Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
1. The cash account is affected by all of the entity’s business processes.
2. The general cash account is normally the principal account used to disburse payroll.
3. An imprest cash account is used for specific purposes and generally maintains a very small
balance.
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
4. The auditor’s use of analytical procedures for auditing cash is limited.
5. A major control that directly affects the audit of cash is the bank reconciliation prepared by
the auditor.
6. A cutoff bank statement is used to verify the propriety of the reconciling items shown on the
bank reconciliation.
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
7. Kiting is an audit procedure used to test the accuracy of the cash receipts.
8. It is generally more efficient to follow a substantive strategy for auditing investments.
9. If the client maintains custody of its investments, the auditor normally examines the actual
securities.
10. Level 1 inputs are more risky and difficult to audit than Level 3 inputs to a valuation model.
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
11. Which of the following internal controls most likely would reduce the risk of diversion of
customer receipts by an entity’s employees?
12. The least crucial element of internal control over cash is
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?
14. An unrecorded check issued during the last week of the year would most likely be
discovered by the auditor when the
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
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?
16. An interbank transfer schedule
17. If fraud is suspected, auditors may complete all of the following procedures except:
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
18. Of the following, which is the most efficient audit procedure for verification of interest
earned on bond investments?
19. An auditor testing long-term investments would ordinarily use substantive analytical
procedures as the primary audit evidence to support the reasonableness of the
20. To satisfy the valuation assertion when auditing an investment accounted for by the equity
method, an auditor most likely would
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
21. An auditor usually tests the reasonableness of dividend income from investments in stock of
public companies by computing the amounts that should have been received by referring to
22. Which of the following pairs of accounts would an auditor most likely analyze on the same
working paper?
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
23. In confirming with an outside agent, such as a financial institution, that the agent is holding
investment securities in the client’s name, an auditor most likely gathers evidence in support of
management’s financial statement assertions regarding
24. All of the following can assist the auditor in testing the existence assertion for investment
securities except:
25. An imprest cash account is
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
26. An auditor ordinarily should send a standard confirmation request to all banks with which
the client has done business during the year under audit, regardless of the year-end balance,
because this procedure
27. Tracing a sample of remittance advices to entries in the cash receipts journal tests which of
the following assertions for cash?
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
28. Examining a sample of cancelled checks for an authorized signature tests which of the
following assertions for cash?
29. The cashier of Brooke Company covered a shortage in the cash working fund with cash
obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the
company’s out-of-town bank. How would the auditor discover this manipulation?
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
30. The auditor should ordinarily mail confirmation requests to all banks with which the client
has conducted any business during the year, regardless of the year-end balance, since
31. An auditor who is engaged to examine the financial statements of a business enterprise will
request a cutoff bank statement primarily to
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
32. An auditor should trace interbank transfers for the last part of the audit period and first part
of the subsequent period to detect whether
33. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
34. A primary purpose of the proof of cash is to
35. A company has additional temporary funds to invest. The Board of Directors decided to
purchase marketable securities and assigned the future purchase and sale decisions to a
responsible financial executive. The best person(s) to make periodic reviews of the investment
activity authorized by that executive should be
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
36. A company holds bearer bonds as a short-term investment. Responsibility for custody of
these bonds and submission of coupons for collections of periodic interest probably should be
delegated to the
37. Which of the following controls would an entity most likely use in safeguarding against the
loss of marketable securities?
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
38. Which of the following procedures most likely would give the greatest assurance that
securities held as investments are safeguarded?
39. Which one of the following would the auditor consider to be an incompatible operation if
the cashier receives remittances from the mailroom?
Chapter 16 – Auditing the Financing/Investing Process: Cash and Investments
40. When an entity uses a trust company as custodian of its marketable securities, the
possibility of concealing fraud most likely would be reduced if the
41. In a manufacturing company, which one of the following audit procedures would give the
least assurance for the existence of the general ledger balance of investment in stocks and bonds
at the audit date?