part 3 auditing

   The cashier of Milady Jewelries covered a shortage in the cash working fund with cash obtained at December 31 from a bank by cashing but not recording a check drawn on the company out of town bank. How would you as an auditor discover the manipulation?

•   By counting the cash working fund at the close of business on December 31

• By confirming all December 31 bank balances.

•     By investigating items returned with the bank cut-off statements of the succeeding month.

•   By preparing independent bank reconciliations as of December 31.

  Deposit in transit are collections that

•      Are recorded in the cash receipts journal but are not shown as bank debits.

•     Answer not given

•       By investigating items returned with the bank cut-off statements of the succeeding month.

•      Are presented as bank credits but not recorded in the cash receipts journal.

•    Are presented as bank credits but not recorded in the cash receipts journal.

Which of the following internal control procedures will most likely prevent the concealment of a cash shortage resulting from improper write-off of a trade account receivable?

• Write-offs must be supported by an aging schedule showing that only receivables overdue several months have been written off.

•   Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence.   

•      Write-offs must be approved by the cashier who is in a position to know if the receivables have, in fact, been collected.

• Write-offs must be approved by the cashier who is in a position to know if the receivables have, in fact, been collected.

1.     Consider the following investments acquired during Year 2:

1)     Commercial paper dated July 10, Y2, purchased October 15, Y2 and matures January 10, Y3.

2)     Corporate bonds dated January 20, Y1, purchased November 20, Y2 and matures January 20, Y3.

3)     Treasury bills dated September 1, Y2, purchased September 10, Y2 and matures January 1, Y3.

4)     Time deposit acquired on October 31, Year 2 and matures on January 31, Year 3.

• 1, 2, and 3

• 1 and 4

•      1, 2, and 4

•    1 and 2

  On receiving the bank cutoff statement, the auditor should trace

• Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal.

•      Checks dated subsequent to year-end to the outstanding checks listed on the year- end bank reconciliation.

•        Checks dated prior to year-end to the outstanding checks listed on the year- end bank reconciliation.

• Deposits listed on the cutoff bank statement to deposits in the cash receipts journal.

5.     As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client’s treasurer had signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure?

• Sending the request was meaningless because the account was closed before year- end.

•   The request was mailed by the assistant treasurer.

• The CPA did not sign the confirmation request before it was mailed

• The confirmation request was signed by the treasurer.

  Which of the following auditing procedures would the auditor not apply to a cut-off bank statement?

• a.      Reconcile the bank account as of the end of the cutoff period.

• a.      Compare dates, payees, and endorsements on returned checks with the cash disbursements record.

• a.      Trace year end outstanding checks and deposits in transit to the cutoff bank statement.

• a.      Determine that the year end deposit in transit was credited by the bank on the first working day of the following accounting period.

To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except

•       Cutoff Bank Statement

• General Ledger

• Bank Confirmation

•      Year-end Bank Statement

The best evidence regarding year-end bank balances is documented in the

• a.      Bank deposit lead schedule

• a.      Interbank transfer schedule

• Bank reconciliations

• Cutoff bank statement

. A count of the petty cash fund by the auditor on December 31 of the current year showed the following composition:

A.    Coins and currency

B.    Manager’s check marked as NSF by the bank

C.    Check drawn by the company to the order of the custodian

D.    Paid petty cash vouchers (transportation, gasoline and office supplies)

E.     Employees’ IOUs

The petty cash fund that should appear in the statement of financial position should include

• . A, B, and C

• A and C

• c.      A only

• c.      A and E

• c.      A and B