Audit Exam 3 (Chapter 10)

Which of the following statements is correct? -Auditors must always prepare their own year in bank reconciliation -Auditors may use a client prepared year-end bank reconciliation but must examine it in detail -Auditor may only use a client prepared year-end bank reconciliation if internal controls over cash are strong

-Auditors may use a client prepared year-end bank reconciliation but must examine it in detail

Auditors focus on cash because: -Cash is the most liquid of all assets, and therefore inherent risk is high -Cash is typically among the largest line item on the balance sheet -Auditors may substantiate other items that flow through cash -A company with poor internal controls over cash may be concealing fraud

-Cash is the most liquid of all assets, and therefore inherent risk is high -Auditors may substantiate other items that flow through cash -A company with poor internal controls over cash may be concealing fraud

The auditors objectives in the audit of cash and cash transactions are to ___: -ascertain there are no misstatements of cash -obtain an understanding of internal control over cash -consider inherent risks, including fraud risk, related to cash -analyze business risks related to the company's cash

-obtain an understanding of internal control over cash -consider inherent risks, including fraud risk, related to cash

Checks payable to officers should be carefully reviewed by the auditors to determine whether or the transactions were properly _____ : -recorded -confirmed -authorized -disclosed -calculated

-recorded -authorized -disclosed

Auditors will prepare a schedule that lists all of the client's cash accounts, including ______: -year end balances per books -account number -bank name -year-end balance per bank

-year end balances per books -account number -bank name

Payroll, petty cash, and savings accounts are all classified as _____ accounts: -investment -long-term asset -cash

Cash

An auditor procedure that reconciles the bank's record of cash activity with the client's accounting record for a test period is called a(n) _________ of _______

Proof of cash

Account balances are often verified with financial institutions using a(n) _______ ________ form that addresses only the client's deposits & loan balances

Standard confirmation

Risk of material misstatement arise jointly from _____ risk and ______ risk

inherent & control

When internal control over the recording of cash receipts and disbursements is considered weak, the auditors may prepare a _____, which reconciles cash transactions occurring during a specific period: -standard confirmation form -bank cutoff statement -proof of cash

proof of cash

Before verifying the client's cash on hand, auditors must establish control over: -Cash funds -Securities & other investments -Notes receivable -Notes payable

-Cash funds -Securities & other investments -Notes receivable