CH 10 HW

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

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

In addition to the risk factor identified in the preceding question, another risk factor relating to misstatements arising from fraudulent financial reporting is:

Earnings this year are lower than management had hoped.

Audit procedures for: The auditor suspects that vouchers were prepared and processed by an accounting department employee for merchandise that was neither ordered nor received by the entity.

Examine the supporting purchase orders and receiving reports for selected paid vouchers.

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

General ledger

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

A bank lockbox system

Which of the following correctly identifies a risk facing SSC that might adversely affect sales during the coming years?

A general slowdown in the economy.

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

Acknowledge the receipt of securities returned

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 decisions to a responsible financial executive. The best person or persons to make periodic reviews of the investment activity would be :

An investment committee of the board of directors

Audit procedures for: The entity's cash receipts of the first few days of the subsequent year were properly deposited in its general operating account after the year-end. However, the auditor suspects that the entity recorded the cash receipts in its books during the last week of the year under audit.

Compare the details of the cash receipts journal entries with the details of the corresponding daily deposit slips.

2 Audit procedures for: The auditor suspects that a lapping scheme exists because an accounting department employee who has access to cash receipts also maintains the accounts receivable ledger and refuses to take any vacation or sick days.

Compare the details of the cash receipts journal entries with the details of the corresponding daily deposit slips. Send requests to confirm the entity's accounts receivable on a surprise basis at an interim date.

1 audit procedure for Balance per books

Compare to 9/30/X5 general ledger.

Audit procedure for: Using the company's securities during the year and replacing them prior to year-end.

Comparing the serial numbers of securities on hand to numbers recorded in the prior year's audit working papers.

Of the following, the most significant risk factor relating to the risk of misstatement arising from fradulent financial reporting for SSC is that:

The company must refinance a significant portion of its debt.

Which of the following correctly identifies a risk facing SSC that might affect its ability to continue as a going concern over the long run?

Competition from several competitors.

2 Audit procedures for Balance per bank

Confirm directly with bank. Trace items on the bank reconciliation to cutoff statement.

Audit procedure for: The entity borrowed funds from a financial institution. Although the transaction was properly recorded, the auditor suspects that the loan created a lien on the entity's real estate that is not disclosed in its financial statements.

Confirm the terms of borrowing arrangements with the lender.

Audit procedure for: Receiving a loan from the company's primary banking institution and not recording the entry, but placing the cash in overseas account not recorded in the company's accounting records.

Confirm using public accounting profession's standard form to confirm account balance information with financial institutions.

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 it would be preferable to:

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

Which of the following represents a correct statement concerning the risk of misappropriation of cash for SSC?

Deposit of cash into a lockbox system decreases the risk of misappropriation.

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 :

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

1 Audit procedure for Customer note collected by bank

Inspect bank credit memo.

2 Audit procedures for check errors

Inspect bank credit memo. Trace items on the bank reconciliation to cutoff statement.

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

Is responsible for mailing the checks

Audit procedures for: The auditor suspects that fictitious employees have been placed on the payroll by the entity's payroll supervisor, who has access to payroll records and to the paychecks.

Observe payroll check distribution on a surprise basis.

Which of the following procedures would the auditors most likely perform to test controls relating to managements's assertion about the completeness of cash receipts for cash sales at a retail outlet

Observe the consistency of the employees use of cash registered and tapes

Audit procedure for: An auditor suspects that the controller wrote several checks and recorded the cash disbursements just before year-end but did not mail the checks until after the first week of the subsequent year.

Obtain the cutoff bank statement and compare the cleared checks to the year-end bank reconciliation.

Audit procedure for: The auditor suspects that a kiting scheme exists because an accounting department employee who can issue and record checks seems to be leading an unusually luxurious lifestyle.

Prepare a bank transfer schedule.

Audit procedures for: The auditor suspects that the entity is inappropriately increasing the cash reported on its balance sheet by drawing a check on one account and not recording it as an outstanding check on that account and simultaneously recording it as a deposit in a second account.

Prepare a bank transfer schedule.

Audit procedure for: "Kiting" of cash.

Preparing and verifying a schedule of bank transfers.

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

Processes cash disbursements

Audit procedure for: Altering the ending balance on the year-end bank statement.

Review of the bank cutoff statement.

Which of the following correctly identifies a risk facing SSC that might adversely affect cash receipts during the coming years?

Sales to Wingo.

Audit procedures for: The details of invoices for equipment repairs were not clearly identified or explained to the accounting department employees. The auditor suspects that the bookkeeper incorrectly recorded the repairs as fixed assets.

Scan the debits to the fixed asset accounts and vouch selected amounts to vendors' invoices and management's authorization.

2 Audit procedure for: The auditor discovered an unusually large receivable from one of the entity's new customers. The auditor suspects that the receivable may be fictitious because the auditor has never heard of the customer and because the auditor's initial attempt to confirm the receivable has been ignored by the customer.

Send a second request for confirmation of the receivable to the customer and make inquiries of a reputable credit agency concerning the customer's creditworthiness. Examine the entity's shipping documents to verify that the merchandise that produced the receivable was actually sent to the customer.

2 Audit procedures for: The auditor suspects that the entity's controller has overstated sales and accounts receivable by recording fictitious sales to regular customers in the entity's books.

Send requests to confirm the entity's accounts receivable on a surprise basis at an interim date. Examine the entity's shipping documents to verify that the merchandise that produced the receivable was actually sent to the customer.

5 Audit procedures for Outstanding checks

Trace to cash disbursements journal. Ascertain reason for unusual delay. Ascertain reason for unusual delay. Trace items on the bank reconciliation to cutoff statement. Trace items on the cutoff statement to bank reconciliation.

5 Audit procedures for Deposits in transit

Trace to cash receipts journal. Ascertain reason for unusual delay. Ascertain reason for unusual delay. Trace items on the bank reconciliation to cutoff statement. Trace items on the cutoff statement to bank reconciliation.

Audit procedure for: "Lapping" of accounts receivable.

Tracing remittance advices to postings in the accounts receivable records.

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

Verification by reference to dividend record books

The auditor suspects that selected employees of the entity received unauthorized raises from the entity's payroll supervisor, who has access to payroll records.

Vouch data in the payroll register to documented authorized pay rates in the human resources department's files.

The standard form to confirm cash accounts also requests the financial institution to confirm any __________ to the bank.

balance owed

Verification of dividend revenue can be achieved by independent computation using ___________ published by investment advisory services.

dividend records

The count of securities on hand by the auditors should be made concurrently with the count of other _________.

liquid assets

Collection of accounts receivable through the mail should be initially listed by personnel in the ___________.

mail room

Checks in payment of a company's payables should be prepared by one person and _______________ by another.

signed

To be 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

stamped "paid" by the check signer