Question

Under which of the following circumstances would an auditor be most likely to intensify an examination of a $1,000 petty cash fund maintained on an imprest basis?

A. Reimbursement vouchers are not prenumbered
B. Reimbursement of the fund from the general cash account occurs twice or more each week
C. The custodian occasionally uses the cash fund to cash employee checks
D. The custodian endorses reimbursement checks

Answer 1

An auditor would intensify an examination of a petty cash fund maintained on an imprest basis if the fund requires frequent reimbursement from the general cash account, suggesting potentially unusual transactions and a higher risk of fund mismanagement.

Step-by-step explanation:

The circumstance under which an auditor would be most likely to intensify an examination of a $1,000 petty cash fund maintained on an imprest basis would notably be if reimbursement of the fund from the general cash account occurs twice or more each week. This frequency of reimbursement could indicate that the funds are being depleted quicker than would normally be expected.

It is worth noting that a lack of prenumbered reimbursement vouchers does create a weakness in the internal control process, as it makes it difficult to track whether all disbursements are being properly documented and reconciled. However, the frequency of reimbursements is more directly related to the risk of fund mismanagement since it suggests a higher likelihood of unusual cash flows. When funds are being replenished more frequently, it might mean that expenditures are not being appropriately monitored or controlled. Therefore, an auditor would likely focus on this as a strong indicator of potential risks in the petty cash management process.