A4 pt 1 (M1 to M4)

How should the cash receipts list be distributed? - a copy to the cashier (along w/ actual cash receipts) - a copy to the A/R dept (along w/ remittance advice) - a copy to the acctg dept - a copy to the treasurer's dept (for preparing the bank deposit)

- a copy to the cashier (along w/ actual cash receipts) - a copy to the A/R dept (along w/ remittance advice) - a copy to the acctg dept There is no need to send a copy to the treasurer since the cashier is responsible for preparing the deposit

The 2 documents most likely to be generated by the revenue cycle are:

- credit memos - sales invoices

performance materiality is used when the auditor is comparing proposed adjustments to: a) an acct balance b) f/s as a whole c) both a) and b)

a) an acct balance

In searching for unrecorded liabilities, an auditor would most likely examine...? a) receiving reports for items received before year-end, but NOT yet recorded b) details of A/R confirmations classified as "exceptions" c) files of purch requisitions for items ordered just before year-end

a) receiving reports for items received before year-end, but NOT yet recorded

the primary evidence regarding year-end cash balances in the f/s is documented in the: a) interbank transfer schedule b) bank reconciliations c) standard bank confirmations

b) bank reconciliations

to provide assurance that each voucher is submitted and PAID ONLY ONCE, an auditor most likely would examine a sample of paid vouchers and determine whether each one is: a) approved for authorized purchases b) supported by a vendor's invoice c) stamped "paid" by the check signer d) prenumbered

c) stamped "paid" by the check signer (this cancels the voucher so it can't be resubmitted for payment)

Who should control the mailing of INDEPENDENT confirmations? a) the controller b) the internal auditor c) the independent auditor

c) the independent auditor

An auditor should obtain bank cut-off stmts that include transactions for ______ to ______ days after year-end. The _______________ checks and deposits in transit at year-end on the bank rec should agree with the info in the bank __________ stmt

10; 15 outstanding; cutoff

Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance list that is forwarded to the cashier. A copy of the list should be sent to the ________ ___________________ to update the ____________________________________.

A/R bookkeeper; subsidiary A/R records

Which documents should be sent to the A/P dept? a) Purchase order b) Sales order c) Signed check

a) Purchase order ONLY The A/P dept should receive the purch order, receiving report, and vendor invoice

overall materiality is used when the auditor is looking at...? a) all misstatements found throughout the audit for several different accounts b) misstatements found in a single account

a) all misstatements found throughout the audit for several different accounts

In a well-designed internal control, employees in the purchasing dept would: a) negotiate terms w/ vendors b) authorize requisitions of goods c) approve purchase orders

a) and c): negotiate terms w/ vendors and approve purchase orders

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also a) cancels the supporting documents b) approves the payment voucher c) is denied access to the supporting documents d) returns the checks to A/P

a) cancels the supporting documents This prevents duplicate payments of vendor invoices

the primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to: a) corroborate info regarding deposit and loan balances b) request info abt contingent liabilities and secured transactions c) provide all the info necessary to prepare a proof of cash

a) corroborate info regarding deposit and loan balances

Which control would offset the tendency of sales personnel to maximize volume at the expense of high bad debt write-offs? a) employees involved in credit-granting function are separated from the sales function b) employees responsible for authorizing sales and bad debt write-offs are denied access to cash

a) employees involved in credit-granting function are separated from the sales function

Which mgmt assertion is an auditor most likely testing if the audit objective states that ALL inventory on hand is reflected in the ending inventory balance? a) inventory is complete b) inventory is properly valued c) inventory is properly presented in the f/s

a) inventory is complete The auditor tests completeness of inventory in conjunction w/ inventory observation; this is done by tracing test counts to the report to verify that reported inventory is complete

an auditor's test of controls for completeness for the revenue cycle includes determining whether each invoice is: a) prepared for each shipping document b) properly approved c) supported by a customer purchase order d) created subsequent to year-end

a) prepared for each shipping document The auditor often traces a sample of shipping documents to sales invoices to test completeness of sales

on receiving a client's bank cutoff stmt, an auditor most likely would trace: a) prior-year checks listed in the cutoff stmt to the year-end outstanding checklist b) deposits recorded in the cash receipts journal after yr-end to the cutoff stmt c) checks dated after year-end to the year-end outstanding checklist

a) prior-year checks listed in the cutoff stmt to the year-end outstanding checklist

On receiving a client's bank cutoff statement, an auditor most likely will trace: a) prior-year checks listed in the cutoff stmt to the year-end outstanding checklist b) checks dated after year-end listed in the cutoff stmt to the year-end outstanding checklist c) deposits recorded in the cash receipts journal after year-end to the year-end bank rec

a) prior-year checks listed in the cutoff stmt to the year-end outstanding checklist - checks dated after year-end would NOT be included in the year-end outstanding checklist - deposits recorded in the cash receipts journal after year-end do NOT affect cash balance at year-end

Which is NOT an internal control designed to reduce the risk of errors in the billing process? a) reconciling control totals for sales invoices w/ the A/R sub ledger b) using computer controls on pricing and mathematical accuracy c) comparing control totals for shipping documents w/ corresponding totals for sales invoices

a) reconciling control totals for sales invoices w/ the A/R sub ledger Errors that exist in the preparation of invoices would likely carry thru to A/R

The confirmation of A/R rarely provides reliable evidence abt the completeness assertion because a) customers may not be inclined to report OVERstmt errors b) customers may not be inclined to report UNDERstmt errors c) customers tend to sign and return confirmations w/out proper consideration

b) customers may not be inclined to report UNDERstmt errors

An auditor selects a sample from the invoices to determine if shipping documents were prepared. This supports mgmt's assertion of: a) valuation & allocation b) existence c) completeness

b) existence The auditor is testing for items that were billed but not shipped (did a valid sale, as evidenced by shipment of goods, really occur)?

shipping documents provide evidence that...? a) sales were recorded b) sales occurred c) sales were approved

b) sales occurred

an auditor would most likely detect kiting by reviewing the bank transfer schedule and following up on all transfers for which...? a) the receipt date per bank is recorded on the same day as the disbursement date b) the receipt date per bank is recorded in the accounting period BEFORE the disbursement date c) the receipt date per bank is recorded in the accounting period AFTER the disbursement date

b) the receipt date per bank is recorded in the accounting period BEFORE the disbursement date

Who should perform the mailing of the check and remittance advice? a) vouchers payable dept b) treasury (cash disbursements) dept c) auditor

b) treasury (cash disbursements) dept

shipping documents w/out corresponding sales journal entries might indicate...? a) false sales b) unrecorded sales c) accidentally recorded sales

b) unrecorded sales

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about: a) existence b) valuation & allocation c) rights & obligations

b) valuation & allocation

Who ascertains that a requisition is approved for price, quantity, and quality before the purchase order is prepared? a) A/P department b) A/R department c) Purchasing dept d) Cash disbursements dept

c) Purchasing dept

An auditor should trace bank transfers for the last part of the audit period and first part of the subsequent period to detect whether: a) unusual payments to/receipts from related parties occurred b) the last checks recorded before year-end were actually mailed c) cash balances were overstated because of kiting

c) cash balances were overstated because of kiting This is known as the bank transfer test and detects whether cash shortages were concealed by depositing in one bank an unrecorded check of another disbursement bank

An auditor suspects that certain client employees are ordering merch for themselves. When vendors' invoices arrive, an employee approves the invoice, then destroys the invoices and related vouchers. In gathering evidence regarding this fraud, from where would the auditor select items for testing? a) vendor invoices b) receiving reports c) cash disbursements

c) cash disbursements The auditor would select items from this file and then attempt to trace from specific cash disbursements to the related invoices and approved vouchers

when auditing A/P, an auditor is primarily focused on mgmt's assertion of: a) valuation & allocation b) existence c) completeness

c) completeness (if A/P is not complete, it would be understated)

When an auditor does NOT receive replies to second requests on year-end A/R confirmations, the auditor would most likely perform alternate procedures to support existence of receivables including: a) intensifying the study of internal control structure b) increasing the assessed level of detection risk c) inspecting the shipping records documenting merchandise sold to debtors

c) inspecting the shipping records documenting merchandise sold to debtors This helps auditors determine whether merchandise was actually sold to the debtors

The purpose of tracing a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items: a) included in the listing were properly valued b) included in the listing were properly counted c) represented by tags were included on the listing

c) represented by tags were included on the listing

For which 2 assertions does confirmation of A/R balances provide primary evidence? a) completion b) valuation c) rights & obligations d) existence

c) rights & obligations (does the client have a right to the receivable)? d) existence (does the receivable actually exist)?

what is the most appropriate audit procedure to test the EXISTENCE of A/R? a) tracing transactions from the subsidiary ledger to the general ledger b) tracing a sample of invoices to recording in the general ledger c) sending confirmations to customers d) determining that all shipments before year-end are recorded as sales

c) sending confirmations to customers

an auditor would most likely be able to identify a contingent liability by obtaining a(n): a) related party transaction confirmation b) transfer agent confirmation c) standard bank confirmation

c) standard bank confirmation This document has an "exceptions + comments" box that specifically discloses contingent liabilities as an endorser of loans, for open lines of credit, etc.

When using confirmations to provide evidence about the COMPLETENESS assertion for accounts payable, the appropriate population most likely would be: a) amts recorded in the A/P sub ledger b) payees of checks drawn in the month AFTER year-end c) vendors w/ whom the entity has previously done business

c) vendors w/ whom the entity has previously done business

confirmation responses received electronically should be: a) accepted w/out performing further procedures b) ignored entirely c) verified by calling the sender

c) verified by calling the sender

What kind of cash transfer results in a misstmt of cash? a) when the deposit is recorded one day before the disbursement is recorded b) when the bank payment is recorded several days before the disbursement is recorded c) when the disbursement is recorded several days after the deposit was received

c) when the disbursement is recorded several days after the deposit was received The payment was not recorded in the period of deposit; thus, this results in a misstmt of cash

if the objective of an auditor's test of details is to detect the UNDERstmt of sales, then the auditor is testing the _____________assertion and should trace transactions from ___________________ __________________ (e.g. shipping documents) to the _______ __________ (e.g. sales invoices or sales journal)

completeness; supporting documentation (e.g. shipping documents); acctg records (e.g. sales invoices or sales journal)

kiting

concealing a cash shortage by depositing in one bank an unrecorded check of another disbursement bank

Which internal control activities are performed in the vouchers payable dept? a) indicating the asset and expense accts to be debited b) matching the vendor's invoice w/ the related receiving report c) approving vouchers for payment by having an authorized employee sign the vouchers d) accounting for unused prenumbered purchase orders and receiving reports

d) accounting for unused prenumbered purchase orders and receiving reports

Which of the following sets of info does an auditor usually confirm on ONE form? a) A/R and accrued interest receivable b) inventory and contingent liabilities c) A/P and purchase commitments d) cash in bank and collateral for loans

d) cash in bank and collateral for loans

When the shipping dept returns nonconforming goods to a vendor, what should the purchasing dept should send to the acctg dept? a) unpaid voucher b) credit memo c) vendor invoice d) debit memo

d) debit memo Debit memo is used to reduce A/P; credit memo is used to reduce A/R

The same employee responsible for matching vendor's invoices w/ receiving reports should also be responsible for: a) posting the A/P records b) paying and cancelling vendor invoices c) reconciling the A/P ledger d) recomputing calculations on vendor invoices

d) recomputing calculations on vendor invoices

Tracing shipping documents to prenumbered sales invoices provides evidence that: a) all prenumbered sales invoices were accounted for b) no duplicate shipments or billings occurred c) all goods ordered by customers were shipped d) shipments to customers were properly invoiced

d) shipments to customers were properly invoiced

Mailing disbursement checks and remittance advices should be controlled by the employee who: a) maintains possession of the mechanical check-signing device b) matches the receiving reports, purchase orders, and invoices c) approves the vouchers for payment d) signs the checks last

d) signs the checks last

When nonconforming goods are returned to a vendor, the purchasing department should send a _______ _______ to the accounting department to ensure that the A/P balance is reduced appropriately

debit memo

if the objective of an auditor's test of details is to detect the OVERstmt of sales, then the auditor is testing the _____________assertion and should vouch transactions from ________ ___________ (e.g. sales journal or sales invoices) to the _____________ __________ (e.g. shipping documents)

existence; acctg records; source documents

What does the search for unrecorded liabilities focus on?

identifying items that should've been (but were not) included in the year-end payable balance

for effective internal acctg control, the A/P dept should compare the info on each vendor's supporting documentation (vendor's __________, __________________ report, and _______________ order) to assure that goods were received and that the purchase was properly authorized

invoice; receiving; purchase

To determine whether A/P are complete, an auditor performs a test to verify that all merch received is recorded. This test consists of tracing from _____________ __________for inventory received BEFORE year-end to the A/P trial balance to determine if the purchase has been properly recorded

receiving reports

In auditing A/R, the negative form of confirmation request most likely would be used when...?

recipients are likely to return positive confirmation requests w/out verifying the accuracy of the info

When testing liabilities, an auditor is generally concerned abt ____________stmt When testing assets, an auditor is generally concerned abt _________stmt

under; over

lapping

when an employee uses current remittances to conceal remittances that have been stolen previously (the current payment is applied to the previous customer's acct)