Chapter 6: Practice Questions Flashcards
The cash account is involved in which cycle?
Revenue and collection, Acquisition and expenditure, Production and conversion cycles
Which of the following is an appropriate audit program step for the review of canceled checks to ensure that only authorized check signers are actually signing checks?
Examine a representative sample of signed checks and determine that the signatures are authorized in the corporate signature book.
- This procedure would be the most appropriate to ensure that only authorized check signers are signing checks.
When confirming cash through a bank electronically with Confirmation, which of the following is most likely true?
The auditor, client and bank must all register with Confirmation for the electronic confirmation process to be possible.
- In addition to registration with Confirmation, the client must also approve the auditor’s request for confirmation.
When counting cash on hand the auditor must exercise control over all cash and other negotiable assets to prevent:
substitution of stolen funds.
- Simultaneous custody of all liquid assets would prevent employees from replacing stolen money with money that had been counted by the auditor previously.
When a fraud perpetrator embezzles company funds for the purpose of buying gifts for co-workers, the fraudster’s motive is said to be:
economic
An enlightened management team can decrease the probability of fraud in the company best by:
establishing work teams that share responsibilities, performance, and bonuses based on collective efforts.
In order for internal auditors to be able to recognize potential fraud, they must be aware of the basic characteristics of fraud. Which of the following is a characteristic of fraud?
Taking unfair or dishonest advantage of uninformed individuals
Which of the following statements is correct with respect to the elements of the “fraud triangle”?
Fraud it most common when motive, opportunity and rationalization all occur together.
When auditing with “fraud awareness,” auditors should especially notice and follow up employee activities under which of these conditions?
Cash disbursement and bank statement reconciliation responsibilities are restricted to the cashier to improve accountability.
- Restricting these functions to one person increases that person’s ability to commit fraud. Lack of segregation of duties in the cash disbursements area would be a red flag.
Which of the following gives an indication of potential fraudulent activity?
Internal auditor cannot locate several credit memos to support reductions of customers’ balances.
- Missing documentation would be a red flag for the internal auditor.
Which of these arrangements of duties would least likely lead to an embezzlement or theft?
Financial vice president received checks made out to suppliers and the supporting invoices, signed the checks, and put them in the mail to the payees.
- The vice president does not prepare the checks, and there is limited access to assets, thereby preventing an embezzlement or fraud.
