Question 1

An essential part of the auditor's responsibility in auditing cash receipts is to identify deficiencies in internal control that increase the likelihood of fraud.

Accepted Answer

The auditor's responsibility in auditing cash receipts includes identifying deficiencies in internal control that increase the likelihood of fraud. This is because weak internal controls can create opportunities for fraudulent activities such as theft or misappropriation of cash receipts. Therefore, the auditor must assess the effectiveness of internal controls related to cash receipts and identify any weaknesses that increase the risks of fraud.

Question 2

In planning the audit,an auditor takes three basic steps in determining the audit procedures to be performed for any business cycle or class of transactions in order to gather audit evidence concerning possible misstatement due to error or fraud.List those three basic steps below.

Accepted Answer

The answer of In planning the audit,an auditor takes three...

Question 3

The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes off customer accounts that have already been collected.The primary control for preventing this fraud is
A)examining authorized credit memos.
B)examining the uncollectible account authorization form.
C)examining debit memos.
D)examining the vouchers payable register.

Accepted Answer

The primary control for preventing the write-off of already collected customer accounts is the use of an uncollectible account authorization form, which should provide evidence that management has approved the write-off and that the account has been deemed uncollectible. The auditor should examine these forms as part of their audit procedures to ensure that they are being used effectively. Examining authorized credit memos, debit memos, or vouchers payable register are not directly related to preventing the write-off of uncollectible accounts that have already been collected.

Question 4

At the completion of the tests of controls and substantive tests of transactions,auditors must analyze each exception to determine its cause and the implication of the exception on assessed control risk.

Accepted Answer

This statement is true. After completing tests of controls and substantive tests of transactions, auditors need to analyze every exception to determine the reason and impact on assessed control risk.

Question 5

The most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be recorded in the cash receipts journal.

Accepted Answer

This is known as "larceny of cash" and can be difficult for auditors to detect because there is no accounting record of the missing cash. Auditors can still detect larceny of cash through other means, such as comparing receipts to bank deposits and conducting surprise cash counts. However, it is still a challenging form of embezzlement to uncover.

Question 6

When designing tests of controls and substantive tests of transactions for cash receipts,it is important to remember that
A)the test of controls are designed to test for monetary misstatements.
B)auditors use the same methodology for designing tests of controls and substantive tests of transactions for cash receipts as they use for sales.
C)the tests of controls are not dependent on the controls the auditor identifies.
D)the tests of controls is not dependent on whether the company being audited is publicly traded.

Accepted Answer

Auditors use the same methodology for designing tests of controls and substantive tests of transactions for cash receipts as they use for sales, focusing on the effectiveness of controls and the accuracy of transactions.

Question 7

The completeness transaction-related audit objective must be considered when determining key controls for sales.List three of the key controls that must be considered when cash received is recorded in the cash receipts journal.

Accepted Answer

The answer of The completeness transaction-related audit objective must be...

Question 8

You are part of the audit team that is auditing Hillsburg Hardware Co.and you have been assigned to the sales and collection cycle.You are testing whether the cash receipts are deposited and recorded at the amounts received (accuracy objective).List two tests of controls and one test of transactions that you would do to satisfy yourself regarding the accuracy objective.

Accepted Answer

The answer of You are part of the audit team...

Question 9

The most significant effect of the results of the tests of controls and substantive tests of transactions in the sales and collection cycle is on
A)bad debt expense.
B)the analytical tests to be performed.
C)the confirmation of accounts receivable.
D)the impact of processing cash receipts.

Accepted Answer

The confirmation of accounts receivable is significantly affected by the results of tests of controls and substantive tests of transactions in the sales and collection cycle. This is because the accuracy and completeness of accounts receivable balances depend on the proper recording of sales and the timely collection of receivables. The results of these tests provide assurance to auditors whether the recorded balances of accounts receivable are reliable, which is essential for confirming these balances with customers.

Question 10

There should generally be correspondence in the client's file establishing the uncollectibility of their account.

Accepted Answer

It is important to keep documentation in the client's file that shows why their account is considered uncollectible, such as unsuccessful attempts to collect, efforts to locate the client, and any legal actions taken. This documentation can be useful for future reference and protects the agency in case of any legal disputes.

Question 11

Explain what lapping means,and discuss the internal control deficiency that allows it to occur.Also discuss the procedures the auditor can perform to detect lapping.

Accepted Answer

The answer of Explain what lapping means,and discuss the internal...

Question 12

Cash receipts from sales on account have been misappropriated.Which of the following acts would conceal this fraud and be least likely to be detected by an auditor?
A)understating the sales journal by not recording cash sales
B)overstating the accounts receivable control account by intentionally misstating prices charged for goods sold
C)overstating the accounts receivable subsidiary ledger by not recording payments made by customers
D)understating the cash receipts journal by purposely recording incorrect amounts

Accepted Answer

The answer of Cash receipts from sales on account have...

Question 13

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable?
A)Separate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail.
B)Separate duties so that no employee has access to both checks from customers and currency from daily cash receipts.
C)Have a mandatory vacation policy for employees who both handle cash and enter cash receipts into the system.
D)Request that customer's payment checks be made payable to the company and addressed to the treasurer.

Accepted Answer

Option C involves rotating employees who handle cash and cash receipts, preventing any one employee from being in a position to commit fraud for an extended period of time. This offers the best protection against "lapping" by ensuring that different employees are handling cash and entering cash receipts into the system, and also creates an atmosphere of accountability. Options A, B, and D do not directly address the problem of "lapping" and may not necessarily prevent fraud.

Question 14

The estimation of bad debts expense relates to the write-off of uncollectible accounts.

Accepted Answer

The estimation of bad debts expense is an accounting process that involves predicting the amount of accounts receivable that will eventually be uncollectible and recording this as an expense on the income statement. This expense is then used to reduce the value of accounts receivable on the balance sheet, resulting in a more accurate representation of a company's financial position.

Question 15

The most difficult type of cash embezzlement for auditors to detect is when it occurs
A)after the merchandise has been shipped.
B)before the merchandise has been shipped.
C)before the cash is recorded in the cash receipts journal or other cash listing.
D)after the cash is recorded in the cash receipts journal or other cash listing.

Accepted Answer

Embezzlement before the cash is recorded in the cash receipts journal or other cash listing is the most difficult for auditors to detect because there is no record of the transaction having occurred, making it harder to trace or identify discrepancies.

Question 16