Chapter 12: Audit of Cash and Other Liquid Assets Chapter 12: Audit of Cash and Other Liquid Assets Student: ___________________________________________________________________________ 1. An imprest payroll account should never reach a zero balance. True False 2. When the year-end cash balance is immaterial, the audit of the cash account is unnecessary. True False 3. Cash flow is often managed by organizations through the use of lockboxes and outsourced cash management arrangements with banks. True False 4. The risk of the company issuing checks near year-end and mailing them subsequently is not important to the auditor as the action does not affect cash balances. True False 5. The auditor places more emphasis on the audit of the cash account because of the account's susceptibility to fraud. True False 6. Working capital may be tied to certain debt covenants causing cash to be considered material for audit purposes. True False 7. Cash is no longer considered highly susceptible to theft because of the advent of computers, safes and armored cars. True False
8. A lockbox is a mailbox type of depository device that is located in front of the client's premises, allowing customers to remit payment in a timely manner. True False 9. An analysis of the client's internal control over cash and marketable securities should take place during the performance of the substantive tests on these accounts. True False 10. The deposit of cash directly at the bank to speed collections often involves the use of a lockbox. True False 11. To ensure that all customer remittances received by the bank are posted when a lockbox is being used, control procedures should require that all remittance advices be sent by the bank to the client. True False 12. The auditor is responsible for auditing the necessary disclosures when material lines of credit and compensating balance arrangements have been made by the client with a lender. True False 13. Electronic Funds Transfers have controls built into the process and do not require further reconciliation by the client. True False 14. Strong internal control over the cash account requires that the same person who is responsible for making the bank deposit also prepare the bank reconciliation since that person is most experienced with the transactions. True False 15. Customer checks received at the client company should be restrictively endorsed within one week of receipt in the mail. True False
16. A turnaround document is an effective control because it lists useful information for further processing of the collection on account. True False 17. A possible intentional overstatement of cash may be covered up by omitting large balance-outstanding checks from the bank reconciliation. True False
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