Chapter 10

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the best evidence on operating effectiveness?

Select and examine canceled checks and test whether the related receiving reports are dated no later than the checks.

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally not be able to detect:

A second payment of an account payable which had already been paid in full two months earlier.

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally be able to detect:

An unrecorded deposit made at the bank at the end of the month.

Which of the following statements is not correct? *A. Cash is important to the audit process because of its vulnerability to misappropriation, despite the fact that the balance at the balance sheet date may be immaterial. *B. Payroll cash account balances kept on an imprest basis are more easily controlled than others not so kept. *C. Confirmation of cash should only be performed as of the balance statement date because the auditor expresses an opinion as of that date. *D. Reviewing interbank transfers is important to the auditor because of the possibility that the client may be engaged in kiting.

C

The auditors use a bank cutoff statement to compare:

Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.

Kiting would least likely be detected by:

Comparing customer remittance advices with recorded disbursements in the cash disbursements journal.

A practical and effective audit procedure for the detection of lapping is: A. Preparing an interbank transfer schedule.

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

Which of the following is correct concerning "window dressing" for cash?

Many forms of it require no action by the auditors.

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?

Net income is overstated.

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?

Receive a cutoff statement directly from the client's bank.

An auditor's analytical procedures have revealed that the accounts receivable of a client have doubled since the end of the prior year. However, the allowance for doubtful accounts, as a percentage of accounts receivable remained about the same. Which of the following client explanations most likely would satisfy the auditor?

The client opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet.

An auditor may obtain information on the December 31 month end balance per bank in which of the following? December 31 Bank Statement (Y/N) Schedule of Bank (Cash) Transfers (Y/N)

YES NO

An auditor may obtain information on the December 31 month end balance per bank in which of the following? Standard Confirmation Form (Y/N) January 1-10 Cutoff Statement (Y/N)

YES YES