Deck 12: Audit of Cash and Other Liquid Assets

Question 1

The ending price of securities can be verified through reliable publications and websites such as the Australian Securities Exchange.

Answer 1

True

Question 2

To its detriment, the AASB has largely ignored the treatment of derivative instruments.

Answer 2

False

Question 3

Pentfolds Ltd has two bank accounts. In the table below, which of the transfers listed would indicate possible kiting between Bank A and Bank B?
$\begin{array}{llccc} & {\underline{\text { Bank A Deposits }}} & {\underline{\text { Bank B Transfers }}} \\& \text { Per books } \quad \quad\quad \text { Per bank } & \text { Per books }\quad \quad \text { Per bank } \\\end{array}$
$\begin{array}{llccc} \text { a. } & 12-29-01 \quad 01-02-02 & 01-02-02 \quad 01-03-02 \\\end{array}$
$\begin{array}{llccc} \text { b. } & 12-30-01 \quad 01-03-02 & 12-31-01 \quad 01-02-02 \\\end{array}$
$\begin{array}{llccc} \text { c. } & 01-04-02 \quad 01-02-02 & 01-02-02 \quad 01-04-02 \\\end{array}$
$\begin{array}{llccc} \text { d. } & 12-31-01 \quad 12-31-02 & 12-30-01 \quad01-03-02 \end{array}$

Answer 3

A

Question 4

When auditing marketable securities, the auditor will:

A) examine broker's advices evidencing purchase of securities
B) recompute income
C) write down securities to net realisable value
D) examine the brokers advices evidencing purchase of securities and recompute income

Question 5

Short-term investments include marketable equity securities such as ordinary shares and corporate debentures which should be accounted for at:

A) net realisable value
B) market value
C) cost
D) amortised value

Question 6

During the audit of Gibson Mines Ltd, the auditor notes a large series of cheques that does not clear for an unusually long time after the period end. What may the auditor suspect from this observation?

A) vendors are eager to get their payments
B) the reconciliation is accurate
C) cash does not exist
D) the presence of held-cheques at period-end

Question 7

Financial instruments that are created to take advantage of interest differences between short and long term securities are referred to as:

A) junk bonds
B) derivatives
C) event-risk protected debt
D) mortgages

Question 8

The standard bank confirmation is used by the auditor to gather information:

A) on the client's deposit balances
B) on the existence and details of loans
C) on accruals
D) on the client's deposit balances and the existence and details of loans