This study source was downloaded by 100000871826166 from CourseHero com on 10 17 2023 08 02 09 GMT 05 00 https www coursehero com file 128244473 AP 503 Audit of Current Assets Cashpdf ReSA THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 42 October 2021 CPA Licensure Exam Weeks 16 18 AUDITING Auditing Problems S Ireneo C Espenilla Page 1 of 6 0915 2303213 0908 6567516 www resacpareview com AP 503 RECEIPT DISBURSEMENT CYCLE AUDIT OF CURRENT ASSETS CASH PROBLEM 1 1 Cash is the most inherently risky among assets in the perspective of the auditor This is mostly associated to the fact that cash has the highest risk of misappropriation either from within or outside the entity Which of the following controls most likely would reduce the risk of diversion of customer receipts by an entity s employees a Daily deposit of cash receipts b Monthly bank reconciliations c Prenumbered remittance advice d A bank lockbox system 2 Which of the following is not consistent with the requirements of imprest system with regard protecting receipts from possible cash loss due to misappropriation a Requiring customers where possible to pay through checks b Requiring the company s personnel who receives the check first to automatically restrictively endorse check collections c Requiring the treasury department to prepare monthly bank reconciliation statements to reconcile bank records against the company s books d Requesting customers where possible to remit payments directly to the bank 3 Which of the following is not a universal rule for achieving strong internal control over cash receipts a Separate the cash handling function record keeping function and regular bank reconciliation functions b Decentralize the receiving of cash as much as possible c Deposit each days cash receipts by the end of the day d Where collections are made through cash and not through checks cash receipts should be reconciled with the prenumbered official receipt at the end of the operating day 4 As payments are received one mailroom employee is assigned the responsibility of prelisting check receipts and preparing the deposit slip prior to forwarding the check receipts the deposit slip and the remittance advices to accounts receivable for posting Accounts receivable personnel refoot the deposit slip stamp a restrictive endorsement on the back of each check and then forward the receipts and the deposit slip to the treasury department Which of the following is a reasonable assessment of internal control on this process a Internal control is adequate b Internal control is inadequate because mailroom employees should not have access to cash c Internal control is inadequate because treasury employees should prepare the deposit slip d Internal control is inadequate because of a lack of segregation of duties 5 Which of the following would the auditor consider to be an incompatible operation for a cashier if the cashier receives remittances from the mailroom a Posting the receipts to the accounts receivable subsidiary ledger cards b Making the daily deposit at the local bank c Preparing the daily deposit d Endorsing the checks 6 Which of the following is not consistent with the requirement of the imprest system with regard internal control measures in handing and processing disbursements a All disbursements without exception should be made through checks b For very minute disbursements the company may be allowed to use undeposited collections c Documents in the voucher package e g sales invoice purchase order receiving reports should be automatically cancelled once disbursement checks are signed d Checks should be issued immediately to the payee preferably by the one who signed the checks last 7 Which of the following is a standard internal accounting control for cash disbursements a Checks should be signed by the controller and at least one other employee of the company This study source was downloaded by 100000871826166 from CourseHero com on 10 17 2023 08 02 09 GMT 05 00 https www coursehero com file 128244473 AP 503 Audit of Current Assets Cashpdf ReSA THE REVIEW SCHOOL OF ACCOUNTANCY AP 503 Weeks 16 18 RECEIPT DISBURSMENT CYCLES AUDIT OF CURRENT ASSETS CASH Page 2 of 6 0915 2303213 0908 6567516 www resacpareview com b Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing the bank reconciliation statement c Checks and supporting documents should be marked paid immediately after the check is returned with the bank statement d Checks should be sent directly to the payee by the employee who prepares documents that authorize check preparation 8 Which of the following cash fraud activities involves the postponement of the recording of receipts and can be well perpetrated where there is lack of segregation of duties between recordkeeping and custodial functions a Kiting b Lapping c Window dressing d Salami fraud 9 An auditor suspects that a client s cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail In attempting to uncover this embezzlement scheme the auditor most likely would compare the a Dates uncollectible accounts are authorized to be written off with the dates the write offs are actually recorded b Individual bank deposits slips with the details of the monthly bank statements c Daily cash summaries with the sums of the cash receipts journal entries d Dates checks are deposited per bank statements with the dates remittance credits are recorded 10 Which of the following characteristics most likely would be indicative of check kiting a High turnover of employees who have access to cash b Many large checks that are recorded on Mondays c Frequent cash withdrawals from checking accounts d Low average balance compared to high level deposits 11 Which of the following audit procedures will likely detect or uncover kiting activities of the client a Sending confirmation to banks b Vouch check issuances representing disbursements to source documents c Render cash count on a surprise basis d Simultaneously validate bank reconciliations statements 12 For the most effective internal control monthly bank statements should be received directly from the banks and reviewed by the a Controller b Cash receipts accountant c Cash disbursement accountant d Internal auditor 13 Which of the following assertions does the auditor most likely would like to validate in deciding to render cash counts a Completeness b Existence c Valuation d