Chapter 10

an auditor procedures that reconciles the bank's record of cash activity with the client's accounting records for a test period is called a(n) _____________ of ______________.

proof, cash

internal control over financial investment should require that securities are ____________ in the name of the company.

registered

a form designed to provide corroborating evidence about the client's account balance and outstanding loans is a(n) ________________ confirmation form.

standard

in a restaurant setting, control over cash sales are best handled when:

the sales ticket is prepared by a separate employee and cash is received from a centrally located cashier.

general guidelines to good cash handling practices include separate cash handling from record keeping.

true

one of the responsibilities of finance and accounting is to ensure cash balances are maintained at adequate, but not excessive levels.

true.

a company can strengthen internal control of cash receipts by using a(n) ________________, which is a post office box controlled by a company's bank at which cash remittances from customers are received.

lockbox

a company erroneously falls to record derivative agreements that are embedded in other agreements. this error could have been prevented by :

monitoring by internal auditors

the auditors should review cutoff bank statement for any paid checks issued on or before the balance sheet date but not listed as outstanding on the client's year-end bank reconciliation, in order to determine that the amount of cash shown on the balance sheet date was not _______

overstated

after performing test of controls, auditors should reassess the level of ________ for each financial statement assertion regarding cash.

control risk

a financial instrument whose value is dependent upon another investment or asset is called a(n) _____________.

derivative

many company require employees to submit ___________ ____________ with receipts and explanations for their business expenditures.

expense reports

auditors must obtain an understanding of __________ _________ over investments, such as separation of duties.

internal control

the best substantive procedure to verify cutoff is to:

send confirmations to holders and couterparties

electronic funds transfer systems:

transmit and processes funds related cash disbursement and receipt transactions.

auditors working papers for cash typically include:

1. a lead schedule 2. bank confirmations 3. cash count sheets

before verifying the client's cash on hand, auditors must establish control over:

1. cash funds 2. notes receivable 3. securities and other investments

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:

1. conceal a cash shortage 2. meet shout-term cash needs.

FASB ASC 320 divides securities into three portfolios including:

1. trading securities 2. available-for-sale securities 3. held-to-maturity securities

auditors can use ______ procedures to test the reasonableness of the amount of recorded dividend and interest income

analytical

a bank deposit that is restricted in use should be included:

as a separate line item

when reviewing financial investments, auditors need to review:

beginning and ending balances, and changes

in order to account for a derivative instrument as a hedge, management must establish at inception the:

1. method to be used to assess its effectiveness 2. measurement approach 3. intent to hedge

place the steps of the audit of financial investments in order from first step to last step completed:

1. obtain an understanding of internal control 2. assess the risk of material misstatement and design further audit procedures 3. perform test of controls for investment transactions 4. perform substantive procedures for investment transaction.

when reviewing of client's client prepared bank reconciliations, auditors should directly confirm _________ with the financial institution.

bank balance

a bank statement covering a specified number of business days (usually 7 to 10) after the client's balance sheet data is called a ____________ bank statement.

cutoff

a primary advantage of requiring disbursement by check is obtaining evidence of receipt from the payee in the form of:

endorsement on the check

auditors confirm cash balances directly with financial institutions in order to substantiate the _______ of the amount of cash shown on the balance sheet.

existence

auditors send a confirmation request to investment brokers to confirm _________ and ownership.

existence

in order to verify cutoff of cash receipts and disbursements at year-end, auditors must be present at the client's office to count undeposited cash receipts at the close of the business on the last day of the fiscal year.

false

the auditors prepare a list of all the client's cash accounts are related information. the information is traced and reconciled to the __________ ___________.

general ledger

the auditors should review cutoff bank statement for any paid checks issued on or before the balance sheet date but not listed as outstanding on the client's year-end bank reconciliation, in order to determine that the amount of cash shown on the balance sheet data was not _________.

overstated

a check that is not negotiable (null), usually resulting from an error in preparing the check is called a(n) ____________ check.

voided

to determine that investments purchased and sold during the period are recorded properly, the auditors ________ a sample of transactions to the broker's advice.

vouch

action taken by the client shortly before the balance sheet data to improve the financial picture presented in the financial statement is called __________ ___________.

window dressing

the auditor objectives in the examination of financial investments includes:

1. obtain an understanding of internal control over investments 2. use the understanding of the client and its environment to assess inherent risks including fraud.

Auditors must be present to perform a count of securities and cash on the balance sheet date.

false. it is not always possible to count cash and securities on the balance sheet date;therefore alternative procedures can be performed.

A bookkeeper prepares a check to herself and records it as having been issued to a major supplier is an example of which type of misstatement?

inaccurate recording of a disbursement

a bookkeeper prepares a check to herself and records it as having been issued to a major supplier is an example of which type of misstatement?

inaccurate recording of a disbursement.

a fraudulent act called ________ causes an amount of cash to be included in the balance of two or more bank accounts at the same time to conceal a cash shortage or meet short-term cash needs.

kiting

the internal control weakness that allowed a bookkeeper to embezzle cash receipts from customers and write off the related receivables, is which of the following?

lack of segregation of duties

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

proof of cash

to document auditors understanding of internal controls over cash, auditors often use a flowchart or internal control _________

questionnaire

the auditors objectives in the audit of cash and cash transactions are to

1. consider inherent risks, including fraud risks, related to cash 2. obtain an understanding of internal control over cash

examples of fraud related to cash includes:

1. duplicate payments 2. fictitious checks 3. interception of cash receipts before record is made

incoming customer checks are opened by mailroom employees who:

1. endorse the checks "for deposit only" 2. send the remittance advice and a copy of control listing to the employee responsible for the customers' accounts.

cash normally includes which types of accounts?

1. general 2. payroll 3. petty cash 4. saving accounts.

to verify the client is not overstating cash balances, auditors should analyze bank transfers for the:

1. last week of the audit year 2. first week of the year following the audito

checks payable to officers should be carefully reviewed by the auditors to determine whether the transactions were properly:

1. recorded 2. disclosed 3. authorized

potential misstatement related to cash receipts may include:

1. recording fictitious cash receipts 2. early recognition of cash receipts (cutoff problems)

when considering the risk that year-end cash is correct, but should be higher, the auditors should focus on confirming that:

1. the client's records reflect all cash transactions that took place during the year 2. cash payments were properly authorized and for a legitimate business purpose

in the cash disbursements cycle, which of the following documents are matched in order to prepare and approve a voucher?

1. vendor's invoice 2. purchase order 3. receiving report

electronic point-of-sale system often may be programmed to perform numerous other control functions, including:

1. verification of the credit status of charge account customers 2. updating accounts receivable and perpetual inventory records 3. providing special printouts accumulating sales data by product line, salesperson, etc.

auditors design test of controls and substantive procedures that:

1. verify the cutoff of cash transactions 2. determine the accuracy of cash transactions

auditors inspect the client's securities by:

1.confirming securities are registered in the company's name 2. checking serial numbers against prior years working papers.

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.

21st century

internal control over petty cash funds is achieved when:

1. the custodian of the fund reviews support from employees seeking reimbursements. 2. another individual reviews the support for completeness and authenticity prior to reimbursement of the fund

an example of a test of controls is to test the accounting records and reconciliations by __________, which includes determining that the documents are accurately entered into the journals, the journals are accurately footed, and the data are properly posted to the ledgers.

reperformance

after the auditors identify and assess risks of material misstatement for the assertions about cash, they can plan appropriate _______ procedures that address them.

substantive