Chapter 10. Auditing Cash and Marketable Securities

Chapter 10. Auditing Cash and Marketable Securities/ Chapter 10. Auditing Cash and Marketable Securities 1. An imprest payroll account should never reach a zero balance. True False 2. When the year-end cash balance is immaterial, audit procedures on the cash account are unnecessary. True False 3. Cash flow is often managed by organizations through the use of lockboxes and outsourced cash management arrangements with banks. True False 4. The risk of the company issuing checks near year-end and mailing them subsequently is not important to the auditor because the action does not affect cash balances. True False 5. The audit of the cash account is inherently risky due to volume of activity, liquidity and the account's susceptibility to fraud. True False 6. Working capital may be tied to certain debt covenants causing cash to be considered significant for audit purposes. True False 7. The existence or occurrence assertion as related to cash is concerned with proper classification on the balance sheet. True False 8. A lockbox is a mailbox type of depository device that is located in front of the client's premises, allowing customers to remit payment in a timely manner. True False 9. An analysis of the client's internal control over cash and marketable securities should take place during the performance of the substantive tests on these accounts. True False 10. The deposit of cash directly at the bank to speed collections often involves the use of a lockbox. True False 11. When a lockbox is used, the financial institution records the deposit and then forwards customer transaction data to the client to update cash and accounts receivable records. True False 12. The auditor is responsible for auditing the necessary disclosures when material lines of credit and compensating balance arrangements have been made by the client with a lender. True False 13. Electronic Funds Transfers have controls built into the process and do not require further reconciliation by the client. True False 14. The auditor’s performance of an independent reconciliation of the client’s bank accounts provides evidence as to the rights and obligations of the year-end cash balances. True False 15. Customer checks received at the client company should be restrictively endorsed within one week of receipt in the mail. True False 16. A turnaround document is an effective control because it lists useful information for further processing of the collection on account. True False 17. In assessing risk relating to fraud, auditors brainstorm about potential fraud risks. True False 18. Auditors usually perform relatively limited substantive analytics for cash accounts and instead focus on substantive tests of details. True False 19. The cash balance that a financial institution requires its customer to maintain in a non-interest-bearing account to offset a line of credit is a compensating balance. True False 20. A perception of being underpaid is not a typical incentive for a fraudster True False 21. Internal audits are seldom an effective deterrent to the theft of cash. True False 22. An independent bank reconciliation provides evidence of the correctness of the year-end cash balance. True False 23. The primary purpose of the cutoff bank statement is to verify the reconciling items on the bank reconciliation. True False 24. Kiting is an example of a technique used to intentionally and materially overstate cash. True False 25. The standard bank confirmation is used by the auditor to test for lapping. True False 26. The standard bank confirmation should be sent to all banks used by the client during the year except those with a zero balance. True False 27. The auditor may discover evidence of lapping by preparing an interbank transfer schedule. True False 28. The standard bank confirmation includes the confirmation of cash accounts but not liabilities with financial institutions. True False 29. Kiting fraudulently places the company's marketable securities in the name of the officers. True False 30. Kiting involves the overstatement of a bank account by transferring funds at the end of the year to another bank account and failing to record the disbursement. True False 31. The cutoff statement is mailed to the client for an agreed upon-date and then copied for the audit files. True False 32. The valuation/allocation and completeness assertions are usually the most relevant for auditing cash. True False 33. The recording of a marketable security depends, in large part, on management’s intention with the investment. True False