ACC 260 - Audit Exam 2 Flashcards
Auditors should count small petty cash funds at year end to make sure that balance is not understated on the financial statements
False
Control over the receipt of cash sales is best achieved when two or more employees participate in each transaction.
True
Mail room personnel of a company should prepare a control listing of incoming cash receipts and deposit them intact daily
False
Signed checks should be returned to the cash disbursements clerk for mailing
False
Lapping of accounts receivable by an employee is not possible when there is adequate segregation of duties with respect to cash disbursements
False
Confirmations for cash balances should be mailed only to the financial institutions with which the client has a cash balance at year end
False
A proof of cash is an audit procedure that is performed on almost every engagement
False
A compensating balance agreement generally requires that cash be reclassified as a non-current asset
False
Verification of cash and other liquid assets be verified on the same date may prevent substitution of one form of asset for another
True
For investments in securities accounted for by the equity method, the auditors are primarily concerned with verifying the market value of the investments
False
By preparing a four-column bank reconciliation at year end an auditor will generally be able to detect
An unrecorded deposit made at the bank at the end of the month
Kiting would least likely be detected by
Comparing customer remittance advices with recorded disbursements in the cash disbursements journal
Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation?
Receive a cutoff statement directly from the clients bank
An auditor may obtain information on the December 31 month end balance per bank in which of the following?
Standard confirmation form and January 1-10 cutoff statement
An auditor may obtain information on the December 31 month end balance per bank in which of the following
December 31 bank statement yes / schedule of bank transfer no
A practical and effective audit procedure for the detection of lapping is:
Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank
What is not a control that generally is established over cash transactions
Obtaining a receipt for every disbursement
What is lapping?
Using subsequent payments to cover accounts where payments were previously stolen
What is kiting?
Manipulations that utilize temporarily overstated bank balances to conceal cash shortage or meet short term cash needs
Internal control over marketable securities is enhanced when?
Securities are held under joint control of two or more officials
The auditors’ count of the clients cash should be coordinated to coincide with the?
Count of investment securities
The auditors should insist that a representative of the client be present during the physical examination of securities in order to?
Acknowledge the receipt of securities returned
Control over cash is strongest when how many people are involved
Two
Control over cash is strongest when how many people are involved
Two
Picking a sample and matching it shipping documents is a test of?
Existence
Picking a sample and matching it shipping documents is a test of?
Existence
Picking a sample of sales orders and testing to see if they are properly recorded is a test of?
Completeness
Picking a sample of sales orders and testing to see if they are properly recorded is a test of?
Completeness
Who should maintain perpetual record of finished goods?
Storekeeper
Who should maintain perpetual record of finished goods?
Storekeeper
Testing the numerical sequence of shipping documents is a test of?
Completeness
Testing the numerical sequence of shipping documents is a test of?
Completeness
Who should approve the write off of receivables?
Treasurer
Who should approve the write off of receivables?
Treasurer
Is it a good control to have the signing officer have cash handling duties?
No
Is it a good control to have the signing officer have cash handling duties?
No
Taking sales invoices and matching them to shipping documents is a test of?
Existence
Taking sales invoices and matching them to shipping documents is a test of?
Existence
What is positive confirmation?
Asks the customer to respond if the balance is correct or incorrect
What is positive confirmation?
Asks the customer to respond if the balance is correct or incorrect
Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for
Investigation of variances within a formal budgeting system.
What is negative confirmation?
Asks the customer to respond only if the balance is incorrect
When would you use a positive confirmation?
When the balance is larger
When would you use a positive confirmation?
When the balance is larger
When would you use a negative confirmation?
When inherent and control risk are low
When would you use a negative confirmation?
When inherent and control risk are low
An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly?
Existence
An inventory turnover analysis is useful to the auditor because it may detect:
The existence of obsolete merchandise
A major control procedure related to plant and equipment is a budget for depreciation.
FALSE
Which of the following is used to obtain evidence that the client’s equipment accounts are not understated?
Analyzing repairs and maintenance expense accounts.
For which of the following ledger accounts would the auditor be most likely to analyze the details to identify understatements of equipment acquisitions?
Repairs and expense maintenance
Which of the following is the most important control procedure over acquisitions of property, plant, and equipment?
Using a budget to forecast and control acquisitions and retirements.
Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for
Investigation of variances within a formal budgeting system.
In testing for unrecorded retirements of equipment, an auditor might.
Select items of equipment from the accounting records and then attempt to locate them during the plant tour.
CPAs use negative accounts receivable confirmations more frequently than positive accounts receivable confirmations.
False
Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Of the following, which combination is it most likely that the auditors will use?
The positive form used for large balances and the negative form for the small balances.
