ACCT 311 CH 5 MC

A not-for-profit organization published a monthly magazine that had 15,000 subscribers on January 1, 2013. The number of subscribers increased steadily throughout the year and on December 31, 2013, there were 16,200 subscribers. The annual magazine subscription cost was $10 on January 1, 2013 and was increased to $12 for new members on April 1, 2013. Subscriptions are paid in full at the beginning of the member term. An auditor should expect that the revenue from subscriptions for the year ended December 31, 2013, would be approximately Multiple Choice $179,400. $171,600. $164,400. $163,800.

163800

The following statements were made in a discussion of audit evidence between two CPAs. Which statement is not valid concerning audit evidence? Multiple Choice "I am seldom convinced beyond all doubt with respect to all aspects of the statements being examined." "I would not undertake that procedure because at best the results would only be persuasive and I'm looking for convincing evidence." "I evaluate the degree of risk involved in deciding the kind of evidence I will gather." "I evaluate the quality of the evidence I can obtain, prior to choosing evidence."

"I would not undertake that procedure because at best the results would only be persuasive and I'm looking for convincing evidence."

A company sells a particular product only in the last month of its fiscal year. The company uses commission agents for such sales and pays them 6% of their net sales 30 days after the sales are made. The agents' sales were $10 million. Experience indicates that 10% of the sales are usually not collected and 2% are returned in the first month of the new year. The auditor would expect the year-end balance in the accrued commissions payable account to be Multiple Choice $528,000. $540,000. $588,000. $600,000.

588,000

Which of the following presumptions does not relate to the appropriateness of audit evidence? Multiple Choice The more effective the internal control system, the more assurance it provides about the accounting data and financial statements. An auditor's opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost. Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. The independent auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly.

An auditor's opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost.

Which of the following presumptions is correct about the reliability of audit evidence? Multiple Choice Information obtained indirectly from outside sources is the most reliable audit evidence. To be reliable, audit evidence should be convincing rather than persuasive. Reliability of audit evidence refers to the amount of corroborative evidence obtained. An effective internal control system provides more reliable audit evidence.

An effective internal control system provides more reliable audit evidence.

Which of the following presumptions is correct about the reliability of audit evidence? Multiple Choice Information obtained indirectly from outside sources is the most reliable audit evidence. To be reliable, audit evidence should be convincing rather than persuasive. Reliability of audit evidence refers to the amount of corroborative evidence obtained.Incorrect An effective internal control system provides more reliable audit evidence.

An effective internal control system provides more reliable audit evidence.

Of the following, which is the least reliable type of audit evidence? Multiple Choice Documents mailed by outsiders to the auditor. Correspondence between the auditor and third party vendors. Asking the controller about an end of period adjustment. Computations made by the auditor.

Asking the controller about an end of period adjustment.

audit documentation prepared on audits of public entities is the property of the Multiple Choice Shareholders. Auditor. Management of the entity being audited. SEC.

Auditor.

Which of the following procedures would an auditor most likely perform to verify management's assertion of completeness? Multiple Choice Compare a sample of shipping documents to related sales invoices. Observe the entity's distribution of payroll checks. Confirm a sample of recorded receivables by direct communication with the debtors. Review standard bank confirmations for indications of kiting.

Compare a sample of shipping documents to related sales invoices.

Based on conversations with the owner-manager of an audit client, the auditor ascertained that the company's primary motivation is to avoid paying income taxes. Based on this motivation, which account balance assertion for ending inventory will the auditor be most concerned about verifying? Multiple Choice Existence or occurrence. Completeness. Rights and obligations. Observation.

Completeness.

Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for transactions within the purchasing process are you most concerned with? Multiple Choice Existence or occurrence. Completeness. Rights and obligations. Presentation and disclosure.

Completeness.

As a result of analytical procedures conducted during the planning phase, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should Multiple Choice Express an opinion that is qualified due to the inability of the company to continue as a going concern. Evaluate management's performance in causing this decline. Require footnote disclosure. Consider the possibility of an error in the financial statements.

Consider the possibility of an error in the financial statements.

Which assertions may be tested for the "account balances" category of management assertions? rev: 03_23_2019_QC_CS-162847 Multiple Choice Existence, cutoff, rights and obligations, completeness. Existence, rights and obligations, completeness, accuracy, valuation, allocation, classification, and presentation. Occurrence, rights and obligations, completeness, valuation and allocation. Occurrence, accuracy, rights and obligations, completeness.

Existence, rights and obligations, completeness, accuracy, valuation, allocation, classification, and presentation.

In creating lead schedules for an audit engagement, what financial information is needed to begin? Multiple Choice Interim financial information, such as third quarter sales, net income, and inventory and receivables balances. Specialized journal information, such as the invoice and purchase order numbers of the last few sales and purchases of the year. General ledger information, such as account numbers, prior-year account balances, and current year unadjusted information. Adjusting entry information, such as deferrals and accruals and reclassification journal entries.

General ledger information, such as account numbers, prior-year account balances, and current year unadjusted information.

Which of the following show the detailed general ledger accounts that make up a financial statement category on the auditor's working trial balance? Multiple Choice Account analyses. Supporting schedules. Control accounts. Lead schedules.

Lead schedules.

To test for unsupported entries in the ledger, the direction of audit testing should start from the Multiple Choice Ledger entries. Sales invoices or shipping documents. Externally generated documents. Original source documents.

Ledger entries.

The permanent (continuing) file of an auditor's working papers most likely would include copies of the Multiple Choice Bank statements. Organizational chart. Lead schedules. Audit plan.

Organizational chart.

in determining whether transactions have been recorded, the direction of the audit testing should start from the Multiple Choice General ledger balances. Adjusted trial balance. Original source documents. General journal entries.

Original source documents.

Footing is an example of Multiple Choice Recalculation. Confirmation. Inquiries. Analytical procedures.

Recalculation.

You are auditing a manufacturing company that has a large production facility. Some of the production equipment is held through lease agreements. Which of the following is the account balance assertion you would be most concerned about? Multiple Choice Existence or occurrence. Completeness. Rights and obligations. Accuracy.

Rights and obligations.

Which of the following is the least persuasive documentation in support of an auditor's opinion? Multiple Choice Schedules of details of physical inventory counts conducted by the entity. Notation of auditor's inferences drawn from ratios and trends. Notation of an independent appraiser's conclusions documented in the auditor's working papers. Lists of negative confirmation requests for which no response was received by the auditor.

Schedules of details of physical inventory counts conducted by the entity.

Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit? Multiple Choice Turnover of personnel in the accounting department. Objectivity of audit committee members. Square footage of selling space. Management's plans to repurchase stock.

Square footage of selling space.

Analytical procedures may be classified as being primarily which of the following? Multiple Choice Tests of controls. Substantive procedures. Tests of ratios. Detailed tests of balances.

Substantive procedures.

The audit working papers belong to Multiple Choice The company under audit. The government. The audit firm. They are public record documents.

The audit firm

An auditor's analytical procedures performed during the overall review stage indicated that the entity's accounts receivable balance had doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following explanations most likely would satisfy the auditor? Multiple Choice The entity liberalized its credit standards in the current year and sold much more merchandise to customers with poor credit ratings. Twice as many accounts receivable were written off in the prior year than in the current year. A greater percentage of accounts receivable were currently listed in the "more than 90 days overdue" category than in the prior year. The entity opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet.

The entity opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet.

Which of the following statements is generally correct about the appropriateness of audit evidence? Multiple Choice The more effective the internal control, the more assurance it provides about the reliability of the accounting data and financial statements. Appropriateness of audit evidence refers to the amount of corroborative evidence obtained. Information obtained indirectly from independent outside sources is more persuasive than the auditor's direct personal knowledge obtained through observation and inspection. Appropriateness of audit evidence refers only to audit evidence obtained from outside the entity.

The more effective the internal control, the more assurance it provides about the reliability of the accounting data and financial statements.

Which of the following ratios would an engagement partner most likely calculate when reviewing the balance sheet in the overall review stage of an audit? Multiple Choice Quick assets divided by accounts payable. Accounts receivable divided by inventory. Interest payable divided by interest receivable. Total debt divided by stockholders' equity.

Total debt divided by stockholders' equity.

The current audit file usually includes Multiple Choice Working trial balance. Organizational chart. Documentation of internal control (e.g., flowcharts). Copies of important contracts.

Working trial balance.

An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of: Multiple Choice tests of transactions and balances. a preliminary review of internal controls. specialized audit programs. analytical procedures.

analytical procedures.

Analytical procedures used in planning an audit should focus on identifying: Multiple Choice material weaknesses in internal control. the predictability of financial data from individual transactions. the various assertions that are embodied in the financial statements. areas that may represent specific risks relevant to the audit.

areas that may represent specific risks relevant to the audit.

Audit documents record the results of the auditor's evidence-gathering procedures. When preparing audit documents, the auditor should remember that: Multiple Choice audit documents should be kept on the client's premises so that the client can have access to them for reference purposes. audit documents should be the primary support for the financial statements being examined. audit documents should be considered as a substitute for the company's accounting records. audit documents should be designed to facilitate the review and supervision of work done by auditors assigned to the engagement.

audit documents should be designed to facilitate the review and supervision of work done by auditors assigned to the engagement.

All of the following are typically in the current file except: Multiple Choice adjusting journal entries. copies of the audit report. chart of accounts. lead schedules.

chart of accounts.

Tracing is used primarily to test which of the following assertions about classes of transactions? Multiple Choice Occurrence. Completeness. Cutoff. Classification.

completeness.

Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the: Multiple Choice difficulty and expense involved in testing a particular item. assessment of control risk at a low level. low inherent risk involved. high quality of the evidence gathered.

difficulty and expense involved in testing a particular item.

Audit evidence includes only written information used by the auditor in arriving at an opinion about the fairness of financial statements. True or False True False

fakse

Management assertions fall into four main categories. True or False True False

false

The classification assertion refers to transactions and events being recorded in the correct accounting period. True or False

false

The classification assertion refers to transactions and events being recorded in the correct accounting period. True or False True False

false

The auditor generally finds more predictability in the ratio and trend analysis in the examination of the Multiple Choice Statement of Changes in Stockholders' Equity and Retained Earnings. Income Statement. Balance Sheet. Statement of Cash Flows.

inceome statement

The auditor generally finds more predictability in the ratio and trend analysis in the examination of the Multiple Choice Statement of Changes in Stockholders' Equity and Retained Earnings. Income Statement. Balance Sheet. Statement of Cash Flows.

income statement

Audit documentation: Multiple Choice must be in electronic form. must be in paper form only. is not required, but is strongly recommended. may be in paper, electronic, or some other medium.

may be in paper, electronic, or some other medium.

Vouching is used primarily to test which of the following assertions about classes of transaction? Multiple Choice Occurrence. Completeness. Authorization. Classification.

occurence

Of the following, the most reliable type of evidence typically is Multiple Choice Confirmation. Inspection of records and documents. Reperformance. Observation.

reperformance

An example of audit evidence with a medium level of reliability is Multiple Choice Scanning. Recalculation. Observation. All of these.

scanning

Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except: Multiple Choice tracing transactions through the system to determine whether procedures are being applied as prescribed. comparison of financial data with data for comparable prior periods, anticipated results (e.g., budgets and forecasts) and similar data for the industry in which the entity operates. study of the relationships of elements of financial data that would be expected to conform to a predictable pattern based upon the entity's experience. study of the relationships of financial data with relevant nonfinancial data.

tracing transactions through the system to determine whether procedures are being applied as prescribed.

Audit procedures are designed to test management assertions. True or False True False

true

The relevance of audit evidence or specific audit procedures depends on the assertion being tested. True or False True False

true

The auditor must use his or her professional judgment to determine the amount of audit evidence to be gathered. True or False True False

tue

The cutoff assertion relates to whether transactions and events have been recorded in the correct accounting period. True or False True False

tue

A confirmation is used to: Multiple Choice verify the inventory count is correct. verify that a control is being observed. verify a representation from a third party. verify that a specific trend is correct.

verify a representation from a third party.