Auditing Ch 10

advantages of disbursement by check

1)centralization of disbursement in authority of a few officials 2) permanent record of cash disbursements 3) reduction of cash on hand

allows checks to be electronic

21st century act

satisfactory IC over cash disbursements require assurance that all disbursements are approved by the treasure T or F?

F

improper valuation of investments would be...

Type 1 (market price) vs Type 2 (similar instrument) vs Type 3 (valuation model)

to test the reasonableness of the amounts recorded in dividend and interest income auditors can use _____ procedures

analytical

when petty cash funds are kept in the form of a separate bank account, the bank should be instructed to only cash checks made payable to ____ or ____

bank or custodian

an employee having no part in authorizing or accounting for cash transactions or in handling cash should reconcile ______ _____

bank statements

the auditors vouch a a sample of investment transactions by reference to ______ ______

brokers' advice

include money market funds, certificates of deposit, savings certificates, and other similar types of deposits

cash equivalents

the cash receipts cycle starts with

cash sales

under the terms of a bank loan agreement, the cash in a company's general account sometimes must be maintained at a specified minimum balance, referred to as a ____ _____

compensating balance

listing that shows the amount received from each customer and identifies the customer by name or account number

control listing (mail room)

review of the documentation of management's intent is essential to the audit of the client's accounting for _______

derivative instruments

show dividend declarations, amounts, and payment dates for all listed stocks

dividend record books

investment in common stock that gives the investor company the ability to exercise significant influence over the investment require the ____ method of accounting

equity

auditor's working papers for cash typically include a _______ or a written description of controls

flowchart

ideally, to ensure adequate handling and recording of cash receipts, disbursements and balances, the:

functions of the finance and accounting department should be integrated

the purpose of analyzing bank transfers is to disclose overstatements of cash balances resulting from ______

kiting

______ is the concealment of a cash shortage by delaying the recording of cash receipts

lapping (using Jim to pay Bob)

a PO box controlled by the company's financial institution

lockbox

the check 21 act _____ _____

makes it almost impossible for a client to kite checks and eliminates the availability of original checks (some checks may be sent through the mail and be outstanding still)

to auditors, the most important group of financial investments is _______ ____ _____ _____ because they are frequent and of high dollar value

marketable stocks and bonds

electroni point-of sale systems are used to

offer controls for the receipts of cash not disbursements

a cash shortage may be concealed by

omitting a check from the outstanding check list, hiding cells in spreadsheet, or a deliberate error in reconciliation

the detection of fraud in relation to the audit of cash is ______

only relevant to the overall fairness of the client's financial statements if material in amounts

the auditors should review cutoff bank statements for any paid checks issued on or before the balance sheet date but not listed as outstanding on the client's year-end bank recs, in order to determine that the amount of cash shown on the bs date was not ______

overstated

may be counted at any time before or after the balance sheet date

petty cash funds and change balances

the cash receipts cycle ends with

reconciling the bank statement to the general ledger

the best substantive procedure to verify cutoff is to

send confirmations

a form designed to provide corroborating evidence about the client's account balances and outstanding loans is a ____ ________ form

standard confirmation

the auditors may ask the financial institution for cutoff bank statements in order to _______

test the accuracy of the year-end reconciliation (not confirm book balances as of the BS date)

if checks remain outstanding for long periods

the cash account should be debited and a liability account should be credited

satisfactory IC over cash receipts demands that each day's collections be deposited intact no later than ____ _____ ____ ___

the next banking day

valued at their current market values

trading and available-for-sale

documentation to start the cash disbursement cycle is received from the:

vendors, purchasing department, receiving department

a document authorizing a cash disbursement, which usually provides space for employees to initial after they have performed approval functions, is called a ______

voucher

comparison of the daily entries in the cash receipts journal with bank deposits may identify

lapping

you took money, the next check that comes in you use to cover the missing funds

lapping

the auditors may verify the beginning balance of investments by reference to ___ ____ ____ ____ ____

prior year's audit working papers

an auditor procedure that reconciles the bank's record of cash activity with the client's accounting records for a test period is called a

proof of cash

may be prepared when IC over recording cash receipts and disbursements is considered weak; a fraud detection procedure

proof of cash

action taken by the client shortly before the BS date to improve the financial picture presented in the FS is called ___ ____

window dressing