Ch 10- part 3

not be trustee

A bank deposit that is restricted in use should ____ ___ included in cash. Example is cash deposited with a __________ for payments on long-term debt.

any

A proof of cash is essentially a fraud detection procedure that may be used for _______ months during the year.

window dressing

Action taken by the client shortly before the balance sheet date to improve the financial picture presented in the financial statements.

compensating balances

Agreements to maintain ___________ _________ should be disclosed.

fictitious large

Criteria specified by the auditors for data analytics software: Identify __________ entries into the cash account by searching __________ entries to cash from unusual sources, such as from a journal entry.

largest reasonableness

Criteria specified by the auditors for data analytics software: Identify employees with the _________ expense reimbursements and consider ___________ of disbursements.

payments to or receipts from

Criteria specified by the auditors for data analytics software: Identify payments to related party transactions by searching for _____ _______ or _______ ______ those parties.

100%

Data analytics software may perform an examination of _______ of the transactions or entries in the journals and ledgers using the criteria specified by the auditors.

last undeposited after

If auditors can be present on the _______day of the fiscal year, they can verify the cutoff by counting the __________ cash receipts_. It will be impossible for the client to include in the records any cash received _______this cutoff point without the auditor being aware of such actions.

credits first

If the auditor can't be present at a client the last day of the fiscal year, auditors can verify the cutoff of cash receipts by determining that deposits in transit as shown on the year-end bank rec appear as __________ on the bank statement on the ________ business day of the new year.

substitute original

If the client's checks are processed electronically, auditors have to rely on the _______ check. The ________check is no longer available.

mathematical accuracy, balances, reconciling

Inspection of a reconciliation prepared by the client may include verifying the __________ ________, comparing __________ to the bank statement and ledger account, and investigating the ________ items.

directly

The client will request the bank to prepare a cutoff bank statement and mail it __________ to the auditors.

marketable stock

common stock

derivatives

financial instruments that " derive" their value from other financial instruments, underlying assets, or indexes.

working trial balance

lists the balances of accounts in the general ledger for the current and the previous year and also provides columns for the auditors' adjustments and reclassifications and for the final amounts that will appear in the financial statements.

kiting

manipulate bank balances so that temporarily overstated cash balances conceal a cash shortage.

marketable stocks and bonds dollar value

most important group of financial investments consists of __________ ______ and _______. They are found more frequently and usually are of greater _______ ____ than other kings of investment holdings.

derivative

relationships between fluctuations in European interest rates and the price of copper. This is an example of a

not

rushing shipments to customers, pressing for collection of receivables, sometimes paying liabilities down to an unusually low level. This is _______ improper and do not require action by the auditors.

cutoff bank statement

statement covering a specified numbers of business days usually 7 to 10, following the end of the client's fiscal year.

critical audit matter

the audit of very complex financial instruments that must be communicated in the audit report of a public company.

commercial paper

unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. Maturities on commercial paper typically last several days, and rarely range longer than 270 days.

duplicate

Criteria specified by the auditors for data analytics software: Identify possible __________ payments by searching for cash disbursements of the same amount and to the same payee made close in time.

receipts

Criteria specified by the auditors for data analytics software: Identify possible duplicate __________ by searching for cash receipts of the same amount and from the same customer made close in time.

Check Clearing for the 21st Century Act (Check 21)

allows financial institutions to create and process electronic " substitute checks" in place of customer written hard-copy checks. decrease the time for check clearing.

Periodic

The major elements of adequate internal control over financial investments include the following: ________ physical inspection of securities on hand by an internal auditor or an official having no responsibility for the authorization, custody, or record keeping of investments.

Registration

The major elements of adequate internal control over financial investments include the following: ____________ of securities in the name of the company.

different

The proof of cash technique is used to identify: Cash receipts and disbursements recorded at ________ amounts by the bank than in the accounting records.

deposits

The proof of cash technique is used to identify: cash deposits and disbursements recorded on the bank statement, but not in the accounting records.

overstatements

The purpose of analyzing bank transfer is to disclose ___________ of cash balances resulting from kiting.

rights

Assess the risks of material misstatements of investments and design further audit procedures that: Determine that the client has ____________ to recorded investments.

completeness

Assess the risks of material misstatements of investments and design further audit procedures that: Establish the ___________ of financial investments and investment transactions.

large

Criteria specified by the auditors for data analytics software: Identify possible improper or unexpected disbursements by searching for _________ disbursements in relation to the account being charged.

nonpayroll or expense

Criteria specified by the auditors for data analytics software: Identify unauthorized __________ or ______ reimbursement cash disbursements to employees, particularly those employees able to initiate or authorize transactions or to perform the record-keeping function for cash disbursements.

reconciliation company's

Determining a company's cash position at the close of the period requires a __________of the balance per the bank statement at that date with the balancer per the _______ accounting records.

window dressing

If the cash receipts are not deposited daily, cash received for a few days after the close of the year may be included in a deposit dated as of year-end, thus overstating the cash balance at the balance sheet date. This is an example of

bank transfers

Moving cash from one bank account to another. The transfer, generally performed electronically, may be between two accounts in the same bank (e.g., general account to payroll account) or from one bank the company maintains an account with to another.

final none

The balance sheet figure for cash should include all cash received on the _________ day of the year and _______ received subsequently.

available

The balance sheet figure for cash should include only those amounts that are _________ for use in current operations.

separate

The details of other financial arrangements may be confirmed with financial institutions, using _________ confirmation letters sent to the individual at the bank who is responsible for the client's financial arrangements or is knowledgeable about those arrangements.

different prior

The following rules for determining when it is likely that a cash transfer has misstated the cash balance: The dates of recording the transfer per the books are from __________financial statement periods or the date the check was recorded by the bank is from the financial statement period ________to when it is recorded on the books.

same

The increase in one bank account and decrease in the other bank account should be recorded in the cash journals in the __________ accounting period.

high

The liquid nature of financial investments that are marketable makes the potential for fraud __________.

receipts

The proof of cash technique is used to identify: Cash __________and disbursements recorded in the accounting records, but not in the bank statement.

transferring it from one asset category to another

Unless all negotiable assets are verified at one time, an opportunity exists for a dishonest officer or employee to conceal a shortage by

after cash liability

Unreasonable delay with payment of checks that were shown outstanding at year-end implicates that they were not mailed by the client until sometime _________ the close of the year. An adjusting entry of a debit to ___________ and a credit to a _________ account is appropriate.

several floating on deposit

When a check drawn on one bank is deposited in another, _______ days (called the _______ period) usually pass before the check clears the bank on which it is drawn. During this period, the amount of the check is included in the balance ______ _____ at both banks.

derivative

a commitment by a company to purchase a commodity at a certain price at some point in the future. This is an example of a

negotiable assets

a first step in the verification of cash on hand is to establish control over all _________ _______ such as cash funds, securities and other investments, notes receivable, and warehouse receipts.

auditors, securities valuation, client

Auditors may decide that the assistance of a specialist, employed by the ____________, a _________ _________ firm or the _________, is needed to assist in the audit of complex financial investments.

no need examine

If the client has made the year-end reconciliation, there is _______ ______ to duplicate the work. However, the auditors should _______the reconciliation in detail to satisfy themselves that it has been properly prepared.

undeposited

If the company receives payments from customers, cash on hand consists of ___________ checks.

cash journals ledgers

When identifying and analyzing unusual cash receipts or disbursement manually, these procedures typically involve reviewing _______ _______ and ________ for transactions or entries from unusual sources or suspicious individual receipt or disbursement transactions.

before after disclosure

a corporate officer who has borrowed money from the corporation may repay the loan just _______the end of the year and then promptly obtain the loan again _______year-end; in such a situation, __________ in the notes to the financial statements may be appropriate. This does not outright misrepresent the cash position.

proof of cash

reconciles the bank's record of cash activity with the client's accounting records for a test period. The working paper used is a four-column bank rec.

authorized recorded disclosed

Any large or unusual checks payable to directors, officers, employees, affiliated companies, or cash should be carefully reviewed by the auditors to determine whether the transactions 1) were properly ___________ and _________ and 2) are adequately ________ in the financial statements.

critical audit matter

As included in the PCAOB auditing standards, a matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex auditor judgment.

valuation unrealized

Assess the risks of material misstatements of investments and design further audit procedures that: Determine that the ___________of financial investments is appropriate such as the cost, fair value or equity method of accounting and that any __________appreciation and depreciation in value is appropriately recorded.

presentation disclosure

Assess the risks of material misstatements of investments and design further audit procedures that: Determine the ___________ and __________ of financial investments and realized and unrealized gains and losses are appropriate.

cutoff

Assess the risks of material misstatements of investments and design further audit procedures that: Verify the _____________ of investment transactions.

existence occurrence

Assess the risks of material misstatements of investments and design further audit procedures that: substantiate the ____________ of recorded financial investments and the ___________ of investment transactions.

accounting principles

Auditing financial investments require specialized skills or knowledge such as: Applying complex _________ ________ to various types of financial investments.

derivatives

Auditing financial investments require specialized skills or knowledge such as: Assessing inherent and control risk for assertions about _______used in hedging activities.

controls

Auditing financial investments require specialized skills or knowledge such as: Identifying _________at service organization that provide financial services and are part of the client's information system.

information systems

Auditing financial investments require specialized skills or knowledge such as: Obtaining an understanding of _______ ______ for securities and derivatives that are highly dependent on computer technology.

fair values valuation

Auditing financial investments require specialized skills or knowledge such as: Understanding the methods used to determine the _______ _________ of financial investments, especially those that must be valued using complex _____________ models.

schedule dates

Auditors can detect manipulations by preparing a _________of bank transfers for a few days before and after the balance sheet date. It lists all bank transfers and shows the ________that the receipt and disbursement of cash were recorded in the cash journals and on the bank statements.

electronically

Auditors confirm balances with banks ___________.

long period

Auditors should consider investigating any significant checks outstanding for a ______ _______ of time.

income dividends interest revenue realized unrealized

Auditors will also verify the related accounts of interest ____________ and __________, accrued _______ ________, and __________ and _________ gains and losses on investments.

balance sheet date

Bank reconciliation: Even though the auditors may not be able to begin their fieldwork for some time after the close of the year, they will prepare a bank rec as of the ________ __________ ________ or test the one prepared by the client.

dates unreasonably

By noting the ________of payment of checks that were shown outstanding at year-end, the auditors can determine whether the time intervals between the dates of the check and the time of payment by the bank were ___________ long.

original

Check 21 Act: The substitute check is the legal equivalent of the _________check.

cash unclaimed wages

Clients should eliminate long-outstanding checks by an entry debiting the ________ accounts and crediting _______ ________ or another special liability account.

nature transactions dollar amounts

Disclosure of related party transactions should include the ___________ of the relationships, a description of the ____________, and the _______ _________ involved.

can not fictitious

If the website location and access information that the bank provides the auditor is obtained only from the client personnel, the information ________ ________ be considered to be confirmed by a third party. There is a risk that client personnel may create a ___________ website or account to misstate the balances being confirmed.

on before outstanding

In examining the cutoff bank statement, auditors will watch for any paid checks issued _______ or _______ the balance sheet date but not listed as ______ on the client's year-end bank rec.

kite outstanding

It becomes virtually impossible for a client to _________ checks if its bank processes checks electronically. Should still expect reconciliations to include __________checks because some checks drawn near the end of the year may be sent through the mail, and some will not be promptly presented for payment by payees.

personal checks not substitutes inclusion

It is not uncommon to find included in cash on hand some ________ ________ cashed for the convenience of officers, employees and customers. They should ________ be entered in the cash receipts journal because until they are deposited, the checks are merely ________ for currency previously on hand. The auditors should determine that these checks are valid and collectible, thus qualifying for _________ in the balance sheet figure for cash.

electronic transfers

Kiting is much more difficult an environment of ever-increasing _________ _______ between accounts due to the virtual disappearance of the float period.

kiting

Manipulations causing an amount of cash to be included simultaneously in the balance of two or more bank accounts. Kiting schemes are based on the float period—the time necessary for a check deposited in one bank to clear the bank on which it was drawn.

commercial paper mortgages trust cash surrender value

Other types of investments often encountered include _______ ________ issued by corporations, __________ and _______ deeds, and the _________ _________ _______ of life insurance policies for key officers.

before after surprise

Petty cash funds and change funds may be counted at any time ________ or _______ the balance sheet date; many auditors prefer to make a _______ count of those funds.

cash cash and equivalents

The auditors also must make sure that the caption "_______" or "__________ and ________" on the client's balance sheet corresponds to that used in the statement of cash flows.

authorizes and reviews

The major elements of adequate internal control over financial investments include the following: An investment committee of the board of directors that _______ and ________ financial investment activities for compliance with investment policies.

securities and derivative

The major elements of adequate internal control over financial investments include the following: Complete detailed records of all _________ and _________ instruments owned and the related provisions and terms.

competent appropriate

The major elements of adequate internal control over financial investments include the following: Establishing appropriate controls over valuation processes including the use ___________personnel or ___________outside experts.

limit

The major elements of adequate internal control over financial investments include the following: Formal investment policies that _________the nature of investments in securities and other financial instruments

activity relationships

The major elements of adequate internal control over financial investments include the following: Management reviews of the _______in investment accounts and the _________between amounts of investment income and recorded investments or the amounts of forecasted income.

separate of duties

The major elements of adequate internal control over financial investments include the following: ________ ______ _________ between the executive authorizing purchases and sales of securities and derivative instruments, the custodian of the securities, and the person maintaining the records of investments.

balance unadjusted balance adjusting cross-referenced schedule trial balance

The satisfactory form most frequently used by auditors begins with _________ per bank and ends with ______ __________ per the accounting records. The format permits the auditors to post __________ entries affecting cash directly to the bank rec working paper so that the final adjusted balance can be _______ _________ to the cash lead __________ or to the working ___________ _______

relationship substance effect

To assure cash disbursements to related parties were adequately disclosed, the auditors should obtain evidence concerning the ___________between the parties, the _________-of each transaction, and the __________of each transaction upon the financial statements.

interim

To avoid a concentration of audit work shortly after the year-end, CPA firms try to complete as many auditing procedures as possible on an _________basis during the year.

present signed dated

Whenever auditors make a cash count, they should insist that the custodian of the funds be _______throughout the count. At the completion of the count, the auditors should obtain a ___________ and _________ acknowledgment that the funds were counted in their presence and were returned intact by the auditors.

Data analytics

_______ ________ software may be used to identify and analyze unusual cash receipts or disbursements.

cleared overdrafts

banks attempt to detect kiting using the float period to meet short-term cash needs and may not allow the customer to draw against the deposit until the check has ________ the other account. This type of kiting has been used to create and conceal ___________.

Clearing House Approach

the personnel at the bank provide the auditors (client authorization) access to a secure website that contains the requested information. maybe be controlled and maintained by a trusted third-party service provider. This meets the definition of a written confirmation from a third party and may be appropriate.