Audit and Assurance Practice Exam

Why are controls for completeness of cash important?

1. To ensure cash is recorded accurately

2. To provide assurance that cash exists

3. To prevent overstatement of revenue

4. To facilitate faster reconciliations

The correct answer is: To provide assurance that cash exists

Controls for completeness of cash are critical because they ensure that all cash transactions that should be recorded are indeed included in the financial statements. This completeness is essential for providing a true and fair view of the organization's financial position. By verifying that cash transactions are fully accounted for, these controls help prevent situations where cash revenue might be understated or incomplete. When controls for completeness are strong, they contribute to the integrity of cash reporting. They ensure that the cash balances reported reflect all cash inflows, which strengthens the reliability of the financial statements. Additionally, robust completeness controls help in the detection and prevention of fraudulent activities, such as misappropriation of cash, by ensuring every cash transaction is tracked and recorded properly. This is crucial for stakeholders, as they rely on accurate financial reporting to make informed decisions about the organization. While other options may address important aspects of cash management and financial reporting, the focus on completeness directly relates to ensuring that every cash inflow is captured, which is foundational to maintaining accurate financial records.