Auditing Cash Balances

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Which financial statement shows the movement of cash and cash equivalents?

Statement of Changes in Equity
Statement of Cash Flows (correct)
Statement of Financial Position
Income Statement

The primary audit risk related to cash balances is the understatement of cash.

False (B)

Name three categories of activities presented in the statement of cash flows.

Operating Activities, Investing Activities, Financing Activities

______ activities include cash receipts from sales of goods and rendering of services.

Operating Signup and view all the answers

When auditing cash balances, which assertion addresses whether the company has unrestricted access to the cash?

Rights and Obligations (A) Signup and view all the answers

Which of the following is the most crucial reason for ensuring proper payment authorization in cash disbursements?

To detect and prevent unauthorized or fraudulent payments. (C) Signup and view all the answers

Test of controls is the primary method used when auditing the cash cycle.

False (B) Signup and view all the answers

What document confirms bank account details such as account numbers, balances, signatories, and any pledges or restrictions?

Bank confirmation Signup and view all the answers

According to the audit program, cash receipts should be deposited ________ into the bank.

promptly Signup and view all the answers

Match the audit procedure with the corresponding objective:

Agree opening balances to last year’s financial statements = Verify the accuracy of the beginning cash balance. Obtain bank confirmations = Confirm cash balances and details directly with the bank. Review bank reconciliations = Identify discrepancies between bank and book balances. Ensure director’s resolution for opening/closing = Verify proper authorization for bank account activities. Signup and view all the answers

Which of the following steps ensures the auditor receives reliable bank confirmation information?

The bank replies directly to the auditors with the confirmation. (B) Signup and view all the answers

According to standard auditing practice, it is acceptable for the client to send the bank confirmation request directly to the bank on behalf of the auditor.

False (B) Signup and view all the answers

What documentation should support any bank accounts opened or closed during the year?

director's resolution Signup and view all the answers

The auditor sends a ______ bank confirmation template to the client to start the bank confirmation process.

blank Signup and view all the answers

Match each audit procedure with its purpose in the cash cycle audit:

Agree opening balances to last year’s financial statements = Verifying the accuracy of the prior year's ending balances carried forward. Obtain bank confirmations = Validating the existence and accuracy of bank account balances. Review bank reconciliations = Identifying discrepancies between bank statements and accounting records. Agree cash balance in the financial statements to the general ledger = Verifying that the cash balance presented in the financial statements corresponds to the underlying accounting records. Signup and view all the answers

Why is it important for a bank confirmation to be sent directly to the auditors rather than the client?

To enhance the reliability of the audit evidence by obtaining it directly from an independent external source. (D) Signup and view all the answers

A bank confirmation request should include specific transaction details to allow the bank to verify each transaction individually.

False (B) Signup and view all the answers

What are the two main aspects of 'appropriateness' that auditors consider when evaluating audit evidence?

Relevance and reliability Signup and view all the answers

After receiving a bank confirmation reply, auditors check if the bank balances agree with the client's cash book and _.

general ledger Signup and view all the answers

Match the following source of audit evidence with their reliability:

Evidence obtained from an independent external source = More Reliable Evidence generated internally by the subject to effective control = Reliable Evidence obtained directly by the auditor = More Reliable Evidence in original form = Reliable Signup and view all the answers

Audit Program

A structured plan outlining the audit objectives, scope, timeline, and activities.

Agree Cash Balance

Verifying that the cash balance in the financial statements matches the general ledger.