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Chapter 16 - Auditing the Financing/Investing Process: Cash and Investments Chapter 16 Auditing the Financing/Investing Process: Cash and Investments True / False Questions 1. The cash account is affected by all of the entity's business processes. True False 2. The general cash account is generally the principal account used to disburse payroll. True False 3. An imprest cash account is used for specific purposes and generally maintains a very small balance. True False 4. The auditor's use of analytical procedures for auditing cash is limited. True False 5. A major control that directly affects the audit of cash is the bank reconciliation prepared by the auditor. True False 6. A cutoff bank statement is used to verify the propriety of the reconciling items shown on the bank reconciliation. True False 7. Kiting is an audit procedure used to test the accuracy of the cash receipts. True False 16-1
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Chapter 16 - Auditing the Financing/Investing Process: Cash and Investments 8. It is generally more efficient to follow a substantive strategy for auditing investments. True False 9. If the client maintains custody of its investments, the auditor normally examines the actual securities. True False 10. Level 1 inputs are more risky and difficult to audit than Level 3 inputs to a valuation model. True False Multiple Choice Questions 11. Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees? A. A bank lockbox system B. Prenumbered remittance advices C. Monthly bank reconciliations D. Daily deposit of cash receipts 12. The least crucial element of internal control over cash is A. Separation of cash record-keeping from custody of cash B. Preparation of the monthly bank reconciliation C. Batch processing of checks D. Separation of cash receipts from cash disbursements 16-2
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Chapter 16 - Auditing the Financing/Investing Process: Cash and Investments 13. Which of the following audit procedures is the most appropriate when internal control over cash is weak or when a client requests an investigation of cash transactions? A. Proof of cash B. Bank reconciliation C. Cash confirmation D. Evaluate ratio of cash to current liabilities 14. An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the A. Check register for the last month is reviewed B. Cutoff bank statement is reconciled C. Bank confirmation is reviewed D. Search for unrecorded liabilities is performed 15. Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting between intercompany banks? A. Review the composition of authenticated deposit slips B. Review subsequent bank statements received directly from the banks C. Prepare a schedule of bank transfers D. Prepare year-end bank reconciliations 16. An interbank transfer schedule A. Is another name for the proof of cash B. Helps the auditor test for kiting
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