ACCY 131 Ch. 10

The auditors who physically examine securities should insist that a client representative be present in order to: A) Detect fraudulent securities B) Lend authority to the auditors' directives C) Acknowledge the receipt of securities returned D) Coordinate the return of securities to the proper locations

C) Acknowledge the receipt of securities returned

A local gas station has one clerk that accepts cash payments for gas and rings them up on the cash register. Which of the following would be the best control to provide assurance that the cashier isn't keeping some of the cash? A) Count all cash before and after the shift and compare it to cash register totals. B) Require that each customer be given a receipt of their purchase. C) Compare cash register totals to a total that is automatically generated by each gas pump. D) Require that each employees have a separate cash drawer that only they use.

C) Compare cash register totals to a total that is automatically generated by each gas pump.

You have been assigned to the year end audit of a financial institution and are planning the timing of audit procedures relating to cash. You decide the tit would be preferable to: A) Count the cash in advance of the balance sheet in order to disclose any kiting operations at year-end B) Coordinate the count of the cash with the cutoff of accounts payable C) Coordinate the count of cash with the count of marketable securities and other negotiable assets. D) Count the cash immediately upon the return of the confirmation letters from the financial institution

C) Coordinate the count of cash with the count of marketable securities and other negotiable assets.

Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees? A) A bank lockbox system B) Pre-numbered remittence advices C) Monthly bank reconciliation D) Daily deposit of cash receipts

A) A bank lockbox system

Hall Company had large amounts of funds to invest on a temporary basis. The board of directors to purchase securities and derivatives and assigned the future purchase and ale decisions to a responsible financial executive. The best person or persons to make periodic reviews of the investment activity would be: A) An investment committee of the board of directors B) The chief operating officer C) The corporate controller D) The treasurer

A) An investment committee of the board of directors

A four column bank reconciliation ("proof of cash") will generally assist an auditor in detecting: A) An unrecorded (on the books) deposit made at the beginning of the month; the amount was withdrawn late in the month, again with no book entry. B) A second payment of a liability that had already been paid in full. C) A check written and recorded on the books for $2,000, not $200 the amount of the actual liability. D) An embezzlement of a portion of the company's petty cash.

A) An unrecorded (on the books) deposit made at the beginning of the month; the amount was withdrawn late in the month, again with no book entry.

The auditors suspect that a client's cashier is misappropriating cash receipts for personal use by the lapping customers checks received in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the: A) Details of bank deposit slips with details of credits to customer accounts B) Daily cash summaries with the sums of the cash receipts journal entries C) Individual bank deposit slips with the details of the monthly bank statements D) Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded

A) Details of bank deposit slips with details of credits to customer accounts

Which if the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet? A) Observe the consistency of he employees' use the cash register and tapes B) Inquire about employees' access to recorded but undeposited cash C) Trace deposits in the csh receipts journal to the cash balance in the general ledger D) Compare the cash balance in the general ledger with the bank confirmation request

A) Observe the consistency of he employees' use the cash register and tapes

Reconciliation of the bank account should not be performed by an individual who also: A) Processes cash disbursements B) Has custody of securities C) Prepares the cash budget D) Reviews inventory reports

A) Processes cash disbursements

Which of the following is most likely to indicate fraud? A) Several overpayments are made for goods received from a supplier. B) The year end cash balance does not include cash in transit to the company at year-end. C) A check received after year end was inadvertently recorded as if received before year-end. D) A documented loan to an officer of the company.

A) Several overpayments are made for goods received from a supplier.

A primary use by the auditor of a bank cutoff statement is to compare: A) Bank service charges on the cutoff statement to deposits in the cash receipts journal. B) Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation. C) Deposits listed on the cutoff statement to disbursements in the cash disbursements journal. D) Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation.

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

What of the following is the risk that is of most concern to auditors when auditing cash? A) Detective risk. B) Inherent risk. C) Adjunct risk. D) Nonsampling risk.

B) Inherent risk.

Jones embezzled $50,000 from his company's account in Bank A. At year-end he hid the shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not recorded the transaction on the books. This is an example of: A) Lapping. B) Kiting. C) Effective cash management. D) Related party transactions.

B) Kiting.

To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is: A) Supported by a vendor's income B) Stamped "paid" by the check signer C) Prenumbered and accounted for D) Approved for authorized purchases

B) Stamped "paid" by the check signer

The best way to verify the amounts of dividend revenue during the year is: A) Recomputation B) Verification by reference to dividend record books C) Confirmation with dividend-paying companies D) Examination of cash disbursements records.

B) Verification by reference to dividend record books

Which of the following is confirmed on the standard form used for cash balances at financial institution? A) Factored accounts receivable. B) Loss contingencies. C) Loans payable. D) Safe deposit boxes controlled by the entity.

C) Loans payable.

The accounting functions and the cash receipts functions should be handled by which department(s)? A) Both functions should be under the control of the company Treasurer B) Both functions should be under the control of the company Controller C) The Controller should have control of accounting functions and the Treasurer should have control of cash receipt functions. D) The Treasurer should have control of accounting functions and the Controller should have control of cash receipt functions.

C) The Controller should have control of accounting functions and the Treasurer should have control of cash receipt functions.

Of the following, which procedure or document is most effective for detecting kiting? A) A bank cutoff statement. B) A bank reconciliation. C) A bank kiting statement. D) A bank transfer schedule.

D) A bank transfer schedule.

An auditor examining check disbursements discovered a missing check number. Upon inquiry to the person responsible for disbursements and reconciliation of the cash account, she is told that the check number is missing because the check was voided. What is the auditor's next step? A) Prepare a bank transfer schedule at to identify the check. B) Examine the bank confirmation to determine whether the check cleared. C) Since the person responsible for disbursements also reconciles the account, no additional procedures are necessary. D) Examine the voided checks file to determine whether the check is in the file.

D) Examine the voided checks file to determine whether the check is in the file.

To gather evidence regarding the balance per bank in a bank reconciliation, the auditor would examine any of the following except: A) Cutoff bank statement B) Year-end bank statement C) Bank confirmation D) General ledger

D) General ledger

To gather evidence regarding the balance per bank on a bank reconciliation, an auditor could examine all of the following except: A) Cutoff bank statement. B) Year-end bank statement. C) Bank confirmation. D) General ledger.

D) General ledger.

In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also: A) Reviews monthly bank reconciliation B) Returns the checks to accounts payable C) Is denied access to the supporting documents D) Is responsible for mailing the checks

D) Is responsible for mailing the checks

In order to guard against the misappropriation of company-owned marketable securities which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities? A) Require that one trustworthy and bonded employee be responsible for access to the safekeeping area where securities are kept B) Require that employees who enter and leave the safekeeping area sign and record in a log the exact reason for their access C) Require that employees involved in the safekeeping function maintain a subsidiary control ledger for securities on a current basis D) Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent.

D) Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent.

It is most likely to be efficient to test the controls over financial investments when: A) Controls are thought to be weak. B) Substantive tests may be performed. C) Analytical procedures are possible. D) The company trades or holds a large number of securities.

D) The company trades or holds a large number of securities.

Which of the following is correct concerning cash confirmation requests? A) They ask for information on kiting activities. B) They should be sent quarterly by the auditors to financial institutions the client has accounts with. C) They should be sent by the client to financial institutions the client has accounts with. D) They may be sent electronically or non-electronically.

D) They may be sent electronically or non-electronically.

A security owned by a company is from another company that recently declared bankruptcy. Which of the following is the auditor's primary concern with the investment? A) Existence. B) Presentation. C) Completeness. D) Valuation.

D) Valuation.

A company owns a large amount of debt securities that pay interest twice a year - August 1 and February 1. On the financial statements the company accrued the 5 months of interest it was due as interest receivable. The auditor should: A) Require the accrual be reversed since the interest has not yet been paid. B) Confirm the interest accrual with the security issuer. C) Require the accrual be reversed since the company could sell the security before interest has been paid. D) Verify the company owns the security, check the accuracy of the accrual, and require no adjustment.

D) Verify the company owns the security, check the accuracy of the accrual, and require no adjustment.