Exam 2 Chapter 10
A separate line item
A bank deposit that is restricted in use should be included:
Voided
A check that is written incorrectly and therefore defaced to eliminate the possibility of further use is called a ________ check.
Voucher
A document authorizing a cash disbursement, which usually provides space for employees to initial after they have performed approval functions, is called a(n) _________.
Endorsement of the check
A primary advantage of requiring disbursement by check is obtaining evidence of receipt from the payee in the form of:
Window dressing
Action taken by the client shortly before the balance sheet date to improve the financial picture presented in the financial statements is called ___________ __________.
Substantive
After auditors reassess the level of control risk for each financial statement assertion regarding cash, they must decide what modifications, if any, are necessary to the planned __________ procedures for cash transactions and balances:
Analytical
Auditors can use _______ procedures to test the reasonableness of the amounts of recorded dividend and interest income.
Savings certificates Money market funds Certificates of deposit
Cash equivalents include:
Mailroom employees
Checks received through the mail should be opened by the:
Proper use of cash registers
In many retail establishments, dishonesty is discouraged by:
An effective audit committee
Intentional misstatements of the value of closely held investments may be prevented by:
Finance
Most of the processes related to cash handling are the responsibility of the ___________ department.
21st Century
The Check Clearing for the __________ __________ Act is an act that allows financial institutions to create and process electronic "substitute checks" in place of customer written hard-copy checks.
Conceal a cash shortage Meet short-term cash needs
The act of kiting, or manipulating cash to appear in the balance of two or more bank accounts prior to the balance sheet date, can: (kiting = using the "float period" to count the cash in two or more accounts)
Consider inherent risks, including fraud risks, related to cash Obtain an understanding of internal control over cash
The auditor's objectives in the audit of cash and cash transactions are to:
Questionnaire
To document auditor's understanding of internal controls over cash, auditors often use a flowchart or internal control ____________:
Broker's advice
To verify purchases and sales of investments, auditors will vouch a sample of transactions to the:
Review the situation with management and the audit committee before proceeding--> This is important to protect the auditors from charges of negligence
When auditors encounter evidence of small-scale employee fraud that could not have a material effect upon the financial statements the auditors should:
Beginning and ending balances, and changes
When reviewing financial investments, auditors need to review:
Auditors may use a client prepared year-end bank reconciliation but must examine it in detail.
Which of the following statements is correct?
Perform substantive procedures
After the auditors have performed an adequate test of controls over financial investments, they will most likely:
Proof of cash
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(n) ___________ of __________.
Cash receipts
An example of a test of controls is to compare the details of a sample of _______ listings to the cash receipts journal, accounts receivable postings, and authenticated deposit slips.
Interception of cash receipts before record is made Duplicate payments Fictitious checks
Examples of fraud related to cash include:
Available-for-sale securities Trading securities Held-to-maturity securities
FASB ASC 320 divides securities into three portfolios including:
Functions of the finance and accounting departments should be integrated
Ideally, to ensure adequate handling and recording of cash receipts, disbursements and balances, the:
Investments are separated into short-term and long-term portfolios
If a company has not adopted the fair value option for valuation, the auditors should determine that:
Using computers to print checks and maintain item counts and control totals Using prenumbered checks and accounting for all the numbers in the series
Important internal controls over cash disbursements include:
Equity
Investments in common stock that give the investor company the ability to exercise significant influence over the investment (20% - 50% but not consolidation)) require the ________ method of accounting.
Credit cards and debit cards Electronic transfer of funds by customers Lockbox systems
The clients' financial institution can handle incoming cash receipts including:
Balance sheet
The petty cash funds and change funds may be counted at any time before or after the __________ __________ date.
False. Despite the fact that the cash balance is low, a large proportion of hours is spent on cash.
True or false: Because the cash balance is generally low relative to other accounts, auditors spend a relatively smaller proportion of audit hours to cash
True
True or false: General guidelines to good cash handling practices include separating cash handling from record keeping.
Checks were not mailed until after year end
Unreasonable delays in the presentation for payment of checks listed as outstanding at year end implies:
Registered
Internal control over financial investments should require that securities are __________ in the name of the company.
Reconciling the bank statement to the general ledger
The cash receipts cycle ends with:
Another individual reviews the support for completeness and authenticity prior to reimbursement of the fund The custodian of the fund reviews support from employees seeking reimbursements
Internal control over petty cash funds is achieved when:
Low. Petty cash is kept low and replenished as necessary
Payroll and petty cash are normally maintained at a ____ balance.
Description of the transaction Nature of the relationship Dollar amount of the transaction
Proper disclosure of related party transactions should include:
Standard confirmation
A form designed to provide corroborating evidence about the client's account balances and outstanding loans is a(n) ___________ _________ form:
Internal control
Auditors must obtain an understanding of __________ __________ over investments, such as separation of duties.
Existence
Auditors send a confirmation request to investment brokers to confirm ____________, ownership and, if appropriate, market value.
Transmit and process funds related to cash disbursement and receipt transactions
Electronic funds transfer systems:
The salesperson recording sales at erroneous prices
Electronic point-of-sale systems decrease the risk of:
Method to be used to assess its effectiveness Measurement approach Intent to hedge
In order to account for a derivative instrument as a hedge, management must establish at inception the:
Cash
Payroll, petty cash, and savings accounts are all classified as ________ accounts.
Completeness
The review of investment committee minutes and reports is a substantive procedure to verify:
Cash count sheets A lead schedule Bank confirmations
Auditors working papers for cash typically include:
Cutoff
Auditors verify deposits in transit as shown on the year-end bank reconciliation appear as credits on the bank statement on the first business day of the new year to verify proper __________ of cash receipts.
General ledger
The auditors prepare a list of all the clients' cash accounts and related information. This information is traced and reconciled to the ________ _______: