Kayla Harbaugh
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Auditing Chapter 10 Homework

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Kayla Harbaugh
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Auditing Chapter 10 Homework

Question 1 of 30

1

Which one of the following risks is not a risk associated with cash?

Select one of the following:

  • a. Complex valuation issues.

  • b. Large volume of transactions.

  • c. Importance of meeting debt covenants.

  • d. Easy to manipulate.

Explanation

Question 2 of 30

1

The cash account is significant to the auditor for which of the following reasons?

Select one of the following:

  • a. The cash account balance is the culmination of a large volume of transactions.

  • b. The cash account is not as susceptible to fraud as most other accounts.

  • c. Cash is the only account that provides opportunity for fraud.

  • d. Automated systems do not possess the capability to maintain strong internal controls over cash.

Explanation

Question 3 of 30

1

Which of the following situations would normally be discovered by testing the bank reconciliation?

Select one of the following:

  • a. Failure to bill a customer.

  • b. Payment to an employee for more hours than she worked.

  • c. Failure to include a deposit in transit on the bank reconciliation.

  • d. Duplicate payment of a vendor’s invoice.

Explanation

Question 4 of 30

1

Which of the following is not a normal edit test as part of computerized control for checks?

Select one of the following:

  • a. Field checks.

  • b. Reasonableness tests.

  • c. Cross-references.

  • d. Self-checking digits.

Explanation

Question 5 of 30

1

Which one of the following is not a fundamental internal control the auditor would expect to find in place for a cash processing system?

Select one of the following:

  • a. Segregation of duties.

  • b. Electronic payments.

  • c. Periodic internal audits.

  • d. Authorization of transactions.

Explanation

Question 6 of 30

1

As cash processing systems become more automated and integrated, which of the following is true about the general concept of segregation of duties?

Select one of the following:

  • a. Segregation of duties becomes completely computerized without human involvement.

  • b. The importance of segregation of duties does not change.

  • c. Segregation of duties becomes less important.

  • d. Segregation of duties becomes more important.

Explanation

Question 7 of 30

1

Which of the following controls would be most successful in mitigating the theft of customer checks received in the mail?

Select one of the following:

  • a. Custody of receipts by the accounts receivable manager.

  • b. Weekly deposits to a secure bank.

  • c. Restrictive endorsements placed on checks as soon as they arrive.

  • d. Reconciliation of bank accounts each month.

Explanation

Question 8 of 30

1

Electronic authorization privileges for cash transactions may be best assigned to individuals based on which of the following?

Select one of the following:

  • a. Roles and activities falling within appropriate segregation of duties.

  • b. Encrypted passwords memorized by employees.

  • c. Identification cards with picture identification.

  • d. The principle of "absolute knowledge."

Explanation

Question 9 of 30

1

Which of the following describes documents that accompany customer payments to help the clerk identify the payments?

Select one of the following:

  • a. Accommodation certificates such as authenticated customer tokens.

  • b. Turnaround documents such as remittance advices.

  • c. Checks stamped with restrictive endorsements such as customer signatures.

  • d. Receipts such as register tapes.

Explanation

Question 10 of 30

1

Which of the following is the primary reason the auditor obtains and reviews a cutoff bank statement?

Select one of the following:

  • a. Foot the cutoff bank statement for completeness.

  • b. Test for intentional lapping of bank transfers.

  • c. Verify the balance of cash per the bank's general ledger at the balance sheet date.

  • d. Verify the reconciling items on the year-end bank reconciliation.

Explanation

Question 11 of 30

1

The auditor will send a standard bank confirmation to which of the following?

Select one of the following:

  • a. Financial institutions for which the client has a balance greater than $0 at the end of the year.

  • b. Financial institutions with which the client has transacted during the year.

  • c. Financial institutions of customers using the lockbox.

  • d. Financial institutions used by significant shareholders.

Explanation

Question 12 of 30

1

The ease with which cash can be stolen is most related to which of the following risks?

Select one of the following:

  • a. Control risk.

  • b. Liquidity risk.

  • c. Inherent risk.

  • d. Detection risk.

Explanation

Question 13 of 30

1

Which of the following best describes a fraudulent scheme to overstate cash assets at year-end by recording deposits in transit in both the account from which the cash is withdrawn and the account to which it is transferred?

Select one of the following:

  • a. Restrictive endorsements of cash.

  • b. Lapping of cash.

  • c. Embezzlement of cash.

  • d. Kiting of cash.

Explanation

Question 14 of 30

1

The emphasis in verifying petty cash is normally on which of the following?

Select one of the following:

  • a. Year-end balance.

  • b. Balance sheet classification.

  • c. Controls over petty cash.

  • d. Transactions for the period.

Explanation

Question 15 of 30

1

When auditing marketable securities, the auditor will do which of the following?

Select one of the following:

  • a. Examine broker's advices evidencing purchase of securities.

  • b. Recompute income.

  • c. Foot schedule.

  • d. Both A and B.

  • e. All of the above.

Explanation

Question 16 of 30

1

The reported fair market value of securities held by the client can be verified by the auditor through which of the following procedures?

Select one of the following:

  • a. Comparing the values to those securities held by the auditing firm.

  • b. Confirming the fair values with the client as of the close of the year.

  • c. Comparing the fair values to credible publications and websites.

  • d. Comparing the fair values with the fair values of similar securities.

Explanation

Question 17 of 30

1

Which of the following items would not normally appear on bank reconciliations?

Select one of the following:

  • a. Outstanding deposits list.

  • b. Balance per bank.

  • c. Balance per books.

  • d. Outstanding checks list.

Explanation

Question 18 of 30

1

Investments in securities are classified as which of the following?

Select one of the following:

  • a. Held-to-maturity.

  • b. Trading securities.

  • c. Available-for-sale securities.

  • d. All of the above.

Explanation

Question 19 of 30

1

Which of the following would not be used as part of analytical procedures for marketable securities?

Select one of the following:

  • a. Review changes in the balances, risk composition, and classification types.

  • b. Verify ending balances prior to calculating the percent change.

  • c. Develop expectations about the level of amounts in ending balances.

  • d. Develop expectations about the relationship between the balances.

Explanation

Question 20 of 30

1

Which assertion related to investments is tested when the auditor examines the documents for any restrictions?

Select one of the following:

  • a. Rights.

  • b. Completeness.

  • c. Valuation.

  • d. Existence.

Explanation

Question 21 of 30

1

Which of the following types of securities is valued at amortized cost, subject to an impairment test?

Select one of the following:

  • a. Available-for-sale securities.

  • b. Trading securities.

  • c. Cash equivalent securities.

  • d. Held-to-maturity securities.

Explanation

Question 22 of 30

1

Which of the following procedures does the auditor typically perform when testing the existence of cash?

Select one of the following:

  • a. Counting cash at the depository institution.

  • b. Inquiry of management.

  • c. Tracing the bank reconciliation to the general ledger.

  • d. Sending a standard bank confirmation.

Explanation

Question 23 of 30

1

When testing cash balances at the balance sheet date, the auditor foots the bank reconciliation and traces its reported book balance to the trial balance and its bank balance to the standard confirmation. Which of the following assertions is being tested with these procedures?

Select one of the following:

  • a. Valuation.

  • b. Rights.

  • c. All of the above.

  • d. Existence.

Explanation

Question 24 of 30

1

Assume that an auditor notes a large series of checks that does not clear the bank for an unusually long time after period end. Which of the following would the auditor likely suspect from this observation?

Select one of the following:

  • a. Cash does not exist.

  • b. Vendors are eager to get their payments.

  • c. The reconciliation is accurate.

  • d. The presence of held checks at period-end.

Explanation

Question 25 of 30

1

Which of the following is not a common test of controls for marketable securities?

Select one of the following:

  • a. Review broker’s advice for accurate recording of security.

  • b. Review the minutes of the board meetings.

  • c. Review reports of internal audits.

  • d. Inquire of management about its process for reclassifications.

Explanation

Question 26 of 30

1

Interbank transfer schedules are used by the auditor to address which of the following concerns?

Select one of the following:

  • a. Lapping.

  • b. Kiting.

  • c. Embezzlement by omitting outstanding checks on reconciliation.

  • d. All of the above.

Explanation

Question 27 of 30

1

The cutoff bank statement is used by the auditor to address which of the following concerns?

Select one of the following:

  • a. Lapping.

  • b. Kiting.

  • c. Omitting outstanding checks on reconciliations.

  • d. All of the above.

Explanation

Question 28 of 30

1

Which of the following is not an internal control the auditor would expect to find in place for all cash processing systems?

Select one of the following:

  • a. Independent reconciliation.

  • b. Restrictive endorsement of checks.

  • c. Prenumbered cash receipt documents.

  • d. Walkthrough.

Explanation

Question 29 of 30

1

Which of the following is a cash management technique frequently used by management?

Select one of the following:

  • a. Cash management agreement with financial institutions.

  • b. Lockboxes.

  • c. Electronic funds transfers.

  • d. All of the above.

Explanation

Question 30 of 30

1

The auditor prepares a schedule for marketable securities. Which of the following is not one of the items in the schedule related to the value of the securities?

Select one of the following:

  • a. Carrying value for debt instruments.

  • b. Interest and dividends.

  • c. Year-end market value.

  • d. Cost.

Explanation

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