Explain the relationships among the initial assessed control risk, tests of controls and substantive tests of transactions for cash receipts, and the tests of details of cash balances.
23-2 (OBJECTIVE 23-1) What is meant by an imprest bank account for a branch operation?
Explain the purpose of using this type of bank account.
23-3 (OBJECTIVE 23-3) Evaluate the effectiveness and state the shortcomings of the prepara-
tion of a bank reconciliation by the controller in the manner described in the following
statement: “When I reconcile the bank account, the first thing I do is review the sorted list
of returned checks and find which numbers are missing. I then determine the amount of
the uncleared checks by referring to the cash disbursements journal. If the bank account
reconciles at that point, I am all finished with the reconciliation. If it does not, I search for
deposits in transit, checks from the beginning outstanding check list that still have not
cleared, other reconciling items, and bank errors until it reconciles. In most instances, I
can do the reconciliation in 20 minutes.”
23-4 (OBJECTIVE 23-3) How do bank confirmations differ from positive confirmations of
accounts receivable? Distinguish between them in terms of the nature of the information
confirmed, the sample size, and the appropriate action when the confirmation is not re-
turned after the second request. Explain the rationale for the differences between these
two types of confirmations.
23-5 (OBJECTIVE 23-3) Evaluate the necessity of following the practice described by an auditor: “In confirming bank accounts, I insist upon a response from every bank the client has done business with in the past 2 years, even though the account may be closed at the balance sheet date.”
23-6 (OBJECTIVE 23-3) Describe how electronic confirmation of cash balances through
third-party intermediaries can improve the cash confirmation process.
23-7 (OBJECTIVE 23-3) Describe the purpose of obtaining a cutoff bank statement or obtain-
ing online access to the client’s bank activity after year end.
23-8 (OBJECTIVE 23-3) Why are auditors usually less concerned about the client’s cash re-
ceipts cutoff than the cutoff for sales? Explain the procedure involved in testing for the
cutoff for cash receipts.
23-9 (OBJECTIVE 23-3) Explain why, in verifying bank reconciliations, most auditors empha-
size the possibility of a nonexistent deposit in transit being included in the reconciliation
and an outstanding check being omitted rather than the omission of a deposit in transit
and the inclusion of a nonexistent outstanding check.
23-10 (OBJECTIVE 23-3) How will a company’s bank reconciliation reflect an electronic de-
posit of cash received by the bank from credit card agencies making payments on behalf
of customers purchasing products from the company’s online website, but not recorded in
the company’s records?
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