AC316 Final

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A document used by organizations to establish a formal means of recording and controlling acquisitions which usually contains a package of documents about the acquisition is the A) voucher. B) purchase order. C) receiving report. D) purchase requisition.

Records that include data about employees such as employment date, performance ratings and pay rates are the A) human resource records. B) employee screening forms. C) summary payroll reports. D) employee folders.

The auditor gets highly reliable evidence about individual transactions by examining A) vendors' invoices. B) vendors' statements. C) confirmations of accounts payable balances. D) detailed inventory counting instructions.

The auditor is examining the accounting entries made to the accumulated depreciation account during the year and notices a significant amount of debits to the account. Which of the following provides the most logical explanation? A) large number of asset retirements B) salvage values were revised downward C) useful lives were revised downward D) allocation of fixed overhead were revised

The most important means of verifying account balances in the payroll and personnel cycle are A) tests of controls and substantive tests of transactions. B) analytical procedures and tests of controls. C) analytical procedures and substantive tests of transactions. D) tests of controls and tests of details of balances.

The overall objective in the audit of accounts payable is to determine whether accounts payable A) are fairly stated and properly disclosed. B) are overstated. C) are understated. D) are accurately stated.

To minimize the opportunity for fraud, unclaimed salary checks should be A) redeposited. B) kept in the payroll department. C) left with the employee's supervisor. D) held for the employee in the personnel department.

When auditing inventory cost accounting, the auditor is concerned with all of the following except for A) net realizable value. B) unit cost records. C) physical controls over inventory. D) documents and records for transferring inventory.

When performing the tests of details of balances for expense accounts, ________ is (are) generally not necessary. A) extensive additional testing B) analytical procedures C) tests of controls D) substantive tests of transactions

Which of the following accounts is not associated with the acquisition and payment cycle? A) common stock B) property, plant and equipment C) accrued property taxes D) income tax expense

Which of the following audit procedures would be the most correct in determining the audit objective of existence for the equipment account in the fixed asset master file? A) Examine vendor invoices and receiving reports. B) Review transactions near the balance sheet date. C) Recalculate vendor invoices. D) Examine vendor invoices for correct accounting treatment.

Which of the following audit procedures would be the most effective in testing for nonexistent employees? A) Trace transactions recorded in the payroll journal to the human resources department to determine employment status. B) Examine cancelled checks for proper endorsement. C) Recalculate net pay. D) Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement.

Which of the following should sign checks under conditions of effective internal control? A) treasurer B) purchasing agent C) accounts payable clerk D) person preparing the checks

A company recorded an acquisition of merchandise and its related liability, but failed to include the merchandise in ending inventory. The effect on the financial statements was to A) understate liabilities. B) understate net income. C) overstate net income. D) have no impact on the financial statements since the errors cancel each other out.

A major consideration in verifying the ending balance in fixed assets is the possibility of existing legal encumbrances. Tests to identify possible legal encumbrances would satisfy the audit objective of A) existence. B) presentation and disclosure. C) detail tie-in. D) classification.

Auditor tests of the physical controls over raw materials, work in process, and finished goods are generally limited to A) observation and confirmation. B) observation and inquiry. C) inquiry and reconciliation. D) observation and reconciliation.

The audit procedure that requires an auditor to "foot the acquisition schedule" relates to which balance-related audit objective? A) classification B) detail tie-in C) existence D) cut-off

The computer file used for recording payroll transactions for each employee and maintaining total wages paid for the year to date is the A) payroll transaction file. B) payroll master file. C) payroll bank account reconciliation. D) payroll tax returns.

The first step in verifying the valuation of purchased inventory is in determining the valuation method used by the client. The next step is A) determining that all inventory that is purchased is expensed through cost of goods sold. B) determining which costs should be included in the valuation of an item of inventory. C) determining that all inventory on hand reconciles to the perpetual inventory records. D) determining that cut-off procedures have been adhered to prior to counting inventory

The primary accounting record for manufacturing equipment and other fixed assets is the A) depreciation ledger. B) fixed asset master file. C) asset inventory. D) equipment roster

When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were A) received prior to the balance sheet date. B) shipped on or before the balance sheet date. C) both shipped and received prior to the balance sheet date. D) paid for in advance

Which of the following is not a key control in the acquisition and payment cycle? A) authorization of purchases B) authorization of credit C) timely recording and independent review of transactions D) authorization of payments

You are performing an audit of Hawk Company. In evaluating the accounts payable balance you are concerned with the completeness assertion. Which of the following audit procedures best satisfies your concern? A) Send confirmations to only vendors with large balances. B) Send confirmations to vendors with large, active, zero balance accounts and a representative sample of all others. C) Send confirmations to vendors chosen from sample stratified by the dollar balance. D) Send confirmations to all vendors.

If a client intends to count inventory at an interim date, the auditor should expect there to be all of the following except A) controls over the preparation and maintenance of perpetual inventory records. B) competent personnel assigned to count the inventory. C) third-party inventory counting specialists. D) an adequately designed plan to count the inventory

In the flow of inventory and costs, when work-in-progress is credited, ________ is (are) debited. A) raw materials B) cost of goods sold C) finished goods D) direct labor

Master files, spreadsheets, and reports that accumulate material, labor, and overhead as the costs are incurred are A) accounting systems. B) storeroom documents. C) cost accounting records. D) finished goods inventory records.

The auditor's tour of the client's inventory facilities should be led by A) a member of the audit committee. B) the CFO. C) a plant supervisor. D) the company president.

Which of the following is a substantive test of transactions? A) Review personnel policies. B) Account for a sequence of payroll checks. C) Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement. D) Examine printouts of transactions rejected by the computer as having invalid employee IDs.

Which of the following is not one of the business functions for the payroll and personnel cycle? A) payment of payroll B) timekeeping and payroll preparation C) reconciliation of payroll account D) human resources and employment

You are the in-charge auditor and are designing audit procedures for accounts payable. Which of the following management assertions would you normally be most concerned about? A) occurrence B) accuracy C) completeness D) existence

Comparing the physical counts with the perpetual inventory master files satisfies the balancerelated audit objective of A) classification. B) observation. C) completeness. D) accuracy.

Controls over the acquisition and recording of insurance are a part of which of the following transaction cycles? A) inventory and warehousing cycle B) capitalization cycle C) treasury cycle D) acquisition and payment cycle

It would be appropriate for the payroll department to be responsible for which of the following functions? A) approval of employee time records B) maintain records of employment, firings, and raises C) temporary retention of unclaimed employee paychecks D) preparation of governmental reports as to employees' earnings and withholding taxes

The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory. A) cutoff B) accuracy C) nature D) extent

To ensure proper segregation of duties, who should maintain the perpetual inventory master files? A) production personnel B) inventory storeroom personnel C) inventory receiving personnel D) accounting department personnel

A CPA learns that his client has paid a vendor twice for the same shipment, once based upon the original invoice and once based upon the monthly statement. A control procedure that should have prevented this duplicate payment is A) attachment of the receiving report to the disbursement report. B) prenumbering of disbursement vouchers. C) use of a limit or reasonableness test. D) prenumbering of receiving reports.

A common inventory observation procedure is to select a random sample of tag numbers and identify the tag with that number attached to the actual inventory item. The audit objective being achieved by this procedure is A) inventory as recorded on tags actually exists (existence). B) existing inventory is counted and tagged (completeness). C) inventory is counted accurately (accuracy). D) inventory is classified correctly (classification).

A document indicating a reduction in the amount owed to a vendor because of returned goods is A) a debit memo. B) a credit memo. C) a receiving report. D) a contractual adjustment form.

A weak internal control system allows a department supervisor to "clock in" for a fictitious employee and then approve the employee's time card at the end of the pay period. This fraud would be detected if other controls were in place, such as having an independent party A) distribute paychecks. B) recompute hours worked from time cards. C) foot the payroll journal and trace postings to the general ledger and the payroll master file. D) compare the date of the recorded check in the payroll journal with the date on the canceled checks and time cards.

Almost all companies need physical controls over their assets to prevent loss. Which of the following is not an example of such a control? A) perpetual inventory master files B) segregated, limited-access storage areas C) custody of assets assigned to specific responsible individuals D) approved prenumbered documents for authorizing movement of inventory

An auditor is using audit sampling to test transactions in the acquisition and payment cycle. She would normally set the tolerable exception rate at what level? A) Low B) Medium C) High D) Indeterminate

An auditor is vouching a sample of hourly employees from the payroll master file to approved time clock or time sheet data in order to provide evidence that A) employees work the number of hours for which they are paid. B) payments are made at the contractual rate. C) product cost information is accurate. D) segregation of duties is present between the payroll function and the payment function for cash disbursements.

An imprest payroll account that has a significant balance may indicate the presence of A) employees have not yet cashed their payroll checks. B) fraudulent transfer of funds by the company. C) lack of controls over payroll distribution. D) the company is overpaying its employees.

An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed. If the acquisition is included in accounts payable and purchases, but excluded from inventory, the result A) is an understatement of net earnings. B) is an overstatement of net earnings. C) is an overstatement of working capital. D) is an overstatement of owner's equity.

Changing circumstances may require a change in the useful life of an asset. When this occurs, it involves a change in A) accounting estimate rather than a change in accounting principle. B) accounting principle rather than a change in accounting estimate. C) both accounting principle and accounting estimate. D) neither accounting principle nor accounting estimate.

From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories? A) observation of physical inventory counts B) written inventory representations from management C) confirmation of inventories in a public warehouse D) auditor's recomputation of inventory extensions

If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control? A) Account for a sequence of payroll checks. B) Examine the procedures manual and observe the recording of transactions. C) Examine the payroll records for indication of pay rate approval. D) Reconcile the payroll bank account.

In auditing payroll, the auditor wants to determine that the individuals included in her sample were employees of the company for the period under review. What is the auditor's best source of evidence? A) examination of human resource records B) examination of the payroll master file C) examination of the payroll transaction file D) examination of the payroll tax records

In order to strengthen controls over cost accounting information, a company should consider implementing A) perpetual inventory master files. B) a job order cost accounting system. C) an accounting system that keeps separate the records of the accounting department from the records of the production department. D) an economic quantity order system.

Insurance expense for the period is a function of which of the following? A) the beginning prepaid balance, current premium payments and the ending prepaid balance B) the beginning prepaid balance and the current period premium payments C) the current period premium payments D) the current period premium payments and the ending prepaid balance

Inventory is often a significant part of a company's current assets. Because of its importance, A) auditors are required by auditing standards to observe the client taking a physical inventory count. B) price tests must be performed to verify whether the physical counts were correctly summarized. C) companies are required to use perpetual inventory systems. D) auditors are required by auditing standards to take the physical inventory for the client.

It is frequently possible to test the physical inventory prior to the balance sheet date when A) the perpetual inventory records are accurate and related controls operate effectively. B) year-end sales are small. C) the internal control system is no better at year-end than at an earlier point in time. D) the client counts inventory at interim dates.

McKesson & Robbins Company is a well-known audit case involving auditor responsibility. What occurred at the McKesson & Robbins Company to change the way in which auditors audit inventory? A) The company recorded nonexistent inventory. B) The auditor did not perform any audit tests of the inventory. C) The auditor and company colluded to overstate inventory balances. D) The company counted inventory three months prior to year-end.

Once the auditor determines that the company's policy for accruing wages is consistent with prior years, the appropriate audit procedure to test for accuracy and cutoff is A) recalculating the client's accrual. B) performing extensive tests of controls. C) performing extensive tests of details. D) none of the above.

One of the primary objectives in examining the repairs and maintenance accounts is to obtain evidence that A) expenditures of equipment have not been charged to expense. B) the actual amount recorded is the same as the budgeted amount. C) expenditures for equipment have been recorded in the proper period. D) revenue expenditures made on behalf of equipment have been recorded in the proper period

The ________ has the responsibility for approving the number of hours worked for each employee. A) employee's supervisor B) human resources department C) chief financial officer D) budgeting supervisor

The audit of year-end physical inventories should include steps to verify that the client's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a A) sale in the current period. B) sale in the subsequent period. C) purchase in the current period. D) purchase return in the subsequent period.

The auditor is testing for unrecorded retirements/disposals of equipment. Which of the following audit procedures would the auditor most likely use? A) Select items from the fixed asset master file and then physically locate them. B) Examine the repairs and maintenance amount for large debits. C) Compare current year's depreciation expense with the previous year's depreciation expense. D) Trace acquisition documents to the fixed asset master file.

The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the A) accounts payable master file. B) cash disbursements file. C) acquisitions transaction file. D) purchase approval file.

The inventory and warehousing cycle can be thought of as having two separate but closely related systems, one involving the actual physical flow of goods, and the other the A) related costs. B) storage of the goods. C) internal control over those goods. D) prevention of waste, obsolescence, and theft.

The most common audit test to verify equipment additions is to A) examine vendors' invoices. B) perform an inventory of the fixed assets. C) confirm the additions with the vendors. D) trace the vendor invoices to the cash disbursements journal.

The most effective and efficient audit approach in the examination of the income statement would be which of the following? A) Examine income statement accounts concurrently with the related balance sheet accounts. B) Compare company's components of net income to other businesses in the same industry. C) Compare company's components of net income to the previous two years. D) Examine changes in all balance sheet accounts

The most important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the A) consistent accrual of these liabilities relative to those of preceding periods. B) actual expense incurred for the prior period. C) amount expended to date in the current period. D) profitability of the client which will enable these liabilities to be met.

The test of details of balances procedure to "examine vendors' invoices of closely related accounts such as repairs to uncover items that should be property, plant, and equipment" satisfies the audit objective of A) completeness. B) detail tie-in. C) cutoff. D) existence.

The total of the individual employee earnings in the payroll master file should equal the total A) balance of gross payroll in general ledger accounts. B) of the checks drawn to employees for payroll. C) gross payroll plus the total contributed by the employer for payroll taxes. D) gross pay for the current week's payroll.

Verifying that an adequate chart of accounts is used is a key internal control for the transaction-related objective of A) classification. B) accuracy. C) existence. D) occurrence.

When an auditor observes that personnel who are responsible for physically counting inventory are not following the inventory instructions, the auditor should A) contact a client's supervisor to correct the problem. B) modify the client's physical inventory instructions. C) not discuss the problem with client's supervisor in order to maintain independence. D) assign audit staff to the inventory count.

When auditors verify accrued property taxes, two audit objectives are especially significant. These are A) completeness and accuracy. B) completeness and net realizable value. C) detail tie-in and completeness. D) accuracy and classification.

When determining the methodology for designing tests of details of balances for accounts payable, A) the focus by many companies on improving their supply-chain management activities has led to numerous changes in the design of systems used to initiate and record acquisition and payment activities. B) it is relatively inexpensive to audit accounts payable. C) performance materiality for accounts payable is set relatively low. D) inherent risk is often set at low.

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account? A) Extraordinary repairs have lengthened the life of an asset. B) Prior years' depreciation charges were erroneously understated. C) A reserve for possible loss on retirement has been recorded. D) An asset has been recorded at its fair value.

Which of the following is a significant audit concern related to the transfer of inventory from one location to another? A) Recorded transfers occurred. B) Transfers were properly transported. C) Transfers were properly planned. D) Transfers represent efficient movement of assets.

Which of the following is an accurate statement regarding inventory and risk? A) Inventory with a high business risk includes products with potential obsolescence. B) Auditors often have a greater concern for misstatements when inventory is stored in one warehouse. C) Inherent risk is generally set at low for manufacturing companies. D) Performance materiality for inventory is determined before assessing client business risk.

You are auditing the inventory account and are concerned about the possibility of an inventory overstatement. What is the best audit procedure to detect damaged inventory? A) Observe the condition of inventory during the client's physical count. B) Compare the condition of inventory from the previous year's count to the current year. C) Compare inventory turnover from the previous year's inventory to the current year's inventory. D) Reconcile the inventory counts to the cost accounting records.

You are gathering evidence for the audit objective that existing inventory items are included in the inventory listing schedule. The audit procedure that would provide you with the best evidence to confirm this objective is A) trace from inventory tags to the inventory listing schedule and make sure the inventory on the tags is included. B) trace the inventory totals to the general ledger. C) perform tests of lower-of-cost-or-market. D) account for unused tags shown in the auditor's documentation to make sure no tags have been added.

A common inventory observation procedure is to be alert for items that are damaged, rust- or dust-covered, or located in inappropriate places. The balance-related audit objective being achieved by this procedure is A) classification. B) cutoff. C) realizable value. D) rights

A major difficulty in the verification of inventory cost records for the purpose of inventory valuation is in determining the reasonableness of the A) direct labor costs. B) raw material costs. C) manufacturing overhead costs. D) period costs

A major source of cutoff information for sales and purchases of inventory is A) confirmations from outside parties. B) the test of details of balances. C) physical observation. D) the performance of analytical procedures.

A set of records for each piece of equipment that includes descriptive information, date of acquisition, original cost, current year depreciation, and accumulated depreciation is the A) acquisitions schedule. B) depreciation schedule. C) fixed asset master file. D) file of purchase requisitions.

A surprise payroll payoff in which employees must pick-up and sign for their pay check is one means of A) identifying employees who do not have proper work credentials. B) establishing a tightly controlled, fraud-free work environment. C) testing for nonexistent employees. D) identifying employees who have not submitted proper W-2 forms.

Although significant client business risks affecting payroll are unlikely for most companies, an area that would have the most business risk would be A) payment of hourly employees. B) payment of salaried employees. C) payments to employees for stock options and bonus plans. D) payments to employees who have direct deposit of their payroll checks.

An auditor must inquire about consigned or customer inventory included on the client's premises to satisfy the balance-related audit objective of A) cutoff. B) classification. C) rights. D) completeness.

An auditor traces a sample of electronic time cards before and after the bi-weekly payroll report and then traces to the payroll master file to determine that payroll transactions are reported in the correct period. The auditor is gathering evidence for which audit objective? A) completeness B) existence C) cut-off D) accuracy

Assume that the client's valuation of an inventory item is $10 per unit for 1,000 units, using first-in, first-out (FIFO). If the most recent acquisition of inventory was for 600 units at $10 per unit and the immediately preceding acquisition was for 700 units at $9 per unit, the inventory item is in error and it is A) understated $400. B) understated $300. C) overstated $400. D) overstated $700.

At what point do most companies recognize liabilities in the acquisition and payment cycle when the goods are shipped FOB destination? A) when the purchase order is issued B) when the vendor acknowledges receipt of the order C) when the goods or services are received D) when the vendor invoice is received

Because the failure to record disposals of property, plant, and equipment can significantly affect the financial statements, the search for unrecorded disposals is essential. Which of the following is not a procedure used to verify disposals? A) Make inquiries of management and production personnel about the possibility of the disposal of assets. B) Review whether newly acquired assets replace existing assets. C) Test the valuation of fixed assets recorded in prior periods. D) Review plant modifications and changes in product line, property taxes, or insurance coverage.

Boxes or other containers holding inventory should also be opened during test counts to determine the ________ of the inventory. A) classification B) detail tie-in C) existence D) realizable value

Controls which provide a means of ensuring that the physical counts are properly summarized, priced at the same amount as the unit records, correctly extended and totaled, and included in the general ledger at the proper amount are known as A) standard cost controls. B) pricing internal controls. C) compilation internal controls. D) count quantity internal controls.

Cost accounting controls are those related to the physical inventory and the consequent costs from the point at which A) materials are ordered for purchase until the finished product is sold. B) the customer's order is received until the finished product is shipped. C) raw materials are requisitioned until the finished product is sent to storage. D) raw materials are requisitioned until the finished product is completely manufactured

For effective internal control purposes, the accounts payable department generally should A) approve the purchase order. B) have the authority to sign the checks. C) establish the agreement of the vendor's invoice with the receiving report and purchase order. D) supervise the preparation of the receiving report.

If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count, the auditor should ordinarily A) withdraw from the engagement. B) issue a qualified audit report. C) conduct expanded observation tests of physical inventory. D) hire a specialist to assist the auditor

If the perpetual inventory master files show lower quantities of inventory than the physical count, an explanation of the difference might be unrecorded A) sales. B) sales discounts. C) purchases. D) purchase discounts

In connection with a review of the prepaid insurance account, which of the following audit procedures would you be least likely to use? A) Recompute the portion of the premium that expired during the year. B) Prepare excerpts of insurance policies for audit working papers. C) Confirm premium rates with an independent insurance broker. D) Examine support for premium payments.

No individual with access to time cards, payroll records, or checks should also be permitted access to A) the computer. B) job time tickets. C) personnel records. D) the canceled check file.

Pricing manufactured inventory is difficult. Auditors must evaluate the method of allocating manufacturing overhead for all but which of the following? A) reasonableness B) computational correctness C) compliance with generally accepted auditing standards D) consistency

The accounts payable department usually has responsibility for approving acquisitions for payment by comparing the details on the A) vendor's invoice and the receiving report. B) vendor's invoice and the purchase requisition. C) purchase order, receiving report, and vendor's invoice. D) purchase requisition, purchase order, and receiving report.

The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the A) acquisition and payments cycle. B) payroll and personnel cycle. C) inventory and warehousing cycle. D) sales and collection cycle.

The auditor normally does not need to test the accuracy or classification of fixed assets recorded in prior periods if they are the continuing auditor because A) they are rarely material to the audit. B) they rarely contain misstatements. C) they are verified in previous audits. D) they don't affect the balance sheet.

The auditor's starting point for verifying disposals of property, plant, and equipment is the A) equipment account in the general ledger. B) file of shipping documents. C) client's schedule of recorded disposals. D) equipment subsidiary ledger.

The internal control that requires that "checks are prenumbered and accounted for" satisfies the objective of A) accuracy. B) existence. C) completeness. D) posting and summarization

The main focus taken by the auditor in verifying liability balances is on the discovery of I. understated liabilities. II. omitted liabilities. A) I only B) II only C) both I and II D) neither I nor II

The overall objective in the audit of the acquisition and payment cycle is A) to ensure the reliability of the affected accounts. B) to ensure the accuracy of the affected accounts. C) to evaluate whether the affected accounts are fairly presented in accordance with accounting standards. D) to evaluate whether fraudulent payments were made.

The primary concern in testing payroll-related liabilities is to make sure that A) accruals are properly valued. B) transactions are recorded in the proper period. C) there are no understated or omitted accruals. D) the accruals are not overstated

There must be a periodic physical count by the client of the inventory items on hand A) only if the client uses the LIFO method. B) only if the client uses a lower-of-cost-or-market method. C) regardless of the client's inventory valuation method. D) only if the client uses either the LIFO or FIFO method

Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors? A) The internal accounting control over accounts payable is effective, and there is sufficient evidence on hand to minimize the risk of a material misstatement. B) The confirmation response is expected to be favorable, and accounts payable balances are of immaterial amounts. C) The creditor statements are not available and internal control over payables is deficient. D) The majority of accounts payable balances are with associated companies.

Verification of the legitimacy of year-end unpaid bonuses to officers and employees can be accomplished by comparing the recorded accrual to the amount A) in the expense account. B) used in the prior period. C) authorized in the minutes of the board. D) paid in the subsequent period.

When a physical count of inventory is performed at an interim date, the auditor observes it at that time and tests the perpetual records for transactions A) throughout the year. B) which are a representative sample of the period under audit. C) from the date of the count to year-end. D) from the date of the count to the end of the audit field work.

When an auditor recomputes the unexpired portion of prepaid insurance, they are satisfying which audit objective? A) completeness B) existence C) accuracy and detail tie-in D) rights

When auditing accrued property taxes, A) the auditors will generally only verify the larger payments since there are usually many property tax payments. B) property taxes should only be charged to one expense account. C) the auditor begins by obtaining a schedule of property tax payments from the client. D) the auditor must generally spend a considerable amount of time in this area.

When auditing depreciation expense, the two major concerns related to the accuracy audit objective are A) consistent application of depreciation method and useful lives. B) consistent application of depreciation method and classification of assets. C) correctness of calculations and consistent application of depreciation policies. D) cost of the fixed asset and useful lives.

When auditing manufacturing overhead costs assigned to inventory, auditors should keep in mind that A) GAAP has strict procedures that must be followed when assigning overhead to work-inprocess inventory. B) overhead costs must be allocated to raw materials, work-in-process, and finished goods inventory. C) management typically allocates overhead using total direct labor dollars as the basis for the allocation. D) determining the reasonableness of the allocation method is relatively simple for work-inprocess inventory.

A record of insurance policies in force and the due date of each policy is contained in the A) voucher register. B) insurance register. C) insurance expense account. D) prepaid insurance account.

Absent disputed amounts and minor timing differences, the vendor's statements should reconcile to the A) acquisition journal. B) accounts payable master file. C) cash disbursements amount for purchases. D) vouchers payable amount for vendors.

An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all A) merchandise received. B) vendors' invoices. C) canceled checks. D) receiving reports.

An auditor selects a random sampling of tag numbers and identifies the tag with that number attached to the actual inventory. The purpose of the procedure is to A) obtain proper cutoff information. B) uncover the inclusion of nonexistent items as inventory. C) determine if the client has adequately priced the inventory item. D) verify that the client has not changed the recorded counts after the auditor left the premises.

Auditor confirmation of accounts payable balances at the balance sheet date may not need to be performed by the auditor because A) this is a duplication of cutoff tests. B) there is likely to be other reliable external evidence available to support the balances. C) accounts payable balances at the balance sheet date may not be paid before the audit is completed. D) correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment.

Auditors need to understand the client's physical inventory count controls before the count of the inventory begins so that A) the auditors can accurately count and tag the inventory for the client. B) the auditors can make constructive suggestions as to the adequacy of the procedures. C) the client will be informed on exactly what items the auditor intends to test count. D) the auditor can communicate any weaknesses directly to the audit committee.

By tracing receiving reports issued at and before year-end to vendors' invoices and making sure they are included in accounts payable, the auditor is testing for A) theft of merchandise by employees. B) unrecorded obligations. C) lapping. D) kiting.

Handling the receipt of ordered goods is a part of the ________ cycle. A) purchasing B) acquisition and payment C) inventory D) inventory and warehousing

If an auditor were concerned with obtaining evidence about the appropriateness of the value of inventory, which of the following tests would be most appropriate? A) compilation tests B) price tests C) confirmation of inventory held by outside parties D) physical examination of the inventory

In determining the reasonableness of the client's amount for depreciation expense the auditor is primarily concerned that the client has followed a consistent policy and the calculations are correct. Which of the following audit objectives best addresses the above concerns? A) existence B) accuracy C) valuation D) allocation

Many audits have a ________ risk of misstatement for the payroll cycle. A) high B) low C) moderate D) zero

Receipt of ordered materials by the receiving department will generate the completion of a form called the A) bill of lading. B) receiving report. C) materials requisition. D) inventory acquisition summary.

Smaller privately held companies may not maintain an accounts payable master file by vendor. These companies pay on the basis of A) vendors' monthly statements. B) individual vendors' invoices. C) the accounts payable account in the general ledger. D) dunning letters.

The audit of cost accounting begins with the internal transfer of assets from raw materials to work-in-process to A) manufacturing overhead. B) finished goods inventory. C) the perpetual inventory master files. D) retail sales.

The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of A) audit efficiency. B) accuracy of the perpetual inventory master files. C) client convenience. D) audit staff availability.

The auditor is performing substantive tests of balances for accounts payable. What documentation would provide the best evidence for the ending balance? A) vendors' invoices B) vendors' statements C) receiving reports D) purchase orders

The auditor needs to gain reasonable assurance that the equipment accounts in the fixed asset master file are not understated. Which of the following accounts would most likely be reviewed in making that determination? A) depreciation expense B) repairs and maintenance expense C) gains/losses on sales and retirements D) cash

The auditor traces inventory tags identified as non-owned during the physical observation to the inventory listing schedule to make sure these have not been included. This test satisfies the balance-related audit objective of A) cutoff. B) rights. C) accuracy. D) existence.

The auditor's internal control objective to determine that "recorded acquisitions are for goods and services received" satisfies the audit objective of A) accuracy. B) occurrence. C) authorization. D) completeness.

The auditor's main objectives in the verification of the sale, trade-in, or abandonment of equipment are to gather sufficient appropriate evidence that all disposals are ________ and at the ________. A) verified; historical cost B) recorded; correct amounts C) accurate; proper gain or loss amount D) classified properly; net realizable value

The careful and timely preparation of all payroll tax returns is necessary to avoid penalties and criminal charges. The most important control in the timely preparation of these returns is A) computerized preparation of tax returns. B) a well-defined set of policies that indicate when each form must be filed. C) independent verification of computer output by a competent individual. D) the use of an outside payroll service.

The extent of a search for unrecorded liabilities largely depends on A) materiality and inherent risk. B) materiality and control risk. C) materiality only. D) inherent risk only.

The main difference between job order and process costing systems is that A) one accumulates costs by materials issued and the other by labor incurred. B) one accumulates costs by individual jobs and the other by particular processes. C) one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process. D) one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence.

To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditor should review and test the A) terms of the open purchase orders. B) purchase cutoff procedures. C) contractual commitments made by the purchasing department. D) purchase invoices received on or around year-end.

Vendors' statements and vendors' invoices are both relatively reliable evidence because they A) come directly to the auditor without being in client's possession. B) originate from a third party. C) validate the effectiveness of the control system. D) are compared to and reconciled with sales invoices.

What typically ends the acquisitions and payment cycle? A) issuance of a purchase requisition or request for purchase of goods/services B) issuance of a payment on accounts payable C) approval of a new vendor D) purchase requisition

When auditing prepaid insurance, A) for many audits, significant substantive procedures are needed if the control risk is low. B) companies often have a standard monthly journal entry to reclassify prepaid insurance as insurance expense. C) the emphasis in the tests of details of balances is on insurance expense. D) the auditor must prepare the insurance register

When auditors observe the client counting inventory, they should be careful to do all of the following except A) inquire about items that are likely to be obsolete or damaged. B) calculate the unit cost of the inventory items. C) discuss with management the reasons for excluding any material items. D) observe the counting of the most significant items.

When determining sample sizes for accounts payable tests, A) sample sizes rarely vary from audit to audit. B) auditors must try to ensure that the population includes all potential payables. C) defining the population is a simple procedure. D) all of the above are correct.

When determining the sample size for the number of items the auditor should count during the physical inventory, A) it is easy to quantify the number of items based on a formula developed by the AICPA. B) one of the key determinants that must be considered is internal control over the physical count. C) one of the key determinants that must be considered is the cost involved. D) generally accepted auditing standards require that at least 80% of the dollar value of the inventory should be included in the sample.

When examining payroll transactions, an auditor is primarily concerned with the possibility of A) incorrect summaries of employee time records. B) overpayments and unauthorized payments. C) under withholding of amounts required to be withheld. D) posting of gross payroll amounts to incorrect salary expense accounts.

When the auditor compares the cancelled check or direct deposit with the payroll journal for amount, they are concerned with the transaction-related audit objective of A) occurrence. B) accuracy. C) classification. D) timing

When there are no perpetual inventory files and inventory is material, A) an audit cannot be performed, so the auditor must issue a disclaimer. B) a physical inventory should be taken by the client near the end of the accounting period. C) the auditor will have to perform the inventory count and determine valuation. D) the auditor need not observe inventory counts but must do test counts

Which is not one of the tests that would be used in the audit of equipment, depreciation expense, and accumulated depreciation? A) Verify the ending balance in the asset account. B) Send confirmations to the sales personnel who sold the equipment to the company. C) Perform substantive analytical procedures. D) Verify current year acquisitions.

Which of the following accounts would normally not be a part of the acquisition and payment cycle of prepaid insurance? A) cash B) insurance payable C) insurance expense D) prepaid insurance

Which of the following audit procedures would be least likely to lead the auditor to find an unrecorded fixed asset disposal? A) Examination of insurance policies B) Review of repairs and maintenance expense C) Review of property tax files D) Scanning of invoices for fixed asset additions

Which of the following audit tests both have the effect of simultaneously verifying balance sheet and income statement accounts? A) analytical procedures and substantive tests of transactions B) tests of controls and substantive tests of transactions C) tests of details of balances and substantive tests of transactions D) tests of controls and analytical procedures

Which of the following best describes inherent risk for balance-related audit objectives as they relate to payroll? A) not considered B) low C) moderate D) high

Which of the following departments is most likely responsible for pay rate changes and changes in deductible amounts for employees? A) general accounting department B) human resources department C) treasurer D) controller

Which of the following includes all payroll transactions processed by the accounting system for a given period of time? A) payroll journal B) payroll transaction file C) time report D) payroll summary

Which of the following is a major balance-related audit objective in testing payroll liabilities? A) Payroll tax expense is properly recorded. B) Transactions in the payroll and personnel cycle are recorded in the proper period. C) Accrual of salaries is the same as the amounts paid on the payroll tax returns. D) Time records are recorded by supervisors.

Which of the following statements is false? A) The payroll cycle consists of one class of transactions. B) Balance sheet accounts related to payroll are generally more significant than related transactions. C) Internal controls over payroll are effective for most companies. D) Small companies usually have effective controls over payroll.

Which of the following would have the least amount of importance regarding controls over the processing of payroll? A) The person authorized to sign paychecks should not be otherwise involved in the preparation of the payroll. B) A check-signing machine should not be used to replace a manual signature. C) Distribution of pay checks should be performed by someone who is not involved in the other payroll functions. D) Unclaimed paychecks should be immediately returned for redeposit.

Which one of the following procedures would not be appropriate for an auditor in discharging his responsibilities concerning the client's physical inventories? A) confirmation of goods in the hands of public warehouses B) supervising the taking of the annual physical inventory C) carrying out physical inventory procedures at an interim date D) obtaining written representation from the client as to the existence, quality, and dollar amount of the inventory

You are performing the audit of Jenkins and Company. Your tests of controls and tests of transactions for accounts payable demonstrate that the controls are operating effectively. This would normally allow you to A) eliminate the need for substantive testing of balances for accounts payable. B) reduce the need for substantive testing of balances for accounts payable. C) reduce control tests in other transactions cycles. D) increase the need for substantive testing of balances for accounts payable.

________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred. A) Just-in-time production systems B) Job cost systems C) Process cost systems D) Manufacturing systems

________ is not a transaction-related audit objective for the classes of transactions underlying the payroll cycle. A) Classification B) Existence C) Timing D) Completeness

When auditing the payroll and personnel cycle, the auditor should keep in mind that A) since payroll transactions are typically uniform, all companies have the same internal controls over payroll. B) the substantive tests of transactions for the payroll cycle are the same for all audit clients. C) controls the auditor intends to rely on to reduce assessed control risk must be tested with tests of controls. D) the tests of controls and the substantive tests of transactions for payroll cannot be combined.

When labor is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning A) fictitious employees. B) authorization of wage rates. C) proper classification of payroll transactions. D) completeness of recorded transactions.

When testing for fraudulent hours or fraudulent expense reports A) it is easy for the auditor to discover fraudulent hours because of the abundance of available evidence. B) it is difficult to prevent fraud in these two areas with adequate internal controls. C) management falsification of expense reports can be an indicator of disregard for internal controls and the potential for fraud in other areas. D) examining payroll records for approval is an important substantive tests of transactions to uncover fraudulent hours.

Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions? A) the supervising department B) the accounting department C) the human resources department D) the treasurer's department

Which of the following accounts is not included in the acquisitions class of transactions? A) inventory B) prepaid expenses C) sales discounts D) accounts payable

Which of the following accounts is not part of the acquisition and payment cycle? A) prepaid expenses B) accounts payable C) sales returns and allowances D) property, plant, and equipment

Which of the following best describes effective internal control over payroll? A) The preparation of the payroll must be under the control of the personnel department. B) The confidentiality of employee payroll data should be carefully protected to prevent fraud. C) The duties of hiring, payroll computation, and payment to employees should be segregated. D) The payment of cash to employees should be replaced with payment by checks.

Which of the following best describes the systems of internal control for payroll for large companies? A) loosely structured but well controlled B) loosely structured and loosely controlled C) highly structured and well controlled D) highly structured but loosely controlled

Which of the following is an accurate statement regarding perpetual inventory master files? A) When perpetual inventory master files are accurate, auditors can test the physical inventory after the balance sheet date. B) It is a difficult procedure for the auditor to test the accuracy of the perpetual inventory master files. C) Auditors test the perpetual records for reductions in finished goods for sale as part of the sales and collection cycle. D) All of the above are accurate statements.

Which of the following is the best way for an auditor to determine that every name on a company's payroll for the Rodgers factory is that of a bona fide employee presently on the job? A) Examine personnel records for accuracy and completeness. B) Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. C) Make a surprise observation of the company's regular distribution of paychecks. D) Visit the working areas and confirm with employees their badge or identification numbers.

Which of the following statements is correct regarding the audit of inventory cost accounting? A) Cost accounting systems and controls are the same for all manufacturing companies. B) All companies that have work-in-process must use a perpetual inventory system. C) Auditors test perpetual inventory master files by examining documentation that supports additions and reductions of inventory amounts in the master files. D) Manufacturing companies keep their cost accounting records separate from the production and other accounting records.

Which of the following types of audit tests is usually emphasized due to a lack of independent third-party evidence related to payroll transactions? A) analytical procedures B) tests of details of balances C) tests of controls D) Each of the above is emphasized.

Which one of the following substantive analytical procedures would be most useful in alerting the auditor to the possibility inventory and cost of goods sold being overstated or understated? A) Compare extended inventory value with that of previous years. B) Compare unit costs of inventory with previous years. C) Compare inventory turnover ratio with previous years. D) Compare current year manufacturing costs with previous years.

Which one of the following substantive analytical procedures would be most useful in alerting the auditor to the possibility of obsolete inventory? A) Compare gross margin percentage with that of previous years. B) Compare unit costs of inventory with previous years. C) Compare inventory turnover ratio with previous years. D) Compare current year manufacturing costs with previous years.

With respect to a small company's system of purchasing supplies, an auditor's primary concern should be to obtain satisfaction that supplies ordered and paid for have been A) requested by and approved by the same individual. B) used in the course of business and solely for business purposes during the year under audit. C) received, counted, and checked to quantities and amounts on purchase orders and invoices. D) properly recorded as assets and systematically amortized over the estimated useful life of the supplies.

You are auditing Manufacturing Company and testing the audit related objective of completeness for the equipment accounts. Which of the following audit procedures is most likely to achieve your objective? A) Examine vendor invoices and receiving reports. B) Physically examine assets. C) Examine vendor invoices of closely related accounts such as repairs and maintenance. D) Trace individual acquisitions to the fixed asset master file.

________ is normally characterized as a difficult and complex account to audit. A) Property, plant and equipment B) Cash C) Inventory D) Prepaid insurance

A useful starting point for becoming familiar with the client's inventory is for the auditor to A) read the AICPA's Industry Audit Guide. B) review accounting theory covering special inventory problems. C) read the client's accounting manual. D) tour the client's facility.

As a part of the auditor's responsibility for ________, the auditor should review the preparation of at least one of each type of payroll tax form the client is responsible for filing. A) fraud awareness B) doing tests of balances C) doing tests of transactions D) understanding the client's internal controls

Auditors test the quantity of materials charged to work-in-process by tracing these quantities to A) cost ledgers. B) perpetual inventory records. C) receiving reports. D) material requisitions.

Auditors usually test cost accounting records as part of the A) acquisition tests. B) payroll tests. C) sales tests. D) All of the above are correct.

Improperly classifying a fixed asset by recording the amount in the repairs and maintenance expense account will have an effect on which of the following financial statements until the asset would normally have been depreciated? A) the balance sheet B) the income statement C) the cash flow statement D) both the income statement and the balance sheet

In most manufacturing companies, the inventory and warehousing cycle begins with the A) receipt of a customer's order. B) completion of production of a customer's order. C) initiation of production of a customer's order. D) acquisition of raw materials for production.

In valuing inventory, the auditor must consider all but which of the following factors? A) The valuation method must be in accordance with GAAP. B) The valuation method must be applied on a consistent basis. C) The inventory must be valued at the lower of cost or market. D) LIFO must be used for work-in-process inventory.

One of the auditor's primary concerns in verifying the transfer of inventory from one location to another is that A) recorded transfers exist. B) all actual transfers are recorded. C) the quantity, date, and description of all recorded transfers are accurate. D) all of the above

The auditor ________ rely on the internal controls of the payroll service organization if the service organization's auditor issues a report on the service organization's internal control. A) must B) cannot C) can rarely D) can often

The auditor is concerned with four aspects of cost accounting, including A) documents and records for transferring inventory. B) perpetual inventory master files. C) unit cost records. D) all of the above.

The estimated unpaid obligations for services or benefits that have been received before the balance sheet date are A) accounts payable. B) accounts receivable. C) unearned liabilities. D) accrued liabilities.

The failure to capitalize a permanent asset, or the recording of an asset acquisition at the improper amount, affects the balance sheet A) forever. B) for the current period. C) for the depreciable life of the asset. D) until the firm disposes of the asset.

The most important part of the observation of inventory is to determine whether A) all counts are accurate. B) the inventory-takers are qualified. C) obsolete inventory has been identified. D) the physical count is being taken in accordance with the client's instructions.

The payroll and personnel cycle ends with which of the following events? A) interviewing job candidates B) hiring a new employee C) existing employees submitting requests for payment for work performed D) issuance of paychecks

The test of details of balance procedure which requires the auditor to account for unused inventory tag numbers to make sure none have been deleted is associated with the audit objective of A) accuracy. B) existence. C) detail tie-in. D) completeness.

The test of details of balance procedure which requires the auditor to perform tests of lower of cost or market, selling price, and obsolescence is an attempt to satisfy the objective of A) existence. B) completeness. C) accuracy. D) realizable value.

There is inherent risk of payroll fraud because most transactions involve A) expense accounts. B) accrued liabilities. C) estimates. D) cash.

What are the two major balance-related audit objectives in testing payroll liabilities? A) accuracy and detail tie-in B) completeness and valuation C) completeness and rights and obligations D) accuracy and cutoff

When auditing accrued property taxes, A) the source for the debits to the liability account is the acquisitions journal. B) realizable value is an important balance-related audit objective. C) the ending balance in the account should be confirmed with the applicable taxing authority. D) the most important consideration for the auditor is that the same portion of each tax payment for the accrual that was used in the preceding year is used in the current year.

When the auditor is determining whether the client followed a consistent depreciation policy from period to period, and the client's depreciation calculations are correct, the balance-related audit objective of ________ is being determined for depreciation expense. A) completeness B) existence C) classification D) accuracy

Which balance-related audit objective is not relevant to an audit of prepaid expenses? A) rights B) accuracy C) detail tie-in D) realizable value

Which of the following errors gives the auditor concern in auditing payroll transactions? A) an error that indicates possible fraud B) computational errors in formulas when a computerized system is used C) classification errors in charging labor to inventory and job cost accounts D) Each of the above gives the auditor significant concern.

Which of the following is a continuously updated computerized record of inventory items purchased, used, sold, and on hand for merchandise, raw materials, and finished goods? A) job cost system B) standard cost records C) cost accounting records D) perpetual inventory master file

Which of the following is a key control for the transaction-related audit objective of accuracy? A) The time records are approved by a supervisor. B) The payroll checks are prenumbered and accounted for. C) The payroll master file contents are internally verified. D) The batch totals are compared with computer summary reports.

Which of the following is an accurate statement regarding nonexistent employees? A) In order to prevent this type of fraud, the foreman should distribute the paychecks and approve the time cards. B) Records for all terminated employees should be destroyed to prevent this type of fraud. C) The person committing this type of fraud is generally the CEO or CFO of the company. D) This type of fraud often results from the continuance of an employee on the payroll after the employee has been terminated.

Which of the following is an accurate statement regarding the audit of pricing and compilation of inventory? A) Inventory compilation tests include all of the tests of the client's unit prices to determine whether they are correct. B) The review for obsolete inventory should be performed by the accounting department. C) The most important internal control for accurate unit costs is external verification by an outside consultant. D) Inventory compilation internal controls are needed to ensure that the physical counts are correctly summarized and priced

Which of the following is not a correct statement regarding fraudulent hours? A) Fraudulent hours occur when an employee reports more time than was actually worked. B) It is difficult for an auditor to discover fraudulent hours. C) It is ordinarily easier for the client to prevent fraudulent hours by adequate internal controls than for the auditor to detect it. D) To detect fraudulent hours, the auditor should examine the cancelled checks written to the employees.

Which of the following is not a function within the inventory and warehousing cycle? A) process the goods B) store raw materials C) ship finished goods D) process invoices for shipped goods

Which of the following is not one of the reasons auditors verify equipment differently from current asset accounts? A) There are usually fewer current period acquisitions of equipment. B) The amount of any given acquisition is often material. C) The equipment is likely to be kept and maintained in the accounting records for several years. D) Current assets are subject to liens and encumbrances while equipment is not

Which of the following statements is correct? A) The overhead charged to inventory at the balance sheet date can be understated if the salaries of administrative personnel are inadvertently or intentionally charged to indirect manufacturing overhead. B) When jobs are billed on a cost-plus basis, revenue and total expenses are both affected by charging labor to incorrect jobs. C) Payroll is a significant portion of inventory for retail and service industry companies. D) The valuation of inventory is affected if the direct labor cost of individual employees is improperly charged to the wrong job or process.

Which of the following types of audit procedures is ordinarily emphasized the least when auditing payroll? A) tests of controls B) tests of transactions C) substantive analytical procedures D) tests of details of balances

Which type of audit procedure would normally be sufficient for purposes of auditing prepaid expenses and deferred charges? A) tests of controls B) tests of transactions C) tests of details of balances D) substantive analytical procedures

A liability is properly accounted for as an account payable if A) the amount is known and owed as of the balance sheet date. B) the amount can be estimated and is owed at the balance sheet date. C) the amount is known at the balance sheet date and owed by the end of the next fiscal year. D) the amount is estimated and owed within 90 days of the balance sheet date.

A written purchase order is a contractual document that is A) an offer to buy goods or services. B) not enforceable if it is not in writing. C) prepared by the receiving department. D) an acceptance of a vendor's catalog offer to sell.

After a purchase requisition is approved, a ________ must be initiated to purchase the goods or services. A) purchase order B) vendor order C) call order D) vendor invoice

Auditors are especially concerned about the ________ and ________ balance-related audit objectives because of the potential for understatements in the account balance. A) completeness; cutoff B) completeness; accuracy C) classification; realizable value D) classification; cutoff

Peprah Company pays its accounts payable 45 days after receipt of the goods or services. In this case, which audit procedure should be used to detect any unrecorded liabilities? A) Examine cash disbursements for several weeks after the balance sheet date. B) Reconcile purchase orders to requisition orders. C) Reconcile purchase orders to receiving reports. D) Reconcile purchase orders to vendor invoices.

To test for cutoff errors which overstate liabilities, the auditor should trace the receiving reports issued ________ to vendors' invoices. A) after year-end B) before year-end C) the last day of the fiscal year D) both before and after year-end

What typically initiates the acquisitions and payment cycle? A) issuance of a purchase requisition or request for purchase of goods or services B) issuance of payment to vendor C) approval of a new vendor D) purchase requisition

When assets are being verified, auditors focus much of their attention on making sure that the accounts are not overstated. Alternatively, auditors focus their efforts on understatement when auditing liabilities. What is the primary reason for this difference in focus? A) auditors' legal liability B) GAAP C) GAAS requirements D) all of the above

When auditors examine vendors' statements or receive confirmations, there must be a reconciliation of the statement or confirmation with the A) accounts payable list. B) vendors' invoices. C) purchase orders. D) receiving reports.

Which of the following is not a typical audit procedure performed as part of the out-of period liability tests? A) Examine underlying documentation for cash disbursements made during the last month of the year. B) Examine underlying documentation for bills not paid several weeks after the year-end. C) Trace receiving reports issued before year-end to related vendors' invoices. D) All of the above are correct.

Which of the following is not one of the classes of transactions in the acquisition and payment cycle? A) acquisition of common stock B) acquisition of goods and services C) cash disbursements D) purchase returns and allowances and purchase discounts

A document generally received from the vendor which indicates a reduction in the amount owed due to the company granting an allowance is a A) vendor invoice. B) debit memo. C) credit adjustment form. D) credit memo.

The auditor is performing tests of transactions for individual accounts payable transactions with vendors. Which document provides more reliable information about individual transactions with vendors? A) receiving report B) vendors' invoices C) vendors' statements D) purchase orders

The test of transactions which requires one to "reconcile recorded cash disbursements with the cash disbursements on the bank statement" satisfies the objective of A) occurrence. B) completeness. C) accuracy. D) posting and summarization.

When a client uses perpetual inventory records, the tests of details of balances for inventory can be significantly reduced if the auditor believes the records are accurate. The controls over the acquisitions included in the records are normally tested as a part of the A) tests of controls for acquisitions. B) tests of controls and substantive tests of transactions for acquisitions. C) tests of details of balances for acquisitions. D) analytical procedures and tests of controls for acquisitions.

Which of the following is a substantive analytical procedure to determine if there is idle equipment or equipment that was disposed of but not written off? A) Compare depreciation expense divided by gross equipment cost with previous years. B) Compare gross manufacturing cost divided by some measure of production with previous years. C) Compare accumulated depreciation divided by gross equipment cost with previous years. D) Compare annual repairs and maintenance accounts with previous years.

Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received? A) Count goods upon receipt in storeroom. B) Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department. C) Compare goods received with goods requisitioned in receiving department. D) Verify vouchers for accuracy and approval in internal audit department.

Which of the following statements about the audit of fixed assets is the least correct? A) The primary accounting record for manufacturing equipment and other property, plant and equipment is generally a fixed asset master file. B) Manufacturing equipment and current assets are normally audited in the same fashion regardless of the activity within a particular account. C) The emphasis on auditing fixed assets is on verification of current-period acquisitions. D) Failure to record the acquisition of a fixed asset affects the income statement until the assets are fully depreciated.

A document review of which of the following is most likely to yield evidence of any unrecorded liabilities? A) debit memos B) vendor memos C) unpaid accounts payable D) sales invoices out of sequence

A key internal control over the acquisition cycle is to ensure that the company requires recording transactions as soon as possible after the goods and services have been received. This satisfies the transaction-related audit objective of A) accuracy. B) completeness. C) timing. D) occurrence.

A substantive tests of transactions for acquisitions that would be used to provide evidence regarding the occurrence assertion would be to A) compare the classification with the chart of accounts by referring to vendors' invoices. B) recompute the clerical accuracy on the vendors' invoice. C) review the acquisitions journal for large or unusual amounts. D) trace from a file of receiving reports to the acquisition journal.

An auditor is gathering evidence on the completeness assertion. To do so, she performs a test to verify that all goods received by the company have been recorded properly. The document population for this test would consist of all A) vendor invoices. B) purchase orders. C) receiving reports. D) cash disbursements for accounts payable.

Because of the importance of tests of controls and substantive tests of transactions for acquisitions and cash disbursements, it is common in this audit area to use A) block sampling. B) variables sampling. C) attributes sampling. D) probability proportional to size sampling.

Cutoff information for inventory acquisitions should be obtained during A) the interim period prior to year-end. B) the interim period immediately following year-end. C) the physical observation of inventory. D) either the interim period prior to or immediately following year-end.

Cutoff procedures for inventory purchased should be designed by companies to assure that A) inventory owned by the company has been received. B) inventory included in the year-end inventory count has been paid. C) inventory received before year-end was recorded before year-end. D) inventory was correctly valued at year-end.

In determining that the accounts payable cutoff is correct, it is essential that the cutoff tests be coordinated with the A) confirmation of payables. B) tests of long-term liabilities. C) observation of inventory. D) cash count.

In searching for unrecorded liabilities the purpose of the audit procedure to "examine underlying documentation for subsequent cash disbursements" is to A) uncover liabilities on the balance sheet which should not have been recorded until a subsequent period. B) find the documentation relating to a cash disbursement. C) uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date. D) uncover cash disbursements recorded in a subsequent accounting period which should be recorded in this period.

In the processing and recording of cash disbursements, A) after a check includes the signature of an authorized person, it is a liability. B) when a check cashed by the vendor has cleared the bank, it is called an outstanding check. C) in many cases, the company submits payment to the vendor electronically through an electronic funds transfer (EFT) between the company's bank and the vendor's bank. D) the accounts payable master file is a computer-generated file that includes all cash disbursement transaction processed by the accounting system for a period.

Matching the supplier's invoice, the purchase order, and the receiving report prior to preparing the voucher would normally be the responsibility of the A) warehouse receiving function. B) purchasing function. C) general accounting function. D) treasury function.

The documents typically used to reconcile the balance on the accounts payable list with the confirmation or vendor's statements include all of the following except for A) receiving reports. B) vendor's invoices. C) sales invoices. D) cancelled checks.

When reviewing the controls and procedures in the acquisition and payment cycle, A) companies cannot record the liability for the acquisition until the invoice is received from the vendor. B) the purchasing department has the responsibility for verifying for appropriateness of the acquisition. C) personnel who record the acquisitions should not have access to cash or other assets. D) the accounts payable department should account for all receiving reports to assure that the occurrence objective is satisfied.

Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle? A) depreciation expense B) insurance expense C) estimated liability for warranties D) property tax expense

Which of the following is most reliable for verifying the correct balance of accounts payable? A) vendors' invoices B) vendors' statements C) confirmations D) bills of lading

Which of the following tests of controls is least useful in assessing the transaction-related audit objective related to occurrence? A) Examine documents in voucher package for occurrence. B) Examine supporting documents for indication of approval. C) Account for sequence of vouchers. D) Attempt to input transactions with valid and invalid vendors

Which of the following would generally not be a component of the audit of the acquisition and payment cycle? A) adequacy of controls over acquisitions of long-lived assets B) tracing disposals of long-lived assets to the fixed asset master file C) determining the adequacy of the funds available for capital expenditures D) reperformance of recorded depreciation expense

Which substantive analytical procedure would help determine if there are unrecorded or nonexistent accounts? A) Review the list of accounts payable for unusual items. B) Compare acquisition-related expense account balances with prior years. C) Calculate ratios, such as accounts payable divided by current liabilities. D) Calculate ratios, such as sales divided by gross profit.

You are auditing the acquisition and payment cycle and note the presence of excessive recurring losses on retired assets. You may conclude that A) insured values are greater than book values. B) there are a large number of fully depreciated assets. C) depreciation charges may by insufficient. D) the company has a policy of selling relatively new assets.

At what point in the acquisition and payment cycle do most companies first recognize the acquisition and related liability on their records? A) when the purchase requisition is received by the accounting department B) when the purchase order is prepared C) when the company receives the invoice from the vendor D) when the company receives the goods or services from the vendor

In testing acquisitions the auditor needs to understand the appropriate accounting guidance related to acquisition accounting. Which of the following is not an accounting consideration for the auditor as regards to acquisition cost? A) inclusion of material transportation and installation costs B) recording of trade-in costs C) allocating costs when building and equipment are purchased at one price D) verifying that purchased equipment amounts correspond to the budgeted amount

Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather that the entity being audited satisfy the control objective that A) acquisitions are correctly valued. B) existing acquisitions are recorded. C) acquisitions are correctly classified. D) recorded acquisitions are for goods and services received.

Methods used to determine if there are legal encumbrances related to fixed assets include all but which of the following? A) Read the terms of loan and credit agreements. B) Send loan confirmation requests to banks and other lending institutions. C) Have discussions with the client or send letters to legal counsel. D) All of the above may be used to identify legal encumbrances.

Normally it may be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it would be customary to verify A) all large transactions. B) all unusual transactions. C) a representative sample of typical additions. D) all of the above.

The source of debits in the equipment account is the A) sales schedule. B) cash disbursements journal. C) cash receipts journal. D) acquisitions schedule.

When performing the test of details of balances, the balance-related audit objective of classifications is closely related to the objective of A) accuracy. B) detail tie-in. C) existence. D) completeness.

When testing the controls for the completeness transaction-related audit objectives, A) failure to record the acquisition of goods or services will generally understate net income. B) failure to record the acquisition of goods or services has no impact on the balance sheet. C) it is generally easy for the auditor to determine whether unrecorded transactions exist. D) the audit time for accounts payable can be reduced if the client has effective internal controls and the auditor properly tests those controls.

When the client's physical inventory occurs before the last day of the year, it is still necessary to perform an accounts payable cutoff at the time of the count. In addition, the auditor must verify whether all acquisitions taking place between the count and the end of the year were added to A) the physical inventory. B) accounts payable. C) accounts payable and cost of goods sold. D) the physical inventory and accounts payable

Which of the following business functions is not considered to be part of the acquisitions class of transactions? A) processing purchase orders B) recognizing liabilities C) receiving goods and services D) processing cash disbursements

Which of the following is a key internal control for the posting and summarization transaction-related audit objective? A) Batch totals are compared with computer summary reports. B) Documents are canceled. C) Dates are internally verified. D) The accounts payable master file contents are internally verified.

Which of the following is not an accurate statement regarding the acquisition and payment cycle? A) The personnel in the receiving department should be independent of the storeroom personnel. B) Goods received should be physically controlled from the time of their receipt until their use or disposal. C) Accounting records should transfer responsibility for the goods each time they are moved. D) The accounting department should be responsible for receiving goods and preparing the receiving report.

Which of the following tests are typically not necessary when auditing a client's schedule of recorded disposals? A) footing the schedule B) tracing the totals on the schedule to the recorded disposals in the general ledger C) tracing cost and accumulated depreciation of the disposals to the property master file D) All of the above are necessary.

Which one of the following duties should not be assigned the purchases department? A) finding the lowest cost vendor B) reviewing vendors' catalog descriptions and prices for standardized items C) designing the purchase order form D) authorizing the acquisition of goods

You are the in-charge auditor for a company who has been an audit client for several years. Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment? A) verification of depreciation expense B) analytical procedures C) verification of current-period disposals D) verification of the beginning balance in the equipment account

You have been assigned to the accounts payable transaction cycle as part of your auditing responsibilities. You have decided to vouch a sample of entries in the accounts payable master file to supporting documents. Which assertion is this test of controls most likely to support? A) accuracy B) classification C) completeness D) occurrence

________ is a balance-related audit objective that is not applicable to liabilities. A) Existence B) Accuracy C) Detail tie-in D) Realizable value

The auditor needs to be aware that most users of financial statements rely most heavily on the ________ for making decisions.

________ expense is rarely analyzed unless analytical procedures indicate high potential for material misstatement. A) Repairs and maintenance B) Legal C) Utilities D) Rent and lease

Inventory is a complex area to audit for all except which of the following reasons? A) Inventory is often in different locations. B) There are several acceptable valuation methods and some entities use different methods for different types of inventory. C) Inventory is often the largest account on the balance sheet. D) Inventory valuation includes few estimates.

Failure to capitalize a fixed asset at the correct amount would impact which financial statements? A) the balance sheet only B) the income statement only C) the cash flow statement only D) both the income statement and the balance sheet

Failure to record the acquisition of goods is a violation of which audit objective? A) accuracy B) occurrence C) authorization D) completeness

AC316 Final

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