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Audit > Exam 3 Chapter 6 > Flashcards

Exam 3 Chapter 6 Flashcards

1
Q

What are the most relevant assertions related to the Cash account?

A

Existence
Valuation
Presentation and Disclosure

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2
Q

What is the most important assertion related to the Cash account?

A

Existence

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3
Q

What does the Bank Confirmation Process look like?

A

You get the current balance in the bank
Add Deposits in Transit
Subtract Outstanding Checks
Add/Subtract other debit and credit memos
Confirm with the Balance per Books

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4
Q

What are some of the internal controls over cash?

A

Dual Custody (at all times)
Lockbox Arrangement (the cash doesn’t go directly to you)
Fidelity Bond/Binding/Insurance (insurance on malpractice from specific employees)

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5
Q

On the Bank Reconciliation how is an NSF Check treated?

A

Its Subtracted from the balance per the Books

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6
Q

On the Bank Reconciliation how is a Deposit in Transit treated?

A

It is Added to the balance per the Bank

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7
Q

On the Bank Reconciliation how is an Outstanding Check treated?

A

It is Subtracted from the balance per Bank

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8
Q

On the Bank Reconciliation how is a Bank Service Fee treated?

A

It is Subtracted from the balance per Books

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9
Q

What is a cut off bank statement used for?

A

It validates the info from bank reconciliations

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10
Q

What is a schedule of interbank transfers used for?

A

IT is used by auditors to detect check kiting

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11
Q

What is Check Kiting?

A

The deliberate floating of funds between 2 or more bank accounts to make it appear that more cash is present than is actually there

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12
Q

Do most companies pay by check or cash?

A

Check

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13
Q

What are Reconciliations?

A

Checks of what the accounting records say against the actual activity that happened

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14
Q

Does Bonding Insurance prevent cash theft?

A

Not necessarily

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15
Q

Fraud

A

Knowingly making material misrepresentations of fact to have someone believe them and suffer a loss

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16
Q

Management Fraud

A

Intentional deception by management to entice investors and creditors by providing materially misleading information

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17
Q

Employee Fraud

A

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

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18
Q

Embezzlement/Defalcation

A

When employees or nonemployees wrongfully take money or property that is entrusted in their care

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19
Q

Errors

A

Unintentional misstatements or omissions of amounts or disclosures in the financial statements

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20
Q

Direct Effect Illegal Acts

A

Violations of government regulations by the company that produce direct and material effects on the financial statments

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21
Q

Employee Fraud Red Flags (READ)

A

Sleeplessness
Excessive Drinking
Taking Drugs
Becoming Easily Irritable
Lack of Ability to Relax
Easily Defensive and Argumentative
Can’t Look People in the Eye
Excessive Sweating
Increase in going to Confession
Finding Excuses and Scapegoats for Mistakes
Standing Up While Working
Working Alone
Working Late Frequently
Not Taking Vacation

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22
Q

Characteristics of a Fraudster (READ)

A

Education beyond high schoo;l
Likely married
Member of a religious organization
Ranges from teens to over 60 years old
Socially conforming
Employment tenure of 1-20 years
No arrest record
Usually acts alone

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23
Q

4 points of Fraud Diamond

A

Motive
Opportunity
Attitude
Capability

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24
Q

What is the risk if someone has all 4 elements of the Fraud Diamond?

A

They have the highest risk to commit fraud

25
Q

Fraud Motive

A

Pressure a person experiences and believes to be unshareable with friends and confidants

26
Q

Fraud Opportunity

A

Open door for solving the unshareable problem by violating a trust

27
Q

3 aspects that increase Fraud Opportunity

A

Weak Internal Controls
Circumvention of Internal Controls
High position with high trust and exposure to unprotected assets

28
Q

Fraud Attitude

A

When people do things contrary to their personal beliefs, they provide an argument to make the action seem like it is in line with their beliefs

29
Q

Frequent Fraud Rationalizations (READ)

A

I need it more
Im borrowing it and will give it back
Everybody does it
The company is big and wont miss it
Nobody will get hurt
Im underpaid so this is due compensation
I need to maintain a lifestyle and image

30
Q

4 Elements of Fraud Prevention

A

Strong Control Environment
Managing People Pressures
Internal Control Activities (and employee monitoring)
Tone at the Top (and integrity by example and enforcement)

31
Q

5 Reports, Documents, and Data Files used in the Cash Audit

A

Cash Receipts Journal (client records)
Cash Disbursements Journal (client records)
Bank Reconciliations (created by client or auditor)
Canceled Checks (bank records)
Bank Statements (bank records)

32
Q

Cash Receipts Process

A

Receive cash
Prepare a remittance listing
Enter total from remittance listing into cash receipts journal
Prepare deposit slip and deposit cash receipts in bank
Record update to accounts receivable
Reconcile remittance listing, subsidiary accounts receivable, and deposit slip daily

33
Q

What can go wrong with the Existence Assertion for Cash?

A

The cash balance may not exist in the company’s bank accounts

34
Q

What can go wrong with the Valuation Assertion for Cash?

A

The cash balance that is held in foreign countries may not have been translated properly

35
Q

What can go wrong with the Presentation and Disclosure Assertion for Cash?

A

There may be restrictions on the cash balance that were not properly disclosed

36
Q

Why is Cash a primary target for Employee Thieves?

A

It is highly liquid
It is easily transportable
It is not easily identifiable

37
Q

What 2 Internal Control Tests do we do for the Existence Assertion for Cash?

A

Reperformance of Bank Reconciliations
Tracing of reconciling items to supporting documentation

38
Q

What Internal Control Test do we do for the Valuation Assertion for Cash?

A

Inspection of the monthly cash translation adjustment calculation

39
Q

What Internal Control Test do we do for the Presentation and Disclosure Assertion for Cash

A

Reperformance of the work completed by the corporate secretary to ensure that all cash restrictions have been properly disclosed

40
Q

3 Information Processing Control Activities for Cash

A

Matching Voucher packets to cash disbursments
Reconciling Deposits to amounts credited to AR
Bank Reconciliations

41
Q

Physical Control Activities for Cash (READ)

A

Deposit cash and checks daily
Lock Box Accounts
EDI Transactions
Dual Custody
Secure place for Unused Checks
Check Imprinting Machine

42
Q

Segregation of Duties Control Activity for Cash

A

Separate custody, authorization, recording, and reconciliation of cash

43
Q

How do we test the Internal Control of Cash receipts being deposited daily?

A

Observe 2 employees opening mail
Compare listing of all checks to total deposit
Check that deposit was recorded in proper period

44
Q

How do we test the Internal Control of Cash deposits being reconciled with totals posted to the accounts receivable?

A

Collect a sample of daily postings to the accounts receivable and trace the amount to the cash ledger

45
Q

How do we test the Internal Control for Cash of signatures on checks?

A

We Sample recorded cash disbursements from the cash disbursement journal
Then Inspect supporting documentation
And then Compare the date on the check with the date recorded in the disbursements journal

46
Q

How do we test the Internal Control of checks being prenumbered and accounted for?

A

We scan the checks sequence and look for gaps and duplicate numbers

47
Q

How do we test the Internal Control of Bank Reconciliations being prepared on a timely basis?

A

We review bank reconciliations to ensure that they were prepared on a timely basis

48
Q

What 2 Substantive Tests of Cash prove the Existence Assertion

A

Testing the bank reconciliation details
Confirming the bank balance

49
Q

What Substantive Tests of Cash prove the Valuation Assertion?

A

Tracing each foreign currency spot rate to a 3rd party pricing service

50
Q

What Substantive Tests of Cash prove the Presentation and Disclosure Assertion?

A

Examining the legal agreements with the bank
Determining whether client has properly disclosed any legal restrictions in the footnotes

51
Q

Audit Evidence used to Test Cash?

A

Cash Receipts Journal
Cash Disbursements Journal
Bank Reconciliations (year end and cutoff bank statements)
Bank Confirmations
Schedule of Interbank Transfers

52
Q

What is an Electronic Confirmation Requests

A

They are completions of confirmation requests electronically through a 3rd party

53
Q

What do Electronic Confirmation Requests do?

A

Improve control of delivery and receipt of the request
Confirm deposit and loan balances
Can request info about contingent liabilities and secured transactions

54
Q

How must Standard Bank Confirmation Inquiries by mailed?

A

Under the auditor’s own control

55
Q

What is Check Kiting also known as?

A

Playing the Float

56
Q

When are Proofs of Cash used?

A

When the controls over cash are weak

57
Q

What do Proofs of Cash do?

A

Reconcile all transactions that occurred in the period to clients cash receipts and disbursement journals

58
Q

Other Extended Procedures for Detecting Fraud Involving Cash (READ)

A

Count and recount petty cash on the same day
Examine endorsements on cacnelled checks
Retrieve customers checks
Use marked coins and currency
Analyze the mix of cash and checks in deposits
Measure deposit lag time
Document examination
Inquiry
Covert surveillance
Horizontal and Vertical Analyses
Net Worth Analysis
Expenditure Analysis
Reasonableness Tests

Audit (8 decks)

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