1.

From an audit perspective, an imprest bank account at a client can improve client internal
controls.
2. A branch bank account is helpful for building public relations in local communities.
3. Which of the following misstatements could be detected as part of the tests of a
bank reconciliation? Deposits recorded as cash receipts at the end of year but included as
outstanding deposits (deposits in transit).
4. Under what circumstances would an auditor prepare a proof of cash? When the client has
material internal control weaknesses in cash.
5. A significant part of the total audit that relates to cash is the audit of sales and collections,
payables payments, and payroll payments.
6. On a bank transfer schedule, if a cash disbursement was recorded in the current fiscal
year and the receipt in the subsequent fiscal year, this might be an attempt to cover a cash
shortage.
7. An auditor is concerned about the risk of inadequate disclosure or incorrect presentation
of financial information, including fraudulent financial reporting. Which of the following
is an example of this type of risk? A company overstates its cash balance to cover up theft
or losses.
8. Roberto is analyzing the cash cycle of his audit client. Which of the following could
indicate a liquidity problem? The company is taking longer to collect its accounts
receivable this year compared to last year.
9. Jane works for Middle Co. She is responsible for opening the mail and preparing the bank
deposit for cheques received, which she then gives to the owner. After the owner has
deposited the cash, he gives Jane the stamped bank deposit slip, which she uses to record
the cash received in the accounts receivable records. How does this allocation of
responsibilities affect the audit process? The auditor should consider the possibility of
material fraud.
10. What is an important benefit of independent preparation of bank reconciliations? The
ability to internally verify cash receipt and disbursement transactions.
11. Which of the following statements best describes the position of cash on the balance
sheet at most organizations that utilize effective cash management practices? Cash is
usually immaterial.
12. Because cash is the most desirable asset for people to steal, it has a higher inherent risk.
13. Which of the following is an essential internal control in the cash cycle? Independent
preparation of bank reconciliations.
14. A partial-period bank statement and the related cancelled cheques, duplicate deposit slips,
and other documents included in bank statements, mailed by the bank directly to the
public accounting firm's office, is called a cutoff bank statement.
15. In addition to the possibility of kiting, inaccurate handling of bank transfers could result
in a misclassification between cash and accounts payable.
16. Toasted Tomato is a restaurant in Ottawa. You walk by this restaurant frequently and
noticed it is usually empty. When you came in to do the audit, you were surprised to see
that they had a large cash balance and high sales. Toasted Tomato might be engaging in
money laundering.
17. Which of the following situations would indicate a susceptibility to fraud that pertains to
theft of cash? lack of segregation of duties between the handling of cash and the
recording of cash.
18. The test of details for cash balances procedure that requires the auditor to trace the
unadjusted book balance on the reconciliation to the general ledger is an attempt to
satisfy the audit objective of accuracy.
19. Disbursements on the bank transfer schedule should be correctly included in or excluded
from year− end bank reconciliations as outstanding cheques. Understating outstandings
cheques on the bank reconciliation indicates the possibility of kiting.
20. The general cash account is considered significant in almost all audits even when the
ending balance is immaterial.
21. When examining the bank reconciliation for the imprest payroll account, it is normal for
the only reconciling item to be outstanding cheques.
22. There is a greater risk of defalcation for cash than for other types of assets because
most other assets must be converted to cash to make them usable.
23. The starting point for the verification of the balance in the general bank account is to
obtain a bank reconciliation from the client.
24. Certain types of misstatements that affect cash may be detected in the audit of tests of
controls. Which of the following misstatements would be detected in the audit of the
acquisition and payment cycle? improper reimbursement of an officers' personal
expenses.
25. During the audit of cash, the focus of the audit is to verify the bank reconciliation.
26. Which of the following misstatements in the payroll cycle could be detected during the
audit of payroll transactions (but would not be discovered as part of the audit of the
bank reconciliation)? payment to fictitious employees that had been set up by the payroll
supervisor.
27. What is the best way to prevent potential alteration, deletion, or addition of
cancelled cheques, duplicate deposit slips, or other documents provided with the
bank statement? Have the bank statements be provided unopened to an independent
reconciler.
28. The auditor uses a proof of cash to determine whether all recorded cash receipts were
deposited and whether all recorded cash disbursements were paid by the bank.
29. The most important internal control for petty cash is the use of an imprest fund that is the
responsibility of one individual.
30. Sandra is analyzing the cash cycle of her audit client. Which of the following could
indicate a liquidity problem? Obsolete inventory.
31. Which of the following is a common analytical procedure that may detect misstatements
in cash? comparison of outstanding cheques and deposits in transit with the prior year
bank reconciliation.
32. Certain types of misstatements that affect cash may be detected in the audit of tests of
controls. Which of the following misstatements would be detected in the audit of the sales
and collection cycle? a defalcation of cash hidden by an unauthorized write-off of a bad
debt.