Audit Cash and Equity Questions

Which of the following is the focus of an audit of cash for most companies?

• General cash account.

• Payroll cash account.

• Petty cash account.

• Money market account.

The test of details of balances procedure that requires the auditor to foot the outstanding check list and deposits in transit is an attempt to satisfy which audit objective?

• Cutoff.

• Presentation and disclosure.

• Detail tie-in.

• Completeness.

Cash is important to auditors primarily because of the potential for:

• errors.

• fraud.

• liquidity.

• expenditures.

The auditor uses proof of cash to determine whether:

• all cash receipts were deposited, and all deposits were recorded in the accounting records.

• all recorded cash disbursements were paid by the bank.

• all amounts that were paid by the bank were recorded.

• All three of the above.

The starting point for the verification of the balance in the general bank account is to obtain:

• a bank reconciliation from the client.

• the client's cash account from the general ledger.

• a cutoff bank statement directly from the bank.

• the client's year-end bank statement and reconcile it.

Which of the following owners' equity transactions usually require specific authorization from a company's board of directors?

• Repurchase of common stock.

• Issuance of common stock.

• Declaration of dividends.

• All the above require authorization.

The amount of time spent verifying owners' equity is frequently minimal for closely held corporations because:

• these companies are so small that it is not necessary to audit the capital section.

• the few owners all have access to the books, so the auditor spends more time on accounts like liabilities, which affect outsiders.

• there are few if any transactions during the year for the capital stock accounts, except for earnings and dividends.

• there is no public interest in these companies.

The record of the outstanding shares at any given time is maintained in the:

• corporate directory.

• stock certificate books.

• schedule of stock owners.

• shareholders' capital stock master file.

When a dividend is declared by the board of directors, the source for determining who should receive dividend checks is the:

• shareholders' capital stock master file.

• stock certificate books.

• common stock account in the general ledger.

• corporate directory.

The primary concern in determining whether retained earnings is correctly disclosed on the balance sheet is:

• correct calculation of the net income or loss for the year.

• correct calculation of dividend payments for the year.

• whether prior-period adjustments have been made correctly.

• whether there are any restrictions on the payment of dividends.