Audit I Exam 3- Ch 16 Cash review
6. For investments in nonpublic entities, compare carrying value to information in the most recently available audited financial statements.
Accuracy, valuation and allocation
8. Determine that any other-than-temporary decline in the price of an investment has been properly recorded.
Accuracy, valuation and allocation
7. Determine that all transfers among held-to-maturity, trading, and available-for-sale securities have been properly authorized and recorded.
Authorization, presentation and classification
5. Determine that income from investments has been properly recorded as accrued or collected by reference to published sources, by computation, and by tracing to recorded amounts.
Completeness
Analyze bank transfers occurring at year-end
Cutoff, existence, occurrence, rights, and completeness
Verify the client's cutoff of cash transactions
Cutoff, existence, occurrence, rights, and completeness
Match each substantive procedure relative to cash listed with its corresponding audit objective or assertion. Obtain analyses of cash balances and reconcile them to the general ledger
Existence and accuracy
For procedures 4-8, identify the primary financial statement assertion relative to investments that would be addressed by each procedure. 4. Obtain positive confirmation of the investments held by any independent custodian as of the balance sheet date.
Existence or occurance
Confirm cash balances with financial institutions
Existence, occurrence, accuracy, cutoff, and rights
Count cash on hand
Existence, occurrence, accuracy, cutoff, and rights
Investigate payments to related parties
Presentation and disclosure
The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town bank. How would the auditor discover this manipulation? a. Preparing and detail testing a bank transfer schedule. b. Confirming all December 31 bank balances. c. Preparing independent bank reconciliations as of December 31. d. Counting the cash working fund at the close of business on December 31.
a. Preparing and detail testing a bank transfer schedule.
Which of the following audit procedures is the most appropriate when internal control over cash is weak or when an entity requests an investigation of cash transactions? a. Proof of cash. b. Cash confirmation. c. Evaluate ratio of cash to current liabilities. d. Bank reconciliation.
a. Proof of cash.
A bank confirmation request should be authorized and sent by whom? a. The client should authorize the request and the auditor should send it. b. The auditor should authorize the request and the client should send it. c. The auditor should both authorize and send the bank confirmation request. d. The client should both authorize and send the bank confirmation request.
a. The client should authorize the request and the auditor should send it.
On receiving the cutoff bank statement, the auditor should vouch: a. checks dated before year-end listed as outstanding on the year-end bank reconciliation to the cutoff statement. b. checks dated after year-end to outstanding checks listed on the year-end bank reconciliation and to the cutoff statement. c. deposits listed on the cutoff statement to deposits in the cash receipts journal. d. deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal.
a. checks dated before year-end listed as outstanding on the year-end bank reconciliation to the cutoff statement.
An auditor would most likely verify the interest earned on bond investments by: a. recomputing the interest earned on the basis of face amount, interest rate, and period held. b. confirming the bond interest rate with the issuer of the bonds. c. vouching the receipt and deposit of interest checks. d. testing the controls over cash receipts.
a. recomputing the interest earned on the basis of face amount, interest rate, and period held.
An auditor ordinarily sends a standard confirmation request to all banks with which the entity has done business during the year under audit, regardless of the year-end balance. One purpose of this procedure is to: a. seek information about loans from the banks. b. request that a cutoff bank statement and related checks be sent to the auditor. c. provide the data necessary to prepare a proof of cash. d. detect kiting activities that may otherwise not be discovered.
a. seek information about loans from the banks.
An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily to: a. verify reconciling items on the entity's bank reconciliation. b. detect kiting. c. detect lapping. d. verify the cash balance reported on the bank confirmation inquiry form.
a. verify reconciling items on the entity's bank reconciliation.
The best evidence regarding year-end bank balances is documented in the a. Interbank transfer schedule. b. Bank reconciliations. c. Cutoff bank statement. d. Bank deposit lead schedule.
b. Bank reconciliations.
The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may a. Not have access to the client's cutoff bank statement. b. Be unaware of all the financial relationships that the bank has with the client. c. Sign and return the form without inspecting the accuracy of the client's bank reconciliation. d. Not believe that the bank is obligated to verify confidential information to a third party.
b. Be unaware of all the financial relationships that the bank has with the client.
Which of the following sets of information does an auditor usually confirm on one form? a. Accounts payable and purchase commitments. b. Cash in bank and collateral for loans. c. Accounts receivable and accrued interest receivable. d. Inventory on consignment and contingent liabilities.
b. Cash in bank and collateral for loans.
When auditing a client's statement of cash flows, an auditor will rely primarily upon a. The standard bank confirmation. b. Cross-referencing to balances and transactions considered in connection with the audit of the other financial statements. c. Determination of the amount of cash at year-end. d. Analysis of significant ratios of prior years as compared to the current year.
b. Cross-referencing to balances and transactions considered in connection with the audit of the other financial statements.
Which of the following cash transfers results in a misstatement of cash at December 31, Year 1? Bank Transfer Schedule Disbursement (Recorded in Books Paid by Bank) Receipt (Recorded in Books Received by Bank) a. Recorded in Books 1/4/Yr 2 Receipt Paid by Bank 1/11/Yr 2 Recordedin Books 1/4/Yr 2 Receivedby Bank 1/4/Yr 2 b. Disbursement Recordedin Books 1/4/Yr 2 Receipt Paid byBank 1/5/Yr 2 Recordedin Books 12/31/Yr 1 Receivedby Bank 1/4/Yr 2 c. Disbursement Recorded in Books 12/31/Yr 1 Receipt Paid byBank 1/4/Yr 2 Recordedin Books 12/31/Yr 1 Receivedby Bank 12/31/Yr 1 d. Disbursement Recordedin Books 12/31/Yr 1 Receipt Paid byBank 1/5/Yr 2 Recordedin Books 12/31/Yr 1 Receivedby Bank 1/4/Yr 2
b. Disbursement Recordedin Books 1/4/Yr 2 Receipt Paid byBank 1/5/Yr 2 Recordedin Books 12/31/Yr 1 Receivedby Bank 1/4/Yr 2
On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account bank B to cover a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this form of kiting by a. Preparing from the cash disbursements book a summary of bank transfers for one week prior to and subsequent to year end. b. Examining paid checks returned with the bank statement of the next accounting period after year end. c. Comparing the detail of cash receipts as shown by the cash receipts records with the detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year end. d. Examining the composition of deposits in both bank A and B subsequent to year end.
b. Examining paid checks returned with the bank statement of the next accounting period after year end.
Level 1 inputs are more risky and difficult to audit than Level 3 inputs to a valuation model. a. True b. False
b. False
Which of the following would be a consideration in planning a sample for a test of subsequent cash receipts? a. The amount of credit loss write-offs in the prior year. b. Preliminary judgments about materiality levels. c. The auditor's allowable risk of assessing control risk is too low. d. The size of the intercompany receivable balance.
b. Preliminary judgments about materiality levels. This answer is correct. Judgments about materiality will affect the sample sizes in a variables sampling plan. The smaller the levels of materiality, the larger the sample sizes needed to support the auditor's conclusions.
Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows? a. Vouch a sample of cash receipts and disbursements for the last few days of the current year. b. Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts. c. Confirm the amounts included in the statement of cash flows with the entity's financial institution. d. Reconcile the cutoff bank statement to the proof of cash to verify the accuracy of the year-end cash balance.
b. Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts.
An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to a. Request that a cutoff bank statement and related checks be sent to the auditor. b. Seek information about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation. c. Provide the data necessary to prepare a proof of cash. d. Detect kiting activities that may otherwise not be discovered.
b. Seek information about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation.
The standard AICPA form to financial institutions requesting information on direct liabilities on loans asks for the following information The Principal Amount Paid Description of Collateral Date through which Interest is Paid a. The Principal Amount Paid No Description of Collateral No Date through which Interest is Paid Yes b. The Principal Amount Paid No Description of Collateral Yes Date through which Interest is Paid Yes c. The Principal Amount Paid Yes Description of Collateral No Date through which Interest is Paid No d. The Principal Amount Paid Yes Description of Collateral Yes Date through which Interest is Paid Yes
b. The Principal Amount Paid No Description of Collateral Yes Date through which Interest is Paid Yes
The standard AICPA form directed to financial institutions requests all of the following except a. Due date of a direct liability. b. The principal amount paid on a direct liability. c. Description of collateral for a direct liability. d. The interest rate of a direct liability.
b. The principal amount paid on a direct liability.
Which of the following cash transfers results in a misstatement of cash at December 31? Bank Transfer Schedule Disbursing Bank Account Receiving Bank Account Transfer>Recorded in Client's Books>Paid by Bank>Recorded in Client's Books>Received by Bank a.12/31 1/4 12/31 12/31 b.1/4 1/5 12/31 1/4 c.12/31 1/5 12/31 1/4 d.1/4 1/11 1/4 1/4
b.1/4 1/5 12/31 1/4
The following was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ended December 31, Year 1. Assume all checks are dated and issued on December 30, Year 1. Disbursement Date Receipt Date Check Bank AccountsPerPerPerPerNo.FromToBooksBankBooksBank101NationalFederalDec. 30Jan. 4Dec. 30Jan. 3202CountyStateJan. 3Jan. 2Dec. 30Dec. 31303FederalAmericanDec. 31Jan. 3Jan. 2Jan. 2404StateRepublicJan. 2Jan. 2Dec. 31Jan. 2 Which of the following checks might indicate kiting? a. #101 and #303. b. #202 and #303. c. #202 and #404. d. #101 and #404.
c. #202 and #404.
Which of the following audit procedures best tests the classification of cash? a. Verify that all checks the client has received are in the client's name. b. Determine the last check written for the period and trace the effect to the accounting records. c. Determine that restricted cash is accounted for as a noncurrent asset. d. Review documentation to verify when restricted cash was received.
c. Determine that restricted cash is accounted for as a noncurrent asset.
The primary evidence regarding year-end bank balances is documented in the: a. interbank transfer schedule. b. outstanding check listing. c. standard bank confirmations. d. bank deposit lead schedule.
c. standard bank confirmations.
The following was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ended December 31, Year 1. Assume all checks are dated and issued on December 30, Year 1.Disbursement DateReceipt DateCheckBank AccountsPerPerPerPerNo.FromToBooksBankBooksBank101NationalFederalDec. 30Jan. 4Dec. 30Jan. 3202CountyStateJan. 3Jan. 2Dec. 30Dec. 31303FederalAmericanDec. 31Jan. 3Jan. 2Jan. 2404StateRepublicJan. 2Jan. 2Dec. 31Jan. 2 Which of the following checks illustrate deposits or transfers in transit at December 31, Year 1? a. #202 and #404. b. #101 and #202. c. #303 and #404. d. #101 and #303.
d. #101 and #303.
Substantive testing of cash addresses assertions by a nonissuer in the a. Statement of comprehensive income. b. Income statement. c. Statement of cash flows. d. Balance sheet.
d. Balance sheet.
In an audit of cash, an auditor evaluates the evidence relevant to the classification assertion. If the client's sinking funds and compensating balances are listed as noncurrent assets, the auditor should a. Recommend to the client that the sinking funds and compensating balances be reported as current liabilities. b. Recommend to the client that compensating balances be reported as noncurrent liabilities. c. Inquire of management about disclosure. d. Conclude that they are appropriately reported.
d. Conclude that they are appropriately reported.
The primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to a. Provide the data necessary to prepare a proof of cash. b. Detect kiting activities that may otherwise not be discovered. c. Request information about contingent liabilities and secured transactions. d. Corroborate information regarding deposit and loan balances.
d. Corroborate information regarding deposit and loan balances.
An auditor selects a sample of recorded cash receipts and vouches them to accounts receivable and customer orders. This procedure is relevant to which assertion? a. Completeness. b. Cutoff. c. Existence. d. Occurrence.
d. Occurrence.
Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting between intercompany banks? a. Prepare year-end bank reconciliations. b. Review subsequent bank statements received directly from the banks. c. Review the composition of authenticated deposit slips. d. Prepare a schedule of bank transfers.
d. Prepare a schedule of bank transfers.
An auditor testing long-term investments would ordinarily use substantive analytical procedures to ascertain the reasonableness of the: a. valuation of marketable equity securities. b. existence of unrealized gains or losses in the portfolio. c. classification between current and noncurrent portfolios. d. completeness of recorded investment income.
d. completeness of recorded investment income.
