Audit Final 14,16,18-24
A common audit procedure in the audit of payroll transactions involves tracing selected items from the payroll journal to employee time records that have been approved by supervisory personnel. This procedure is designed to provide evidence in support of the audit proposition that 1. all employees worked the number of hours for which their pay was computed. 2. only proper employees worked and their pay was correctly computed. 3. jobs on which employees worked were charged with the appropriate labor cost. 4. internal controls over payroll disbursements are operating effectively.
1
A sales invoice for $5,200 was computed correctly but, by mistake, was entered as $2,500 to the sales journal and posted to the accounts receivable master file. The customer remitted only $2,500, the amount on his monthly statement. 1. Prelistings and predetermined totals are used to control postings. 2 The customers' monthly statements are verified and mailed by a responsible person other than the bookkeeper who prepared them. 3. Sales invoice numbers, prices, discounts, extensions, and footings are independently checked. 4Unauthorized remittance deductions made by customers or other matters in dispute are investigated promptly by a person independent of the accounts receivable function
1
After a CPA has determined that accounts receivable have increased as a result of slow collections in a "tight money" environment, the CPA will be likely to 1. expand tests of collectibility. 2. review the going concern ramifications. 3. review the credit and collection policy. 4. increase the balance in the allowance for bad debt account
1
Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate controls over the invoicing function allow goods to be shipped that are not invoiced. The inadequate controls could cause an 1. understatement of revenues and receivables and an overstatement of inventory. 2. understatement of revenues, receivables, and inventory. 3. overstatement of revenues and receivables and an understatement of inventory. 4. overstatement of revenues, receivables, and inventory.
1
An audit firm performs a preliminary review of the client's internal controls over its property, plant, and equipment cycle. Which of the following would represent a weakness in internal control? 1. The purchasing department generates a special requisition form upon oral or written approval by senior management. 2. Assets that are retired are documented on a sequential work order, which includes an authorization signature. 3. A subsidiary ledger is used by the client to keep detailed transaction information for each fixed asset. 4. Each fixed asset has an identification plate that is listed on a control account.
1
An auditor who is auditing accounts receivable would least likely perform which of the following tests? 1. Select cash disbursements made shortly after year end and examine the supporting documentation such as receiving reports and vendor invoices. 2. Confirm a sample of accounts receivables with the customers that owe the balances. 3. Vouch cash receipts to the accounts receivables transactions. 4. Obtain an aged trial balance of accounts receivable and trace the total to the general ledger control account.
1
An auditor wishes to test the completeness assertion for sales. Which of the following audit tests would most likely accomplish this objective? 1. Select a sample of shipments occurring during the year and trace each one to inclusion in the sales journal. 2. Compare accounts receivable turnover (net credit sales/average gross receivables) in the current year to that achieved in the prior year. 3. Use common size analysis to compare recorded sales to sales recorded by other companies in the same industry. 4. Select large individual sales recorded during the year and review supporting documentation
1
An example of an event occurring in the period between the end of the year being audited and the date of the auditor's report that normally will not require disclosure in the financial statements or auditor's report is 1. decreased sales volume resulting from a general business recession. 2. serious damage to the company's plant from a widespread flood. 3. issuance of a widely advertised capital stock issue with restrictive covenants. 4. settlement of a large liability for considerably less than the amount recorded.
1
In order to test the valuation assertion related to the client's stockholders' equity transactions, the auditor may complete which of the following substantive procedures? 1. Analyze the retained earnings account by reviewing the propriety of the direct entries to the retained earnings account, starting with the date of the previous audit. 2. Perform inquiries of management regarding appropriations of retained earnings. 3. Vouch stock transactions recorded in the current period to board minutes. 4. Send third-party confirmations to the stock transfer agent.
1
In searching for unrecorded retirements, an auditor selects older fixed assets from the subsidiary ledger and then tries to locate those assets. This procedure primarily relates to management's assertion of 1. existence. 2. completeness. 3. rights and obligations. 4. classification.
1
In testing for unrecorded disposals of equipment, an auditor most likely will 1. select items of equipment from the accounting records and then locate them during the plant tour. 2. compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment. 3. inspect items of equipment observed during the plant tour and then trace them to the equipment master file. 4. scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.
1
The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because 1. customers may not be inclined to report understatement errors in their accounts. 2.recipients usually respond only if they disagree with the information on the request. 3. many customers merely sign and return the confirmation without verifying details. 4. there is likely to be reliable third-party evidence available.
1
Which of the following audit procedures would be most relevant when examining the completeness transaction-related audit objective for capital stock? 1. The auditor examines minutes of the board of directors' meetings to identify any actions involving the issuance of capital stock. 2. The auditor vouches entries in the client's capital stock records to board minutes. 3. Confirmations of new stock issuances are sent to the client's stock transfer agent. 4. The auditor traces entries of new stock issuances to the cash receipts journal.
1
Which of the following controls will most likely justify a reduced assessed level of control risk for the completeness assertion for notes payable? 1. The accounting staff reviews board of director minutes for any indication of any transactions involving outstanding debt to make sure all borrowings are included in the general ledger. 2. All borrowings that exceed $500,000 require approval from the board of directors before loan contracts can be finalized. 3. Before approving disbursement of principal payments on notes payable, the treasurer reviews terms in the note. 4. Accounting maintains a detailed schedule of outstanding notes payable that is reconciled monthly to the general ledger.
1
Which of the following controls will most likely justify a reduced assessed level of control risk for the existence assertion for equipment? 1. Internal auditors periodically select equipment items in the fixed assets master file and locate the related equipment on company premises. 2. Department heads are asked to provide information to the accounting department each quarter about any equipment no longer in use or somewhat damaged. 3. All contracts of equipment purchases are reviewed by both the controller and attorney to verify that legal title transfers to the client and that none represent operating leases. 4. As part of quarterly and annual inventory physical counts, factory equipment is listed and subsequently reconciled to the fixed asset master file.
1
Which of the following internal control procedures most likely would be used to maintain accurate inventory records? 1. Perpetual inventory records are periodically compared with the current cost of individual inventory items. 2. A just-in-time inventory ordering system keeps inventory levels to a desired minimum. 3. Requisitions, receiving reports, and purchase orders are independently matched before payment is approved. 4. Periodic inventory counts are used to adjust the perpetual inventory records.
1
Which of the following internal controls is least likely to reduce risks related to the occurrence transaction-related audit objective for issuances of stock? 1. The board of directors must approve the distribution of cash dividends. 2. The issuance of any shares of stock must be preapproved by the board of directors. 3. The company engages an independent registrar to issue stock certificates. 4. The company maintains a capital stock certificate record that includes certificate number, number of shares issued, issue date, and name of person to whom certificates are issued
1
Which of the following procedures most likely represents an internal control designed to reduce the risk of errors in the billing process? 1. Comparing control totals for shipping documents with corresponding totals for sales invoices. 2. Matching receiving documents with approved sales orders before invoice preparation. 3. Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger. 4. Requiring customers that purchase on account to be approved by the credit department.
1
Which of the following will likely provide the most assurance concerning the accuracy balance-related objective for accounts receivable? 1. Vouch amounts in the subsidiary ledger to details on shipping documents. 2. Compare receivable turnover ratios with industry statistics for reasonableness. 3. Inquire about receivables pledged under loan agreements. 4. Assess the allowance for uncollectible accounts for reasonableness.
1
A factory supervisor at Steblecki Corporation discharged an hourly worker but did not notify the human resources department. The supervisor then forged the worker's signature on time cards and work tickets and, when giving out the checks, diverted the payroll checks drawn from the discharged worker to his own use. The most effective procedure for preventing this activity is to 1. require written authorization for all employees added to or removed from the payroll. 2. have a paymaster who has no other payroll responsibility distribute the payroll checks. 3. have someone other than persons who prepare or distribute the payroll obtain custody of unclaimed payroll checks. 4. from time to time, rotate persons distributing the payroll.
2
All of the following are effective ways to prevent and/or detect lapping, except for 1. comparing the dollar amounts and dates on the bank deposit slips with customer remittance credits entered into the accounts receivable ledger. 2. preparing a bank transfer schedule. 3. requiring that customers send their payments directly to a lockbox. 4. independently comparing the recorded cash receipts with funds actually deposited in the bank.
2
An auditor's preliminary analysis of accounts receivable turnover revealed the following rates over these accounting periods: 2019: 4.3 2018: 6.2 2018: 7.3 Which of the following is the most likely cause of the decrease in accounts receivable turnover? 1. Increase in the cash discount offered 2. Liberalization of credit policy 3. Shortening of due date terms 4. Increased cash sales
2
Control risk is the risk that a material misstatement in an account will not be prevented or detected on a timely basis by the client's internal controls. The best control to prevent or detect fictitious payroll transactions is to 1. use and account for prenumbered payroll checks. 2. restrict authorization for hiring, terminating, or changing pay rate or job status to the human resources function. 3. verify internally authorized pay rates, computations, and agreement with the payroll register. 4. conduct periodic independent bank reconciliations of the payroll bank account.
2
For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order that is 1. returned to the requisitioner. 2. forwarded to the receiving department. 3. forwarded to the accounting department. 4. retained in the purchasing department's files.
2
In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support? 1. Completeness 2. Occurrence 3. Valuation and allocation 4. Rights and obligations
2
In auditing the payroll function of a client, an auditor would least likely 1. verify proper segregation of duties. 2. request specific management representations related to payroll. 3. recalculate year-end payroll accruals. 4. apply analytical procedures.
2
In performing tests concerning the granting of stock options, an auditor should 1. confirm the transaction with the Secretary of State in the state of incorporation. 2. trace the authorization for the transaction to a vote of the board of directors. 3. verify the existence of option holders in the entity's payroll records or stock ledgers. 4. determine that sufficient treasury stock is available to cover any new stock issued.
2
Shipments occurring in December 2019 did not get recorded until the first few days of January 2020. 1. The system automatically assigns bill of lading numbers and ensures no duplicates are issued. 2. As goods leave the shipping dock, the system generates a bill of lading and associated sales invoice, which is automatically recorded in the sales journal. 3. The accounting system requires entry of a valid bill of lading number provided by the shipping department before a sales transaction is accepted for entry. 4. The system prevents the creation of a bill of lading without a customer order dated prior to the shipping date
2
The accounting system will not post a sales transaction to the sales journal without a valid bill of lading number. This control is most relevant to which transaction-related objective for sales? 1. Accuracy 2. Occurrence 3. Completeness 4. Posting and summarization.
2
The auditor should control and verify all liquid assets simultaneously to prevent 1. unrecorded disbursements. 2. conversion of assets to 3. conceal a shortage. 3. unauthorized disbursements. 4. embezzlement.
2
The auditor should ordinarily send confirmation requests to all banks with which the client has conducted any business during the year, regardless of the year-end balance, because 1. this procedure will detect kiting activities that would otherwise not be detected. 2. the confirmation form also seeks information about indebtedness to the bank. 3. the sending of confirmation requests to all such banks is required by auditing standards. 4. this procedure relieves the auditor of any responsibility with respect to nondetection of forged checks
2
When a contingency is resolved subsequent to the issuance of audited financial statements, which correctly contained disclosure of the contingency in the footnotes based on information available at the date of issuance, the auditor should 1. inform the appropriate authorities that the report cannot be relied on. 2. take no action regarding the event. 3. insist that the client issue revised financial statements. 4. inform the audit committee that the report cannot be relied on.
2
When an auditor observes that the recorded interest expense seems to be excessive in relation to the balance in the bonds payable account, the auditor might suspect that 1. discount on bonds payable is understated. 2. bonds payable are understated. 3. bonds payable are overstated. 4. premium on bonds payable is overstated.
2
When auditing a client's property, plant, and equipment transactions, which of the following tests of details can be used to support the existence and occurrence assertion? 1. Examine a sample of material charges to repairs and maintenance expense to determine whether any items should have been capitalized. 2. Vouch a sample of purchases to the vendor invoice and receiving report. 3. Recalculate any revaluation losses or surplus transactions made to property, plant, and equipment during the year. 4. Review fixed asset purchases and dispositions right before and after year end to determine whether recorded in the correct period.
2
Which audit procedure is most effective in testing credit sales for overstatement? 1. Trace a sample of postings from the sales journal to the sales account in the general ledger. 2. Vouch a sample of recorded sales from the sales journal to shipping documents. 3. Prepare an aging of accounts receivable. 4. Trace a sample of initial sales orders to sales recorded in the sales journal.
2
Which of the following analytical procedure results might suggest that certain repairs and maintenance expenses have been inappropriately capitalized? 1. The ratio of additions to equipment divided by the beginning balance in the equipment account is significantly lower than the same ratio from the prior three years. 2. The balance in the repairs and maintenance expense account is noticeably lower than amounts recorded in the past several years. 3. The balance in the gross equipment account has decreased this year compared to the prior year. 4. The ratio of depreciation expense divided by gross equipment is higher in the current year compared to prior years.
2
Which of the following controls most likely will be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad-debt write-offs? a. Employees responsible for authorizing sales and bad-debt write-offs are denied access to cash. b. Employees involved in the credit-granting function are separated from the sales function. c. Shipping documents and sales invoices are matched by an employee who does not have the authority to write off bad debts. d. Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.
2
Which of the following discovered by the auditor would be a weakness in the client's internal control over its investments? 1. The internal auditor performs a periodic count of the actual securities and reconciles the securities counted to the investment subsidiary ledger. 2. Investments not held by an independent third-party custodian are kept in the Treasurer's office. 3. A designated accounting individual that has no custody or authorization responsibilities maintains the detailed records of the investment subsidiary ledger. 4. The client's board of directors authorizes all purchases and sales of investment securities
2
Which of the following tests would an auditor be least likely to perform during an audit of accounts payable? 1. Examine open vouchers, receiving reports, and vendor invoices shortly after the year end 2. Trace a sample of vouchers to the purchase journal 3. Send out accounts payable confirmations 4. Select cash disbursements made shortly after year end and examine supporting documentation such as receiving reports and vendor invoices
2
A CPA obtains a January 10 cutoff bank statement for a client directly from the bank. Very few of the outstanding checks listed on the client's December 31 bank reconciliation cleared during the cutoff period. A probable cause for this is that the client 1. is engaged in kiting. 2. is engaged in lapping. 3. transmitted the checks to the payees after year end. 4. has overstated its year-end bank balance
3
An auditor found that employee time records in one department are not properly approved by the supervisor. Which of the following could result? 1. Duplicate paychecks might be issued. 2. The wrong hourly rate could be used to calculate gross pay. 3. Employees might be paid for hours they did not work. 4. Payroll checks might not be distributed to the appropriate employees.
3
An auditor is in the process of performing substantive procedures on a client's stockholders' equity and vouches stock-related transactions recorded during the year to board minutes. Which of the following assertions is the auditor testing with these procedures? 1. Valuation 2. Classification 3. Completeness 4. Existence and occurrence
3
An auditor is performing a preliminary assessment of a large client's internal controls over payroll. The auditor would identify which of the following as an improper segregation of duties related to the payroll functions? 1. Each employee's weekly time record must be approved by the immediate supervisor. 2. While the majority of the payroll checks are direct deposits, all manual checks are handed out on a weekly basis by the paymaster. 3. All blank checks and the check signature plate are maintained by human resources. 4. The payroll department calculates the weekly salary distribution based on information received, and prepares unsigned checks, which are forwarded to the treasurer for approval
3
An auditor is planning the test of details for a client's debt transactions. In order to test the existence and occurrence assertion, the auditor would most likely perform which of the following tests? 1. Examine the client's bond maturity dates to determine whether the debt should be reflected as a short-term or a long-term liability. 2. Select a sample of debt payments and compare the interest expense to the reported debt balance for reasonableness. 3. Review the board minutes to obtain evidence of new agreements and then follow up by inspecting the new agreements. 4. Review the interest expense account for possible payments to debt holders not included in the debt listing.
3
An auditor selected items for test counts while observing a client's physical inventory. The auditor traced the test counts to the client's inventory listing. This procedure likely obtained evidence about which balance-related audit objective for inventory? 1. Existence 2. Rights and obligations 3. Completeness 4. Realizable value
3
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to 1) identify unusually large purchases that should be investigated further. 2) verify that cash disbursements were for goods actually received. 3) determine that purchases were properly recorded. 4) test whether payments were for goods actually ordered
3
An auditor's principal objective in analyzing repairs and maintenance expense accounts is to 1. determine that all obsolete property, plant, and equipment assets were written off before the year end. 2. verify that all recorded property, plant, and equipment assets actually exist. 3. discover expenditures that were expensed but should have been capitalized. 4. identify property, plant, and equipment assets that cannot be repaired and should be written off.
3
An inventory turnover analysis is useful to the auditor because it may detect 1. inadequacies in inventory pricing. 2. methods of avoiding cyclical holding costs. 3. the existence of obsolete merchandise. 4. the optimum automatic reorder points.
3
Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control that provides for 1. segregation of duties of employees in the accounts payable department. 2. authorization by the board of directors of significant equipment acquisitions. 3. investigations of variances within a formal budgeting system. 4. independent verification of invoices for disbursements recorded as equipment acquisitions.
3
If the perpetual records show lower quantities of inventory than the physical count, an explanation of the difference might be unrecorded 1. sales. 2. sales discounts. 3. purchases. 4. purchase discounts.
3
In auditing a manufacturing entity, which of the following procedures would an auditor most likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified? 1. Test the mathematical accuracy of the inventory report 2. Inquire of management about whether inventory has been pledged or assigned 3. Tour the manufacturing plant or production facility 4. Test the computation of standard overhead rates
3
In auditing accounts payable, an auditor's procedures most likely will focus primarily on management's assertion of 1. existence. 2. realizable value. 3. completeness. 4. valuation and allocation
3
In connection with the audit of the prepaid insurance account, which of the following procedures is usually not performed by the auditor? 1. Recompute the portion of the premium that expired during the year. 2. Prepare excerpts of the insurance policies for audit documentation. 3. Confirm premium rates with an independent insurance broker. 4. Examine support for premium payments.
3
In establishing the existence and ownership of an investment held by a corporation in the form of publicly traded stock, an auditor should inspect the securities or 1. obtain written representations from management confirming that the securities are properly classified as trading securities. 2. inspect the audited financial statements of the investee company. 3. confirm the number of shares owned that are held by an independent custodian. 4. determine that the investment is carried at the lower of cost or market.
3
In the audit of notes payable, which balance-related audit objective is generally one of the most important for the auditor to verify? 1. Notes payable reflected on the balance sheet at the end of the year exist. 2. Notes payable due to related parties are properly reflected on the balance sheet. 3. Existing notes payable are included on the balance sheet as of year end. 4. Notes payable are reflected at net realizable value as of the balance sheet date
3
Mailing disbursement checks and remittance advices should be controlled by the person who 1. approves the vouchers for payment. 2. matches the receiving reports, purchase orders, and vendors invoices. 3. signs the checks last. 4. maintains control over a mechanical check-signing machine.
3
The Form 10-K filed by management of a public company includes a section on management's discussion and analysis (MD&A) in addition to the annual financial statements. Which of the following best describes the auditor's responsibility for the MD&A information? 1. The auditor must perform sufficient appropriate audit procedures to opine on the MD&A information. 2. The auditor has no responsibilities related to the MD&A disclosures. 3. The auditor must read the MD&A information to determine whether there is any material inconsistency with the audited financial statements. 4. The auditor must provide a disclaimer of opinion related to the MD&A information.
3
The auditor sends out positive accounts receivable confirmations for a client. Assuming a second confirmation is sent out to a major customer who still fails to respond, which action should the auditor take? 1. Consider the nonresponse as a minor audit finding and use responding confirmations as a basis for test results. 2. Issue a qualified opinion due to the lack of sufficient audit evidence. 3. Send out a third confirmation request and, if no response, perform alternative procedures. 4. Provide the client a copy of the accounts receivable confirmation and request that they obtain the information from the customer
3
To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all 1. vendor's invoices. 2. purchase orders. 3. receiving reports. 4. cancelled checks.
3
To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor would most likely select a sample of transactions from the population represented by the 1. sales order file. 2. customer order file. 3. shipping document file. 4. sales invoice file.
3
Which of the following audit procedures is best for identifying unrecorded trade accounts payable? 1. Examining unusual relationships between monthly accounts payable balances and recorded cash payments 2. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date 3. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period 4. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports
3
Which of the following audit procedures will best uncover an understatement of sales and accounts receivable? 1. Confirm accounts receivable. 2. Test a sample of sales transactions, selecting the sample from sales invoices recorded in the sales journal. 3. Test a sample of sales transactions, selecting the sample from prenumbered shipping documents. 4. Review the aged accounts receivable trial balance.
3
Which of the following comparisons will be most useful to an auditor in auditing an entity's income and expense accounts? 1. Prior year accounts payable to current year accounts payable 2. Prior year payroll expense to budgeted current year payroll expense 3. Current year revenue to budgeted current year revenue 4. Current year warranty expense to current year contingent liabilities
3
Which of the following controls would be most effective in detecting a failure to record cash received from customers paying on their accounts? 1. A person in accounting reconciles the bank deposit to the cash receipts journal 2. Transactions recorded in the cash receipts journal are posted on a real time basis to the accounts receivable master file. 3. Monthly statements are sent to customers and any discrepancies are resolved by someone independent of cash handling and accounting. 4. Deposits of cash received are made daily.
3
Which of the following procedures will an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests? 1. Review the cash receipts journal for the month prior to year end. 2. Intensify the study of internal control concerning the revenue cycle. 3. Inspect the shipping records documenting the merchandise sold to the debtors. 4. Increase the assessed level of detection risk for the existence assertion.
3
Written management representations obtained by the auditor in connection with a financial statement audit should include a 1. summary of all corrected misstatements. 2. statement of management's belief that any uncorrected misstatements are in fact not misstatements. 3. statement of management's belief that the effects of uncorrected misstatements are not material. 4. summary of all uncorrected misstatements.
3
A management letter 1. is the auditor's report on significant deficiencies and material weaknesses in internal control. 2. is mandatory in all audits and must be dated the same date as the audit report. 3. contains management's representations to the auditor documenting statements made by management to the auditor during the audit about matters affecting the financial statements. 4. contains recommendations from the auditor designed to help the client improve the efficiency and effectiveness of its business
4
An auditor is performing substantive tests of transactions for sales. One step is to trace a sample of debit entries from the accounts receivable master file back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step? 1. Sales invoices represent existing sales. 2. All sales have been recorded. 3. All sales invoices have been correctly posted to customer accounts. 4. Debit entries in the accounts receivable master file are correctly supported by sales invoices
4
An auditor most likely would introduce test data into a computerized payroll system to test internal controls related to the 1. existence of unclaimed payroll checks held by supervisors. 2. early cashing of payroll checks by employees. 3. proper approval of overtime by supervisors. 4. discovery of invalid employee I.D. numbers.
4
An auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing to 1. verify that payroll taxes are deducted from employees' gross pay. 2. determine whether internal control activities are operating effectively. 3. uncover fictitious employees who are receiving payroll checks. 4. identify potential liabilities for unpaid payroll taxes.
4
As a result of analytical procedures, the auditor determines that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditor should 1. express a qualified opinion due to inability of the client company to continue as a going concern. 2. evaluate management's performance in causing this decline. 3. require footnote disclosure. 4. consider the possibility of a misstatement in the financial statements.
4
As part of the current audit, the auditor begins performing substantive tests on a client's inventory. To test the valuation, allocation, and accuracy assertion, the auditor should perform all of the following procedures except for 1. reviewing direct labor rates and testing the computation of the standard overhead rates used. 2. performing inventory price tests on a sample of inventory items to ensure the inventory is properly valued. 3. testing the mathematical computations of the inventory report and reconciling to the inventory general ledger accounts. 4. vouching a sample of items from the client's inventory report sheet to the corresponding prenumbered inventory tags.
4
During an audit of a publicly held company, the auditor should obtain written confirmation regarding debenture transactions from the 1. debenture holders. 2. client's attorney. 3. internal auditors. 4. trustee.
4
For several years, a client's physical inventory count has been lower than the amount shown on the books at the time of the count. Contributing to the inventory problem could be material weaknesses in internal control that led to failure to record some 1. purchases returned to vendors. 2. sales returns received. 3. sales discounts allowed. 4. cash purchases.
4
The accounting system automatically obtains the unit price based on scans of bar codes for merchandise sold. This control is most relevant to which transaction-related objective for sales? 1. Posting and Summarization 2. Occurrence 3. Completeness 4. Accuracy
4
The auditor may note that annual depreciation expense is too low for a class of assets by noting 1. insured values greatly in excess of carrying amounts. 2. large numbers of fully depreciated assets are still in use. 3. continuous trade-ins of relatively new assets. 4. excessive recurring losses on assets retired.
4
The negative form of accounts receivable confirmation request is useful except when 1. internal control surrounding accounts receivable is considered to be effective. 2. a large number of small balances is involved. 3. the auditor has reason to believe the persons receiving the requests are likely to give them consideration. 4. individual account balances are relatively large.
4
The return of a positive confirmation of accounts receivable without an exception attests to the 1. collectibility of the receivable balance. 2. accuracy of the allowance for uncollectible accounts. 3. accuracy of the aging of accounts receivable. 4. accuracy of the receivable balance.
4
Tracing shipping documents to sales invoices provides evidence that 1. sales billed to customers were actually shipped. 2. all goods ordered by customers were shipped. 3. shipments to customers were recorded as sales. 4. shipments to customers were properly invoiced.
4
Which of the following controls would most likely detect a kiting scheme? 1. Preparing a bank reconciliation 2. Using a lockbox system for customer receipts 3. Comparing the details of deposit tickets and recorded remittance advices 4. Preparing a bank transfer schedule
4
Which of the following is least likely to be a reasonable explanation for an increase in accounts receivable turnover? 1. Early payment incentives for customers 2. Tightening of credit policy 3.Implementation of more aggressive collection policies 4. Allowance of a new grace period for customer payments
4
Which of the following is not a required item to be communicated by the auditor to the audit committee or others charged with governance? 1. Information about the auditor's responsibility in an audit of financial statements 2. Information about the overall scope and timing of the audit 3. Significant findings arising from the audit 4. Recommendations for improving the client's business
4
Which of the following is one of the better auditing techniques to detect kiting? 1. Review composition of authenticated deposit slips 2. Review subsequent bank statements and cancelled checks received directly from the banks 3. Prepare year-end bank reconciliations 4. Prepare a schedule of bank transfers from the client's books
4
Which of the following questions is an auditor least likely to include on an internal control questionnaire concerning the initiation and execution of equipment transactions? 1. Are requests for major repairs approved at a higher level than the department initiating the request? 2. Are prenumbered purchase orders used for equipment and periodically accounted for? 3. Are requests for purchases of equipment reviewed for consideration of soliciting competitive bids? 4. Are procedures in place to monitor and properly restrict access to equipment?
4
Which of the following questions would be best to include in an internal control questionnaire concerning the completeness assertion for purchases? 1. Is an authorized purchase order required before the receiving department can accept a shipment or the vouchers payable department can record a voucher? 2. Are purchase requisitions prenumbered and independently matched with vendor invoices? 3. Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have access to purchase requisitions? 4. Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?
4
Which of the following would be least likely to be included in a standard inquiry to the client's attorney? 1. A list provided by the client of pending litigation or asserted or unasserted claims with which the attorney has had some involvement 2. A request that the attorney provide information about the status of pending litigation 3. A request for the attorney to identify any pending litigation or threatened legal action not identified on a list provided by the client 4. A request for the attorney to opine on the correct accounting treatment associated with an outstanding claim or pending lawsuit outcome
4
While auditing a client's purchase transactions, an auditor selects a sample of vouchers and then compares the dates on the vouchers to the dates on which the corresponding transactions were actually recorded in the client's purchase journal. The audit procedure is most likely designed to test the 1. occurrence assertion. 2. completeness assertion. 3. accuracy assertion. 4. cutoff assertion.
4
For each error or fraud, select one internal control that, if properly designed and implemented, most likely would be effective in preventing or detecting the errors and fraud Customer checks are properly credited to customer accounts and are properly deposited, but errors are made in recording receipts in the cash receipts journal.
An employee, other than the bookkeeper, periodically prepares a bank rec
For each error or fraud, select one internal control that, if properly designed and implemented, most likely would be effective in preventing or detecting the errors and fraud Customer checks are credited to incorrect customer accounts.
Monthly statements are mailed to all customers w/ outstanding balances
For each error or fraud, select one internal control that, if properly designed and implemented, most likely would be effective in preventing or detecting the errors and fraud Customer checks are misappropriated before being forwarded to the cashier for deposit.
Total amounts posted to the a/r ledger from remittance advices are compared with the validated bank deposit slip
For each error or fraud, select one internal control that, if properly designed and implemented, most likely would be effective in preventing or detecting the errors and fraud Customer checks are received for less than the customers' full account balances, but the customers' full account balances are credited.
Total amounts posted to the a/r ledger from remittance advices are compared with the validated bank deposit slip
a. Identify whether each audit procedure is a test of control or a substantive test of transactions. b. State which transaction-related audit objective(s) each of the audit procedures fulfills. Trace recorded cash receipts in the accounts receivable master file to the cash receipts journal and compare the customer name, date, and amount of each one.
a) substantive test of controls b) completeness, accuracy, timing, posting and summarization
a. Identify whether each audit procedure is a test of control or a substantive test of transactions. b. State which transaction-related audit objective(s) each of the audit procedures fulfills. Examine financial statement footnotes for appropriate disclosure of sales to related parties.
a) substantive test of transactions b) completeness, posting and summarization
a. Identify whether each audit procedure is a test of control or a substantive test of transactions. b. State which transaction-related audit objective(s) each of the audit procedures fulfills. Perform a proof of cash receipts.
a) substantive test of transactions b) existence, completeness, accuracy, timing
a. Identify whether each audit procedure is a test of control or a substantive test of transactions. b. State which transaction-related audit objective(s) each of the audit procedures fulfills. Compare the quantity and description of items on sales invoices with related shipping documents.
a) test of control b)accuracy
a. Identify whether each audit procedure is a test of control or a substantive test of transactions. b. State which transaction-related audit objective(s) each of the audit procedures fulfills. Examine a sample of remittance advices for approval of cash discounts.
a) test of controls b) occurence
a. Identify whether each audit procedure is a test of control or a substantive test of transactions. b. State which transaction-related audit objective(s) each of the audit procedures fulfills. Select a sample of customer orders and trace the document to related shipping documents, sales invoices, and the accounts receivable master file for comparison of name, date, and amount.
a. Substantive test of transactions b. Completeness, accuracy, timing, posting and summarization
a. Identify whether each audit procedure is a test of control or a substantive test of transactions. b. State which transaction-related audit objective(s) each of the audit procedures fulfills. Examine the sales journal for related-party transactions, notes receivable, and other unusual items.
a. Substantive test of transactions b. Classification
a. Identify whether each audit procedure is a test of control or a substantive test of transactions. b. State which transaction-related audit objective(s) each of the audit procedures fulfills. Examine sales invoices for an indication that unit selling prices were compared to the approved price list.
a. Test of control b. Accuracy
a. Identify whether each audit procedure is a test of control or a substantive test of transactions. b. State which transaction-related audit objective(s) each of the audit procedures fulfills. Examine sales invoices to determine whether the account classification for sales has been included in the electronic record.
a. test of controls b) classification
