CPA Auditing and Attestation (AUD) : Cash Cycle, Revenue Cycle, and Expenditure Cycle
Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)
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Example Questions
Example Question #1 : Expenditure Cycle
The authority to accept incoming goods in receiving should be based on a(n):
Bill of lading
Approved purchase order
Materials requisition
Vendor invoice
Approved purchase order
The authority to accept incoming goods in receiving should be based upon an approved purchase order.
Example Question #1 : Expenditure Cycle
Of the following, which is not a purchase transaction that should be segregated in the expenditure cycle?
Receipts of goods or services
Cash receipts
Purchase requisition
Purchase orders
Cash receipts
Cash receipts would be involved in the revenue cycle so it could not be included in the expenditure cycle.
Example Question #1 : Cash Cycle
For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the:
Controller
A/R accountant
A/P accountant
Internal auditor
Internal auditor
The internal auditor generally is independent of other functions relating to cash.
Example Question #2 : Cash Cycle
Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity’s employees?
Monthly bank reconciliations
Prenumbered remittance advices
A bank lockbox system
Daily deposit of cash receipts
A bank lockbox system
A lockbox system is the best means of preventing fraud of cash by employees because they will never have direct access to cash receipts.
Example Question #1 : Cash Cycle
An auditor would be most likely to identify a contingent liability by obtaining a (an):
Related party transaction confirmation
A/P confirmation
Transfer agent confirmation
Standard bank confirmation
Standard bank confirmation
An auditor would be most likely to identify a contingent liability by obtaining a standard bank confirmation which has an exception and comments box that specifically discloses contingent liabilities as the endorser of loans, for open letters of credit, etc.
Example Question #2 : Cash Cycle
Of the following, which set of information does an auditor usually confirm on one form?
Cash in bank and collateral for loans
Inventory on consignment and contingent liabilities
A/R and accrued interest receivable
A/P and purchase commitments
Cash in bank and collateral for loans
The AICPA standard bank confirmation form includes spaces for the bank to confirm both cash balances on deposit at the bank and collateral pledged on loans originating from the bank.
Example Question #3 : Cash Cycle
Which of the following characteristics would most likely be indicative of check kiting?
Frequent ATM checking account withdrawals
Many large checks that are recorded on Frdays
Low average balance compared to high level of deposits
High turnover of employees who have access to cash
Low average balance compared to high level of deposits
Kiting occurs when a check is drawn on one bank and deposited in another bank and no record is made of the disbursement in the balance sheet of the bank.
Example Question #2 : Cash Cycle
Of the following cycles, which would involve purchases, payables, and cash disbursements?
Expenditure cycle
None of the answer choices are correct
Revenue cycle
Investment cycle
Expenditure cycle
Only the expenditure cycle would involve these three aspects, whereas the cash cycle may include cash disbursements, only the expenditure cycle deals with all three.
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