Substantive Test

1. 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?

•      A. The confirmation request was signed by the treasurer.

•      B. Sending the request was meaningless because the account was closed.

•      C. The request was mailed by the assistant treasurer.

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

2. A proof of cash is normally used

•      A. for all engagements

• B. to test the transactions process when controls over cash are weak.

•      C. when control risk for cash is low.

•      D. when lapping is suspected.

3. To gather evidence regarding the balance per bank in a bank reconciliation, an author would examine all of the following except:

•      A. cutoff bank statement

•      B. year-end bank statement. 

•      C. bank confirmation.

•      D. general ledger.

4. An auditor requests a cutoff procedures bank statement primarily to:

•       A. verify the cash balance reported on the bank confirmation.

•       B. verify reconciling items on the client’s bank reconciliation

•       C. detect lapping.

• D. detect kiting.

5. An auditor gathers evidence regarding the validity of deposits in transit by examining the

•       A. bank confirmation

•       B. cutoff bank statement.

•       C. year-end bank statement.

•       D. bank reconciliation.

6. Which of the following audit procedures is most likely to detect a cash balance that is restricted as to withdrawal?

•       A. Review the cutoff bank transfer schedule.

•       B. Prepare an interbank transfer schedule.

•       C. Make inquiries of management.

•       D. Compare cash balance with cash budget.

7. An auditor should trace bank transfer for the last part of the audit period and the first part of the subsequent period to detect whether

•   A. the cash receipts journal was held open for a few days after the year-end.

•       B. cash balances were overstated because of kitting.

• C. the last checks recorded before the year-end were actually mailed by the year-end

• D. any unusual payments to or receipts from related parties  occurred.

8. An unrecorded check used during the last week of the year would most likely be discovered by the author when the

•  A. check register for the last month is reviewed.

• B. cutoff bank statement is reconciled.

•   C. bank confirmation is reviewed.

•       D. search for unrecorded liabilities.

9. An auditor compares information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that

•       A. recorded cash disbursement transactions are properly authorized.

•       B. proper cash purchase discounts have been recorded.

   

•       C. cash disbursements are for goods and services actually received.

• D. no discrepancies exist between the date on the checks and the data in the journal.

10. Working papers ordinarily would not include

• A. Initials of the in-charge auditor indicating a review of the staff assistants’ work.

• B. Cut-off bank statements received directly from the banks.

•       C. A memo describing the preliminary review of the internal control structure.

•       D. Copies of the client’s inventory count sheets.