Question 1

The process of transferring money from one bank account to another and improperly recording the transaction in both accounts is called

Accepted Answer

The process described is known as "kiting," which is a type of check fraud where someone transfers funds between bank accounts and doesn't properly record the transaction in either account. This allows them to inflate their account balances temporarily and potentially withdraw more money than is actually available. Lapping is a similar type of fraud where someone delays recording a payment received in order to cover up an earlier theft, while embezzlement refers to theft or misappropriation of funds in general. "A scam" is too general and does not describe the specific type of fraud being discussed.

Question 2

Jane works for Middle Co.She is responsible for opening the mail and preparing the bank deposit for cheques received,which she then gives to the owner.After the owner has deposited the cash,he gives Jane the stamped bank deposit slip,which she uses to record the cash received in the accounts receivable records.How does this allocation of responsibilities affect the audit process?

Accepted Answer

The allocation of responsibilities presents a risk of material fraud because Jane has control over both the receipt and recording of cash, which could allow her to misappropriate funds without detection.

Question 3

When examining the bank reconciliation for the imprest payroll account,it is normal for the only reconciling item to be

Accepted Answer

Outstanding cheques are a common reconciling item in the bank reconciliation for an imprest payroll account because they represent checks issued but not yet cleared by the bank.

Question 4

Outline the audit procedures that would be performed when testing electronic receipts and payments.

Accepted Answer

The answer of Outline the audit procedures that would be...

Question 5

During his examination of a January 19,2019 cutoff bank statement,an auditor noticed that the majority of cheques listed as outstanding at December 31,2018 had not cleared the bank.This would indicate

Accepted Answer

This scenario suggests that the cash disbursements journal had been held open past December 31, 2018, allowing for transactions to be recorded in the new year as if they occurred in the previous year, hence the delay in the clearing of the cheques.

Question 6

The auditor uses a proof of cash to determine whether

Accepted Answer

A proof of cash is a process through which an auditor can verify whether all recorded cash receipts have been deposited in the bank and all recorded cash disbursements were paid by the bank. This is done by reconciling the beginning and ending balances in the bank statement with their corresponding amounts in the accounting records. Therefore, option B is the correct answer. Option A is incorrect because the proof of cash does not directly test internal controls over cash. Option C and D are also incorrect because the proof of cash does not directly test the accuracy of accounts receivable or accounts payable, respectively.

Question 7

Testing to ensure that bank transfers are recorded in both the receiving and disbursing banks helps to detect evidence

Accepted Answer

Testing to ensure that bank transfers are recorded in both the receiving and disbursing banks is a control designed to detect evidence associated with an attempt to conceal a theft of cash. This is an example of a detective control, which is designed to identify errors or fraud that have occurred, rather than prevent them.

Question 8

Stella is auditing the electronic receipts and payments.The extent of her audit work conducted on the bank reconciliation will

Accepted Answer

The extent of Stella's audit work on the bank reconciliation will depend on the quality of the internal controls in place regarding electronic receipts and payments. If the internal controls are strong, then the audit work may be less extensive, but if the internal controls are weak, then the audit work may be more extensive. Therefore, the answer is C.

Question 9

Following are situations that an auditor might find by means of tests of controls or tests of details of cash balances for a company with a December year end.A)The accountant did not record or deposit a cash receipt for $50 000 that was received on December 28.Cash is prelisted by the receptionist.B)Cheques prepared up to January 6 were dated December 31 and recorded in the cash disbursements journal.C)A cheque was issued for office supplies that were never received by the client.
Required:
List a substantive audit procedure that could uncover each of the preceding situations.

Accepted Answer

The answer of Following are situations that an auditor might...

Question 10

The audit procedure that requires the auditor to record the last cheque number used on the last day of the year and subsequently trace to the outstanding cheques and the cash disbursements journal is performed to satisfy the audit objective of

Accepted Answer

The answer of The audit procedure that requires the auditor...

Question 11

After testing the bank reconciliation and inspecting the cutoff bank statement received from the bank,the auditor has determined that there are two outstanding cheques from the list on the bank reconciliation that have still not cleared the bank.The auditor's next step should be to

Accepted Answer

The auditor should trace the details of the two outstanding cheques to the cash disbursements journal to ensure that they were properly recorded and accounted for in the company's records. This will help to identify any errors or discrepancies in the accounting records and ensure that all transactions have been properly recorded and classified. The other options are not relevant to resolving the issue of the outstanding cheques. Reperforming the calculations in the bank reconciliation or comparing the total to the bank confirmation will not address the issue of the outstanding cheques. Tracing the cheques to their associated expense accounts is also not necessary or relevant to resolving the issue.

Question 12

What type of audit test is a proof of cash?

Accepted Answer

The answer of What type of audit test is a...

Question 13

A major consideration in the audit of the general cash balance is the possibility of fraud.The auditor must extend his or her procedures in the audit of year-end cash to determine the possibility of a material fraud when there are

Accepted Answer

Material internal control weaknesses increase the risk of fraud, so auditors must extend their procedures to assess the possibility of material fraud.

Question 14

Under what circumstances would an auditor prepare a proof of cash?

Accepted Answer

An auditor would prepare a proof of cash when the client has material internal control weaknesses in cash. This is because material weaknesses increase the risk of misstatements and fraud in cash balances, and a proof of cash is a useful tool for detecting and preventing such irregularities.

Question 15

Which of the following audit tests pertains to the accuracy assertion?

Accepted Answer

Preparing proof of cash pertains to the accuracy assertion as it verifies the accuracy of cash balances recorded in the financial statements by comparing them to the actual cash on hand or in the bank.

Question 16

A four-column proof of cash can be performed for

Accepted Answer

A four-column proof of cash can be performed for any specified time period for which bank statements are available and which the auditor chooses to designate. This allows for flexibility in the audit process and can be tailored to fit the specific needs of the company being audited.

Question 17

A)Explain what is meant by a cutoff bank statement and discuss the purpose of the cutoff bank statement in the audit of cash.B)Explain the purpose of testing the client's bank reconciliation and discuss the major audit procedures involved.

Accepted Answer

The answer of A)Explain what is meant by a cutoff...

Question 18

The auditor has determined exchange rates used by the client to present cash in foreign currencies and has recalculated the amounts.Which audit assertion is associated with this audit procedure?

Accepted Answer

The audit assertion associated with recalculating foreign currency cash balances is valuation, as it ensures that the amounts are correctly recorded at their appropriate values in the financial statements.

Question 19

What is the purpose of an extended test of the bank reconciliation?

Accepted Answer

An extended test of the bank reconciliation is conducted to ensure that all transactions recorded in the journals are accurately reflected in the bank reconciliation, confirming the completeness and accuracy of the reconciliation process.

Question 20

On a bank transfer schedule,if a cash disbursement was recorded in the current fiscal year and the receipt in the subsequent fiscal year,this might be

Accepted Answer

This situation might indicate an attempt to cover a cash shortage by manipulating the timing of recording transactions to make the financial statements appear more favorable.

Quiz 17: Audit of Cash Balances