Accy 401 Test 2 mc questions
5.50 If the auditor plans to assess control risk at less than the maximum and rely on controls, and the nature, timing, and extent of further audit procedures are based on that lower assessment, the auditor must a. Obtain evidence that the controls selected for testing are designed effectively and operated effectively during the entire period of reliance. b. Assess control risk at less than the maximum for all relevant assertions. c. Perform only substantive procedures. d. Provide additional examples of responses to assessed fraud risks relating to fraudulent financial reporting.
a
6.33 Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor? a. Understating the sales journal. b. Overstating the accounts receivable control account. c. Overstating the accounts receivable subsidiary ledger. d. Overstating the sales journal.
a
An auditor's analytical procedures indicate a lower than expected return on an equity method investment. This situation most likely could have been caused by a. An error in recording amortization of the excess of the investor's cost over the investment's underlying book value. b. The investee's decision to reduce cash dividends declared per share of its common stock. c. An error in recording the unrealized gain from an increase in the fair value of available-for sale securities in the income account for trading securities. d. A substantial fluctuation in the price of the investee's common stock on a national stock exchange.
a
Auditors are not responsible for accounting estimates with respect to a. Making the estimates. b. Determining the reasonableness of estimates. c. Determining that estimates are presented in conformity with GAAP. d. Determining that estimates are adequately disclosed in the financial statements.
a
It is acceptable under generally accepted auditing standards for an audit team to Assess risk of material misstatement at high and achieve an acceptably low audit risk by a. performing extensive substantive tests. b. Assess control risk at zero and perform a minimum of substantive testing. c. Assess inherent risk at zero and perform a minimum of substantive testing. d. Decide that audit risk can be 40 percent.
a
LO 5-4 5.48 The purpose of separating the duties of hiring personnel and distributing payroll checks is to separate the a. Authorization of transactions from the custody of related assets. b. Operational responsibility from the record-keeping responsibility. c. Human resources function from the controllership function. d. Administrative controls from the internal accounting controls.
a
LO 5-5 5.39 When planning the audit of internal controls for an issuer, the audit team should a. Identify significant accounts, locations, and relevant assertions. b. Conduct a walkthrough of the internal control process. c. Make inquiries of employees regarding the existence of control activities. d. Reperform control activities performed by client employees to determine their effectiveness.
a
LO 6-1 6.27 Which of these arrangements of duties could most likely lead to an embezzlement or theft? a. The inventory warehouse manager has responsibility for making the physical inventory observation and reconciling discrepancies to the perpetual inventory records. b. The cashier prepared the bank deposit, endorsed the checks with a company stamp, and delivered the cash and checks to the bank for deposit (no other bookkeeping duties). c. The accounts receivable clerk received a list of payments received by the cashier so he could make entries in the customers' accounts receivable subsidiary accounts. d. The financial vice president received checks made out to suppliers and the supporting invoices, signed the checks, and mailed the checks.
a
LO 6-2 6.19 When auditing with "fraud awareness," auditors should especially notice and follow up employee activities under which of these conditions? a. The company always estimates the inventory but never takes a complete physical count. b. The petty cash box is always locked in the desk of the custodian. c. Management has published a company code of ethics and sends frequent communication newsletters about it. d. The board of directors reviews and approves all investment transactions.
a
LO 6-3 6.21 A good fraud prevention program should address employees' motivation to steal from the company. The best method for doing this is to a. Establish employee assistance programs. b. Require a fidelity bond on all employees. c. Require reconciliations of all accounts to be reviewed by a supervisor. d. Ensure that all accounts with high inherent risk of fraud are audited.
a
LO 6-4 6.36 During an audit of cash, the auditor is most concerned with the management assertion of a. Existence. b. Rights and obligations. c. Valuation or allocation. d. Occurrence.
a
LO 6-6 6.24 When performing confirmation of cash balances with a bank, the auditor is primarily gathering evidence related to which financial statement assertion? a. Existence b. Completeness c. Valuation d. Presentation and Disclosure
a
LO 7-2 7.51 When a sample of customer accounts receivable is selected for vouching debits, auditors will vouch them to a. Sales invoices with shipping documents and customer sales invoices. b. Records of accounts receivable write-offs. c. Cash remittance lists and bank deposit slips. Credit files and reports.
a
LO 7-3 7.58 Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor? a. Understating the sales journal. b. Overstating the accounts receivable control account. c. Overstating the accounts receivable subsidiary ledger. d. Understating the cash receipts journal.
a
LO 7-4 7.39 Which of the following internal control activities will most likely prevent the concealment of a cash shortage by improperly writing off a trade account receivable? a. Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence. b. Write-offs must be supported by an aging schedule showing that only receivables overdue several months have been written off. c. Write-offs must be approved by the cashier who is in a position to know whether the receivables have, in fact, been collected. Write-offs must be authorized by company feld sales employees who are in a position to determine customers' financial standing
a
LO 7-5 7.55 When an audit team traces a sample of shipping documents to the related sales invoice copies, they are trying to find relevant evidence that a. Shipments to customers were invoiced. b. Shipments to customers were recorded as sales. c. Recorded sales were shipped. d. Invoiced sales were shipped.
a
The risk of material misstatement is composed of which audit risk components? a. Inherent risk and control risk. b. Control risk and detection risk. c. Inherent risk and detection risk. d. Inherent risk, control risk and detection risk
a
5.29 The most important foundational component of an entity's internal control system is a. Effectiveness and efficiency of operations. b. The control environment. c. Reliability of financial reporting. d. Compliance with applicable laws and regulations.
b
6.31 Each morning the controller gets the prior day's list of remittances, a copy of the payment report, and a copy of the deposit slip returned from the bank. When comparing these items, the controller would be able to determine that a. No checks were returned for insufficient funds. b. The cash received and remittance advice received were maintained in a single batch. c. The accounts receivable system has controls over unauthorized access. d. The assistant controller does not also reconcile the subsidiary accounts payable.
b
An audit strategy memorandum contains A. Specifications of auditing standards relevant to the financial statements being audited. B. Specifications of procedures the auditors believe appropriate for the financial statements under audit. C. Documentation of the assertions under audit, the evidence obtained, and the conclusions reached. D. Reconciliation of the account balances in the financial statements with the account balances in the client's general ledger.
b
Auditors perform analytical procedures in the planning stage of an audit for the purpose of a. Deciding the matters to cover in an engagement letter. b. Identifying unusual conditions that deserve more auditing effort. c. Determining which of the financial statement assertions are the most important for the client's financial statements. d. Determining the nature, timing, and extent of further audit procedures for auditing the inventory.
b
LO 5-4 5.30 The primary purpose for obtaining an understanding of internal control during the audit of a nonissuer is to a. Provide a basis for making constructive suggestions in a management letter. b. Determine the nature, timing, and extent of further audit tests to be performed. c. Provide the rationale for the inherent risk assessment at the financial statement assertion level. d. Provide information for a communication of internal control-related matters to management.
b
LO 5-4 5.35 In most audits of large entities, control risk assessment contributes to audit efficiency, which means that a. The cost of substantive procedures will exceed the cost of control evaluation work. b. Auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs. c. The cost of control evaluation work will exceed the cost of substantive procedures. d. Auditors will be able to reduce the cost of substantive procedures by an amount less than the cost of tests of controls.
b
LO 5-4 5.36 Which of the following is a device designed to help the audit team obtain evidence about the accounting and control activities of an audit client? a. A narrative memorandum describing the control system. b. An internal control questionnaire. c. A flowchart of the documents and procedures used by the company. d. All of the above.
b
LO 5-4 5.38 A transaction-level internal control activity is best described as a. An action taken by auditors to obtain evidence. b. An action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions to eliminate or mitigate risks identified by the company. c. A method for recording, summarizing, and reporting financial information. The functioning of the board of directors in support of its audit committee.
b
LO 5-5 5.32 According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal controls is to a. Determine whether the company's controls are processing company data effectively. b. Determine that the company's controls will satisfy the company's control objectives and can effectively prevent or detect errors or fraud that could result in material misstatements, if they operate as prescribed. c. Determine that the company's employees are processing the controls according to the policy and procedures manuals at the company d. None of the above
b
LO 5-5 5.54 Once the auditor detects a control deficiency, which of the following steps must he or she take first? a. Perform tests of other controls related to the same assertion as the control deemed ineffective. b. Evaluate the severity of the deficiency on the auditor's control risk assessment for that assertion. c. Modify the planned substantive procedures as a result of the deficiency. d. Test the deficient control, assuming a maximum level of risk.
b
LO 6-5 6.30 Immediately upon receipt of cash, a responsible employee should a. Record the amount in the cash receipts journal. b. Prepare a remittance listing. c. Update the subsidiary accounts receivable records. d. Prepare a deposit slip in triplicate.
b
LO 6-5 6.35 Which of the following control activities would best protect against the preparation of improper or inaccurate cash disbursements? a. All checks must be signed by an officer designated by the board of directors. b. All signed checks must be reviewed and compared with supporting documentation by the treasurer before mailing. c. All checks must be sequentially numbered and accounted for by internal auditors. d. All checks must be perforated or otherwise effectively canceled when they are returned with the bank statement.
b
LO 7-1 7.33 Revenues are normally considered to have been earned when a. All possibility of return has expired. b. The company has substantially accomplished what it must to be entitled to the benefits. c. The cash is collected. d. Goods have been shipped.
b
LO 7-3 7.40 Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities? a. Unrecorded purchases. b. Unrecorded sales. c. Merchandise purchases being charged to selling and general expense. Fictitious sales.
b
LO 7-3 7.61 An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past five years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue? A. The auditor should perform analytical procedures at an interim date and discuss any changes in the level of sales with senior management. B. The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period. C. The auditor should perform tests of controls at an interim date to obtain audit evidence about the operational effectiveness of internal controls over sales. The auditor should review period-end compensation to determine whether bonuses were paid to meet earnings goals
b
LO 7-3 7.62 An auditor is required to confirm accounts receivable if the accounts receivable balances are a. Older than the prior year. b. Material to the financial statements. c. Smaller than expected. d. Subject to valuation estimates.
b
LO 7-4 7.52 In the audit of accounts receivable, the most important emphasis should be on the a. Completeness assertion. b. Existence assertion. c. Rights and obligations assertion. d. Presentation and disclosure assertion.
b
LO 7-6 7.35 When auditing the revenue and collection cycle, auditors normally select balances to confirm from the A. Sales journal. b. Accounts receivable listing. c. General ledger. d. Cash receipts listing.
b
LO 7-6 7.48 Which of the following might be detected by auditors' cutoff review and examination of sales journal entries for several days prior to the balance sheet date? a. Lapping year-end accounts receivable. b. Inflating sales for the year. c. Kiting bank balances. d. Misappropriating merchandise.
b
LO 7-6 7.57 When an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following except a. Send a second request. b. Do nothing for immaterial balances. c. Examine shipping documents. d. Examine client correspondence files.
b
LO 7-6 7.57 When an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following except a. Send a second request. b. Do nothing for immaterial balances. c. Examine shipping documents. d. Examine client correspondence files.
b
LO 7-6 7.60 The financial records of the Movitz Company show that R. Dennis owes $4,100 on an account receivable. An independent audit is being carried out, and the auditors send a positive confirmation to R. Dennis. What is the most likely reason as to why a positive confirmation rather than a negative confirmation was used here? a. Control risk was particularly low for accounts receivable. b. Inherent risk was particularly high for accounts receivable. c. Dennis's account was not yet due. Dennis's account was not with a related party
b
One of the typical characteristics of management fraud is a. Falsification of documents in order to misappropriate funds from an employer. b. Victimization of investors through the use of materially misleading financial statements. c. Illegal acts committed by management to evade laws and regulations. d. Conversion of stolen inventory to cash deposited in a falsified bank account.
b
The auditors assessed risk of material misstatement at 0.50 and said they wanted to achieve a 0.05 risk of failing to express a correct opinion on financial statements that were materially misstated. What detection risk do the auditors plan to use for planning the remainder of the audit work? a. 0.20 b. 0.10 c. 0.75 d. 0.00
b
Under the Private Securities Litigation Reform Act (the act), independent auditors are required to first a. Report in writing all instances of noncompliance with the act to the client's board of directors. b. Report to the SEC all instances of noncompliance with the act they believe have a material effect on financial statements if the board of directors does not first report to the SEC. c. Report clearly inconsequential noncompliance with the act to the audit committee of the client's board of directors. d. Resign from the audit engagement and report the instances of noncompliance with the act to the SEC.
b
When a company that sells its products with a positive gross profit increases its sales by 15 6 of 13 7/18/22 percent and its cost of goods sold by 7 percent, the cost of goods sold ratio will a. Increase. b. Decrease. c. Remain unchanged. d. Not be able to be determined with the information provided.
b
When auditors become aware of noncompliance with a law or regulation committed by client personnel, the primary reason that the auditors should obtain a better understanding of the nature of the act is to a. Recommend remedial actions to the audit committee. b. Evaluate the effect of the noncompliance on the financial statements. c. Determine whether to contact law enforcement officials. d. Determine whether other similar acts could have occurred.
b
Which of the following circumstances would most likely cause an audit team to perform extended procedures? a. Supporting documents are produced when requested. b. The client made several large adjustments at or near year-end. c. The company has recently hired a new chief financial officer after the previous one retired. d. The company maintains several different petty cash funds.
b
Which of the following matters relating to an entity's operations would an auditor most likely consider as an inherent risk factor in planning an audit? a. The entity's fiscal year ends on June 30. b. The entity enters into significant derivative transactions as hedges. c. The entity's financial statements are generated at an outside service center. d. The entity's financial data is available only in computer-readable form.
b
5.33 To test the operating effectiveness of a control, an audit team might use a combination of each of the following tests except for a. Inquiry of client personnel. b. Observation of company operations. c. Confirmation of balances. d. Inspection of documentation.
c
5.43 When completing the audit of internal controls for an issuer, the PCAOB requires the audit team to audit internal controls over a. Operations. b. Compliance with regulations. c. Financial reporting. d. All of the above.
c
5.45 When completing the audit of internal controls for an issuer, AS 2201 requires auditors to test a. Operating effectiveness only. b. Design effectiveness only. c. Both operating and design effectiveness. d. Neither operating nor design effectiveness
c
An audit committee is a. Composed of internal auditors. b. Composed of members of the audit team. c. Composed of members of a company's board of directors who are not involved in the day-to-day operations of the company. d. A committee composed of persons not associating in any way with the client or the board of directors.
c
Analytical procedures are generally used to produce evidence from a. Confirmations mailed directly to the auditors by client customers. b. Physical observation of inventories. c. Relationships among current financial balances and prior balances, forecasts, and nonfinancial data. d. Detailed examination of external, external-internal, and internal documents.
c
If tests of controls induce the audit team to change the assessed level of control risk for fixed assets from 0.4 to 1.0 and audit risk (0.05) and inherent risk remain constant, the acceptable level of detection risk is most likely to a. Change from 0.1 to 0.04. b. Change from 0.2 to 0.3. c. Change from 0.25 to 0.1. d. Be unchanged.
c
LO 5-4 5.34 Which of the following is a preventive control? a. Reconciliation of a bank account. b. Recalculation of a sample of payroll entries by internal auditors. c. Separation of duties between the payroll and personnel departments. d. Detailed fluctuation analysis completed by the CFO for revenue.
c
LO 5-5 5.40 A material weakness is a situation in which a. It is probable that an immaterial financial statement misstatement would not be detected in a timely basis. b. There is a remote likelihood that a material misstatement would be detected on a timely basis. c. It is reasonably possible that a material misstatement would not be detected on a timely basis. d. It is reasonably possible that an immaterial misstatement would not be detected on a timely basis.
c
LO 5-5 5.47 Which report would not be appropriate for a public accounting firm to provide on financial reporting controls? a. Unqualified—no material weaknesses found. b. Disclaimer of opinion—unable to perform all necessary procedures. c. Disclaimer of opinion—significant deficiencies exist. d. Adverse—material weaknesses exist.
c
LO 6-2 6.23 Which of the following is least indicative of fraudulent activity? a. Numerous cash refunds have been made to different people at the same post office box address. b. Internal auditors cannot locate several credit memos to support reductions of customers' balances. c. Bank reconciliation has no outstanding checks or deposits older than 15 days. d. Three people were absent the day the auditors handed out the paychecks and have not picked them up four weeks later.
c
LO 6-3 6.22 A code of ethics is an important element of a fraud prevention program. Which of the following would diminish the effectiveness of a company's code of conduct? a. The establishment of a chief ethics officer. b. The establishment of a hotline for reporting unethical behavior. c. The violation of the code of ethics by senior management. d. The posting of the code of ethics in the company workplace.
c
LO 6-4 6.32 Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance list that is forwarded to the cashier. A copy of the list should be sent to the a. Internal auditor to investigate the list for unusual transactions. b. Treasurer to compare the list with the monthly bank statement. c. Accounts receivable bookkeeper to update the subsidiary accounts receivable records. d. Entity's bank to compare the list with the cashier's deposit slip.
c
LO 6-5 6.26 Allison Everhart, an employee in accounts payable, believes she can run a fictitious invoice through the accounts payable system and collect the money. She knows payments are subject to an audit. Which account would be the best place to hide the fraud? a. Inventory b. Wage expense c. Consulting service expense d. Property tax expense
c
LO 6-5 6.28 Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances? a. The cashier prepares the daily deposit. b. The cashier makes the daily deposit at a local bank. c. The cashier posts the receipts to the accounts receivable subsidiary ledger cards. d. The cashier endorses the checks.
c
LO 6-5 6.29 Which of the following is an effective audit procedure that an auditor might use to detect kiting between intercompany banks? a. Review the composition of authenticated deposit slips. b. Review subsequent bank statements. c. Prepare a schedule of the bank transfers. d. Prepare a year-end bank reconciliation.
c
LO 6-6 6.25 Which of the following is true about electronic cash confirmations obtained through Confirmation (Confrmation.com)? a. Responses to electronic confirmations are often delayed compared with manual confirmations. b. Electronic cash confirmations provide more convincing evidence for the completeness assertion than manual confirmations. c. Auditors must obtain evidence supporting the reliability of controls surrounding the Confirmation (Confrmation.com) process. d. It is more difficult to determine the authenticity of an electronic confirmation obtained through Confirmation compared with confirmations mailed to the auditors.
c
LO 6-6 6.37 In preparing for the audit of cash, the auditors perform analytical procedures concerning cash balances. Which of the following would be the best source of information for use in the estimate of cash? a. Prior-years' balances. b. Management inquiry. c. Cash budgets. d. Aged accounts receivable reports.
c
LO 6-7 6.40 If the auditor believes that a misstatement is or might be intentional and the effect on the financial statements could be material or cannot be readily determined, the auditor should do which of the following? a. Inquire of management as to the possibility of fraud. b. Discuss with the audit committee what should be done to prevent possible future misstatements. c. Perform procedures to obtain additional audit evidence to determine whether fraud has occurred or is likely to have occurred. d. Both a and b are correct. e. None of these is correct.
c
LO 7-3 7.34 Sales are normally recorded on the date of the a. Customer purchase order. b. Bill of lading. c. Sales invoice. d. Payment check.
c
LO 7-4 7.37 The control procedure "credit sales approved by credit department" is directed toward which transaction assertion? a. Occurrence. b. Completeness. c. Accuracy. d. Cutoff.
c
LO 7-4 7.38 Which of the following would be the best protection for a company that wishes to prevent the "lapping" of trade accounts receivable? a. Separate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. b. Separate duties so that no employee has access to both checks from customers and currency from daily cash receipts. c. Have customers send payments directly to the company's depository bank. d. Request that customer's payment checks be made payable to the company and addressed to the treasurer.
c
LO 7-4 7.50 Which of the following is the best reason for prenumbering in numerical sequence documents such as sales orders, shipping documents, and sales invoices? a. Enables company personnel to determine the accuracy of each document. b. Enables personnel to determine the proper period recording of sales revenue and receivables. c. Enables personnel to check the numerical sequence for missing documents and unrecorded transactions. d. Enables personnel to determine the validity of recorded transactions.
c
LO 7-4 7.56 Write-offs of doubtful accounts should be approved by a. The salesperson. b. The credit manager. c. The treasurer. d. The cashier.
c
LO 7-4 7.59 Which of the following internal control activities most likely would deter lapping of collections from customers? a. Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries. b. Authorization of write-offs of uncollectable accounts by a supervisor independent of credit approval. c. Separation of duties between receiving cash and posting the accounts receivable ledger. Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries
c
LO 7-6 7.45 Which of the following responses to an accounts receivable confirmation at December 31 would cause an audit team the most concern? a. "This amount was paid on December 30." b. "We received this shipment on January 2." c. "These goods were returned for credit on November 15." "The balance does not reflect our sales discount for paying by January 5."
c
LO 7-6 7.47 Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily to a. Evaluate internal control over credit sales. b. Test the accuracy of recorded charge sales. c. Estimate credit losses. Verify the existence of the recorded receivables.
c
LO 7-6 7.49 Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide the strongest evidence concerning the a. Collectability of the balances confirmed. b. Ownership of the balances confirmed. c. Existence of the balances confirmed. d. Internal control over balances confirmed.
c
LO 7-6 7.53 When accounts receivable are confirmed at an interim date, auditors need not be concerned with a. Obtaining a summary of receivables transactions from the interim date to the year-end date. b. Obtaining a year-end trial balance of receivables, comparing it to the interim trial balance, and obtaining evidence and explanations for large variations. c. Sending negative confirmations to all customers as of the year-end date. Considering the necessity for some additional confirmations as of the balance sheet date if balances have increased materially
c
What is the primary objective of the fraud brainstorming session? a. Determine audit risk and materiality. b. Identify whether analytical procedures should be applied to the revenue accounts. c. Assess the potential for material misstatement due to fraud. d. Determine whether the planned procedures in the audit plan will satisfy the general audit objectives.
c
Which of the following is a specific audit procedure that would be completed in response to a particular fraud risk in an account balance or class of transactions? a. Exercising more professional skepticism. b. Carefully avoiding conducting interviews with people in areas that are most susceptible to fraud. c. Performing procedures such as inventory observation and cash counts on a surprise or unannounced basis. d. Studying management's selection and application of accounting principles more carefully.
c
Which of the following risk types increase when an auditor performs substantive analytical audit procedures for financial statement accounts at an interim date? a. Inherent. b. Control. c. Detection. d. Sampling.
c
Which of the following statements best describes auditors' responsibility for detecting a client's noncompliance with a law or regulation? a. The responsibility for detecting noncompliance exactly parallels the responsibility for errors and fraud. b. Auditors must design tests to detect all material noncompliance that indirectly affect the financial statements. c. Auditors must design tests to obtain reasonable assurance that all noncompliance with direct material financial statement effects is detected. d. Auditors must design tests to detect all noncompliance that directly affects the financial statements.
c
A primary objective of analytical procedures used in the final review stage of an audit is to a. Identify account balances that represent specific risks relevant to the audit. b. Gather evidence from tests of details to corroborate financial statement assertions. c. Detect fraud that may cause the financial statements to be misstated. d. Assist the auditor in evaluating the overall financial statement presentation
d
Analytical procedures can be used in which of the following ways? a. As a means of overall review near the end of the audit. b. As "attention-directing" methods when planning an audit at the beginning. c. As substantive audit procedures to obtain evidence during an audit. d. All of the above.
d
Analytical procedures used when planning an audit should concentrate on a. Weaknesses in the company's internal control activities. b. Predictability of account balances based on individual significant transactions c. Management assertions in financial statements. d. Accounts and relationships that can represent specific potential problems and risks in the financial statements.
d
If sales were overstated by recording a false credit sale at the end of the year, where could you find the false "dangling debit"? a. Inventory. b. Cost of goods sold. c. Bad debt expense. d. Accounts receivable.
d
LO 5-4 5.31 Effectiveness of audit procedures would be reduced by a. Selecting larger sample sizes for audit. b. Performing audit procedures at the fiscal year-end date as opposed to the interim period. c. Deciding to obtain external evidence instead of internal evidence. d. Performing procedures during the interim period as opposed to at the fiscal year-end date.
d
LO 5-4 5.37 Tests of controls in a GAAS audit are required for a. Obtaining evidence about the financial statement assertions. b. Accomplishing control over the occurrence of recorded transactions. c. Applying analytical procedures to financial statement balances. d. Obtaining evidence about the operating effectiveness of client control activities.
d
LO 5-4 5.53 The auditor should assess control risk for each relevant assertion by evaluating the evidence obtained from all sources, including a. The auditor's testing of controls for the audit of internal control on a public company. b. Misstatements detected during the financial statement audit. c. Any control deficiencies identified during the audit. d. All of the above.
d
LO 5-5 5.41 When completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends on a. Whether there is a reasonable possibility that the company's controls will fail to prevent or detect a misstatement of an account balance or disclosure. b. Whether a misstatement has actually occurred as a result of the deficiency. c. The magnitude of the potential misstatement resulting from the deficiency or the deficiencies. d. Both a and c are correct. E. All of the above are correct
d
LO 5-5 5.46 Which of the following would probably not be considered an indication of a material weakness? a. Evidence of a material misstatement. b. Ineffective oversight by the audit committee. c. Immaterial fraud committed by senior management. d. Overproduction by the manufacturing plant.
d
LO 5-5 5.49 If the auditors encounter a significant scope limitation in evaluating an issuer's internal control over financial reporting, which of the following types of opinions on the effectiveness of the company's internal control over financial reporting would be appropriate? A. Unqualified opinion or adverse opinion. B. Qualified opinion or adverse opinion. C. Unqualified opinion or disclaimer of opinion. D. Disclaimer of opinion.
d
LO 5-5 5.51 When testing a control activity's operating effectiveness, procedures the auditor performs to test operating effectiveness would likely include a. Inquiry of appropriate personnel. b. Reading over the company's code of conduct. c. Reperformance of the control activity. d. Both a and c are correct.
d
LO 5-5 5.52 Matters that could affect the necessary extent of testing for a control activity as it related to the degree of auditor reliance on a control activity would not include the following: a. The frequency of the performance of the control by the company during the period being audited. b. The length of time that the auditor is planning to rely on the operating efficiency of the control activity. c. The expected rate of deviation for a control activity. d. The relevance and reliability of the audit evidence to be obtained to test the operating effectiveness of a control activity.
d
LO 6-1 6.34 Embezzlement is a type of fraud that involves a. An employee's misappropriating an employer's money or property not entrusted to him or her. b. A manager's falsification of financial statements for the purpose of misleading investors and creditors. c. An employee's mistaken representation of opinion that causes incorrect accounting entries. d. An employee misappropriating an employer's money or property entrusted to the employee's control in the employee's normal job.
d
LO 6-2 6.39 Fraud risk factors are events or conditions that indicate which of the following? a. An opportunity to carry out a fraud. b. An attitude or rationalization that justifies a fraudulent action. c. An incentive or pressure to perpetrate fraud. d. All of the above
d
LO 6-3 6.20 The best way to enact a broad fraud prevention program is to a. Install airtight control systems of checks and supervision. b. Name an "ethics officer" who is responsible for receiving and acting on fraud tips. c. Place dedicated hotline telephones on walls around the workplace with direct communication to the company ethics officer. d. Practice management "of the people and for the people" to help them share personal and professional problems.
d
LO 6-5 6.38 Which of the following control activities could prevent a paid disbursement voucher from being presented for payment a second time? a. Vouchers should be prepared by individuals who are responsible for signing disbursement checks. b. Disbursement vouchers should be approved by at least two responsible management officials. c. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment. d. The official signing the check should compare it with the voucher and should stamp "paid" on the voucher documents.
d
LO 6-7 6.41 In what way can audit procedures be modified to address assessed fraud risks? a. Obtain more reliable information. b. Perform procedures close to year-end. c. Apply computer-assisted techniques to all items. d. All of these are valid modifications.
d
LO 6-7 6.42 Incorporating elements of unpredictability in the selection of audit procedures to be performed by auditors include all of the following except a. Varying the timing of the audit procedures. b. Selecting items for testing that have lower amounts or are otherwise outside customary selection parameters. c. Performing audit procedures on an unannounced basis. d. Sending attorney letters to every attorney listed under the legal expense account. e. None of these is correct.
d
LO 7-2 7.36 Which of the following accounts is not normally part of the revenue and collection cycle? a. Sales Accounts Receivable. b. Cash. c. Purchases Returns and Allowances
d
LO 7-3 7.44 To conceal a theft involving receivables, a dishonest bookkeeper might charge which of the following accounts? a. Miscellaneous income. b. Petty cash. c. Miscellaneous expense. d. Sales returns.
d
LO 7-6 7.41 An audit team is auditing sales transactions. One step is to vouch a sample of debit entries from the accounts receivable subsidiary ledger back to the supporting sales invoices. The purpose of this audit procedure is to establish that a. Sales invoices represent bona fde sales. b. All sales have been recorded. c. All sales invoices have been properly posted to customer accounts. Entries in the accounts receivable subsidiary ledger were properly invoiced.
d
LO 7-6 7.46 A client has a separate sales group for its largest "preferred" customers, a select group of customers who normally make purchases in excess of $250,000 and often have accounts receivable balances in excess of $1 million. Which of the following audit procedures would the auditor most likely perform? a. Prepare a schedule of purchases and payments for these customers. b. Send out negative confirmations on a large sample of these customers. c. Inquire of the sales manager regarding the accounts receivable terms. Send out positive confirmations on a large sample of these customers
d
The likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control is referred to as a. Inherent risk. b. Control risk. c. Detection risk. d. Risk of material misstatement.
d
The risk that the auditors' own testing procedures will lead to the decision that material misstatements do not exist in the financial statements when in fact such misstatements do exist is a. Audit risk. b. Inherent risk. c. Control risk. d. Detection risk.
d
When evaluating whether accounting estimates made by management are reasonable, auditors would be most interested in which of the following? a. Key factors that are consistent with prior periods. b. Assumptions that are similar to industry guidelines. c. Measurements that are objective and not susceptible to bias. d. Evidence of a conservative systematic bias.
d
Auditing standards do not require auditors of financial statements to a. Understand the nature of errors and frauds. b. Assess the risk of occurrence of errors and frauds. c. Design audits to provide reasonable assurance of detecting errors and frauds. d. Report all errors and frauds found to police authorities.
d.
LO 6-2 6.43 Fraud risk factors are events or conditions that indicate I An incentive or pressure to perpetrate fraud. II An opportunity to carry out the fraud. III An attitude or rationalization that justifies the fraudulent action. Which of the following statements is true? a. I is a fraud risk factor. b. I and II are fraud risk factors. c. II and III are fraud risk factors. d. None of these is a fraud risk factor. e. I, II, and III are fraud risk factors.
e
