Question 1

Serena is the assistant controller of Opus Inc. As a result of a recent expansion, the controller has been very busy and delegated the signing authority for cheques to Serena. Further, due to the cash accountant leaving on maternity leave, Serena was asked to perform the bank reconciliation until they found someone to replace the cash accountant.
Serena is a qualified accountant and has been able to handle all of these additional tasks. However, she asked her boss for a raise to compensate her for the additional responsibilities that she currently has. Her boss indicated that this was only temporary and the company could not afford a raise for now.
Serena created a vendor in the system with her home address. She has been paying this vendor $2000 for the past 3 months as a means of compensating herself. This theft has yet to be discovered by Opus.
Required:
A) What internal controls are missing that enable the theft to occur?
B) What audit procedures might detect the theft?

Accepted Answer

The answer of Serena is the assistant controller of Opus...

Question 2

During his examination of a January 19, 2015 cutoff bank statement, an auditor noticed that the majority of cheques listed as outstanding at December 31, 2014 had not cleared the bank. This would indicate

Accepted Answer

The answer of During his examination of a January 19,...

Question 3

Bank reconciliations are normally verified on a 100-percent basis. Testing the reasonableness of the cash balance is therefore

Accepted Answer

Bank reconciliations are typically verified in their entirety during an audit, ensuring that the cash balance reported by the company matches the balance reported by the bank. This comprehensive verification process reduces the need for additional testing on the reasonableness of the cash balance, making it less important than for most other audit areas where such a direct and complete verification method is not possible.

Question 4

The test of balances procedure that requires the auditor to trace the unadjusted book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of

Accepted Answer

The answer of The test of balances procedure that requires...

Question 5

If the auditor does not obtain a cutoff statement directly from the bank for testing, an alternative procedure that the auditor can use is to

Accepted Answer

The answer of If the auditor does not obtain a...

Question 6

The audit procedure that requires the auditor to record the last cheque number used on the last day of the year and subsequently trace to the outstanding cheques and the cash disbursements journal is performed to satisfy the audit objective of

Accepted Answer

The answer of The audit procedure that requires the auditor...

Question 7

An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily in order to

Accepted Answer

A cutoff bank statement is used to verify reconciling items on the client's bank reconciliation. It provides auditors with information on checks and deposits that have been recorded by the client but have not yet cleared the bank. This statement allows auditors to verify the accuracy of the client's bank reconciliation and ensure that all transactions have been properly recorded in the financial statements.

Question 8

The auditor has determined exchange rates used by the client to present cash in foreign currencies and has recalculated the amounts. Which audit assertion is associated with this audit procedure?

Accepted Answer

The audit procedure of recalculating cash balances in foreign currencies is primarily associated with the valuation assertion, which ensures that the amounts are recorded at appropriate values in the financial statements. It may also indirectly support the existence assertion by providing evidence that the cash balances are not overstated or understated due to errors or fraud. Allocation and classification assertions are less relevant in this context.

Question 9

The starting point for the verification of the balance in the general bank account is to obtain

Accepted Answer

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

Question 10

What is the best way to prevent potential alteration, deletion, or addition of cancelled cheques, duplicate deposit slips, or other documents provided with the bank statement?

Accepted Answer

Having the bank statements be provided unopened to an independent reconciler ensures that there is no opportunity for someone to alter, delete or add any documents before they are reconciled. This independent reconciler should not have access to any other accounting or financial functions in the organization to ensure segregation of duties.

Question 11

A) Distinguish between i) risks of error, ii) risks of fraud, and iii) risks of inadequate presentation or disclosure of financial information.
B) For each of the three types of risks described in
A) provide three examples of major risks of error or fraud in the cash cycle.

Accepted Answer

The answer of A) Distinguish between i) risks of error,...

Question 12

In an effort to satisfy the completeness objective, the auditor could perform which of the following test of details of balance procedures?

Accepted Answer

The answer of In an effort to satisfy the completeness...

Question 13

After testing the bank reconciliation and inspecting the cutoff bank statement received from the bank, the auditor has determined that there are two outstanding cheques from the list on the bank reconciliation that have still not cleared the bank. The auditor's next step should be to

Accepted Answer

The next step for the auditor should be to trace the details of the two outstanding cheques to the cash disbursements journal. This will help to determine if the cheques were properly recorded and entered into the accounting system. By doing so, the auditor can ensure that the financial statements are accurate and complete. B and D are not necessary at this point since the issue is related to the recording of cheques in the cash disbursements journal and not expenses. Additionally, reperforming the calculations in the bank reconciliation (C) will not solve the issue of the outstanding cheques.

Question 14

A) Discuss the methodology for designing tests of details of balances for cash in the bank.
B) An effective monthly bank reconciliation by client personnel includes nine procedures. List these nine bank reconciliation procedures.
C) Discuss two analytical procedures commonly performed during the audit of the cash account.

Accepted Answer

The answer of A) Discuss the methodology for designing tests...

Question 15

After the bank confirmation has been received by the auditor, the auditor should

Accepted Answer

The answer of After the bank confirmation has been received...

Question 16

When examining the bank reconciliation for the imprest payroll account, it is normal for the only reconciling item to be

Accepted Answer

Outstanding cheques are a common reconciling item in the bank reconciliation for an imprest payroll account because they represent checks issued but not yet cleared by the bank.

Question 17

Which of the following situations would indicate a susceptibility to fraud that pertains to theft of cash?

Accepted Answer

Lack of segregation of duties between the handling of cash and the recording of cash creates an environment where an individual could potentially steal cash and manipulate the records to cover up the theft. The other options do not directly relate to the susceptibility of fraud pertaining to theft of cash.

Question 18

The reason for testing the client's bank reconciliation is to verify whether the client's recorded bank balance is the same amount as the actual cash in the bank, except for deposits in transit, cheques outstanding, and other reconciling items. The information needed to complete the tests of the reconciliation are provided by the

Accepted Answer

The cutoff bank statement provides the auditor with the information needed to verify the client's bank reconciliation. The other answer choices may provide some relevant information for the audit but are not specifically related to testing the client's bank reconciliation.

Question 19

A partial-period bank statement and the related cancelled cheques, duplicate deposit slips, and other documents included in bank statements, mailed by the bank directly to the public accounting firm's office, is called a

Accepted Answer

A cutoff bank statement is a partial-period bank statement that includes cancelled cheques, duplicate deposit slips, and other documents that are mailed by the bank directly to the public accounting firm's office. This type of statement is commonly used for audit purposes to verify the accuracy of a client's cash account at the end of the accounting period. A four-column proof of cash is a reconciliation of a client's bank statement and cash account that is prepared by the auditor, and a short-period bank statement is a statement that covers a period of less than a month.

Question 20

Which of the following is a common analytical procedure that may detect misstatements in cash?

Accepted Answer

Comparing outstanding cheques and deposits in transit with the prior year bank reconciliation can identify any discrepancies that might indicate a misstatement in cash. The other options listed are not specifically related to detecting misstatements in cash.

Quiz 17: Audit of Cash Balances