Ch. 10 HW/Quiz

a. comparison of bank cutoff statement to the cash receipts and disbursements records

Anderson embezzled $20,000 from her company's account in Bank X. at year-end, she hid the shortage by making a deposit on December 31 in Bank X, drawn on Bank Y. she has not recorded the transaction on the books. which of the following is most likely to be effective in detecting this fraud? a. comparison of bank cutoff statement to the cash receipts and disbursements records b. bank transfer schedule prepared using only the cash receipts and cash disbursements journals c. receivable confirmation d. bank confirmation

1. an investment committee of the board of directors

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: 1. an investment committee of the board of directors 2. the chief operating officer 3. the corporate controller 4. the treasurer

d. comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank

a practical and effective audit procedure for the detection of lapping is: a. tracing recorded cash receipts to postings in customers' ledger cards b. preparing a proof of cash c. preparing an interbank transfer schedule d. comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank

a. verify reconciling items on the client's bank reconciliation

an auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily in order to: a. verify reconciling items on the client's bank reconciliation b. detect lapping c. detect kiting d. verify the cash balance reported on the bank confirmation inquiry form

4. general ledger

to gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except: 1. cutoff bank statement 2. year-end bank statement 3. bank confirmation 4. general ledger

c. send a bank confirmation as of year-end

in November, two months before year-end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to interest revenue. the most effective method for detecting this type of error is: a. prepare a bank transfer schedule as of year-end b. prepare a bank reconciliation as of year-end c. send a bank confirmation as of year-end d. foot the cash receipts journal for November

4. require that the safekeeping function for securities be assigned to a bank or stock-broker that will act as a custodial agent

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? 1. require that one trustworthy and bonded employee be responsible for access to the safekeeping area where securities are kept 2. require that employees who enter and leave the safekeeping area sign and record in a log the exact reason for their access 3. require that employees involved in the safekeeping function maintain a subsidiary control ledger for securities on a current basis 4. require that the safekeeping function for securities be assigned to a bank or stock-broker that will act as a custodial agent

4. is responsible for mailing the checks

in testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also: 1. reviews the monthly bank reconciliation 2. returns the checks to accounts payable 3. is denied access to the supporting documents 4. is responsible for mailing the checks

1. processes cash disbursements

reconciliation of the bank account should not be performed by an individual who also: 1. processes cash disbursements 2. has custody of securities 3. prepares the cash budget 4. reviews inventory reports

c. the principal amount paid on a direct liability

the Standard Form to Confirm Account Balances with Financial Institutions includes info on all of the following except: a. description of collateral for a direct liability b. date due of a direct liability c. the principal amount paid on a direct liability d. the interest rate of a direct liability

1. details of bank deposit slips with detail of credits to customer accounts

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: 1. details of bank deposit slips with detail of credits to customer accounts 2. daily cash summaries with the sums of the cash receipts journal entries 3. individual bank deposit slips with the details of the monthly bank statements 4. dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded

3. acknowledge the receipt of securities returned

the auditors who physically examine securities should insist that a client representative be present in order to: 1. detect fraudulent securities 2. lend authority to the auditors' directives 3. acknowledge the receipt of securities returned 4. coordinate the return of securities to the proper locations

2. verification by reference to dividend record books

the best way to verify the amounts of dividend revenue received during the year is: 1. re-computation 2. verification by reference to dividend record books 3. confirmation with dividend-paying companies 4. examination fo cash disbursement records

2. stamped "paid" by the check signer

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: 1. supported by a vendor's invoice 2. stamped "paid" by the check signer 3. pre-numbered and accounted for 4. approved for authorized purchases

1. a bank lockbox system

which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees? 1. a bank lockbox system 2. pre-numbered remittance advices 3. monthly bank reconciliations 4. daily deposit of cash receipts

c. it may increase but not falsify cash position

which of the following is correct concerning "window dressing" for cash? a. a segregation of duties within the cash function effectively eliminates its occurrence b. it is illegal, and an audit is designed to provide reasonable assurance of its detection c. it may increase but not falsify cash position d. it generally involves manipulation of inventory

a. obtaining a receipt for every disbursement

which of the following is not a control that generally is established over cash transactions? a. obtaining a receipt for every disbursement b. centralizing the receipt of cash c. separating cash handling from recordkeeping d. depositing each day's receipts intact

d. securities held for the client by the financial institution

which of the following is not confirmed on the standard confirmation form used for cash balances at financial institutions? a. loans payable b. cash checking account balances c. cash savings account balances d. securities held for the client by the financial institution

1. observe the consistency of the employees' use of cash registers and tapes

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? 1. observe the consistency of the employees' use of cash registers and tapes 2. inquire about employees' access to recorded but undeposited cash 3. trace deposits in the cash receipts journal to the cash balance in the general ledger 4. compare the cash balance in the general ledger with the bank confirmation request

d. receive a cutoff statement directly from the client's bank

which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation? a. confirm the year-end balance using the standard form to confirm account balance info with financial institutions b. prepare a four column bank reconciliation using the year-end bank statement c. prepare a bank transfer schedule using the client's cash receipts and cash disbursements journal d. receive a cutoff statement directly from the client's bank

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

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: 1. count the cash in advance of the balance sheet date in order to disclose any kiting operations at year-end 2. coordinate the count of cash with the cutoff of accounts payable 3. coordinate the count of cash with the count of marketable securities and other negotiable assets 4. count the cash immediately upon the return of the confirmation letters from the financial institution

b. net income is overstated

your client left the cash receipts journal open after year-end for an extra day and included January 1 cash receipts in the 12/31/XX totals. all of those cash receipts were due to cash sales. assuming the client uses a periodic inventory system with a 12/31/XX count of the physical inventory, which of the following is most likely to be true relating to the year XX financial statements? a. inventory is overstated b. net income is overstated c. sales are understated d. accounts receivable are understated