AUD 4.03 - Cash Cycle

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  1. True / False: Cash is an area automatically considered a high fraud risk.
  2. Describe "lapping"
    • Today's cash receipts cover yesterday's theft.
    • Employee takes a customer's payment (say $100). The next day a different customer pays $100 toward their acct. The employee endorses the check, applies to the first acct, making it look like it was paid. Repeat
  3. What 2 characteristics regarding balances vs deposits is indicative of check kiting?
    • (1) Low average balance compared to high level of deposits.
    • (2) The disbursement is posted from the disbursing account after the deposit is made in the receiving acct
  4. Describe "kiting"
    A check drawn on one bank is deposited in another bank and no record is made of the disbursement in the balance of the first bank until after year-end.
  5. What is the result of kiting on the FS?
    An intentional overstatement of cash as the cash is simultaneously reflected in 2 different bank accounts.
  6. What is the textbook-version (perfect world) internal control used in the cash cycle?
    • Segregation of duties
    • Separation of cash handling, record keeping, and reconciliation of bank statements
  7. Which three assertions are most important when auditing the cash cycle?
    • Completeness
    • Valuation and Allocation
    • Existence
  8. When auditing the cash balance, how does the auditor verify the assertions?
    • Bank confirmations and
    • Bank reconciliations
    • ...cover all the assertions
  9. When using a bank confirmation, to whom should it be sent and what evidence is the auditor trying to obtain?
    • Send to all banks with which the client has done business during the year regardless of whether there is a year-end bank balance.
    • Looking for balances of: loans, contingent liabilities, discounted notes, pledged collateral, guarantee or security agreements, as well as cash savings or checking balances
  10. What is a cut-off bank statement?
    • Obtained by the auditor from the bank. The cut-off statements covers the 10-15 day period after year-end.
    • The cut-off statement is used to verify that checks outstanding at year-end have actually cleared. The auditor should investigate those that have not.
  11. When auditing the cash receipts or disbursements, how does the auditor verify the completeness assertion?
    • Trace
    • ** (Receipts) remittance advices to the journal and deposit slips
    • ** (Disbursements) canceled checks to the journal
  12. When auditing the cash receipts or disbursements, how does the auditor verify the Valuation, Allocation, Accuracy assertions?
    • Receipts: foot deposit slips and remittance advices and compare to the journal and bank statement
    • Disbursements: agree all the documents in a voucher package to the journal and cancelled check
  13. When auditing the cash receipts or disbursements, how does the auditor verify the Existence and Occurrence assertions?
    • Vouch
    • ** (Receipts) entries in the journal to remittance advices, deposit slips, and bank statement
    • ** (Disbursements) entries in the journal to canceled checks, voucher package, and bank statement
  14. What disclosures are required for the cash cycle?
    • Policy defining cash and cash equivalents
    • Restrictions on cash
    • ** sinking fund requirements
    • ** compensating balance requirements
Card Set:
AUD 4.03 - Cash Cycle
2017-06-29 21:47:35
audit AUD

Becker Review 2017
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