1.
The auditors should count small petty cash funds at year-end to make sure that balance is not
understated on the financial statements.
True False
2. Mailroom personnel of a company should prepare a control listing of incoming cash receipts
and deposit them intact daily.
True False
3. Lapping of accounts receivable by an employee is not possible when there is adequate
segregation of duties with respect to cash disbursements.
True False
4. A proof of cash is an audit procedure that is performed on almost every engagement.
True False
5. Verification of cash and other liquid assets be verified on the same date may prevent
substitution of one form of asset for another.
True False
6. An auditor's analytical procedures have revealed that the accounts receivable of a client have
doubled since the end of the prior year. However, the allowance for doubtful accounts, as a
percentage of accounts receivable remained about the same. Which of the following client
explanations most likely would satisfy the auditor?
A. Credit standards were liberalized in the current year.
B. Twice as many accounts receivable were written off in the prior year as compared to this year.
C. A greater percentage of accounts were currently listed in the "more than 90 days overdue"
category than in the prior year.
D. The client opened a second retail outlet in the current year and its credit sales approximately
equaled the older, established outlet.
7. Kiting would least likely be detected by:
A. Analyzing details of large cash deposits around year end.
B. Comparing customer remittance advices with recorded disbursements in the cash
disbursements journal.
C. Preparing a four-column bank reconciliation for all major cash accounts.
D. Preparing a schedule of interbank transfers by using the client's records and bank statements
around year end.
8. An internal control questionnaire indicates that an approved receiving report is required to
accompany every check request for payment of merchandise. Which of the following procedures
provides the best evidence on operating effectiveness?
A. Select and examine receiving reports and test whether the related canceled checks are dated
no earlier than the receiving reports.
B. Select and examine receiving reports and test whether the related canceled checks are dated
no later than the receiving reports.
C. Select and examine canceled checks and test whether the related receiving reports are dated
no earlier than the checks.
D. Select and examine canceled checks and test whether the related receiving reports are dated
no later than the checks.
9. Which procedure is an auditor most likely to use to detect a check outstanding at year-end that
was not recorded as outstanding on the year-end bank reconciliation?
A. Prepare a bank transfer schedule using the client's cash receipts and cash disbursements
journal.
B. Receive a cutoff statement directly from the client's bank.
C. Prepare a four column bank reconciliation using the year-end bank statement.
D. Confirm the year end balance using the standard form to confirm account balance information
with financial institutions.
