ACC 450 CH 10

c) Presentation and Disclosure.

A company's decision to use the fair value option for valuation of marketable securities is most likely to affect which of the following assertions the most? a) Fairness. b) Completeness. c) Presentation and Disclosure. d) Existence.

d) Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank.

A practical and effective audit procedure for the detection of lapping is: a) Preparing an interbank transfer schedule. b) Preparing a proof of cash. c) Tracing recorded cash receipts to postings in customers' ledger cards. d) Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank.

a) Kiting.

Anderson embezzled $20,000 from her company's account in Bank X. At year-end, she hid the shortage by making a deposit on December 31 in Bank X, drawn on Bank Y. She has not recorded the transaction on the books. This is an example of: a) Kiting. b) Lapping. c) Related party transactions. d) Effective cash management.

a) Comparison of bank cutoff statement to the cash receipts and disbursements records.

Anderson embezzled $20,000 from her company's account in Bank X. At year-end, she hid the shortage by making a deposit on December 31 in Bank X, drawn on Bank Y. She has not recorded the transaction on the books. Which of the following is most likely to be effective in detecting this fraud? a) Comparison of bank cutoff statement to the cash receipts and disbursements records. b) Bank confirmation. c) Bank transfer schedule prepared using only the cash receipts and cash disbursements journals. d) Receivable confirmation.

c) An unrecorded deposit made at the bank at the end of the month.

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally be able to detect: a) A receivable collected that had previously been written off as uncollectible. b) A second payment of an account payable which had already been paid in full two months earlier. c) An unrecorded deposit made at the bank at the end of the month. d) An embezzlement of cash receipts not recorded in the cash receipts journal before they had been deposited into the bank.

d) Treasurer.

Contact with banks for the purpose of opening company bank accounts should normally be the responsibility of the corporate: a) Board of Directors. b) Executive Committee. c) Controller. d) Treasurer.

c) Comparing recorded dividends with a standard financial reporting service's record of dividends.

Garcia was engaged to audit the financial statements of Delta Corporation for the year ended September 30, 200X. Having completed an examination of the investment securities, which of the following is the best method of verifying the accuracy of recorded dividend income? a) Tracing recorded dividend income to cash receipts records and validated deposit slips. b) Utilizing analytical techniques and statistical sampling. c) Comparing recorded dividends with a standard financial reporting service's record of dividends. d) Comparing recorded dividends with amounts appearing on federal information form 1099s.

c) Send a bank confirmation as of year-end.

In November, two months before year-end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to interest revenue. The most effective method for detecting this type of error is: a) Foot the cash receipts journal for November. b) Prepare a bank reconciliation as of year-end. c) Send a bank confirmation as of year-end. d) Prepare a bank transfer schedule as of year-end.

d) Custody of securities is maintained by a stockbroker or bank.

Internal control over marketable securities is enhanced when: a) Securities are held by the cashier. b) Detailed records of securities are maintained by the custodian of the securities. c) Securities are registered in the name of the custodian. d) Custody of securities is maintained by a stockbroker or bank.

a) Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.

On receiving the bank cutoff statement, the auditor should trace: a) Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation. b) Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal. c) Deposits listed on the cutoff statement to deposits in the cash receipts journal. d) Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation.

a) The principal amount paid on a direct liability.

The Standard Form to Confirm Account Balances with Financial Institutions includes information on all of the following except: a) The principal amount paid on a direct liability. b) Date due of a direct liability. c) Description of collateral for a direct liability. d) The interest rate of a direct liability.

d) Acknowledge the receipt of securities returned.

The auditors should insist that a representative of the client be present during the physical examination of securities in order to: a) Lend authority of the auditor's directives. b) Coordinate the return of all securities to proper locations. c) Detect forged securities. d) Acknowledge the receipt of securities returned.

b) Confirm the number of shares owned that are held by an independent custodian.

To establish the existence and ownership of a large long-term investment in the common stock of a publicly traded company, the auditors ordinarily perform a security count or: a) Determine the market price per share at the balance sheet date from published quotations. b) Confirm the number of shares owned that are held by an independent custodian. c) Confirm the number of shares owned with the issuing company. d) Rely on the client's internal controls if the auditors have reasonable assurance that the control procedures are being applied as prescribed.

c) Review agreements underlying the derivative.

When a client engages in transactions involving derivatives, the auditor should: a) Notify the audit committee about the risks involved in derivative transactions. b) Confirm with the client's broker whether the derivatives are for trading purposes. c) Review agreements underlying the derivative. d) Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative.

b) Identification of an unrecorded cash deposit.

Which of the following could not be more efficiently performed with data analytics? a) Identification of unusual expense reimbursements. b) Identification of an unrecorded cash deposit. c) Identification of cash recorded from an unusual accounting source. d) Identification of possible duplicate payments.

d) Electronic processing of checks.

Which of the following has made it difficult to engage in kiting in recent years? a) The consolidation of financial institutions. b) The use of payroll processers. c) The use of machine readable account numbers on checks. d) Electronic processing of checks.

c) It may increase but not falsify cash position.

Which of the following is correct concerning "window dressing" for cash? a) It generally involves manipulation of inventory. b) It is illegal, and an audit is designed to provide reasonable assurance of its detection. c) It may increase but not falsify cash position. d) A segregation of duties within the cash function effectively eliminates its occurrence.

a) It is more difficult to accomplish in an electronic environment as contrasted to a non-electronic environment.

Which of the following is correct relating to kiting? a) It is more difficult to accomplish in an electronic environment as contrasted to a non-electronic environment. b) It is seldom, if ever, used. c) It is a lapping approach performed using receivable accounts. d) It is ordinarily used to understate cash.

b) Separate recordkeeping from accounting for cash to the extent possible.

Which of the following is not a universal rule for achieving internal control over cash? a) Have monthly bank reconciliations prepared by employees not responsible for the issuance of checks. b) Separate recordkeeping from accounting for cash to the extent possible. c) Deposit each day's cash receipts intact. d) Separate cash handling from recordkeeping

c) Receive a cutoff statement directly from the client's bank.

Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation? a) Prepare a four column bank reconciliation using the year-end bank statement. b) Confirm the year-end balance using the standard form to confirm account balance information with financial institutions. c) Receive a cutoff statement directly from the client's bank. d) Prepare a bank transfer schedule using the client's cash receipts and cash disbursements journal.