MULTIPLE-CHOICE QUESTIONS
1. Which of the following assertions is relevant to whether the company has title to the cash accounts as of the balance sheet date?
a. Existence or occurrence.
b. Completeness.
c. Rights and obligations.
d. Valuation or allocation.
e. All of the above.

2. Which of the following assertions is relevant to whether the cash balances reflect the true underlying economic value of those assets?
a. Existence or occurrence.
b. Completeness.
c. Rights and obligations.
d. Valuation or allocation.
e. All of the above.

3. Inherent risk for cash is usually assessed as high for which of the following reasons?
a. The volume of transactions flowing through cash accounts throughout the year makes the account more susceptible to error.
b. The cash account is more susceptible to fraud because cash is liquid and easily transferable.
c. The electronic transfer of cash and the automated controls over cash are such that if errors are built into computer programs, they will be repeated on a large volume of transactions.
d. Cash can be easily manipulated.
e. All of the above.

4. Which of the following questions would be relevant for an inherent risk analysis questionnaire related to cash?
a. Does the company have significant cash flow problems in meeting its current obligations on a timely basis?
b. Are cash transactions properly authorized?
c. Are bank reconciliations performed on a timely basis by personnel independent of processing?
d. Does the internal audit department conduct timely reviews of the cash management and cash handling process?
e. All of the above.

5. Affirmative answers to which of the following questions would lead the auditor to assess fraud risk at a higher level for cash or other liquid assets?
a. Is an individual with access to cash or its recording experiencing financial or personal distress?
b. Is an individual with access to cash or its recording being compensated at an amount that he or she might consider low?
c. Is the company in potential violation of its debt covenants?
d. Is cash physically available to employees?
e. All of the above.

6. Which of the following terms best defines this scenario? The employee steals a payment from Customer X. To cover the theft, the employee applies a payment from Customer Y to Customer X's account. Before Customer Y has time to notice that its account has not been appropriately credited, the employee applies a payment from Customer Z to Customer Y's account.
a. Skimming.
b. Kiting.
c. Collateralizing.
d. Lapping.

7. Which of the following controls represents a control over cash that is unique to cash accounts?
a. Separation of duties.
b. Restrictive endorsements of customer checks.
c. Periodic internal audits.
d. Competent, well-trained employees.

8. Which of the following controls represents a computerized control used in the audit of cash or other liquid asset accounts?
a. A unique identifier is assigned to each item.
b. Control totals are used to assure the completeness of processing.
c. Edit tests are used to identify unusual or incorrect items.
d. All of the above.

9. The first step in performing preliminary analytical procedures is to develop an expectation of the account balance. Which of the following does not typically represent a likely expected relationship for cash accounts?
a. The company reports consistent profits over several years, but operating cash flows are declining.
b. No unusual large cash or other liquid asset transactions are found.
c. Operating cash flow is not significantly different from that of the prior year.
d. Investment income is consistent with the level of and returns expected from the investments.
e. All of the above represent likely expected relationships.