Employee Fraud/Cash Audit Flashcards
Understanding the client, its environment, and inherent risks is the (blank) step in the audit of cash
first
Obtaining an understanding of internal control over cash is the (blank) step in the audit of cash
second
Assessing the risk of material misstatement and designing further audit procedures/test of controls is the (blank) step in the audit of cash
third
Performing further audit procedures (tests of controls) is the (blank) step in the audit of cash
fourth
Performing further audit procedures, substantive procedures for cash transactions and balances, is the (blank) step in the audit of cash
fifth
Client’s bank reconciliations can be tested via
reperformance
To ensure transactions are processed in the correct period, it is important to verify (blank) for cash receipts and cash disbursements
cutoff
Confirmations need to be mailed under the control of the
auditor
Auditors are often concerned with the (blank) of cash, as this is where most misstatements occur
overstatement
cutoff bank statements are used to receive information of bank activity (blank) the period being audited.
after
Substantive procedure of obtaining analyses of cash balances and reconciling them to the GL tests which two assertions
Existence and accuracy
Substantive procedures of counting cash on hand and confirming balances with financial institutions test which 5 assertions
Existence, occurrence, accuracy, cutoff, and rights
Substantive procedures of verifying client’s cutoff of cash transactions and analyzing bank transfer occurring at year end test which 5 assertions
cutoff, existence, occurrence, rights, completeness
Substantive procedure of investigating payments to related parties tests which assertion
presentation and disclosure
In cash analyses, once auditors have performed procedures on confirmations and reconciliations, it is important to
reconcile the balance to the GL
The auditor needs to (blank) cutoff to ensure proper classification
verify
(Blank) involves misstatement using transfers between accounts
Kiting
Analyzing bank transfers at the end of the period being audited and the beginning of the next period helps detect
kiting
What 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.
The cash account is involved in which cycles?
Revenue and collection, acquisition and expenditure, AND production and conversion
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.
When confirming cash through a bank electronically with Confirmation, what must the auditor, client, and bank do to make it possible?
Register with Confirmation for the electric confirmation
In an internal audit report the auditor must communicate the audit findings to management. To effectively communicate audit findings, the internal auditor must include in the report:
Condition that was identified, criteria that renders the condition inappropriate, the cause of the condition
For each relevant assertion identified by the auditor, professional standards require auditors to first gain an understanding of the (blank blank) that have been designed to mitigate the risk of material misstatement
internal controls
Detection risk is set based on the level of (blank blank) and risk of material misstatement
audit risk
A method to discover unrecorded transactions is a four-column bank reconciliation which is called
proof of cash
The auditor selects examples of a transaction and traces them from initial receipt to the recording in the accounting records when performing a(n)
walkthrough
the primary document used to test the cash balance in the F/S, also provides an opportunity for management to monitor separation of duties for cash receipts/disbursements
Bank reconciliation
When a material misstatement is not prevented or detected by the client’s internal controls or auditors’ substantive procedures, (blank) has been manifested
audit risk
In many situations an employee initially receives cash and thus has custody. Because this cannot be avoided, good control dictates that (these two things)
- remittance advices should be sent to the controller’s office for recording
- cash should be deposited daily and intact
Substantive procedures over cash are (always/sometimes/ never) performed, regardless of risk.
always
Tests of controls over cash often support a (blank) in control risk.
reduction
Employees are provided an opportunity to furnish information about possible misdeeds when (blank blank) questioning is used.
fraud audit
Specific applications of the attribute and performance standards to specific types of engagements are addressed in the IIA (blank) standards
implementation
Yellow Book standards are used to guide the audits of which agencies
state, federal, and local gov’t agencies and units
Conducting internal audit activities, as well as a measure of quality is found in the IIA (blank) standards
performance
the 5 basic activities in the revenue and collection cycle
- receiving and processing orders (incl. credit granting).
- delivering goods/services to customers
- billing customers and accounting for A/R
- collecting and depositing cash received
- reconciling bank stmts
the cash receipts journal contains detailed entries for all receipts by entity, that should be recorded to which two accounts:
debit - cash
credit - A/R
Entries in the cash receipt or disbursement journal that may signal errors or manipulations are
adjusting and correcting entries from the bank reconciliation
the cash disbursement journal entries are usually inspected for what suspect entries
checks made out to cash or bearer, electronic payments to unauthorized vendors
A timely preparation of the (blank blank) is an important element of a company’s internal control over cash
bank reconciliation
Internal controls such as dual signatures for large expenditures can be verified via review of
cancelled checks
the risk that auditors will issue an unmodified opinion on F/S that contain a material misstatement is
audit risk
what are the three primary relevant assertions of the cash account
existence
valuation
presentation and disclosure
what could go wrong regarding the cash account and existence assertion?
cash balance may not exist in the company’s bank account
what could go wrong regarding the cash account and valuation assertion?
cash balance held in foreign country not translated properly
what could go wrong regarding the cash account and presentation and disclosure assertion?
restrictions on cash balance not properly disclosed
when evaluating the design of internal controls related to cash, an auditor must also consider
whether controls have been designed to mitigate employee fraud
Tracing reconciling items to appropriate supporting documentation tests this assertion and internal control
existence, the CFO regularly reviews bank reconciliations
inspecting the monthly cash translation adjustment calculation for evidence tests this assertion and internal control
valuation, the treasurer reviews the cash translation adjustment calculation and independently checks spot rates
reperforming the work completed by the corporate secretary to ensure cash restrictions have been disclosed tests this assertion and internal control
presentation and disclosure, corporate secretary reviews cash footnote disclosures regularly
if controls are not in place or personnel are not performing their control activities effectively, auditors must (blank blank blank) to detect whether control failures have produced material misstatements in F/S
design substantive procedures
what are the two phases of control risk assessment
- obtain understanding of company’s controls
- obtain evidence from actual tests of controls
who should prepare the bank account reconciliations
employee outside normal cash operations (recording and custody)
what are two ways an auditor can obtain understanding of cash controls
internal control questionnaire or walkthrough
what tests can be performed for the internal controls over cash deposits
observe opening of the mail: 1. ensure two employees open the mail, remittance advice is received, checks are endorsed
2. compare listing of checks to total deposit ticket and # of checks
3. ensure total amount on bank stmt was recorded in proper period
what test of control can be performed to ensure deposits are reconciled and posted to A/R
sample daily postings to A/R sub ledger, trace the amount to the amount of cash sub ledger
Name 5 categories of key controls over cash receipts/disbursements
- Information Processing (voucher packet, bank reconciliation, deposits reconciled to A/R)
- physical controls over security of assets
- segregation of duties
- performance reviews
- reconciliations
