MULTIPLE-CHOICE QUESTIONS
1. Which of the following is a common example of trend analysis of accounts and ratios that the auditor might consider for cash accounts?
a. Compare monthly cash balances with past years and budgets.
b. Identify unexpected spikes or lows in cash during the year.
c. Compute trends in interest returns on investments.
d. Analyze cash balances, and changes therein, in relation to new or retiring debt obligations.
e. All of the above.

2. Which mix of evidence would be most appropriate for the following scenario? This is a client where the auditor has assessed the risk of material misstatement related to the existence and completeness of cash at the maximum level. This client has incentives to overstate cash in order to meet debt covenants. Further, the client has relatively weak controls to prevent theft of cash, with a few controls being somewhat effective.
a. 100% tests of details.
b. 70% tests of details, 10% analytics, 20% tests of controls.
c. 50% tests of details, 10% analytics, 40% tests of controls.
d. 20% tests of details, 40% analytics, 40% tests of controls.

3. Which mix of evidence would be most appropriate for the following scenario? This is a client where the auditor has assessed the risk of material misstatement related to the existence and completeness of cash as low, and believes that the client has implemented effective controls in this area.
a. 100% tests of details.
b. 70% tests of details, 10% analytics, 20% tests of controls.
c. 50% tests of details, 10% analytics, 40% tests of controls.
d. 20% tests of details, 40% analytics, 40% tests of controls.

4. Which of the following represents a reasonable test of controls for cash receipts and cash management controls?
a. Document internal controls over cash by completing the internal control questionnaire or by flowcharting the process.
b. Prepare an independent bank reconciliation.
c. Obtain a bank confirmation.
d. Obtain a bank cutoff statement.
e. All of the above.

5.. Which of the following represents a monitoring control in the audit program for cash receipts and cash management controls?
a. Reconciliations of reported cash receipts with remittances prepared by independent parties.
b. Daily review of cash budgets and comparison of them with actual cash balances.
c. Reviews of discrepancies in cash balances.
d. Weekly reporting of customer complaints regarding posting of cash balances and prompt investigation to follow up on cause of complaints.
e. All of the above.

6. Which of the following statements regarding independent bank reconciliations is true?
a. The auditor's performance of an independent reconciliation of the client's bank accounts provides evidence as to the accuracy of the year-end cash balance.
b. The process reconciles the balance per the bank statements with the balance per the books.
c. An independent test of the bank reconciliation is quite effective in detecting major errors, such as those that might be covered up by omitting or underfooting outstanding checks.
d. When testing the client's bank reconciliation, the auditor should independently verify all material items, such as the balance per the bank statement, deposits in transit, outstanding checks, and other adjustments.
e. All of the above are true.

7. A bank confirmation contains which of the following two parts?
1. A part that seeks information on the client's deposit balances, the existence of loans, due dates of the loans, interest rates, dates through which interest has been paid, and collateral for loans outstanding
2. A part that contains a listing of the last checks issued near year end
3. A part that seeks information about any loan guarantees
4. A part that lists all transfers between the company's bank accounts for a short period of time before and after year end
a. 1 & 2.
b. 1 & 3.
c. 2 & 3.
d. 2 & 4.
e. 3 & 4.
8. Which of the following assertions is relevant to whether the marketable securities balances include all securities transactions that have taken place during the period?
a. Existence or occurrence.
b. Completeness.
c. Rights and obligations.
d. Valuation or allocation.
e. All of the above.

9. Which of the following assertions is relevant to the audit procedure for marketable securities that requires the auditor to examine selected documents to identify any restrictions on the marketability of securities?
a. Existence or occurrence.
b. Completeness.
c. Rights and obligations.
d. Valuation or allocation.
e. All of the above.