Audit Ch.6

Auditors are auditing the cash receipts for Great Wall Corporation. For each audit procedure performed (numbered 1 - 5 below) select the control objective being tested by placing the correct letter in the blank. Existence Completeness Authorization Accuracy Classification Accounting and posting Proper period

1.Proper period 2.Completeness 3.Existence 4.Accuracy 5.Accounting and posting

Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance list that is forwarded to the cashier. A copy of the list should be sent to the Multiple Choice Accounts receivable bookkeeper to update the subsidiary accounts receivable records. Correct Treasurer to compare the list with the monthly bank statement. Internal auditor to investigate the list for unusual transactions. Entity's bank to compare the list with the cashier's deposit slip.

Accounts receivable bookkeeper to update the subsidiary accounts receivable records.

Which of the following control activities would best protect against the preparation of improper or inaccurate cash disbursements? Multiple Choice All signed checks must be reviewed and compared with supporting documentation by the treasurer before mailing. All checks must be perforated or otherwise effectively canceled when they are returned with the bank statement. All checks must be signed by an officer designated by the board of directors. All checks must be sequentially numbered and accounted for by internal auditors.

All signed checks must be reviewed and compared with supporting documentation by the treasurer before mailing.

Which of the following sets of information does an auditor usually confirm on one form? Multiple Choice Accounts payable and purchase commitments. Cash in bank and collateral for loans. Inventory on consignment and contingent liabilities. Accounts receivable and accrued interest receivable.

Cash in bank and collateral for loans.

Multiple Choice Clerk 1 opens all of the incoming mail. Clerk 2 reconciles the accounts payable ledger with the general ledger monthly. Clerk 3 mails the checks and remittances after they have been signed. The treasurer uses a stamp for signing checks.

Clerk 3 mails the checks and remittances after they have been signed.

During an audit of cash, the auditor is most concerned with the management assertion of Multiple Choice Existence. Rights and obligations. Occurrence. Valuation or allocation.

Existence.

An opportunity for fraud involving lapping of accounts receivable is more likely when which two duties involving accounts receivable are not segregated? Multiple Choice Authorization and reconciliation. Receipt of returned goods and recording. Opening the mail and recording. Recording and reconciliation.

Opening the mail and recording.

Immediately upon receipt of cash, a responsible employee should Multiple Choice Update the subsidiary accounts receivable records. Prepare a deposit slip in triplicate. Prepare a remittance listing. Record the amount in the cash receipts journal.

Prepare a remittance listing.

Which of the following audit procedures would be most effective in providing evidence regarding the existence of cash and cash equivalents? Multiple Choice Review bank reconciliations to verify amounts. Perform analytical procedures to determine if amounts and volume of transactions match expectations. Review bank confirmations to verify bank balances. Test translation of foreign currency transactions.

Review bank confirmations to verify bank balances.

Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances? Multiple Choice The cashier makes the daily deposit at a local bank. The cashier endorses the checks. The cashier prepares the daily deposit. The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

Which of the following control activities could prevent a paid disbursement voucher from being presented for payment a second time? Multiple Choice The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment. Vouchers should be prepared by individuals who are responsible for signing disbursement checks. The official signing the check should compare it with the voucher and should stamp "paid" on the voucher documents. Disbursement vouchers should be approved by at least two responsible management officials.

The official signing the check should compare it with the voucher and should stamp "paid" on the voucher documents.

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor? Multiple Choice Understating the sales journal. Overstating the accounts receivable control account. Overstating the accounts receivable subsidiary ledger. Overstating the sales journal.

Understating the sales journal.

The fact that a company has significant amounts of cash in the form of foreign currency would raise the inherent risk of which management assertion regarding cash? Multiple Choice Completeness Rights and obligations Valuation or allocation Presentation and disclosure

Valuation or allocation

An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using: Multiple Choice employee fidelity bonds. independently prepared mailroom prelists. daily check summaries. a bank lockbox system.

a bank lockbox system.

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the: Multiple Choice check register for the last month is reviewed. cutoff bank statement is reconciled. bank confirmation is reviewed. search for unrecorded liabilities is performed.

cutoff bank statement is reconciled.

The auditors' information source for vouching the bank reconciliation items is the Multiple Choice cutoff bank statement. bank statement at audit date. accounting journal at year end. standard bank confirmation.

cutoff bank statement.

To gather evidence regarding the bank's balance in a bank reconciliation, an auditor would examine all of the following except the: Multiple Choice cutoff bank statement. general ledger. bank confirmation. year-end bank statement.

general ledger.

An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the activities by: Multiple Choice confirmation and observation. observation and inquiry. analytical procedures and confirmation. inquiry and analytical procedures.

observation and inquiry.

Your client is in the process of acquiring another company. You have been requested to verify that cash for the company being acquired is properly stated. The audit technique that will yield the most persuasive evidence is: Multiple Choice examination of the company's escrow account. interview with the company's treasurer and cash manager. preparation and review of standard bank confirmation inquiries. analytical computations comparing current cash in the bank with previous accounting periods.

preparation and review of standard bank confirmation inquiries.

Auditors ordinarily send a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balances. A purpose of this procedure is to: Multiple Choice -provide the data necessary to prepare a proof of cash. -request that a cutoff bank statement and related checks be sent to the audit. -detect questionable bank activities that may otherwise not be discovered. -seek information about contingent liabilities and security agreements.

seek information about contingent liabilities and security agreements.

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is: Multiple Choice supported by a vendor's invoice. stamped "paid" by the check signer. prenumbered and accounted for. approved for authorized purchases.

stamped "paid" by the check signer.

In the audit of cash the auditor obtains a bank cutoff statement primarily to: Multiple Choice identify old outstanding checks that the client may exclude from the year-end bank reconciliation in order to misappropriate cash. obtain sufficient information to reconcile the client's bank account as of year-end. obtain direct confirmation of the client's bank balances as of year-end. test the propriety of items appearing on the client's year-end bank reconciliation.

test the propriety of items appearing on the client's year-end bank reconciliation

An auditor is considering whether the omission of the confirmation of investments impairs the auditor's ability to support a previously expressed unmodified opinion. The auditor need not perform this omitted procedure if: Multiple Choice the results of alternative procedures that were performed compensate for the omission. the auditor's assessed level of detection risk is low. the omission is documented in a communication with the audit committee. no individual investment is material to the financial statements taken as a whole.

the results of alternative procedures that were performed compensate for the omission.