Question 1

A proof of cash represents:

Accepted Answer

A proof of cash is used as a substantive test of transactions to verify that recorded cash transactions actually occurred and as a test of details of balances to ensure that the ending cash balance on the company's books agrees with the bank statement. Therefore, the best choice is C as it includes both a substantive test of transactions and a test of details of balances.

Question 2

The auditor must extend the audit procedures in the audit of year-end cash when there are inadequate internal controls.

Accepted Answer

When there are inadequate internal controls, the risk of material misstatement is higher, and as a result, the auditor must extend the audit procedures in the audit of year-end cash to obtain sufficient appropriate audit evidence. The auditor may need to perform additional substantive procedures such as obtaining bank confirmations, performing cash counts or tests of controls, and reviewing bank reconciliations to ensure the completeness and accuracy of the client's cash balance.

Question 3

When auditing the general cash account, receipt of a standard bank confirmation is the starting point for verifying the company's general cash account balance.

Accepted Answer

The answer of When auditing the general cash account, receipt...

Question 4

The auditor uses a proof of cash to determine whether:

Accepted Answer

A proof of cash is used to verify whether the company's cash balance as per the bank statement is reconciled with the company's cash balance as per its own accounting records. Choice A contains a unique identifier for a proof of cash, which involves comparing the company's bank deposits, withdrawals, and any other bank transactions to those recorded in its accounting records. Choices B, C, and D do not provide relevant information about the purpose of a proof of cash.

Question 5

Many auditors prove the subsequent period bank statement if a cutoff statement is not received directly from the bank. Discuss the purpose of proving the subsequent period statement, and explain the audit procedures performed during the proof.

Accepted Answer

The answer of Many auditors prove the subsequent period bank...

Question 6

Tracing outstanding checks to subsequent period bank statements tests the cutoff audit objective.

Accepted Answer

Tracing outstanding checks to subsequent period bank statements confirms that all checks written in the previous period have been recorded in the bank statement in the subsequent period, thereby testing the cutoff objective.

Question 7

When auditing the year-end cash balance, one of the areas of focus is on the accuracy objective.

Accepted Answer

The accuracy objective is one of the primary objectives of auditing year-end cash balances. It involves ensuring that the amount of cash reported in the financial statements is accurate and that any errors or discrepancies are identified and corrected. Other areas of focus may include completeness, existence, valuation, and presentation and disclosure.

Question 8

Explain the purpose of testing the client's bank reconciliation, and discuss the major audit procedures involved.

Accepted Answer

The answer of Explain the purpose of testing the client's...

Question 9

If an unusually large portion of the checks listed as outstanding on the year-end bank reconciliation have not cleared the bank by the cutoff date, one possible cause could be that kiting is occurring.

Accepted Answer

The answer of If an unusually large portion of the...

Question 10

Auditors are not always required to obtain bank confirmations.

Accepted Answer

Although obtaining bank confirmations is a common practice for auditors, it is not always required. The decision to obtain bank confirmations is made based on the auditor's professional judgment and the specific circumstances of the audit.

Question 11

If internal controls over cash-related transactions are adequate, the auditor is justified in reducing the audit tests for the year-end bank reconciliation.

Accepted Answer

If internal controls over cash-related transactions are adequate, the risk of material misstatement in the year-end bank reconciliation is lower, and therefore the auditor can reduce the extent of audit tests relating to cash. However, the extent of the reduction in audit work will depend on the auditor's assessment of the adequacy and effectiveness of the internal controls.

Question 12

The three most important audit objectives for cash are accuracy, existence, and classification.

Accepted Answer

The answer of The three most important audit objectives for...

Question 13

Auditors are likely to prepare a proof of cash when the client has:

Accepted Answer

A proof of cash is typically prepared when there are material control weaknesses in cash receipts and cash disbursements. This helps the auditor ensure that all cash transactions have been properly recorded and that there are no discrepancies in the cash balance.

Question 14

Ordinarily, all deposits-in-transit listed on the year-end bank reconciliation should appear as deposits on the cutoff bank statement.

Accepted Answer

Deposits-in-transit represent funds that have been received by the company but have not yet been recorded by the bank. Therefore, they should appear on the company's books but not on the bank statement. However, these deposits should appear on the cutoff bank statement, which includes any transactions that occurred after the company's year-end but before the bank statement was issued. As a result, all deposits-in-transit listed on the year-end bank reconciliation should appear on the cutoff bank statement.

Question 15

The client may mail the bank confirmation requests if the auditor believes doing so will increase the likelihood that the confirmation will be returned promptly.

Accepted Answer

The auditor, not the client, should mail the bank confirmation requests to maintain control over the process and ensure the integrity and independence of the confirmation process.

Question 16

The starting point for the verification of the balance in the general bank account is to obtain a bank cut-off statement.

Accepted Answer

The answer of The starting point for the verification of...

Question 17

To test the client's list of outstanding checks on the bank reconciliation for completeness, the auditor should trace from the list to the checks included with the cutoff bank statement.

Accepted Answer

To test for completeness, the auditor should trace from the checks included with the cutoff bank statement back to the client's list of outstanding checks, not the other way around. This ensures that all checks presented for payment are accounted for on the client's list.

Question 18

Which of the following verifications would generally not be performed by the auditor in the month subsequent to the balance sheet date?

Accepted Answer

The auditor would not normally perform this verification in the month subsequent to the balance sheet date because the cash receipts and disbursements journals for the year under audit have already been audited.

Question 19

Auditors usually design bank confirmations that address the client's specific circumstances.

Accepted Answer

The answer of Auditors usually design bank confirmations that address...

Question 20

Many of the auditor's audit procedures in the audit of cash center around the client's bank confirmations.

Accepted Answer

The answer of Many of the auditor's audit procedures in...

Quiz 23: Audit of Cash Balances