ACCT 470 Final Exam - Multiple choices

11. A likely reason that consideration of client compliance with debt provisions is important to an audit is that violation of such debt provisions may affect the total recorded: A) Number of debt restrictions. B) Current liabilities. C) Long-term assets. D) Capital stock.

B

17. A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n): A) Analytical process B) Loss contingency C) Probable gain. D) Unasserted claim.

B

12. The assertion most directly addressed when performing the search for unrecorded liabilities is: A) Completeness. B) Existence. C) Presentation. D) Rights.

A

15. When the auditors discover an understatement of liabilities, they would most likely also expect to find an: A) Understatement of assets. B) Understatement of owners' equity. C) Overstatement of expenses. D) Understatement of revenues.

A

19. The audit of which of the following balance sheet accounts does not normally result in verification of an income statement account? A) Cash. B) Accounts receivable. C) Property, plant and equipment. D) Intangible assets.

A

3. Which of the following statements is NOT typical of property, plant, and equipment as compared to most current asset accounts? A) A property, plant, and equipment cutoff error near year-end has a more significant effect on net income. B) Relatively fewer transactions occur in property, plant, and equipment during the year. C) The assets involved with property, plant, and equipment ordinarily have relatively longer lives. D) Property, plant, and equipment accounts typically have a higher dollar value at a manufacturing firm.

A

32. In the continuing audit of a manufacturing company of medium size, which of the following areas would you expect to require the least amount of audit time? A) Owner's equity B) Revenue C) Account receivable D) Account payable

A

5. When performing an audit of the property, plant and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles? A) Repairs have been capitalized. They are incurred to repair equipment that had broken down. B) The firm acquired some new laptops for its staff. The useful life is set at 3 years. C) Assets have been acquired from affiliated corporations with the related transactions recorded and disclosed in the financial statements. D) The cost of freight-in on an acquisition has been capitalized.

A

7. An auditor is verifying that a company owns the equipment shown in its financial statements. What is the best evidence of ownership? A) A cancelled check written to acquire the equipment. B) The current year's total depreciation expense journal entry. C) Inspection of the equipment on the plant floor. D) The inclusion of the equipment on the company's balance sheet

A

33. Which of the following is most likely to be considered a Type 1 subsequent event? A) A business combination completed after year-end, but for which negotiations began prior to year-end. B) A strike subsequent to year-end due to employee complaints about working conditions which originated two years ago C) Customer checks deposited prior to year-end, but determined to be uncollectible after year-end since customers filed bankruptcy on Jan 4 D) Introduction of a new line of products after year-end for which major research had been completed prior to year-end.

A) Type II B) Not a subsequent event C) Type I

18. Shortly after year-end Zero Corporation was informed of the bankruptcy of Bingo. Zero Corporation showed a receivable of $10,000 due from Bingo as of year-end—none of which seems recoverable. The receivable had been questionable for some time as Bingo had been experiencing financial difficulties for the past several years. Yet, Bingo's bankruptcy did not occur until after Zero Corporation's year-end. Under these circumstances: A) The financial statements should be adjusted B) The event requires financial statements disclosure, but no adjustment C) The auditor's report should be modified for a lack of consistency

A) Yes B) No C) No

21. A refusal by a lawyer to furnish information related to litigation included in the letter of inquiry is likely to result in: A) Confirmation of related lawsuits with the claimants. B) Qualification of the audit report. C) An assessment that loss of the litigation is probable. D) An adverse opinion.

B

25. When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should: A) Issue an unmodified opinion, but disclose elsewhere in the report this departure from a customary procedure. B) Issue an unmodified opinion with no reference to this omission. C) Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables. D) Issue an adverse opinion.

B

30. A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect their error in a timely and efficient manner? A) Footing the purchases journal B) Reconciling vendors' monthly statements with subsidiary payable ledger accounts C) Tracing totals from the purchases journal to the ledger accounts, D) Sending written quarterly confirmation to all vendors

B

4. An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the following is most likely? A) The estimated remaining useful lives of equipment were increased. B) Plant assets were retired during the year. C) The prior year's deprecation expense was erroneously understated. D) Overhead allocations were revised at year-end.

B

6. Which of the following is not a control that should be established for purchases of equipment? A) Establishing a budget for capital acquisitions. B) Requiring that the department in need of the equipment order the equipment. C) Requiring that the receiving department receive the equipment. D) Establishing an accounting policy regarding the minimum dollar amount of purchase that will be considered for capitalization.

B

8. In violation of company policy, Acme Company erroneously expensed the cost of a new boiler. Acme's auditor is most likely to detect this error when A) Discussing capitalization policies with the controller. B) Examining the repairs and maintenance expense accounts. C) Observing the new boiler in operation. D) Verifying the arithmetic accuracy of amortization expense calculations.

B

9. When confirming accounts payable, the approach is most likely to be one of: A) Selecting the accounts with the largest balances at year-end, plus a sample of other accounts. B) Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts. C) Selecting a random sample of accounts payable at year-end. D). Confirming all accounts.

B

13. The form typically used to confirm accounts payable A) Does not require a response from the vendor. B) Confirms the balance recorded by the client at year-end. C) Requires the vendor to indicate the amount of the payable. D) Is the same as the form used to confirm accounts receivable.

C

14. Most of the audit work on accounts payable is typically performed: A) Before the balance sheet date. B) At the balance sheet date in conjunction with inventory cutoff tests. C) After the balance sheet date. D) Simultaneously with the audit of notes payable.

C

2. Which of the following is NOT an overall test of the annual provision for depreciation expense? A) Compare rates used in the current year with those used in prior years. B) Test computation of depreciation provisions for a representative number of units. C) Test deductions from accumulated depreciation for assets purchased during the year. D) Perform analytical procedures.

C

24. A material departure from generally accepted accounting principles will result in auditor consideration of: A) Whether to issue an adverse opinion rather than a disclaimer of opinion. B) Whether to issue a disclaimer of opinion rather than a qualified opinion. C) Whether to issue an adverse opinion rather than a qualified opinion. D) Nothing, because none of these opinions is applicable to this type of exception.

C

26. A scope restriction is least likely to result in a(an): A) Qualified opinion. B) Disclaimer of opinion. C) Adverse opinion.

C

28. An Effective procedure for identifying unrecovered retirements of equipment is to: A) Footing related property records B) Recalculate depreciation on the related equipment C) Select items of equipment in the accounting records and then locate them in the plant D) Select items of equipment and then locate them in the accounting records

C

31. Which of the following is least likely to be an audit objective for debt? A) Determine the existence of recorded debt B) Establish the completeness of recorded debt C) Determine that the client has rights to receive proceeds relating to the redemption of debt D) Determine that the valuation of debt is in accordance with generally accepted accounging principles

C

1. Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are NOT understated? A) Depreciation. B) Accounts Payable. C) Cash. D) Repairs.

D

10. To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the: A) Authorized members of the audit committee. B) Accounting department. C) Individual who signs the checks. D). Chief executive officer.

D

16. For good internal control, a copy of a receiving report should be sent to all of the following departments except: A) Accounts payable. B) Purchasing. C) raw material warehouse. D) Shipping.

D

22. Which of the following procedures is most likely to be included in the final review stage of an audit? A) Obtain an understanding of internal control. B) Confirmation of receivables. C) Observation of inventory. D) Perform analytical procedures.

D

23. Which of the following is not a procedure that auditors typically perform to search for significant events during the period after year-end but prior to the audit report date? A) Review minutes of board of directors' meeting. B) Review the latest available interim financial statements. C) Inquire about any unusual adjustments made subsequent to the balance sheet date. D) Review changes in internal control during the period subsequent to the balance sheet date.

D

27. The auditors may conclude that depreciation charges are insufficient by A) Insured values greatly in excess of book value B) Large amounts of fully depreciated assets C) Continuous trade-ins of relatively new assets D) Excessive recurring losses on assets retired

D

29. Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? A) Examine confirmation requestes returned by creditors whose accounts appear on a subsidiary trial ledger of accounts payable B) Examine unusual relationships between monthly accounts payable balances and recorded purchases C) Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded. D) Examine selected cash disbursements in the period subsequent to year-end

D

32. As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors are most likely to: A) Express an opinion that is qualified due to the inabilities of the client company to continue as a going concern B) Evaluate management's strategic planning in causing this decline C) Require note disclosure D) Consider the possibility of a misstatement in the financial statements

D