432chapter 23
The client may mail the bank confirmation requests if the auditor believes doing so will increase the likelihood that the confirmation will be returned promptly.
False
The starting point for the verification of the balance in the general bank account is to obtain a bank cut-off statement.
False
The bank reconciliation control is enhanced when a qualified employee reviews the monthly reconciliation as soon as possible after its completion.
True
The presentation of cash in the financial statements is normal straight-forward unless restrictions on cash or compensating balance agreements with a bank exist.
True
Ordinarily, all deposits-in-transit listed on the year-end bank reconciliation should appear as deposits on the cutoff bank statement.
True
What is the benefit of using a 3rd party electronic platform to send bank confirmations?
Using a secure online network maintained by an independent third party where all the responders to confirmations are validated before they can respond to an auditor's confirmation request reduces the chances that the integrity of the confirmation process is compromised
The starting point for the verification of the balance in the general bank account is to obtain
a bank reconciliation from the client.
other common cash procedures
-To test the completeness of cash, the auditor will review the subsequent bank statement to see if there were any receipts that showed up shortly after year end and that were initiated before year end, but that were not recorded as Deposits in Transit -To test the presentation and disclosure of cash, the auditor reviews board minutes, loan agreements, reviews confirmations and inquires of management about restrictions on any funds
cash
-currency on hand -demand deposits that can be accessed at any time without penalty
cash equivalents
-short term, highly liquid assets that have both of the following characteristics -readily convertible to known amounts of cash -so near their maturity that they present insignificant risk of changes in value because of changes in interest rates -investments with maturity < 3 months (short term treasury bills money market funds)
Approach when discussing the audit of different accounts
1) assess inherent risk (accounts have a typical risk profile) 2) discuss common controls 3) discuss common substantive procedures(there is usually a standard set of documents/records that auditors can obtain as evidence)(relatedly, there are "typical" audit plans that used to gather evidence for the assertions of an account)
Cash equivalents are short term, highly liquid assets with a maturity of?
3 months or less
The auditor sends a confirmation to the client's bank. Who will complete and return the confirmation to the auditor?
A bank employee
Your client maintains a bank reconciliation. You are concerned the client is improperly omitting checks from the Outstanding Check listing (i.e., outstanding check listing is understated). What effect would this have on the Cash 'Balance per Books'?
Balance per books is overstated
In auditing the December 2020 financial statements, an auditor starts with the listing of Deposits in Transit in the December 2020 bank reconciliation; she then inspects bank deposit slips and the January 2021 bank statement to see if the deposit was in fact deposited before year end and if it cleared the bank within 2-3 days after year end. With respect to the ending balance of cash, the auditor is testing what assertion?
Existence
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?
Checks are written by the client in the same month the checks clear the bank.
What assertion is the auditor most concerned about when auditing Cash & Cash Equivalents?
Existence
Which of the following is the most common audit procedure to address the risk that the Outstanding Checks listing on the company's bank reconciliation is improperly excluding valid Outstanding Checks (i.e., that the listing is understated)?
Start with Subsequent Bank Statement. Identify withdrawls clearing the bank shortly after year-end. Obtain a copy of the check and check cut date and ensure that checks cut before year-end but clearing after year-end are included in the Outstanding Check listing.
The cash confirmation provides strong evidence for the Existence, Valuation, and Rights & Obligations of Cash. However, it does not provide strong evidence for the Completeness of Cash. Why?
The auditor asks the bank to confirm details of specific client bank accounts. The client could have account(s) with a different bank that the auditor is unaware of and does not confirm
What document does this definition relate to? "Cash that belongs to the company and is reflected on its books, but has not been fully processed so it is not reflected in the client's bank account"
deposit in transit
Which of the following would normally be discovered as part of the audit of the bank reconciliation?
failure to include a deposit in transit on the bank reconciliation
A major consideration in the audit of the general cash balance is the possibility of fraud. The auditor must extend his or her procedures in the audit of year-end cash to determine the possibility of a material fraud when there are
inadequate internal controls.
An imprest petty cash fund would least likely be used to pay for which of the following items?
monthly interest expense
What document does the following definition relate to? "Cash that does not belong to the company anymore and is not reflected on its books but has not been fully processed so it is reflected in the client's bank account"
outstanding check
The bank reconciliation
should be performed by someone independent of the handling or recording of cash receipts.
In addition to confirming bank balances of your audit client, a bank confirmation would normally contain
the client's bank loans with due date, interest rate, and collateral requested.
