Question 1

The process of transferring money from one bank account to another and improperly recording the transaction is referred to as:
A) kiting.
B) embezzling.
C) scamming.
D) lapping.

Accepted Answer

Kiting involves making use of the time it takes for checks to clear to artificially inflate the balance of a bank account. This is done by transferring money between accounts and not recording the transaction properly to make it appear as though there is more money available than there actually is.

Question 2

The emphasis in auditing property, plant, and equipment is on the verification of:
A) the balance carried forward in the account from the previous period.
B) the balance in the account after the current year's activities are considered (ending balance).
C) current period acquisitions and retirements.
D) all of the above

Accepted Answer

The emphasis in auditing property, plant, and equipment is on verifying the current period acquisitions and retirements. While verifying the balance carried forward from the previous period (A) and the ending balance (B) are also important, they are less relevant when it comes to auditing property, plant, and equipment. Therefore, option (C) - current period acquisitions and retirements - is the best choice.

Question 3

In the audit of property, plant, and equipment, it is helpful to separate the tests into all of the following categories EXCEPT:
A) verification of current year disposals.
B) verification of the beginning balance.
C) verification of current year acquisitions.
D) verification of the ending balance.

Accepted Answer

Verification of the beginning balance is not typically a separate category in the audit of property, plant, and equipment, as it is usually covered by verifying the ending balance of the previous period.

Question 4

The test of details of balances procedure for PPE which requires 'examination of vendor's invoices and land titles and deeds' is done to satisfy which audit objective?
A) accuracy
B) classification
C) existence
D) rights

Accepted Answer

The examination of vendor's invoices and land titles and deeds is done to satisfy the audit objective of rights, which ensures that the entity has legal ownership or rights to use its PPE. The examination of these documents helps the auditor to verify that the assets exist, are properly recorded, and that the entity has the right to use them.

Question 5

The balance-related audit objective to determine that cash in bank is properly presented and disclosed can be met through which of the following tests of details of balances?
A) Trace outstanding cheques to subsequent period bank statement.
B) Examine minutes, loan agreements, and the bank confirmation for restrictions on the use of cash and compensating balances.
C) Foot the outstanding cheque list and deposits in transit.
D) Test for kiting.

Accepted Answer

Examining minutes, loan agreements, and the bank confirmation for restrictions on the use of cash and compensating balances helps ensure that cash in bank is properly presented and disclosed in the financial statements, meeting the balance-related audit objective.

Question 6

Which objective is not of vital importance when auditing the balance of the general cash account?
A) classification
B) accuracy
C) completeness
D) existence

Accepted Answer

While classification is important in proper accounting, it is not of vital importance when auditing the balance of the general cash account. The primary objectives in auditing the balance of the general cash account are accuracy, completeness, and existence.

Question 7

A set of records for each piece of equipment that includes descriptive information, date of acquisition, original cost, current year depreciation, and accumulated depreciation is the:
A) depreciation schedule.
B) file of purchase requisitions.
C) acquisitions journal.
D) fixed asset master file.

Accepted Answer

A fixed asset master file is a comprehensive record of each fixed asset, including all relevant details such as date of acquisition, original cost, current year depreciation, and accumulated depreciation. This file serves as a key tool for tracking and managing fixed assets throughout their useful lives. The other options (depreciation schedule, file of purchase requisitions, and acquisitions journal) are related to aspects of fixed asset accounting but do not encompass the full range of information included in a fixed asset master file.

Question 8

The audit procedure which 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 payments journal is performed to satisfy which audit objective?
A) cutoff
B) detail tie-in
C) existence
D) completeness

Accepted Answer

This audit procedure is aimed at ensuring that transactions are recorded in the correct accounting period, which aligns with the cutoff audit objective. It helps verify that cheques written near the end of the year are recorded in the proper period, ensuring accurate financial reporting.

Question 9

Typically, bank confirmations in the audit verify:
A) actual cash balance.
B) loan information.
C) both A and B
D) none of the above

Accepted Answer

Bank confirmations in the audit verify both the actual cash balance as well as loan information, making choice C the correct answer. Bank confirmations are typically sent directly to the auditor by the bank, and provide assurance that the information provided on the client's financial statements is accurate and complete. By verifying the actual cash balance and loan information, the auditor can reduce the risk of material misstatement in the financial statements.

Question 10

General ledger accounts commonly used in PPE are:
A) accumulated depreciation.
B) depreciation expense.
C) the asset at cost or valuation.
D) all of the above

Accepted Answer

All of the options listed are commonly used general ledger accounts in relation to property, plant, and equipment. The asset is initially recorded at cost or valuation, accumulated depreciation is used to track the reduction in value over time, and depreciation expense is recognized as an expense on the income statement.

Question 11

Which of the following balance-related objectives is NOT a problem when auditing the general cash account?
A) accuracy
B) completion
C) rights
D) cutoff

Accepted Answer

The rights objective is not typically a problem when auditing the general cash account because cash is a liquid asset that inherently belongs to the entity possessing it, making the verification of rights straightforward compared to other assets that may have more complex ownership or rights issues.

Question 12

Client business risk relating to cash may arise from:
A) cash being more susceptible to theft than other types of investments.
B) inappropriate cash management policies.
C) handling of funds held in trust for others.
D) all of the above

Accepted Answer

Cash is more susceptible to theft than other types of investments, which increases the risk for clients' businesses. Inappropriate cash management policies can also lead to the mismanagement of a client's cash, resulting in financial losses or missed opportunities. Lastly, if a client holds funds in trust for other parties, the handling of these funds could result in additional risks and liabilities. Therefore, all of the above options may contribute to a client business risk relating to cash.

Question 13

Which of the following objectives is usually the focus in auditing cash balances?
A) existence, completeness, and cutoff
B) completeness, accuracy, and detail tie-in
C) existence and completeness
D) existence, completeness, accuracy, and detail tie-in

Accepted Answer

When auditing cash balances, the primary objectives are to determine the existence, completeness, accuracy, and detail tie-in of cash balances. Therefore, the best choice is D, which includes all four objectives as options.

Question 14

The starting point for the verification of the balance in the general bank account is to obtain:
A) a bank reconciliation from the client.
B) a cutoff bank statement directly from the bank.
C) the client's cash account from the general ledger.
D) the client's June bank statement and reconcile it.

Accepted Answer

The starting point for verifying the balance in the general bank account is to obtain a bank reconciliation from the client, as it provides a comparison between the bank statement and the company's records.

Question 15

Listing all bank transfers made a few days before and after the balance sheet date and tracing each to the accounting records for proper recording is a useful approach to test for:
A) kiting.
B) unintentional errors in recording bank transfers.
C) both A and B.
D) kiting and lapping.

Accepted Answer

The answer of Listing all bank transfers made a few...

Question 16

Information typically confirmed on liabilities to the bank would NOT include:
A) the existence of security included on the confirmation form.
B) interest rate.
C) loans beyond those included on the confirmation form.
D) all of the above

Accepted Answer

Liabilities confirmed to the bank will only include information on loans and liabilities that are specifically included on the confirmation form. Therefore, any loans beyond those included on the form would not be confirmed. The existence of security and interest rate would typically be confirmed, as these are directly related to the loans listed on the form.

Question 17

It should ordinarily be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it is normal to verify:
A) all large transactions.
B) all unusual transactions.
C) a representative sample of typical additions.
D) all of the above

Accepted Answer

Verifying all large transactions, all unusual transactions, and a representative sample of typical additions ensures that the additions to property, plant, and equipment are legitimate and accurately recorded, covering a broad spectrum of potential risk areas.

Question 18

Because cash is the most desirable asset for people to steal, it has a higher:
A) inherent risk.
B) detection risk.
C) control risk.
D) all of the above

Accepted Answer

Cash has a higher inherent risk because it is easily accessible and can be easily converted to other assets. Detection risk and control risk can be mitigated through proper security measures and internal controls, but the inherent risk will always be present.

Question 19

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:
A) large cash receipts and disbursements during the year.
B) no imprest accounts used for payroll.
C) inadequate internal controls.
D) large cash balances at the end of the year.

Accepted Answer

Inadequate internal controls increase the risk of fraudulent activities in the cash balance. Therefore, the auditor must consider the possibility of material fraud during the audit of year-end cash when there are inadequate internal controls. Other factors listed in the options may also increase the risk of fraud, but inadequate internal controls are the most significant.

Question 20

Property, plant, and equipment are assets that:
A) have expected lives of more than one year.
B) are used in the business.
C) are not acquired for resale.
D) all of the above

Accepted Answer

Property, plant, and equipment are assets that have expected lives of more than one year, are used in the business, and are not acquired for resale. Therefore, all of the above options are correct.

Quiz 16: Audit of transaction cycles and financial statement balances II

The process of transferring money from one bank account to another and improperly recording the transaction is referred to as:

The emphasis in auditing property, plant, and equipment is on the verification of:

In the audit of property, plant, and equipment, it is helpful to separate the tests into all of the following categories EXCEPT:

The test of details of balances procedure for PPE which requires 'examination of vendor's invoices and land titles and deeds' is done to satisfy which audit objective?

The balance-related audit objective to determine that cash in bank is properly presented and disclosed can be met through which of the following tests of details of balances?

Which objective is not of vital importance when auditing the balance of the general cash account?

A set of records for each piece of equipment that includes descriptive information, date of acquisition, original cost, current year depreciation, and accumulated depreciation is the:

The audit procedure which 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 payments journal is performed to satisfy which audit objective?

Typically, bank confirmations in the audit verify:

General ledger accounts commonly used in PPE are:

Which of the following balance-related objectives is NOT a problem when auditing the general cash account?

Client business risk relating to cash may arise from:

Which of the following objectives is usually the focus in auditing cash balances?

The starting point for the verification of the balance in the general bank account is to obtain:

Listing all bank transfers made a few days before and after the balance sheet date and tracing each to the accounting records for proper recording is a useful approach to test for:

Information typically confirmed on liabilities to the bank would NOT include:

It should ordinarily be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it is normal to verify:

Because cash is the most desirable asset for people to steal, it has a higher:

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:

Property, plant, and equipment are assets that: