Question 1

Information concerning 'other arrangements' with banks is obtained from the client's banks, in the bank confirmation form. This information is likely to include:

Accepted Answer

Unused facilities are typically included in the information concerning 'other arrangements' with banks obtained through the bank confirmation form. This helps auditors understand the client's available credit lines that have not been utilized.

Question 2

In working with the bank reconciliation and the subsequent period's bank statement, the auditor finds that a prior-period cheque was not on the reconciliation as an outstanding cheque. This may be an indication of:

Accepted Answer

The answer of In working with the bank reconciliation and...

Question 3

The starting point for verifying cash balancis to:

Accepted Answer

Tracing the current period's opening balances to the closing audited balances in the previous year's working papers ensures continuity and accuracy from the prior audited period.

Question 4

Initial substantive procedurfor cash balance assertions may include all of the following except:

Accepted Answer

All of the aforementioned procedures are initial substantive procedures for cash balance assertions. Therefore, Option D is the correct answer.

Question 5

The control of all funds during the count of cash on hand is meant primarily to prevent:

Accepted Answer

The primary purpose of controlling all funds during the count of cash on hand is to prevent transfers by the entity's personnel of counted to uncounted funds, ensuring an accurate and honest count.

Question 6

Which of the following would not normally be done by the auditor in connection with the subsequent period's bank statement?

Accepted Answer

All the tasks listed are standard procedures for auditors when examining the subsequent period's bank statement to verify the accuracy of the year-end cash balance and ensure there are no irregularities.

Question 7

Audit evidence for share holdings on the investment brokerage register is normally the:

Accepted Answer

The brokerage account holdings statement provides evidence of the client's share holdings with the brokerage, and can be used by auditors to confirm the existence and valuation of these holdings. The other options listed do not provide relevant evidence for share holdings on the investment brokerage register.

Question 8

In working with the bank reconciliation and the subsequent period bank statement, the auditor finds that many of the chequon the outstanding cheque list did not clear during the cut-off period. This may be an indication of:

Accepted Answer

The answer of In working with the bank reconciliation and...

Question 9

Unlike other balance sheet account balanccash:

Accepted Answer

Cash can be an asset or a liability on the balance sheet, depending on whether it represents cash on hand or cash owed to others. Option A is incorrect because cash is a highly liquid asset. Option C is incorrect because cash can have a credit balance if the account has been credited more than debited, and Option D is incorrect because cash can have a debit balance if more cash has been paid out than received.

Question 10

If the petty cash account is tested in detail by the auditor, it is usually because:

Accepted Answer

The answer of If the petty cash account is tested...

Question 11

The correct statement concerning the materiality of securitiis:

Accepted Answer

The answer of The correct statement concerning the materiality of...

Question 12

Since the custodian may have substituted personal cash to cover a cash shortage, the count of cash on hand providweak evidence for the:

Accepted Answer

The answer of Since the custodian may have substituted personal...

Question 13

Audit tests to detect lapping involve which of the following?

Accepted Answer

The answer of Audit tests to detect lapping involve which...

Question 14

During the count of cash on hand, it is not necessary for the auditor to:

Accepted Answer

While it is good practice to have an internal auditor present during the count of cash on hand, it is not necessary. The other choices (B, C, and D) are all important steps that should be taken during the count of cash on hand.

Question 15

Kiting is possible when:

Accepted Answer

The answer of Kiting is possible when:
...

Question 16

The predominantly substantive approach is generally used for investing transactions because of:

Accepted Answer

The predominantly substantive approach is generally used for investing transactions because they are typically infrequent, making it more practical to focus on the substance of transactions rather than on establishing extensive control procedures.

Question 17

The practice where a cheque is paid into a bank account of an entity in a group of companibefore balance date but recorded by the payer as a disbursement that occurred after balance date is known as:

Accepted Answer

This practice is commonly known as kiting, which involves floating funds between accounts to give the appearance of having sufficient funds to cover transactions. It is an illegal practice and a form of check fraud. Lapping is a similar practice where a payment is recorded as received from one customer when it was actually received from another. Low-balling is a pricing strategy used to attract customers by advertising low prices but later adding additional fees or charges.

Question 18

In auditing tests of details of balancfor investments, the auditor's procedurmay include all of the following except:

Accepted Answer

The answer of In auditing tests of details of balancfor...

Question 19

Analytical procedurapplied to investment balance sheet accounts provide:

Accepted Answer

Analytical procedures typically provide limited evidence for balance sheet accounts as they are more effective for income statement accounts where relationships and trends can be more easily analyzed.

Question 20

The standard bank confirmation requests information about all of the following except:

Accepted Answer

The standard bank confirmation requests information about account balances, loan balances, and other arrangements that the client may have with the bank. However, it does not request information about secondary endorsements as this is not directly related to the client's relationship with the bank.

Quiz 12: Auditing Cash and Investments