Question 1

Which of the following is likely to be detected as part of the audit of the bank reconciliation?
A)Failure to bill a customer
B)Duplicate payment of a vendor invoice
C)Cash received by the client after year end, but included in cash receipts in the current year
D)An embezzlement of cash by intercepting cash receipts from customers before they are recorded

Accepted Answer

Bank reconciliation involves verifying the accuracy of cash records, and detecting cash received after year-end but recorded in the current year is a timing issue that can be identified during this process.

Question 2

All of the following would not be uncovered by a bank reconciliation except for:
A)duplicate payment of a vendor's invoice.
B)improper payments of officers' personal expenditures.
C)payments on notes payable debited directly to the the bank account by the bank but not recorded on the books.
D)payment to an employee for more hours than he worked.

Accepted Answer

A bank reconciliation would uncover payments on notes payable debited directly to the bank account by the bank but not recorded on the books, as it involves comparing the bank statement with the company's records to identify discrepancies.

Question 3

Describe each of the major types of cash accounts maintained by business entities.

Accepted Answer

•General cash account.This is the focal point of cash for most organizations because virtually all cash receipts and disbursements flow through this account.
•Imprest payroll account.As a means of improving internal control, many companies establish a separate imprest bank account for making payroll payments to employees.In such an account, a fixed balance, such as $1,000, is maintained.Immediately before each pay period, one check is drawn on the general cash account to deposit the total amount of the net payroll in the imprest payroll account.
•Branch bank account.For a company operating in multiple locations, it is often desirable to have a separate bank balance at each location.Branch bank accounts are useful for building public relations in local communities and permitting the centralization of operations at the branch level.
•Imprest petty cash fund.This fund is used for small cash acquisitions that can be paid more conveniently and quickly by cash than by check, or for the convenience of employees in cashing personal or payroll checks.
•Cash equivalents.Excess cash accumulated during certain parts of the operating cycle that will be needed in the reasonably near future is often invested in short-term, highly liquid cash equivalents such as time deposits, certificates of deposit, and money market funds.

Question 4

Which of the following is not a "cash equivalent"?
A)Time deposits
B)Certificates of deposit
C)Money market funds
D)Marketable securities

Accepted Answer

Time deposits, certificates of deposit, and money market funds are all considered cash equivalents because they can be easily converted to cash without significant risk of loss in value. Marketable securities, however, are not considered cash equivalents because their value can fluctuate based on market conditions and they may not be as easily convertible to cash.

Question 5

The test of details of balances procedure that requires the auditor to foot the outstanding check list and deposits in transit is an attempt to satisfy which audit objective?
A)Cutoff
B)Presentation and disclosure
C)Detail tie-in
D)Completeness

Accepted Answer

The test of details of balances procedure that requires the auditor to foot the outstanding check list and deposits in transit is a technique to ensure that the amounts recorded in the client's books reconcile to the bank statement. This reconciling procedure is known as detail tie-in and is used to satisfy the audit objective of ensuring that all transactions that should have been recorded have been recorded in the client's financial statements.

Question 6

The general cash account is considered a significant account in almost all audits:
A)where the ending balance is material.
B)even when the ending balance is immaterial.
C)except those of not-for-profit organizations.
D)where either the beginning or ending balance is material.

Accepted Answer

The general cash account is considered a significant account in almost all audits even when the ending balance is immaterial. This is because cash is a highly susceptible account to fraud and misappropriation of assets, and auditors need to ensure that adequate controls are in place and tested to detect any potential irregularities. Therefore, auditors must perform substantive procedures to test the existence, completeness, and accuracy of amounts in the cash account, regardless of the account's materiality.

Question 7

"Failure to bill a customer" is an example of an error that results in the failure to receive cash, but would not be discovered as part of the audit of the bank reconciliation.State three other examples of errors or irregularities that result in the improper payment of, or failure to receive, cash, but that would not be discovered during the audit of the bank reconciliation.How are these types of misstatements normally uncovered in the audit?

Accepted Answer

The answer of "Failure to bill a customer" is an...

Question 8

Companies may purchase marketable securities as a way to temporarily invest excess cash.

Accepted Answer

Marketable securities, such as stocks and bonds, can be easily bought and sold, providing companies with a flexible way to invest their excess cash for a short period of time.

Question 9

Which of the following would normally be discovered as part of the audit of the bank reconciliation?
A)Failure to bill a customer
B)Failure to include a deposit in transit on the bank reconciliation
C)Duplicate payment of a vendor's invoice
D)Payment to an employee for more hours than she worked

Accepted Answer

The bank reconciliation involves comparing the bank statement to the company's records and identifying any differences or discrepancies. One common difference is the presence of deposits in transit, which have been recorded by the company but not yet cleared by the bank. If such deposits are not included on the bank reconciliation, the company's cash balance will be understated. The other answer choices are unrelated to the bank reconciliation and would not typically be discovered through this audit.

Question 10

The test of details of balances procedure that requires the auditor to trace the book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of:
A)detail tie-in.
B)existence.
C)completeness.
D)accuracy.

Accepted Answer

The test of details of balances procedure that requires the auditor to trace the book balance on the reconciliation to the general ledger is aimed at satisfying the audit objective of detail tie-in, which ensures that the balances in the financial statements agree with the underlying accounting records. The other audit objectives, existence, completeness, and accuracy, are not directly addressed by this procedure.

Question 11

Which of the following cycles does not affect cash in bank?
A)Capital acquisitions cycle
B)Inventory and warehousing
C)Payroll and personnel cycle
D)Acquisitions and disbursements

Accepted Answer

The inventory and warehousing cycle primarily involves the management of inventory levels and does not directly involve cash transactions, unlike the other cycles listed.

Question 12

Which of the following statements is correct?
A)Bank personnel are responsible for providing reasonable assurance that a response to a bank confirmation is accurate.
B)Bank personnel are responsible for providing complete assurance that a bank confirmation is complete.
C)Bank personnel are not responsible for searching their records for bank balances or loans beyond those included on the bank confirmation.
D)Bank personnel are not responsible for providing information related to interest on the bank confirmation.

Accepted Answer

Bank personnel are responsible for confirming the accuracy of the information requested on the bank confirmation. However, they are not required to search their records for additional bank balances or loans beyond what is specified in the confirmation request.

Question 13

The audit objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger can be tested by which of the following procedures?
A)Performing tests for kiting
B)Receiving and testing a cutoff bank statement
C)Footing the outstanding checks list and the list of deposits in transit
D)Examining the minutes of the board of directors for restrictions on the use of cash

Accepted Answer

To determine that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger, the auditor should perform the procedure of footing the outstanding checks list and the list of deposits in transit. This will help ensure that all items have been included in the bank reconciliation and that there are no errors or omissions in the amounts recorded on the reconciliation. Tests for kiting and examining the minutes of the board of directors for restrictions on the use of cash are not relevant to this objective. Receiving and testing a cutoff bank statement may be a useful procedure to test the completeness of cash transactions, but it is not directly related to the objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger.

Question 14

A partial-period bank statement and the related canceled checks, duplicate deposit slips, and other documents included in bank statements, mailed by the bank directly to the CPA firm's office, is called:
A)a four-column proof of cash.
B)a year-end bank statement.
C)a cutoff bank statement.
D)a short-period bank statement.

Accepted Answer

A cutoff bank statement is a partial-period bank statement sent directly to the auditor to verify reconciling items and transactions around the period-end.

Question 15

Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation?
A)Duplicate payment of a vendor's invoice
B)Billing a customer at a lower price than indicated by company policy
C)Failure to record a collection of a note receivable by the bank on the client's behalf
D)Payment to an employee for more than the hours actually worked

Accepted Answer

The failure to record a collection of a note receivable by the bank on the client's behalf would be reflected on the bank statement but may not be recorded in the client's books. This misstatement would be identified when reconciling the bank statement with the client's records. The other options may require additional audit procedures or discovery during other audit tests.

Question 16

Which of the following statements is correct?
A)Auditors must obtain bank confirmations for audits of non-public entities.
B)Auditors are required to obtain bank confirmations under international auditing standards.
C)Auditing standards do not address specific requirements regarding bank confirmations.
D)Auditing standards do not require bank confirmations.

Accepted Answer

Auditing standards do not require bank confirmations. While obtaining bank confirmations is a common practice for auditors, it is not specifically required by auditing standards. The decision to obtain bank confirmations is made based on the auditor's professional judgement and the specific circumstances of the audit engagement.

Question 17

An imprest petty cash fund:
A)is a bank account.
B)is used for large, unusual purchases.
C)is usually reimbursed at least once a week for good internal control.
D)is being replaced by pre-approved purchase cards in many companies.

Accepted Answer

The answer of An imprest petty cash fund:
A)is a bank...

Question 18

Bank reconciliation audit tests are designed to detect misstatements other than through the improper payment of cash or failure to receive cash normally would not be detected as part of the tests of the bank reconciliation.List below at least THREE misstatements that are designed to be detected by bank reconciliation.

Accepted Answer

The answer of Bank reconciliation audit tests are designed to...

Question 19

Examples of cash equivalents include time deposits, certificates of deposit, and marketable securities.

Accepted Answer

The answer of Examples of cash equivalents include time deposits,...

Question 20

An imprest petty cash fund would least likely be used to pay for which of the following items?
A)Minor office supplies
B)Monthly interest expense
C)Stamps for small mailings
D)Small contributions to a local charity

Accepted Answer

An imprest petty cash fund is typically used for small, routine expenses such as minor office supplies, stamps for small mailings, and small contributions to a local charity. However, monthly interest expenses are not considered small routine expenses and are usually paid through other means such as electronic transfers or checks.

Quiz 23: Audit of Cash and Financial Instruments

Which of the following is likely to be detected as part of the audit of the bank reconciliation?

All of the following would not be uncovered by a bank reconciliation except for:

Describe each of the major types of cash accounts maintained by business entities.

Which of the following is not a "cash equivalent"?

The test of details of balances procedure that requires the auditor to foot the outstanding check list and deposits in transit is an attempt to satisfy which audit objective?

The general cash account is considered a significant account in almost all audits:

Companies may purchase marketable securities as a way to temporarily invest excess cash.

Which of the following would normally be discovered as part of the audit of the bank reconciliation?

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

Which of the following cycles does not affect cash in bank?

Which of the following statements is correct?

The audit objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger can be tested by which of the following procedures?

A partial-period bank statement and the related canceled checks, duplicate deposit slips, and other documents included in bank statements, mailed by the bank directly to the CPA firm's office, is called:

Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation?

Which of the following statements is correct?

An imprest petty cash fund:

Examples of cash equivalents include time deposits, certificates of deposit, and marketable securities.

An imprest petty cash fund would least likely be used to pay for which of the following items?