Audit Chapter 16

The auditor obtains a(n) ______ bank statement to test reconciling items included in the bank reconciliation.

cutoff

Cash ______ a predictable relationship with other financial statement accounts. Multiple choice question. generally has always has does not have

does not have

A Treasury bill is an example of a cash _______.

equivalent

A test of details of balances for cash calls for confirming the bank account balance with the financial institution. This is most likely done to provide evidence regarding ______. Multiple choice question. classification cutoff accuracy existence

existence

To test for kiting auditors often ______. Multiple choice question. review journal entries involving write-offs and credit memos review irregular entries to the cash accounts prepare interbank transfer schedules prepare a proof of cash

prepare interbank transfer schedules

Sources of cash receipts include ______. Multiple select question. property sales the human resource management process the purchasing process issuance of capital stock issuance of long-term debt

property sales issuance of capital stock issuance of long-term debt

The major source of cash receipts for the general cash account is the ______ process. Multiple choice question. branch account purchasing human resource management revenue

revenue

Which of the following is not one of the four columns used on a proof of cash? Multiple choice question. Balance of cash per general ledger. Reconciliation of cash disbursed through the bank account with the cash disbursement recorded in the cash disbursements journal. Reconciliation of cash deposited in the bank with the cash receipts recorded in the cash receipts journal. Bank reconciliation for the beginning of the period.

Balance of cash per general ledger.

One method used to test for kiting is the preparation of a(n) ________ _______ schedule.

Interbank transfer

Which of the following is used to reconcile the cash receipts and disbursements recorded on the entity's books with the cash deposited into and disbursed from the entity's bank account for a specific period of time? Multiple choice question. Extended bank reconciliation Proof of cash Kiting test Bank confirmation

Proof of cash

Interbank transfers are used when fraud is suspected and can also provide the auditor with evidence on the proper _________ for each transaction.

cutoff

A stipulated amount of money to be used for a specific purpose is contained in a(n) _________ cash account.

imprest

Which of the following is a test of transactions for cash receipts to provide evidence regarding authorization? Multiple choice question. a. For a sample of weeks, foot the cash receipts journal and agree posting to the general ledger. b. Examine a sample of remittance advices for proper account classification. c. For a sample of days, example the signature on the deposit slip and check endorsements. d. Trace a sample of remittance advices to the cash receipts journal and, if necessary, to deposit slips.

For a sample of days, example the signature on the deposit slip and check endorsements.

The use of prenumbered vouchers for withdrawing funds and a limit on the size of reimbursements are common controls over the _________ _________ fund.

Petty cash

Which of the following is an important control over cash disbursements? Multiple choice question. a. Voucher packages have been independently approved. b. Checks are restrictively endorsed "For deposit only". c. Daily preparation of a bank reconciliation. d. Daily cash disbursements are reconciled with postings to the accounts receivable subsidiary ledger.

Voucher packages have been independently approved.

Which of the following statements are correct? Multiple select question. a. Internal auditors often document and perform tests of controls over petty cash. b. External auditors seldom perform substantive procedures on the petty cash fund. c. Because the balance in the petty cash fund is not material there is almost no potential for fraud.

a. Internal auditors often document and perform tests of controls over petty cash. b. External auditors seldom perform substantive procedures on the petty cash fund.

Third-party providers of electronic confirmation services ______. Multiple choice question. have an indirect relationship with banks address the risk of fraud are a free service provided by the SEC

address the risk of fraud

Examples of disclosure issues for cash include ______ Multiple select question. minutes of board of director's meetings interbank transfer schedules an accounting policy for defining cash and cash equivalents letters of credit cash balances restricted by foreign exchange contracts

and cash equivalents letters of credit cash balances restricted by foreign exchange contracts

An auditor's use of substantive analytical procedures for auditing cash can include comparing the ______. Multiple select question. cash balance with budgeted amounts. ratio of cash to accounts receivable and comparing with last year's ratio cash balance with industry standards. cash balance with the prior year's balance

cash balance with budgeted amounts. cash balance with the prior year's balance

Cash includes ______. Multiple select question. Certificates of deposit Checks returned as insufficient funds Savings accounts Currency on hand

Certificates of deposit Savings accounts Currency on hand

Paper-based bank confirmations are sent and received by the ______. Multiple choice question. auditor entity's accounting personnel entity's Treasurer entity's banks

auditor

Which of the following procedures is used to test the bank reconciliation? Multiple choice question. a. Agree any charges included on the bank statement to the cutoff bank statement. b. Compare outstanding checks on the bank reconciliation with the cutoff bank statement. c. Verify accuracy of the bank reconciliation working paper and agree balance per books to the bank statement. d. Agree the bank balance on the bank reconciliation with balance shown on the cutoff bank statement.

b. Compare outstanding checks on the bank reconciliation with the cutoff bank statement.

To audit a payroll or branch bank account the auditor uses a(n) ______. Multiple select question. bank reconciliation standard bank confirmation interbank transfer schedule review of irregular entires to the cash accounts cutoff bank statement

bank reconciliation standard bank confirmation cutoff bank statement

When preparing a bank reconciliation, NSF checks are ______. Multiple choice question. deducted from the balance per bank added to the balance per bank added to the balance per books, unadjusted deducted from the balance per bank, unadjusted

deducted from the balance per bank

When preparing a bank reconciliation, outstanding checks are ______. Multiple choice question. added to the balance per books, unadjusted deducted from the balance per bank deducted from the balance per bank, unadjusted added to the balance per bank

deducted from the balance per bank

Imprest accounts are frequently used for ______. Multiple select question. the purchasing process the human resource management process disbursing payroll disbursing dividend checks

disbursing payroll disbursing dividend checks

The auditor generally confirms account balance information with ______. Multiple choice question. the banks and financial institutions where the entity maintains imprest accounts and branch accounts only the banks and financial institution where the entity maintains general cash accounts only every bank and financial institution that maintains an account for the entity a sample of the banks and financial institutions that maintain an account for the entity

every bank and financial institution that maintains an account for the entity

Sources of cash disbursements include the ______. Multiple select question. human resource management process purchasing process proceeds from issuing capital stock revenue process sale of land

human resource management process purchasing process

A proof of cash cannot detect ______. Multiple choice question. a. bank transactions that have been omitted from the entity's accounting records b. if all cash disbursements recorded in the entity's cash disbursements journal have cleared the entity's bank account c. if all cash receipts in the entity's cash receipts journal were deposited in the entity's bank account d. if there was a theft of cash before it was recorded in the entity's books

if there was a theft of cash before it was recorded in the entity's books

When companies operate in multiple locations branch accounts ______. Multiple choice question. should only be used as imprest accounts should not be used should only be used as general cash accounts may be used as imprest or general cash accounts

may be used as imprest or general cash accounts

A typical way to cover cash defalcations is to manipulate the ______. Multiple choice question. deposit slips of cleared deposits reconciling items in the bank reconciliation accounts receivable subsidiary general ledger cash accounts

reconciling items in the bank reconciliation

Obtaining a cutoff bank statement is a ______. Multiple choice question. substantive test of transactions for cash disbursements substantive test of transactions for cash receipts test of details of balances for cash

test of details of balances for cash

True or false: The standard bank confirmation form is used to confirm information regarding account balances, loans and lines of credit for the entity.

true

Which of the following procedures is NOT used to test the bank reconciliation? Multiple choice question. a. Verify accuracy of the bank reconciliation working paper and agree balance per books to the general ledger. b. Agree the bank balance on the bank reconciliation with balance shown on the standard bank confirmation. c. Agree any charges included on the bank statement to the cutoff bank statement. d. Compare outstanding checks on the bank reconciliation with the cutoff bank statement.

c. Agree any charges included on the bank statement to the cutoff bank statement.

Covering a cash shortage by transferring money between bank accounts and recording the transfer improperly on the books is a practice known as _______.

kiting

An employee prepares a check on one account before year end but does not record it as a disbursement. The same check is deposited and recorded as a cash receipt in a second account before year end. The employee is engaged in ________.

kitting

If the control risk assessment is below the maximum for ______ cash receipts and disbursements, the auditor can reduce the extent of substantive evidence gathered for the cash balances. Multiple choice question. neither both either

both

The auditor obtains a cutoff bank statement ______, Multiple choice question. by having the entity request the bank send the statement to the auditor through direct request to the bank to send the statement to the auditor from the entity's accounting department from the internal auditing department of the entity

by having the entity request the bank send the statement to the auditor

When an employee tries to cover a cash shortage by transferring money from one bank account to another and recording the transaction improperly on the entity's books, the employee is engaged in ______. Multiple choice question. lapping skimming proving cash kiting

kiting

If a company uses electronic wire transfers ______. Multiple choice question. a. a shortage in cash can be eliminated by recording a credit memo after the wire transfer is recorded b. kiting cannot be accomplished due to the immediate recording of the deposit c. cash can be moved from one customer's account to another customer's account to cover a cash shortage d. kiting is still possible due to a one-day delay in recording

kiting is still possible due to a one-day delay in recording

A major control that directly affects the audit of cash is the completion of a monthly ________ ______ to ensure the entity's books reflect the same balance as the bank's after required adjustments have been considered.

Bank reconciliation

Which of the following is a test of transactions for cash receipts to provide evidence regarding accuracy? Multiple choice question. a. For a sample of weeks, foot the cash receipts journal and agree posting to the general ledger. b. Trace a sample of remittance advices to the cash receipts journal and, if necessary, to deposit slips. c. Examine a sample of remittance advices for proper account classification. d. For a sample of days, example the signature on the deposit slip and check endorsements.

For a sample of weeks, foot the cash receipts journal and agree posting to the general ledger.

Which of the following is a test of transactions for cash receipts to provide evidence regarding completeness? Multiple choice question. a. Trace a sample of remittance advices to the cash receipts journal and, if necessary, to deposit slips. b. For a sample of weeks, foot the cash receipts journal and agree posting to the general ledger. c. Examine a sample of remittance advices for proper account classification. d. For a sample of days, example the signature on the deposit slip and check endorsements.

Trace a sample of remittance advices to the cash receipts journal and, if necessary, to deposit slips.

Reasons the audit testing of a payroll or branch account is less extensive than testing for the general account include ______. Multiple select question. a. all cash disbursement have been recorded in the entity's cash disbursements journal b. these types of accounts generally contain a minimal balance c. the types of disbursements from the account are homogeneous

b. these types of accounts generally contain a minimal balance c. the types of disbursements from the account are homogeneous

If the control risk assessment is _____ the maximum for both cash receipts and disbursements, the auditor can reduce the extent of substantive evidence gathered for the cash balances. Multiple choice question. equal to above below

below

When an auditor examines the disposition of the reconciling items included on the prior month's reconciliations and the reconciling items included in the current bank reconciliation, the auditor most likely ______. Multiple choice question. a. has not received a sufficient number of standard bank confirmation forms b. is testing for bank reconciliation errors c. suspects fraud and is performing extended bank reconciliation procedures

c. suspects fraud and is performing extended bank reconciliation procedures

Extended audit procedures that auditors typically use to detect fraudulent activities in the cash account include ______. Multiple select question. standard bank confirmation extended bank reconciliation procedures tracing remittance advices to cash receipts journal proof of cash tests for kiting

extended bank reconciliation procedures proof of cash tests for kiting

True or false: A proof of cash is often referred to as a two-column proof of cash.

false

True or false: Because the potential for defalcation is high, external auditors must perform substantive procedures on the petty cash fund.

false

True or false: If an auditor suspects cash was stolen without being recorded in the entity's books, (s)he should perform a proof of cash.

false

Auditors might prepare a proof of cash or test for kiting when _______ activities in the cash accounts is suspected.

fraud

The main cash account for most entities is called the _____ cash account.

general

Branch accounts can be operated as ______ accounts. Multiple select question. disbursal general cash imprest

general cash imprest

When considering important financial statement disclosures for cash, primary documents an auditor might review include ______. Multiple select question. cash balances restricted by foreign exchange contracts line-of-credit arrangements minutes of board of director's meetings loan agreements sinking fund requirements

line-of-credit arrangements minutes of board of director's meetings loan agreements

Interbank transfer schedules ______. Multiple select question. should not be used when fraud is suspected provide evidence on proper transaction cutoff can be used to find errors may be used when control activities are adequate

provide evidence on proper transaction cutoff can be used to find errors may be used when control activities are adequate

On the bank reconciliation, a tick mark next to a deposit in transit indicates ______. Multiple choice question. the deposit was traced by the auditor to the cutoff bank statement the deposit in transit was agreed to the general ledger an adjustment to the entity's books is necessary

the deposit was traced by the auditor to the cutoff bank statement

Common controls over petty cash include ______. Multiple select question. use of prenumbered petty cash vouchers for withdrawing cash from the fund review of vouchers by the accounts receivable clerk before the fund is replenished surprise counts of petty cash by the person responsible for the fund a limit on the size of reimbursements from the fund

use of prenumbered petty cash vouchers for withdrawing cash from the fund a limit on the size of reimbursements from the fund