Audit 2 Test 2

Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?

Are direct borrowings on notes payable authorized by the board of directors?

When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments?

Capitalization

Ordinarily, the most significant assertion relating to accounts payable is:

Completeness

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 should:

Consider the possibility of a misstatement in the financial statements.

The search for unrecorded liabilities for a public company includes procedures usually performed through the:

Date of the auditors' report.

An audit of the balance in the accounts payable account is ordinarily not designed to:

Detect accounts payable that are substantially past due.

Which of the following is least likely to be an audit objective for debt?

Determine that the client has rights to receive proceeds relating to the redemption of debt.

Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next:

Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.

The auditors' program for the examination of long-term debt should include steps that require the:

Examination of copies of debt agreements.

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?

Examine selected cash disbursements in the period subsequent to year-end.

In performing a test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test?

Existence

An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated:

February 10, 20X9.

To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the:

Individual who signs the checks.

The auditors would be most likely to find unrecorded long-term liabilities by analyzing:

Interest payments.

A possible loss, stemming from past events that will be resolved as to existence and amount by some future event, is referred to as a(n):

Loss contingency.

All corporate capital stock transactions should ultimately be traced to the:

Minutes of the board of directors.

An auditor is most likely to trace treasury stock purchase transactions to the:

Numbered stock certificates on hand.

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?

Owners' equity.

Which of the following procedures is most likely to be included in the final review stage of an audit?

Perform analytical procedures.

An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of:

Presentation and disclosure.

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the:

Receiving report and the purchase order.

A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner?

Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

Which of the following procedures is least likely to be completed before the balance sheet date?

Search for unrecorded liabilities.

In an audit of a sole proprietorship, a common difficulty is lack of:

Segregation of personal net worth and business capital.

The least likely approach in auditing management's estimate relating to an accrued liability is to:

Send confirmations relating to the estimate.

Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements?

Settlement of litigation.

A transfer agent and a registrar are most likely to provide the auditor with evidence on:

Shares issued and outstanding.

Which of the following is least likely to be considered a substantive procedure relating to payroll?

Test whether employee time reports are approved by supervisors.

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because:

There is likely to be other reliable external evidence available to support the balances.