Audit and Assurance Practice Exam

Is it true or false that a fake cash problem relates to management's cash valuation assertion?

1. True

2. False

3. Not applicable

4. Depends on context

The correct answer is: False

The assertion regarding management's cash valuation is essential in the audit process, particularly when evaluating the legitimacy and accuracy of the cash balances reported in financial statements. A fake cash problem typically refers to the existence of fictitious cash or cash equivalent assets that are not substantiated by actual balances or transactions. This situation directly impacts the cash valuation assertion because if cash reported is not real, this would suggest misleading financial reporting. By acknowledging that a fake cash problem is intrinsically tied to the valuation of cash, it becomes clear that the assertion pertains not only to the existence of the cash but also its accuracy and legitimacy. Therefore, stating that a fake cash problem does not relate to management's cash valuation assertion may overlook the intrinsic relationship between the authenticity of cash assets and their reported values in the financial statements.