Exam 3

Question 1

Cash includes

Answer 1

currency	
on	hand
,	currency	in	
bank	accounts,	
savings
accounts,	
time
deposits	and	
certificates	of	
deposit.

Question 2

•

Cash equivalents

Answer 2

are frequently combined with cash for

presentation in the financial statements

Question 3

Short‐term, highly liquid investments that are readily
convertible to cash or so near maturity that there is little ri
sk
of change in their value

Answer 3

treasury bills and money market funds

Question 4

General

Answer 4

Operating

Question 5

Imprest

Answer 5

Typically used for specific disbursements (i.e. Payroll)

Question 6

•

Sweep

Answer 6

Typically used for cash receipts

Question 7

Common cash controls

Answer 7

Bank	reconciliations
•
Sweep	accounts
•
Segregation	of	duties
•
Disbursement	requirements

Question 8

This limited applicability of substantive analytical procedures is normally offset by

Answer 8

(1)
tests of controls and/or substantive tests of transactions for cash receipts and
disbursements or (2)
tests of the entity’s bank reconciliations.

Question 9

Because	of	the	residual	nature	of	
the	cash	account,	it	does	not	
always	have	a	direct	relationship	
with	other	f/s	accounts.	The	
auditor’s	use	of	substantive	
analytical	procedures	for	auditing	
cash	is	limited	to	.	.	.

Answer 9

comparisons with
prior years’ cash
balances

comparisons with
budgeted amounts

Question 10

Existence

Answer 10

do	cash	balances	represented	in	the	
general	ledger	exist?		Auditors	obtain	comfort	
through	
confirming
cash	accounts.

Question 11

Cutoff

Answer 11

are all transactions represented in the
appropriate accounting period? Auditors obtain
comfort through testing the
reconciliation

Question 12

Rights and obligations

Answer 12

are	there	any	restrictions,
obligations,	etc.	related	to	cash	balances.	Auditors	
obtain	comfort	through	
confirmations
,	and	
inquiries	of	management.

Question 13

To audit a cash
account, the auditor
should obtain these
items

Answer 13

Copy of Bank
Reconciliation

Standard Bank
Confirmation

Cutoff Bank
Statement

Question 14

Disclosure Issues for Cash

and Cash Equivalents

Answer 14

Accounting policy for defining cash and cash
equivalents.
•
Any restrictions on cash such as sinking fund
requirements, obligations to maintain compensating
balances, or funds designated for specific purposes.
•
Letters of credit

Question 15

Marketable securities

Answer 15

need to be properly classified as

held‐to‐maturity, trading, and available‐for‐sale.

Question 16

Held‐to‐maturity securities and individual available‐

for‐sale securities

Answer 16

should be classified as current or
non‐current assets based on whether management
expects to convert them to cash within 12 months.

Question 17

All trading securities

Answer 17

should be classified as current

assets.

Question 18

Investments measured at fair value are

Answer 18

disclosed

according to the fair value hierarchy

Question 19

Auditing Standards state that the auditor should
perform one of the following procedures when
gathering evidence for existence:

Answer 19

•
Physical examination
•
Confirmation with the issuer, custodian, or broker
•
Reading executed partnership or similar agreements

Question 20

The auditor must also determine if there has been any
“other than temporary impairments” in the value of an
investment security. Indicators of non‐temporary
impairment:

Answer 20

Fair value is significantly below cost
• Management does not possess both the intent and ability to hold
the
investment long enough to allow for any recovery in fair value
• The decline in fair value has existed for an extended period

Question 21

Non‐temporary impairment =

Answer 21

Write down to new

carrying amount

Question 22

•

Level 1

Answer 22

Valuations based on
quoted
prices in
active markets for identical assets.

Question 23

Level 2

Answer 23

Valuations based on directly or indirectly
observable market data for
similar
assets.

Question 24

•

Level 3

Answer 24

Valuations based on management’s best
judgment
and involve management’s
assumptions.

Question 25

Fair Value Measurements

Audit steps:

Answer 25

Obtain	an	understanding	of	how	management	
makes	the	fair	value	measurements.
•
Consider	whether	specialized	skills	or	
knowledge	are	required.
•
Evaluate	the	reasonableness	of	the	fair	value	
measurements.