Auditing Quiz - Cash and Cash Equivalents

1. Cash receipts should be deposited on the day of receipt of the following business day.
Select the
most appropriate audit procedure to determine that cash is promptly deposited.
a. Review functions of cash receiving and disbursing for proper separation of duties
b. Review cash register tapes prepared for each sale
c. Review the functions of cash handling and maintaining accounting records for proper
separation of duties
d. Compare the daily cash receipts totals with the bank deposits
2. Which of the following sets of information does an auditor usually confirm in one form?
a. Cash in bank and collateral for loans
b. Accounts payable and purchase commitments
c. Accounts receivable and accrued interest receivable
d. Inventory on consignment and contingent liabilities
3. The primary purpose of sending standard confirmation request to financial institutions with which
the client has done business during the year is to
a. Corroborate information regarding deposit and loan balances
b. Provide the data necessary to prepare a proof of cash
c. Detect kiting activities that may otherwise not be discovered
d. Request information about contingent liabilities and secured transaction
4. As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a
standard bank confirmation request for a bank account that had been closed during the year. After
the client’s treasurer has signed the request, it was mailed by the assistant treasurer. What is the
major flaw in this audit procedure?
a. The CPA did not sign the confirmation request before it was mailed
b. Sending the request was meaningless because the account was closed before the year-end
c. The confirmation request was signed by the treasurer
d. The request was mailed by the assistant treasurer
5. Kiting is
a. Making the financial statements indicate a more favourable financial position by giving effect
to transactions in a period other than in which they actually occurred
b. Done to inflate the cash position or cover the theft of cash by depositing at the end of the
accounting period a check drawn on one bank account in another bank account without making
the necessary deduction in the balance of the first bank
c. An irregularity that conceals cash shortages by a delay in recording cash collections, retaining a
customer’s payment on credit sales and covering up the shortage with subsequent cash receipts
d. A kind of fraud committed by making entry of fictitious payments or failure to enter receipts
6. The least crucial element of control over cash is
a. Separation of cash record keeping from custody of cash.
b. Preparation of the monthly bank reconciliation.
c. Separation of cash receipts from cash disbursements.
d. Batch processing of checks.
7. As an in-charge auditor, you are reviewing a write-up of internal control in cash receipt and
disbursement procedures. Which of the following deficiencies alone should cause you the least
concern?
a. Checks are signed by only one person.
b. Signed checks are distributed by the controller to approved payees.
c. The treasurer fails toestablish bonafide names and addresses of check payees.
d. Cash disbursements are made directly out of cash receipts.
8. Documentary evidence is one of the principal types of corroborating information used by an
auditor to substantiate an opinion. Which one of the following examples of documentary
evidence would be the most reliable?
a. Time tickets.
b. Material requisition slips.
c. Copies of sales invoices.
d. Bank statements.
9. In verifying a November 30 sales cutoff date, an auditor would be most concerned with
comparing records of
a. November cash receipts with December bank deposits.
b. November purchases with December shipments.
c. November accounts receivable with November sales.
d. November sales with November shipping documents.
10. A proof of cash used by an auditor
a. Proves that the client's year-end balance of cash is fairly stated. b. Confirms that the client has
properly separated the custody function from the recording function with respect to cash. c.
Validates that the client's bank did not make an error during the period being examined. d.
Determines if there were any unauthorized disbursements or unrecorded deposits for the given
period.
11. Sertipikado, CPA, is engaged in the audit of the financial statements of Alpha Company, a
manufacturing entity with branch offices in many widely separated cities. Sertipikado was not
able to count the substantial undeposited cash receipts on the last day of the fiscal year at all
branch offices. As an alternative procedure, Sertipikado verified all the reported undeposited cash
collections in the cut-off bank statements and was satisfied as to cut-off of cash receipts. How
should Sertipikado prepare his audit report?
a. Issue an unqualified opinion with an emphasis of matter paragraph that refers to the use of
alternative audit procedure.
b. Issue a qualified opinion due to scope limitation.
c. Issue an unqualified opinion on income statement and a qualified opinion on the balance sheet.
d. Issue a standard unqualified opinion.
12. Which of the following would best protect a company that wishes to prevent lapping?
a. Lighting all the premises and installing CCTV cameras to prevent employees from performing
lapping.
b. Segregating duties so that no employee has access both to checks from customers and to
currency from daily cash receipts
c. Having customers send payments directly to the company's bank
d. Requesting that customers checks be made payable to the company and be addressed to the
treasurer

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1. Cash receipts should be deposited on the day of receipt of the following business day.

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