Audit Ch 23 MC
The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of A) detail tie-in. B) existence. C) completeness. D) cutoff.
D
The most important balance-related audit objectives in the audit of cash include all except which of the following? A) existence B) accuracy C) completeness D) occurrence
D
The standard bank confirmation form has been agreed upon by the A) SEC and FASB. B) AICPA and the SEC. C) SEC and the American Bankers' Association. D) AICPA and the American Bankers' Association.
D
Which of the following cash transfers results in a misstatement of cash at Dec 31, 2016? Recorded in the Books / Paid by Bank / Recorded in books / Received by Bank (1) 12-31-16 / 1-4-17 / 12-31-16 / 12-31-16 (2) 1-4-17 / 1-5-17 / 12-31-16 / 1-4-17 (3) 12-31-16 / 1-5-17 / 12-31-16 / 1-4-17 (4) 1-4-17 / 1-11-17 / 1-4-17 / 1-4-17
(2) 1-4-17 / 1-5-17 / 12-31-16 / 1-4-17
Which of the following discovered by the auditor would be a weakness in the client's internal control over its investments? (1) The internal control auditor performs a periodic count of the actual securities and reconciles the securities counted to the investment subsidiary ledger (2) Investments not held by an independent third-party custodian are kept in the treasurer's office (3) A designated accounting individual that has no custody or authorization responsibilities maintain the detailed records of the investment subsidiary ledger (4) The client's board of directors authorizes all purchases and sales of investment securities
(2) Investments not held by an independent third-party custodian are kept in the treasurer's office
The auditor should control and verify all liquid assets simultaneously to prevent (1) unrecorded disbursements (2) conversion of assets to conceal a shortage (3) unauthorized disbursements (4) embezzlement
(2) conversion of assets to conceal a shortage
All of the following are effective ways to prevent and/or detect lapping, except for (1) comparing the dollar amounts and dates on the bank deposit slips with customer remittance credits entered into the A/R ledger (2) preparing a bank transfer schedule (3) requiring that customers send their payments directly to a lockbox (4) independently comparing the recorded cash receipts with funds actually deposited in the bank
(2) preparing a bank transfer schedule
The auditor should ordinarily send confirmation requests to all banks with which the client has conducted any business during the year, regardless of the year-end balance because (1) this procedure will detect kiting activities that would otherwise not be detected (2) the confirmation form also seeks information about indebtedness to the bank (3) the sending of confirmation requests to all such banks is required by auditing standards (4) this procedures relieves the auditor of any responsibility with respect to non-detection of forged checks
(2) the confirmation form also seeks information about indebtedness to the bank
Which of the following controls would most likely detect a kiting scheme? (1) Use of a lockbox system for customer receipts (2) Comparison of the details of deposit tickets and recorded remittance advices (3) Preparing a bank transfer schedule (4) Preparing a bank reconciliation
(3) Preparing a bank transfer schedule
In establishing the existence and ownership of an investment held by a corporation in the form of publicly traded stock, an auditor should inspect the securities or (1) obtain written representations from management confirming that the securities are properly classified as trading securities (2) inspect the audited financial statements of the investee company (3) confirm the number of shares owned that are held by an independent custodian (4) determine that the investment is carried at the lower of cost or market
(3) confirm the number of shares owned that are held by an independent custodian
Which of the following is one of the better auditing techniques to detect kiting? (1) Review composition of authenticated deposit slips (2) Review subsequent bank statements and cancelled checks received directly from the banks (3) Prepare year-end bank reconciliations (4) Prepare a schedule of bank transfers from the client's books
(4) Prepare a schedule of bank transfers from the client's books
A CPA obtains a January 10 cutoff bank statement for a client directly from the bank. Very few of the outstanding checks listed on the client's Dec 31 bank reconciliation cleared during the cutoff period. A probable cause for this is that the client (1) is engaged in kiting (2) is engaged in lapping (3) has overstated its year-end bank balance (4) transmitted the checks to the payees after year-end
(4) transmitted the checks to the payees after year-end
In addition to confirming bank balances of your audit client, a bank confirmation would normally contain 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 test of details of balances procedure that requires the auditor to trace the book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of A) detail tie-in. B) existence. C) completeness. D) presentation.
A
Which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash? A) existence B) cutoff C) detail tie-in D) presentation and disclosure
A
________ is an automated fraud detection tool offered by most banks. A) Positive pay B) A bank confirmation C) Fraud buster D) Check matching
A
An imprest petty cash fund would least likely be used to pay for which of the following items? A) minor office supplies B) monthly interest expense C) stamps for small mailings D) small contributions to a local charity
B
Because cash is the most desirable asset for people to steal, it has a higher A) control risk. B) inherent risk. C) detection risk. D) liquidity risk.
B
The auditors test the client's monthly bank reconciliation to verify whether the client's recorded bank balance is the same amount as the actual cash in the bank. Which of the following would not explain a difference between the company's cash balance and the bank's balance for the client? A) deposits in transit B) Checks are written by the client in the same month the checks clear the bank. C) other reconciling items D) outstanding checks
B
The bank reconciliation A) must be done on a daily basis if the client uses electronic banking. B) should be performed by someone independent of the handling or recording of cash receipts. C) should be performed by someone who handles cash disbursements. D) ensures that no cash has been embezzled.
B
The general cash account is considered a significant account in almost all audits A) where the ending balance is material. B) even when the ending balance is immaterial. C) except those of not-for-profit organizations. D) where either the beginning or ending balance is material.
B
Which of the following cycles does not affect cash in bank? A) capital acquisitions cycle B) inventory and warehousing C) payroll and personnel cycle D) acquisitions and disbursements
B
Which of the following would normally be discovered as part of the audit of the bank reconciliation? A) failure to bill a customer B) failure to include a deposit in transit on the bank reconciliation C) duplicate payment of a vendor's invoice D) payment to an employee for more hours than she worked
B
A partial-period bank statement and the related copies of or digital access to cancelled checks, duplicate deposit slips, and other documents included in bank statements, mailed by the bank directly to the CPA firm's office, is called A) a four-column proof of cash. B) a year-end bank statement. C) a cutoff bank statement. D) a short-period bank statement.
C
The direct receipt of a confirmation from every bank with which the client does business is A) required by auditing standards for every audit. B) not necessary unless material fraud is suspected. C) recommended but not required by auditing standards. D) necessary for every audit except when there are an unusually large number of active accounts.
C
The test of details of balances procedure that requires the auditor to foot the outstanding check and electronic payment list and deposits in transit is an attempt to satisfy which audit objective? A) cutoff B) presentation and disclosure C) detail tie-in D) completeness
C
Which of the following is likely to be detected as part of the audit of the bank reconciliation? A) failure to bill a customer B) duplicate payment of a vendor invoice C) cash received by the client after year-end, but included in cash receipts in the current year D) an embezzlement of cash by intercepting cash receipts from customers before they are recorded
C
Which of the following items would not normally appear on bank reconciliations? A) balance per bank B) list of deposits in transit C) outstanding deposits D) outstanding checks
C
Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation? A) duplicate payment of a vendor's invoice B) billing a customer at a lower price than indicated by company policy C) failure to record a collection of a note receivable by the bank on the client's behalf D) payment to an employee for more than the hours actually worked
C
Which of the following is an accurate statement regarding cash? A) The amount of cash flowing into and out of the cash account is often larger than that for any other account in the financial statements. B) The susceptibility of cash to embezzlement is greater than that for other types of assets. C) Auditors must verify whether recorded cash in the general ledger correctly reflects all cash transactions that took place during the year. D) All of the above are accurate statements.
D
Which of the following is not a "cash equivalent"? A) time deposits B) certificates of deposit C) money market funds D) marketable securities
D