Which of the following controls will most likely prevent the concealment of a cash shortage?

THEORY

Select the best answer for each of the following:

1.An auditor would consider a cashier’s job description to contain compatible duties if the

cashier receives remittance from the mailroom and also prepares the

a. Daily deposit slip.c. Remittance advices.

b. Prelist of individual checks.d. Monthly bank reconciliation.

2.Which of the following internal control procedures will most likely prevent the concealment of

a cash shortage resulting from improper write-off of a trade account receivable?

a.Write-offs must be supported by an aging schedule showing that only receivables

overdue for several months have been written off.

b.Write-offs must be approved by the cashier who is in a position to know if the receivables

have, in fact, been collected.

c.Write-offs must be approved by a responsible officer after review of credit department

recommendations and supporting evidence.

d.Write-offs must be authorized by company field sales employees who are in a position to

determine the financial standing of the customers.

3.An entity’s internal control structure requires every check request that there be an approved

voucher, supported by a prenumbered purchase order and a prenumbered receiving report.

To determine whether checks are being issued for unauthorized expenditures, an auditor

most likely would select items for testing from the population of all

a. Cancelled checks.c. Purchase orders.

b. Approved vouchers.d. Receiving reports.

4.Which of the following auditing procedures would the auditor not apply to a cutoff bank

statement?

a.Trace year end outstanding checks and deposits in transit to the cutoff bank statement.

b.Reconcile the bank account as of the end of the cutoff period.

c.Compare dates, payees and endorsements on returned checks with the cash

disbursements record.

d.Determine that the year end deposit in transit was credited by the bank on the first

working day of the following accounting period.

5.A client maintains two bank accounts. One of the accounts, Bank A, has an overdraft of

P100,000. The other account, Bank B, has a positive balance of P50,000. To conceal the

overdraft from the auditor, the client may decide to

a.Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record the receipt

but not the disbursement and list the receipt as a deposit in transit. Record the

disbursement at the beginning of the following year.

b.Draw a check for at least P100,000 on Bank B for deposit in Bank A. Record the receipt

but not the disbursement and list the receipt as a deposit in transit. Record the

disbursement at the beginning of the following year.

c.Draw a check for P100,000 on Bank B for deposit in Bank A. Record the disbursement

but not the receipt. List the disbursement as an outstanding check, but do not list the

receipt as a deposit in transit. Record the receipt at the beginning of the following

period.

d.Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record the

disbursement but not the receipt and list the disbursement as an outstanding check.

Record the receipt at the beginning of the following year.