chapter 18

A $80,000 sinking fund exists at 12/31/X0 to repay serial bonds maturing $10,000 per year in years X1-X9. How should the fund be shown on the 12/31/X0 balance sheet?

$10,000 current, $70,000 noncurrent

A responsibility that should be assigned to a specific employee and not shared jointly is that of:

Custodianship of the petty cash fund

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

General ledger

Which of these is not confirmed on a standard bank confirmation request?

All are confirmed

Wald, Inc., has a June 30 year-end. Its bank mails bank statements each Friday of every week and on the last business day of each month. For year-end, Saturday, June 30, 19X3, the auditor should have the client ask the bank to mail directly to the auditor:

Both the July 6 and 13 bank statements

For good internal control, the monthly bank statements should be reconciled by someone under the direction of the:

Controller

On receiving the bank cutoff statement, the auditor should trace:

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

On December 31, 19X1, a company erroneously prepared an account payable voucher (Dr. Cash, Cr. Accounts Payable) for a transfer of funds between banks. A check for the transfer was drawn January 3, 19X2. This error resulted in overstatements of cash and accounts payable at December 31, 19X1. Of the following procedures, the least effective in disclosing this error is review of the:

December 19X1 check register

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 bank B to cover a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this fraud by:

Examining paid checks returned with the bank statement of the next accounting period after year-end

A CPA obtains a January 10 cut off bank statement for the client directly from the bank. Very few of the outstanding checks listed on the client's December 31 bank reconciliation cleared during the cut off period. A probable cause is that the client:

Is engaged in window dressing

The use of fidelity bonds protects a company from embezzlement losses and also

Minimizes the possibility of employing persons with dubious records in positions of trust.

The Jackson Company records checks as being issued on the day they are written; however, the checks are often held a number of days before being released. The audit procedure which is least likely to reveal this method of incorrect cash disbursements cutoff is to:

Reconcile bank statement at year-end

Vos, Inc., which has a December 31 year end, closed an out of town division on April 21, 19X2. The checking account used by the division at a local bank was closed out as of April 21, 19X2. The bank, however, has continued to mail bank statements, with zero balances, as of the fifth of each month. Vos has requested the bank to mail the January 5, 19X3, bank statement directly to its independent auditor. For this closed checking account during the audit for 19X2, the auditor should ordinarily:

Send a bank confirmation as of December 31, 19X2, in addition to reviewing the bank statements for 19X2 and the January 5, 19X3 statement

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

Substitution

Which of the following audit procedures is an effective way to detect lapping?

Test for unusual delays in A/R subsidiary ledger postings

Responsibility for investment activity of an organization should rest with the

Treasurer

An auditor who is engaged to audit the financial statements of a business enterprise will request a cutoff bank statement primarily in order to:

Verify reconciling items on the client's bank reconciliation