Audit and Assurance Practice Exam

What type of audit procedure would reveal ownership and disclosure issues in cash receipts?

1. Scanning the cash receipts journal for large inflows from unusual sources.

2. Reviewing the payment terms with customers.

3. Conducting interviews with cash handling personnel.

4. Performing a trend analysis of cash collections.

The correct answer is: Scanning the cash receipts journal for large inflows from unusual sources.

The identification of ownership and disclosure issues in cash receipts can be effectively addressed by scanning the cash receipts journal for large inflows from unusual sources. This procedure involves scrutinizing recorded cash receipts to identify any large transactions that do not align with the company's typical business operations or customer profiles. Unusual sources of cash could indicate potential issues, such as the possibility of improper revenue recognition, related party transactions that aren't disclosed appropriately, or the existence of fraudulent activities. By analyzing these transactions, auditors can assess whether the cash inflows are legitimate and appropriately reflected in the financial statements, ultimately ensuring that ownership claims over these transactions are valid and disclosed correctly. This level of scrutiny helps highlight discrepancies that may not be evident through other procedures, thereby enhancing the reliability of the financial information presented. In contrast, the other options, while they may provide valuable information in an audit context, do not target the ownership and disclosure aspects directly. Reviewing payment terms with customers pertains more to credit management and collection efficiency than to ownership assessments. Conducting interviews with cash handling personnel could offer insights into internal controls but may not indicate specific issues with ownership or disclosure in cash receipts. Performing trend analysis of cash collections provides valuable context but lacks the specificity needed to identify unusual or suspicious transactions that might signal ownership and