Question 1

When the amount in the petty cash account is immaterial, most auditors would choose to test the account for reasons of client expectations.

Accepted Answer

When the amount in the petty cash account is immaterial, most auditors would choose to test the account for reasons of client expectations because it is a common expectation of clients that their auditors will test all of their accounts, regardless of materiality.

Question 2

Tests of the payroll bank reconciliation usually require considerable time if there is an imprest payroll account in use.

Accepted Answer

The answer of Tests of the payroll bank reconciliation usually...

Question 3

A proof of cash disbursements is not effective for discovering checks written for an improper amount, fraudulent checks, or misstatements in which the dollar amount appearing in the cash disbursements records is incorrect.

Accepted Answer

A proof of cash disbursements only verifies that the total amount of checks written and recorded in the disbursements records matches the actual amount of cash disbursed. It does not detect individual errors or fraud in the checks themselves or the amount recorded.

Question 4

Audit tests of the petty cash fund are typically performed on the balance sheet date.

Accepted Answer

Audit tests of the petty cash fund can be performed at any time, not necessarily on the balance sheet date, to ensure accuracy and proper management.

Question 5

Tests for kiting are performed using only a schedule of intrabank transfers.

Accepted Answer

Tests for kiting often involve analyzing a variety of financial documents and activities, not just a schedule of intrabank transfers. This can include reviewing bank statements, ledgers, check registers, and the timing of deposits and withdrawals across different accounts and institutions to identify unusual patterns that suggest kiting.

Question 6

When auditing petty cash, the emphasis should be on testing controls over petty cash transactions rather than the ending balance in the account.

Accepted Answer

The emphasis should be on testing controls such as authorization, documentation, and separation of duties, rather than just verifying the amount of petty cash on hand at the end of the period. This approach helps to identify any weaknesses in the system and prevent fraud or misuse of funds.

Question 7

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

Accepted Answer

The emphasis in verifying petty cash is usually on controls over petty cash, ensuring that there are proper procedures and documentation for disbursements and replenishments, and that the petty cash balance is accurate. While verifying transactions for the period and balance sheet classifications are important, they are not the primary focus of petty cash verification. The year-end balance may be important for financial reporting purposes, but it is not the primary concern for verifying petty cash.

Question 8

A proof of cash helps the auditor determine whether all recorded cash receipts were deposited in the bank and whether all recorded cash disbursements were paid by the bank.

Accepted Answer

A proof of cash is a reconciliation of the beginning and ending cash balances for a given period, which helps the auditor to verify the accuracy and completeness of cash transactions. It is used to detect possible errors or fraud in the cash account and ensures that there are no unrecorded cash receipts or payments. Therefore, it is true that a proof of cash helps the auditor determine whether all recorded cash receipts were deposited in the bank and whether all recorded cash disbursements were paid by the bank.

Question 9

The most important control for petty cash is that two individuals maintain joint custody of the asset.

Accepted Answer

The most important control for petty cash is to have proper documentation and regular reconciliation, not necessarily joint custody.

Question 10

The most important controls for petty cash relate to:

Accepted Answer

The answer of The most important controls for petty cash...

Question 11

A proof of cash receipts is not useful for uncovering the theft of cash receipts or the recording and deposit of an improper amount of cash.

Accepted Answer

The answer of A proof of cash receipts is not...

Question 12

While petty cash is often immaterial in amount, the auditor verifies the account primarily because it is easy to do so.

Accepted Answer

The auditor verifies the petty cash account primarily because it is a part of the entity's cash balance and is susceptible to misappropriation or fraud. The materiality of the amount is not a determining factor in the verification process.

Quiz 23: Audit of Cash Balances