Quiz - Audit of Cash and Cash Equivalents

c

c

As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client’s treasurer had signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure?

A. The confirmation request was signed by the treasurer.

B. Sending the request was meaningless because the account was closed before year-end.

C. The request was mailed by the assistant treasurer.

D. The CPA did not sign the confirmation request before it was mailed.

b

On receiving the bank cutoff statement, the auditor should trace

A. Deposits in transit on the year-end bank reconciliation 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 bank statement to deposits in the cash receipts journal.

D. Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation.

b

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when

A. Check register for the last month is reviewed.

B. Cutoff bank statement is reconciled.

C. Bank confirmation is reviewed.

D. Search for unrecorded liabilities is performed.

d

To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except

A. Cutoff bank statement B. Year-end bank statement

C. Bank confirmation D. General ledger

d

An auditor compares information on cancelled checks with information contained in the cash disbursements journal. The objective of this test is to determine that

A. Recorded cash disbursement transactions are properly authorized.

B. Proper cash purchase discounts have been recorded.

C. Cash disbursements are for goods and services actually received.

D. No discrepancies exist between the data on the checks and the data in the journal.

c

When counting cash on hand, the auditor must exercise control over all cash and other negotiable assets to prevent

A. Theft B. Irregular endorsement C. Substitution D. Deposit in transit

c

If the balance shown on an entity’s bank statement is less than the correct cash balance and neither the entity nor the bank has made any errors, there must be

A. Deposits credited by the bank but not yet recorded by the entity.

B. Outstanding checks.

C. Deposits in transit.

D. Bank charges not yet recorded by the entity.

a

If the cash balance shown on an entity’s accounting records is less than the correct cash balance and neither the entity nor the bank has made any errors, there must be

A. Deposits credited by the bank but not yet recorded by the entity.

B. Deposits in transit.

C. Outstanding checks.

D. Bank charges not yet recorded by the entity.

d

The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may

A. Not believe that the bank is obligated to verify confidential information to a third party.

B. Sign and return the form without inspecting the accuracy of the client’s bank reconciliation.

C. Not have access to the client’s cutoff bank statement.

D. Be unaware of all the financial relationships that the bank has with the client.

b

The best evidence regarding year-end bank balances is documented in the

A. Cutoff bank statement. B. Bank reconciliations.

C. Interbank transfer schedule. D. Bank deposit lead schedule.

a

An auditor would consider a cashier’s job description to contain compatible duties if the cashier receives remittance from the mailroom and also prepares the

a.   Daily deposit slip.

b.   Prelist of individual checks.

c.  Remittance advices.

d.   Monthly bank reconciliation.

c

Which of the following internal control procedures will most likely prevent the concealment of a cash shortage resulting from improper write-off of a trade account receivable?

a. Write-offs must be supported by an aging schedule showing that only receivables overdue for several months have been written off.

b. Write-offs must be approved by the cashier who is in a position to know if the receivables have, in fact, been collected.

c. Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence.

d. Write-offs must be authorized by company field sales employees who are in a position to determine the financial standing of the customers.

a

An entity’s internal control structure requires every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all

a. Cancelled checks. b. Approved vouchers. c. Purchase orders. d. Receiving reports.

b

Which of the following auditing procedures would the auditor not apply to a cutoff bank statement?

a. Trace year end outstanding checks and deposits in transit to the cutoff bank statement.

b. Reconcile the bank account as of the end of the cutoff period.

c. Compare dates, payees and endorsements on returned checks with the cash disbursements record.

d. Determine that the year end deposit in transit was credited by the bank on the first working day of the following accounting period.

b

A client maintains two bank accounts.  One of the accounts, Bank A, has an overdraft of P100,000.  The other account, Bank B, has a positive balance of P50,000.  To conceal the overdraft from the auditor, the client may decide to

a.     Draw a check for at least P100,000 on Bank A for deposit in Bank B.  Record the receipt but not the disbursement and list the receipt as a deposit in transit.  Record the disbursement at the beginning of the following year.

b.    Draw a check for at least P100,000 on Bank B for deposit in Bank A.  Record the receipt but not the disbursement and list the receipt as a deposit in transit.  Record the disbursement at the beginning of the following year.

c.     Draw a check for P100,000 on Bank B for deposit in Bank A.  Record the disbursement but not the receipt.  List the disbursement as an outstanding check, but do not list the receipt as a deposit in transit.  Record the receipt at the beginning of the following period.

d.    Draw a check for at least P100,000 on Bank A for deposit in Bank B.  Record the disbursement but not the receipt and list the disbursement as an outstanding check.  Record the receipt at the beginning of the following year.

d

While performing an audit of cash, an auditor begins to suspect check kiting.  Which of the following is the best evidence that the auditor could obtain concerning whether kiting is taking place?

a.     Documentary evidence obtained by vouching credits on the latest bank statement to supporting documents.

b.    Documentary evidence obtained by vouching entries in the cash account to supporting documents.

c.     Oral evidence obtained by discussion with controller personnel.

d.    Evidence obtained by preparing a schedule of interbank transfers.

a

Two months before year-end, the bookkeeper erroneously recorded the receipt of a long-term bank loan by a debit to cash and a credit to sales.  Which of the following is the most effective procedure for detecting this type of error?

a.     Analyze bank confirmation information.

b.    Analyze the notes payable journal.

c.     Prepare year-end bank reconciliation.

d.    Prepare a year-end bank transfer schedule.

b

Postdated checks received by mail in settlement of customer’s accounts should be

a.     Returned to customer.

b.    Stamped with restrictive endorsement.

c.     Deposited immediately by the cashier.

d.    Deposited the day after together with cash receipts.

c

The cashier of Milady Jewelries covered a shortage in the cash working fund with cash obtained at December 31 from a bank by cashing but not recording a check drawn on the company out of town bank.  How would you as an auditor discover the manipulation?

a.     By confirming all December 31 bank balances.

b.    By counting the cash working fund at the close of business on December 31.

c.     By investigating items returned with the bank cut-off statements of the succeeding month.

d.    By preparing independent bank reconciliations as of December 31

b

An essential phase of the audit of the cash balance at the end of the year is the auditor's review of cutoff bank statement.  This specific procedure is not useful in determining if

a.     Kiting has occurred.

b.    Lapping has occurred.

c.     The cash receipts journal was held open.

d.    Disbursements per the bank statement can be reconciled with total checks written.