Question

When considering the risk that year-end cash is correct, but should be higher, the auditors should focus on confirming that ______.

-cash payments were properly authorized and for a legitimate business purpose
-the client's records reflect all cash transactions that took place during the year
-sales on account are recorded in the correct period based on shipping information

Answer 1

In response to the risk of underreported year-end cash, auditors should verify all cash transactions during the year to ensure completeness and accuracy of the cash balance on the financial statements.

Step-by-step explanation:

When considering the risk that year-end cash is correct but should be higher, auditors should focus on confirming that the client's records reflect all cash transactions that took place during the year.

This means verifying that all receipts and disbursements have been recorded accurately and in the correct period. The auditors must also ensure that there were no unrecorded liabilities or unrecorded receivables that would affect the cash balance.

This includes examining bank reconciliations, reviewing cut-off procedures, and analyzing year-end adjusting entries. The audit procedures aim to provide reasonable assurance that the financial statements are free of material misstatement and that the cash balance reported is complete and accurate.