of the year (p 392) |
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Definition
Which of the following is true concerning bank reconciliations?
a) Auditors may prepare a bank reconciliation as of the balance sheet date
b) Auditors will wait to prepare a bank reconciliation until they can begin their fieldwork after the close of the year
c) If the client has prepared a reconciliation, auditors will test it to make sure it is correct
d) Inspecting a reconciliation prepared by the client includes verifying the arithmetical accuracy, comparing balances to the bank statement and ledger account, and investigating the reconciling items |
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Term
| e) eliminating long-outstanding checks has no effect on the amount of opportunity an employee has to commit fraud (p 394) |
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Definition
Which of the following statements is false?
a) the form of bank reconciliation most frequently used by auditors begins with balance per bank and ends with unadjusted balance per the accounting records
b) the balance per the bank statement is verified by direct confirmation with the bank
c) if checks are outstanding for more than a year, internal control over cash disbursements is weakened
d) a client should eliminate long-outstanding checks by debiting the Cash account and crediting Unclaimed Wages or another special liability account
e) eliminating long-outstanding checks has no effect on the amount of opportunity an employee has to commit fraud |
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Term
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Definition
A ____ reconciles cash transactions occurring during a specified period and reconciles the account balance
a) bank cutoff statement
b) proof of cash
c) bank reconciliation
d) none of the above |
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Term
| e) All of the above are correct (p 394) |
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Definition
A proof of cash is used to identify:
a) cash receipts and disbursements recorded in the accounting records, but not on the bank statement
b) cash deposits and disbursements recorded on the bank statement, but not on the accounting records
c) cash receipts and disbursements recorded at different amounts by the bank than in the accounting records
d) fraud
e) All of the above are correct |
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Term
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Definition
Auditors can verify the cutoff of cash receipts by determining that deposits in transit as shown on the year-end bank reconciliation appear as credits on the bank statement on the first business day of the new year
a) True
b) False |
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Term
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Definition
If a particular security has been held since the last audit, auditors may compare the serial number of the certificate with the number shown in the prior year's working papers. This process will detect securities that have been sold without authorization during the year and replaced before this year's audit.
a) True
b) False |
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Term
| c) a representative of the client need not acknowledge in writing that the securities were returned intact (p 404) |
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Definition
Which of the following statements is false?
a) The best time to count cash and securities on hand is on the balance sheet date
b) a representative of the client should be present when the auditors count the securities
c) a representative of the client need not acknowledge in writing that the securities were returned intact
d) if securities are kept in a bank safe-deposit box, the client may instruct the bank in writing on the balance sheet date that no one is to have access to the box unless accompanied by the auditors |
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Term
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Definition
Auditors may send a confirmation request, signed by the client, to holders of client-owned securities to determine existence and ownership
a) True
b) False |
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Term
| C) Compare cash register totals to a total that is automatically generated by each gas pump |
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Definition
A local gas station has one clerk that accepts cash payments for gas and rings them up on the cash register. Which of the following would be the best control to provide assurance that the cashier isn't keeping some of the cash?
A) Count all cash before and after the shift and compare it to cash register totals.
B) Require that each customer be given a receipt of their purchase.
C) Compare cash register totals to a total that is automatically generated by each gas pump.
D) Require that each employees have a separate cash drawer that only they use. |
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Term
| C) The Controller should have control of accounting functions and the Treasurer should have control of cash receipt functions |
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Definition
The accounting functions and the cash receipts functions should be handled by which department(s)?
A) Both functions should be under the control of the company Treasurer
B) Both functions should be under the control of the company Controller
C) The Controller should have control of accounting functions and the Treasurer should have control of cash receipt functions.
D) The Treasurer should have control of accounting functions and the Controller should have control of cash receipt functions. |
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Term
| B) Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation |
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Definition
The auditor uses a bank cutoff statement to compare:
A) Bank service charges on the cutoff statement to deposits in the cash receipts journal.
B) Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.
C) Deposits listed on the cutoff statement to disbursements in the cash disbursements journal.
D) Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation. |
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Term
| D) The company trades or holds a large number of securities |
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Definition
It is most likely to be efficient to test the controls over financial investments when:
A) Controls are thought to be weak.
B) Substantive tests may be performed.
C) Analytical procedures are possible.
D) The company trades or holds a large number of securities. |
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Term
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Definition
To gather evidence regarding the balance per bank on a bank reconciliation, an auditor could examine all of the following except:
A) Cutoff bank statement.
B) Year-end bank statement.
C) Bank confirmation.
D) General ledger. |
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Term
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Definition
What of the following is the risk that is of most concern to auditors when auditing cash?
A) Detective risk.
B) Inherent risk.
C) Adjunct risk.
D) Nonsampling risk. |
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Term
| A) Several overpayments are made for goods received from a supplier |
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Definition
Which of the following is most likely to indicate fraud?
A) Several overpayments are made for goods received from a supplier.
B) The year end cash balance does not include cash in transit to the company at year-end.
C) A check received after year end was inadvertently recorded as if received before year-end.
D) A documented loan to an officer of the company. |
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Term
| D) Examine the voided checks file to determine whether the check is in the file. |
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Definition
An auditor examining check disbursements discovered a missing check number. Upon inquiry to the person responsible for disbursements and reconciliation of the cash account, she is told that the check number is missing because the check was voided. What is the auditor's next step?
A) Prepare a bank transfer schedule at to identify the check.
B) Examine the bank confirmation to determine whether the check cleared.
C) Since the person responsible for disbursements also reconciles the account, no additional procedures are necessary.
D) Examine the voided checks file to determine whether the check is in the file. |
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Term
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Definition
Of the following, which procedure or document is most effective for detecting kiting?
A) A bank cutoff statement.
B) A bank reconciliation.
C) A bank kiting statement.
D) A proof of cash. |
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Term
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Definition
Jones embezzled $50,000 from his company's account in Bank A. At year-end he hid the shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not recorded the transaction on the books. This is an example of:
A) Lapping.
B) Kiting.
C) Effective cash management.
D) Related party transactions. |
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Term
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Definition
A security owned by a company is from another company that recently declared bankruptcy. Which of the following is the auditor's primary concern with the investment?
A) Existence.
B) Presentation.
C) Completeness.
D) Valuation. |
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Term
| D) Verify the company owns the security, check the accuracy of the accrual, and require no adjustment. |
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Definition
A company owns a large amount of debt securities that pay interest twice a year – August 1 and February 1. On the financial statements the company accrued the 5 months of interest it was due as interest receivable. The auditor should:
A) Require the accrual be reversed since the interest has not yet been paid.
B) Confirm the interest accrual with the security issuer.
C) Require the accrual be reversed since the company could sell the security before interest has been paid.
D) Verify the company owns the security, check the accuracy of the accrual, and require no adjustment. |
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Term
| A) An unrecorded (on the books) deposit made at the beginning of the month; the amount was withdrawn late in the month, again with no book entry |
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Definition
A four column bank reconciliation ("proof of cash") will generally assist an auditor in detecting:
A) An unrecorded (on the books) deposit made at the beginning of the month; the amount was withdrawn late in the month, again with no book entry.
B) A second payment of a liability that had already been paid in full.
C) A check written and recorded on the books for $2,000, not $200 the amount of the actual liability.
D) An embezzlement of a portion of the company's petty cash. |
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Term
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Definition
Which of the following is confirmed on the standard form used for cash balances at financial institution?
A) Factored accounts receivable.
B) FASB #5 loss contingencies.
C) Loans payable.
D) Safe deposit boxes controlled by the entity. |
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