Cash Management Audit Questions

What is the inherent risk related to cash that makes it a critical audit area?

• Cash is rarely involved in company transactions

• Cash transactions are easily traceable and leave a strong audit trail

• Cash is always accurately represented in financial statements

• Cash is highly susceptible to theft, misappropriation, and fraudulent activities

What is the most critical feature of internal controls regarding the segregation of duties for cash handling?

• Cash handlers should not be responsible for maintaining records related to cash transactions

• Cash disbursements should only be handled by the cashier

• One person should handle both cash transactions and record-keeping to ensure efficiency

• Auditors should perform cash handling duties to maintain objectivity

Which of the following best describes the purpose of using pre-numbered and sequentially issued receipts in cash management?

• To simplify the reconciliation process for auditors

• To ensure that cash disbursements are properly authorized

• To make it easier to track and audit cash transactions, reducing the chance of manipulation

• To allow flexibility in tracking large cash transactions

What type of fraud involves delaying the posting of a customer's payment and using funds from another customer to cover the delay?

• Lapping

• Kiting

• Embezzlement

• Misappropriation

What is a key audit procedure for cash receipts?

• Overlooking discrepancies between recorded receipts and bank statements

• Comparing deposit slips with recorded receipts

• Focusing lone on cash disbursements

• Skipping reconciliations if time is limited

Which of the following is an effective internal control over cash disbursements?

• Only one person should sign checks

• Payments should always be made in cash

• Checks must be payable to specific entities

• Bank reconciliations should be done annually

What should be done if a cashier's total accountability exceeds the counted cash items?

• Record the difference as a profit

• Reclassify the difference as a cash shortage

• Write it off as a tax deduction

• Reclassify the difference as a cash overage

Why is it important for cash sales to be recorded at the point of sale?

• To avoid mistakes when reconciling cash at the end of the day

• To reduce the time spent on daily reconciliations

• To ensure that transactions are immediately documented and errors or omissions are minimized

• To allow adjustments to be made at a later time based on actual receipts

What risk is associated with recording cash transactions in the wrong reporting period?

• It could lead to a cascading effect on other financial statement accounts

• It may result in an accurate portrayal of the company's financial performance

• It usually has no impact on financial reports

• It simplifies cash handling for the company

What is the best course of action when there is an excess of cash during a count?

• Reclassify it as miscellaneous income

• Return it to the custodian for safekeeping

• Use it to cover any minor shortages in other accounts

• Deposit it into the general cash account of the company