Auditing Cash

Which of the following is the primary objective of auditing cash?

• To detect all errors in cash transactions

• To ensure the cash balance is fairly stated in the financial statements

• To identify fraudulent activities in the cash account

• To reconcile the bank statement with the cash book

Which of the following is a key internal control over cash receipts?

• All cash receipts should be deposited daily

• Cash receipts should be recorded by the same person who handles cash

• Cash receipts should be used to pay expenses directly

• Cash receipts should not be reconciled with bank statements

What is the purpose of a bank reconciliation statement?

• To identify errors in the bank’s records

• To reconcile differences between the cash book and the bank statement

• To determine the company’s profitability

• To calculate the company’s tax liability

Which of the following is an example of a cash equivalent?

• Accounts receivable

• Inventory

• Treasury bills with a maturity of 3 months

• Prepaid expenses

What is the most reliable audit procedure to verify the existence of cash?

• Confirmation with the bank

• Inspection of physical cash on hand

• Reviewing the cash receipts journal

• Testing internal controls over cash

Which of the following is a risk associated with auditing cash?

• Overstatement of cash balances

• Understatement of cash balances

• Misclassification of cash as a non-current asset

• All of the above

What is the purpose of a cutoff bank statement in auditing cash?

• To verify the accuracy of the bank reconciliation

• To confirm the balance of cash at year-end

• To identify unrecorded liabilities

• To detect lapping schemes

Which of the following is a red flag for potential cash misappropriation?

• Frequent changes in bank accounts

• High turnover of cash handling staff

• Unexplained differences in bank reconciliations

• All of the above

What is the primary purpose of testing internal controls over cash?

• To detect all material misstatements

• To assess the risk of fraud

• To reduce substantive testing

• To prepare the financial statements

Which of the following is an example of a substantive procedure for auditing cash?

• Observing the segregation of duties

• Confirming bank balances with the bank

• Reviewing the company’s internal control policies

• Testing the authorization of cash disbursements