Ch. 10 Cash and Financial Investments- Multiple Choice Q's

The auditors who physically examine securities should insist that a client representative be present in order to:

Because of the liquidity of many securities, the auditor should insist that a client representative be present in order to acknowledge the receipt of securities returned. In the event of subsequent "disappearance" of a security the auditor will not be a suspect.

The best way to verify the amounts of dividend revenue received during the year is:

Comparing the recorded amount of dividend revenue with dividend record books (published by investment advisory services) provides evidence of the amount of dividend revenue that should have been received during the year. It is virtually impossible to confirm the receipt of dividends with the company paying those dividends.

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 that you would be preferable to:

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

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?

Having the securities held in safekeeping by a bank or stockbroker provides strong internal control because they are not available to employees responsible for maintaining the accounting records of the securities.

In testing controls over cash disbursements, the auditors most likely would determine that the person who signs the checks also:

Is responsible for mailing the checks. This control is used so as to avoid a situation in which the accounts payable department fabricates documents, and then collects the checks.

The auditors suspect that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the:

Lapping will result in a delay in the recording of specific remittance credits in the financial records, but the checks will be deposited in the bank as they are received. Therefore, a comparison of the checks deposited to the credits to customer accounts will likely uncover the scheme.

To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except:

The general ledger will not have information on the balance per bank. The cutoff bank statement, year-end bank statement and bank confirmation will all include information on the balance per bank.

Reconciliation of the bank account should not be performed by an individual who also:

The individual who reconciles the bank account should not be involved in the processing of cash receipts or disbursements.

Hall Company had large amounts of funds to invest on a temporary basis. The board of directors decided to purchase securities and derivatives and assigned the future purchase and sale decision to a responsible financial executive. The best persons to make periodic reviews of the investment activity would be:

The investment committee of the board of directors is not involved in the routine of making buy and sell decisions and can therefore review the transactions objectively. On the other hand, the chief operating officer, the controller, and the treasurer may be closely associated on a daily basis with the financial executive responsible for the investment decisions.

Which of 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?

The use of cash registers and tapes helps assure that all sales of a retail store are recorded.

Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees?

Use of a bank lockbox system makes it extremely difficult for employees to divert cash receipts since those cash receipts are sent directly to the post office box controlled by the bank.

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:

is stamped "paid" by the check signer to avoid a situation in which supporting documents are used a second time to elicit a second payment.