Chapter 6 - Fraud and the Audit of Cash

Question 1

fraud is…

Answer 1

the act of knowingly making MMs of the intent of fooling someone else

Question 2

employee fraud is…

Answer 2

the use of fraudulent means to take money or other property from an employer

Question 3

three stages of employee fraud

Answer 3

1. the fraudulent act
2. the conversion
3. the coverup

Question 4

embezzlement is..

Answer 4

the act of employees or non employees wrongfully taking money or other property that they were entrusted to

Question 5

three parts of the fraud triangle

Answer 5

1. rationalization
2. opportunity
3. motivation

Question 6

economic motive

Answer 6

actual or perceived need for money

Question 7

psychotic motive

Answer 7

“habitual crime” stealing for the sake of stealing

Question 8

egocentric motive

Answer 8

committing crime for personal prestige

Question 9

ideological motive

Answer 9

cause is material superior justified in making others victims

Question 10

three possible opportunities

Answer 10

1. weak ICs
2. circumvention of ICs
3. the greater the position, the greater the trust and exposure to unprotected assets

Question 11

a strong control environment is started by the…

Answer 11

tone at the top

Question 12

being aware of exceptions means being…

Answer 12

skeptical and following up

Question 13

reports, data, and files used to audit the cash account

Answer 13

1. cash recipes journal
2. cash disbursements journal
3. bank reconciliations
4. canceled checks
5. bank statements

Question 14

when do you prepare remittance listing?

Answer 14

after receiving cash and remittance advice in the mail

Question 15

what do you enter in cash receipts journal when receiving a payment?

Answer 15

total form remittance listing

Question 16

record update to susidary amounts using…

Answer 16

remittance advice

Question 17

reconcile _______ daily

Answer 17

remittance listing, subsidiary AR, and deposit slip

Question 18

significant relevant assertions of cash

Answer 18

1. existence
2. valuation
3. presentation and disclosure

Question 19

cash is….

Answer 19

highly liquid, easily transportable, and not easily identifiable

Question 20

the more liquid, the ____ for fraud

Answer 20

easier

Question 21

three examples of strong ICs for cash

Answer 21

1. dual custody for cash at all times
2. lockbox arrangement
3. fidelity bonds

Question 22

voucher packets are matched to…

Answer 22

prior year cash disbursement authorization

Question 23

deposits are reconciled to…

Answer 23

amounts credited to AR ledger

Question 24

(IC) cash receipts are deposited intact and daily, what are the tests of control?

Answer 24

Observe the opening of mail

Question 25

(IC) deposits are recognized with totals posted to the AR

Answer 25

for a sample of daily postings to the accounts receivable subsidiary, trace the amount to the amount of cash subsidiary ledger

Question 26

two cash receipts test of controls

Answer 26

1. cash receipts are deposited intact and daily
2. deposits are reconciled with totals posted to the AR

Question 27

three test of controls over cash disbursements

Answer 27

1. checks are not printed until vouched packets are prepared; employee compares amounts of packets to printed checks
2. checks are prenumbered and accounted for
3. bank reconciliations are prepared on a timely basis

Question 28

checks should be _____ and _____

Answer 28

prenaumbered and accounted for

Question 29

checks are not printed until…

Answer 29

you receive the voucher packet

Question 30

the amounts on the printed checks should be compared to…

Answer 30

voucher packets

Question 31

YE bank statement is in what month?

Answer 31

month of year end (December)

Question 32

cutoff bank statements are in what month?

Answer 32

month after YE (January)

Question 33

book balance =

Answer 33

bank balance + deposits in transit - outstanding checks

Question 34

in auditing balance per bank, you confirm…

Answer 34

standard bank confirmation with the bank

Question 35

in auditing balance per bank, you agree amount to…

Answer 35

cutoff bank statement

Question 36

when adding deposits in transit, trace to…

Answer 36

cash receipts journal

Question 37

when adding deposits in transit, vouch to..

Answer 37

cutoff bank statement

Question 38

when subtracting outstanding checks, we vouch to…

Answer 38

cash disbursements journal

Question 39

when subtracting outstanding checks, we trace…

Answer 39

checks cleared from cutoff bank statement

Question 40

in balance per books, we foot…

Answer 40

the entire reconciliation for mathematical history

Question 41

in balance per books, we trace…

Answer 41

the amount to the trial balance

Question 42

creating a “tight” control system may be an issue because…

Answer 42

it is a short term solution to a large problem

Question 43

business activity is based on…

Answer 43

trust that all employees will do their jobs properly

Question 44

often an indication of fruad is identifying a…

Answer 44

control violation