Audit and Assurance Practice Exam

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What is a primary concern for auditors regarding cash accounts?

Understatement of cash due to theft
Overstatement of cash values
Misclassification of cash transactions
Inadequate documentation of cash flows

The correct answer is: Understatement of cash due to theft

A primary concern for auditors regarding cash accounts is the risk of understatement of cash due to theft. Cash is particularly vulnerable to misappropriation, as it is a liquid asset that can be easily accessed and taken without leaving a trace. Auditors are tasked with ensuring that financial statements accurately represent the organization’s financial position, and any theft or misappropriation may lead to the financial statements reflecting lower cash balances than what actually exists. The potential for theft necessitates robust internal controls surrounding cash handling processes. Auditors must assess these controls, perform substantive testing, and confirm cash balances to identify any discrepancies that may arise from unauthorized access or outright theft. Understanding and mitigating the risk of understatement is crucial in maintaining the integrity of financial reporting, making this concern a top priority for auditors in their evaluations.