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Multiple Choice
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1

Tracing a sample of entries in the cash receipts journal to daily deposit slips tests which of the following audit objectives for cash?
A)Validity.
B)Completeness.
C)Valuation.
D)Cutoff.
2

Which of the following statements is false regarding a four-column bank reconciliation or "proof of cash"?
A)They are generally prepared by auditors in situations where internal controls in the cash area are considered weak.
B)They can be effective in detecting kiting since cash receipts and disbursements are reconciled with those on the bank statement.
C)They can be effective in detecting unrecorded checks that have not yet cleared the bank since cash disbursements per book and bank will not equal.
D)None of the above statements are false.
3

The primary purpose of sending a standard bank confirmation request to financial institutions with which the client has done business during the year is to:
A)Request information concerning contingent liabilities & collateral
B)Detect kiting activities that may otherwise not be discovered
C)Provide the data needed to prepare the bank section of a four-column proof of cash.
D)Corroborate/verify information regarding cash & loan balances
4

Kiting can best be defined as a situation in which:
A)A client employee is diverting deposits to his personal bank account.
B)The client fails to complete bank reconciliations on a timely basis.
C)An employee covers a cash shortage by transferring money from one bank account to another.
D)Client checks include unauthorized signatures.
5

Which of the following audit procedures would best satisfy the accuracy audit objective for cash?
A)Examining a sample of cancelled checks for an authorized signature.
B)Footing the cash receipts journal and agreeing the posting to the general ledger.
C)Comparing a sample of remittance advices with amounts in the cash receipts journal.
D)Tracing a sample of remittance advices to entries in the cash receipts journal.
6

Key segregations of duties for investments include all of the following except:
A)The person responsible for investment activities should not also ensure that all dividend and interest income was received.
B)Whoever initiates the purchase of investments should not also grant final approval.
C)Whoever oversees security valuation should not also acquire securities.
D)Whoever maintains custody of the securities should not also account for the securities.
7

To establish the existence and ownership of an investment in common stock of a publicly-held company, an auditor ordinarily performs a security count or:
A)Determines the market share at the balance sheet date using published quotations.
B)Corresponds with the investee regarding the number of shares owned.
C)Relies on the internal control structure if the auditor has tested the controls and has reasonable assurance they are operating as prescribed.
D)Confirms the number of shares owned with an independent registrar.
8

Which of the following is not a classification of investment securities according to GAAP?
A)Hedging.
B)Held-to-maturity.
C)Trading.
D)Available-for-sale.
9

On 12/31/04, Grove Co. erroneously credited accounts payable (Dr. Cash; Cr. Accounts Payable) for a transfer of funds between two bank accounts that resulted in an overstatement of both cash and accounts payable at year-end. The check was not recorded until it cleared the bank on 1/2/05. Which of the following procedures would be least effective in detecting this misstatement?
A)Review of the 12/31/04 bank reconciliations for the 2 bank accounts.
B)Review of the schedule of interbank transfers.
C)Review of the accounts payable supporting documentation at 12/31/04.
D)Review of the December check register.
10

Which of the following is the most efficient audit procedure for verification of interest earned on bond investments?
A)Tracing interest declarations to an independent record book.
B)Recomputing interest earned.
C)Confirming the interest rate with the issuer of the bonds.
D)Vouching the receipt and deposit of interest checks.







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