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QUESIIUH J. U. DUNII] The auditor should ordinarily mail confirmation requests to all banks with which the client has conducted any business during the year, regardless of the year end balance, since: 0 This procedure relieves the auditor of any responsibility with respect to non- detection of forged cheques. O The confirmation form also seeks information about indebtedness to the bank. 0 This procedure will detect kiting activities that would otherwise not be detected. 0 The mailing of confirmation forms to all such banks is required by generally accepted auditing standards. 7 Hide hint for Question 1 What information is gathered in the bank confirmation? Question 2 (1 point) The significance of cash to the entity's liquidity and the fact that the balance is relatively small mean that the acceptable level of detection risk in verifying cash balances is invariably set as low. Question 10 (1 point) During the count of cash on hand, it is not necessary for the auditor to O insist on the presence of an internal auditor throughout the count. 0 verify that all undeposited funds are payable to the order of the client, either directly or through endorsement. O obtain a signed receipt from the custodian on return of the funds. 0 insist on the presence of the custodian ofthe cash throughout the count. Question 3 (1 point) Lapping is an irregularity that results in the deliberate misappropriation of cash receipts, either temporarily or permanently, for the personal use of the individual perpetrating the unauthorized act. Question 4 (1 point) A public accountant obtains a January 10 cut-off bank statement for a client directly from the bank. Very few of the outstanding cheques listed on the client's December 31 bank reconciliation Clea red during the cutoff period. A probable cause for this is that the client: Q Is engaged in kiting O Released the cheques to the payees after year end Q Is engaged in lapping 0 Has overstated its year end bank balance Question 5 (1 point) In working with the bank reconciliation and the subsequent period bank statement, the auditor finds that many of the cheques on the outstanding cheque list did not clear during the cut-off period. This may be an indication of O lapping. 0 an attempt to conceal a cash shortage. Q kiting. 0 window dressing. Question 6 (1 point) In the auditing of cash and investments, the key issues are to ensure that the cash exists and is owned by the client and that all cash transactions at the end of the reporting period are complete and properly disclosed. Question 7 (1 point) The auditor should trace bank transfers using a bank transfer schedule primarily to determine if 0 cash has been overstated due to kiting. 0 cash has been understated due to lapping. 0 cash has been overstated due to lapping. 0 cash has been understated due to kiting. Question 8 (1 point) Which of these controls would be the most effective in assuring that the proper custody of assets in the investing cycle is maintained? 0 The recorded balances in the investment subsidiary ledger are periodically compared with the contents of the safety deposit box by independent personnel. 0 Direct access to securities in the safety deposit box is limited to only one corporate officer. 0 The purchase and sale of investments are executed on the specific authorization of the board of directors. 0 Personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger. Question 9 (1 point) Information concerning rother arrangements' with banks is obtained from the client's banks, in the bank confirmation form. This information is likely to include 0 average dailyr balances. O unused facilities. 0 compensating liabilities. O contingent liabilities. Question 9 (1 point) Which of the following increases the potential for risks to have a material impact on the financial statements? Select ALL that apply. C] management willing to accept high risk when entering into business decisions C] careful monitoring of the entity's contracts and commitments C] failure to monitor commitments of the entity C] major commitments are carefully considered and evaluated C] management enters new business decisions quickly Question 10 {1 point) An internal control exception is an observed condition that provides evidence that the control being tested did not operate as intended