Audit Final

Which of the following statements is an auditor most likely to add to the negative form of confirmation of accounts receivable to encourage timely consideration by the recipient?

"If you do not report any differences within 15 days, it will be assumed that this statement is correct."

An auditor frequently asks the client's personnel questions about the accounts under audit. Although this evidence may be useful, it is weak and should be corroborated by the auditor. Which of the following replies is most useful to the auditor?

"No, we don't always require authorization."

Which of the following documentation is not required for an audit in accordance with auditing standards?

A client letter that details the auditor's planned field work.

Which of the following statements about evidence is true?

A client's accounting records cannot be considered sufficient appropriate audit evidence on which to base the auditor's opinion.

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely will be included with the client's confirmation letter?

A client-prepared statement of account showing the details of the customer's account balance.

Which of the following is usually included or shown in the audit documentation?

A summary of how significant findings were addressed.

A CPA is conducting the first audit of a nonissuer's financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor's audit documentation. This procedure is

Acceptable if the client and the predecessor auditor agree to it.

A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses a computer system is that the auditor may

Access information stored on computer files while having a limited understanding of the client's hardware and software features.

Which of the following presumptions is least likely to relate to the reliability of audit evidence?

An auditor's opinion is formed within a reasonable time to achieve a balance between benefit and cost.

If an auditor of an issuer examines purchase orders obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting

An inspection.

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account, as of October 31. By this procedure, the auditor would be most likely to learn of which of the following?

An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.

Although the quantity and content of audit documentation vary with each engagement, an auditor's permanent files most likely include

Analyses of capital stock and other owners' equity accounts.

Which of the following concepts distinguishes the retention of computerized audit documentation from the traditional hard copy form?

Analyses, conclusions, and recommendations are filed on electronic media and are therefore subject to computer system controls and security procedures.

Which of the following in a predecessor's audit documentation is the auditor least likely to be interested in reviewing?

Analysis of income statement accounts.

The internal control objectives of the revenue cycle include all of the following except

Appropriate goods are ordered so that sales can be made.

An auditor would least likely use computer software to

Assess risk.

Using personal computers in auditing may affect the methods used to review the work of staff assistants because

Audit documentation may not contain readily observable details of calculations.

Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to provide a reasonable basis for an opinion?

Auditor judgment.

Management should address written representations about a firm's annual audit to the

Auditor.

The most reliable forms of documentary evidence are those documents that are

Authorized by a responsible official.

The PCAOB's AS 1215, Audit Documentation, requires that a complete and final set of audit documentation be assembled for retention as of a date not more than 45 days after the audit report release date. After that date, audit documentation may

Be added, but no audit documentation may be deleted or discarded.

Which of the following is the greatest drawback of using subsequent collections evidenced only by a deposit slip as an alternative procedure when responses to positive accounts receivable confirmations are not received?

By examining a deposit slip only, the auditor does not know whether the payment is for the receivable at the balance sheet date or a subsequent transaction.

A written representation from a client's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements, should normally be signed by the

Chief executive officer and the chief financial officer.

An auditor's audit documentation will least likely show how the

Client's schedules were prepared.

As part of a fraud audit, a CPA wishes to identify employees with invalid Social Security numbers in the client's payroll-transaction data. Which of the following audit tests of controls using computer-assisted audit techniques would best meet the objective?

Comparing Social Security numbers paid in the payroll transaction file to a file of government- authorized Social Security numbers.

When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations

Complement, but do not replace, substantive procedures designed to support the assertion.

An auditor of a nonissuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately

Consider the reliability of information to be used as audit evidence.

Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should

Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable.

The tick mark Ø most likely indicates that the amount was traced to the

Deposits in transit of the applicable bank reconciliation.

Audit documentation that records the procedures used by the auditor to gather evidence should be

Designed to meet the circumstances of the particular engagement.

Smith Corporation has numerous customers. A customer file is kept on disk storage. Each customer record contains the name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow is to

Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.

Each of the following might, by itself, form a valid basis for an auditor to decide to omit a procedure except for the

Difficulty and cost involved in testing a particular item.

A written management representation letter is most likely to be an auditor's best source of corroborative information of a client's intention to

Discontinue a line of business.

An auditor finds several misstatements in the financial statements that the client prefers not to correct. The auditor determines that the misstatements are not material in the aggregate. Which of the following actions by the auditor is most appropriate?

Document all misstatements accumulated during the audit and the conclusion about whether uncorrected misstatements are material.

An auditor using audit software probably would be least interested in which of the following fields in a computerized perpetual inventory file?

Economic order quantity.

Standardized working papers are often used, chiefly because they allow audit documentation to be prepared more

Efficiently.

An auditor will most likely use computer-assisted audit techniques, rather than manual techniques, when it is necessary to

Examine all data in an accounts payable file.

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be dissociated from the resolution of the matter. The audit documentation would probably be

Expanded to detail the assistant auditor's position and how the difference of opinion was resolved.

Which of the following tasks can be achieved using generalized audit software?

Filtering data based on accounts receivable data recording.

To which of the following matters would an auditor not apply materiality limits when obtaining specific written management representations?

Fraud involving employees with significant roles in internal control.

In the course of the audit of financial statements for the purpose of expressing an opinion, the auditor will normally prepare a schedule of uncorrected misstatements. The primary purpose served by this schedule is to

Identify the potential financial statement effects of misstatements that were not considered clearly trivial when discovered.

Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?

Including a list of items or invoices that constitute the account balance.

Which of the following procedures would provide the most reliable audit evidence?

Inspection of bank statements obtained directly from the client's financial institution.

Computer technology makes it possible to perform paperless audits. For example, in an audit of computer-processed customer accounts receivable balances, an auditor might use a personal computer to access the accounts receivable files directly and copy selected customer records into the computer for audit analysis. Which of the following is an advantage of this type of paperless audit of accounts receivable balances?

It allows immediate processing of audit data on a spreadsheet working paper.

Which of the following represents a limitation on the use of generalized audit software (GAS)?

It can only be used on hardware with compatible operating systems.

Observation is considered a reliable audit procedure but one that is limited in usefulness. However, it is used in a number of different audit situations. Which of the following statements is true regarding observation as an audit technique?

It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place.

Key Co. plans to present comparative financial statements for the years ended December 31, Year 1 and Year 2, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, Year 3. Key's current management team was not present until January 1, Year 2. What period of time should be covered by Key's management representation letter?

January 1, Year 1, through May 1, Year 3.

The audit working paper that reflects the major components of an amount reported in the financial statements is the

Lead schedule.

Which of the following statements would an auditor most likely require management to indicate in a written representation letter obtained for an audit?

Management acknowledges its responsibilities for the design and implementation of programs and controls to detect fraud.

An auditor should obtain written representations from management about litigation, claims, and assessments. These representations may be limited to matters that are considered either individually or collectively material provided an understanding on the limits of materiality for this purpose has been reached by

Management and the auditor.

Which of the following matters will an auditor most likely include in a management representation letter?

Management's acknowledgment of its responsibility to detect employee fraud.

For which of the following matters should an auditor obtain written management representations?

Management's compliance with contractual agreements that may affect the financial statements.

Specialized audit software

May be written in a procedure-oriented language.

If an auditor conducts an audit of financial statements in accordance with applicable auditing standards, which of the following will the auditor most likely detect?

Misposting of recorded transactions.

You have been assigned to audit the maintenance department of an organization. Which of the following is likely to produce the least reliable audit evidence?

Notes on discussions with mechanics in the maintenance operation.

When an audit is made in accordance with auditing standards, the auditor should always

Obtain certain written representations from management.

Most of the auditor's work in forming an opinion on financial statements consists of

Obtaining and evaluating audit evidence.

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn of which of the following?

One of the cashiers has been covering a personal embezzlement by lapping.

The tick mark þ likely indicates that the amount was traced to the

Outstanding check list of the applicable bank reconciliation.

Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to

Permit cross-referencing and simplify supervisory review.

Management's responses to inquiries can be corroborated by each of the following, except

Preparation of the summary of unadjusted differences.

Which of the following ultimately determines the sufficiency and appropriateness of audit evidence to support the auditor's conclusions?

Professional judgment.

Under which of the following circumstances would using the blank form of confirmation of accounts receivable most likely be preferable to other types of positive confirmations?

Recipients are likely to sign other types of positive confirmations without careful investigation.

An auditor ordinarily uses a working trial balance resembling the financial statements without notes, but containing columns for

Reclassifications and adjustments.

In gathering evidence in the performance of substantive procedures, the auditor most likely

Relies on persuasive rather than conclusive evidence in the majority of cases.

In the confirmation of accounts receivable, the auditor would most likely

Request confirmation of a sample of the inactive accounts.

Two assertions for which confirmation of accounts receivable balances provides primary evidence are

Rights and obligations and existence.

The negative request form of accounts receivable confirmation may be used when the

Risk of Material Misstatements is :Low Number of Small Balances: Many Consideration by the recipient is: Likely

The appropriateness of evidence available to an auditor is least likely to be affected by the

Sampling method employed by the auditor to obtain a sample of such evidence.

Assuming a low assessed risk of material misstatement, which of the following audit procedures would be least likely to be performed?

Search for unrecorded cash receipts.

At which point in an ordinary sales transaction of a wholesaling business is a lack of specific authorization of least concern to the auditor in the conduct of an audit?

Selling of goods for cash.

Which of the following procedures is performed first for unreturned positive confirmations of accounts receivable?

Sending second requests for confirmation of accounts receivable.

In a retail cash sales environment, which of the following controls is often absent?

Separation of functions.

A client requests that a predecessor auditor reissue the report on financial statements of a prior period to be presented comparatively with the financial statements of a subsequent period. If no filings with the SEC are contemplated, the auditor

Should obtain management representation letter before reissuing the report.

Which of the following statements is most accurate regarding sufficient and appropriate documentation?

Sufficient and appropriate documentation should include evidence that it has been reviewed.

A client uses a suspense account for unresolved questions whose final accounting has not been determined. If a balance remains in the suspense account at year-end, the auditor would be most concerned about

Suspense debits that management believes will benefit future operations.

The two requirements crucial to achieving audit efficiency and effectiveness with a personal computer are selecting

The appropriate audit tasks for personal computer applications and the appropriate software to perform the selected audit tasks.

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because

The auditor cannot infer that all nonrespondents have verified their account information.

Which of the following statements is correct about actions taken after the documentation completion date?

The auditor must not make any deletions to audit documentation before the end of the specified retention period.

Which of the following statements is most accurate regarding audit documentation requirements?

The auditor should document findings that could result in a modification of the auditor's report.

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?

The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

Normally, the financial statement assertion about valuation is of minimum concern during the audit of cash. However, the auditor's concern about the valuation assertion will most likely increase when

The client has foreign currency accounts.

If management refuses to provide certain written representations that the auditor believes are essential, which of the following is appropriate?

The client's refusal may have an effect on the auditor's ability to rely on other representations of management.

Confirmation of accounts receivable is a generally accepted auditing procedure. The presumption is that an auditor will request confirmation of accounts receivable. Confirmation is necessary when

The combined assessed level of inherent and control risk is high.

Auditors may use positive or negative forms of confirmation requests. An auditor most likely will use

The negative form for small balances.

A purpose of a management representation letter is to reduce

The possibility of a misunderstanding concerning management's responsibility for the financial statements.

Which of the following is a false statement about the relationship of financial statement assertions and audit procedures?

The relationship between financial statement assertions and audit procedures should be one-to-one.

AU-C 500 describes five generalizations about the reliability of evidence. The situations given below indicate the relative degrees of assurance provided by two types of evidence obtained in different situations. Which describes an exception to one of the generalizations?

The report of an auditor's specialist regarding the valuation of a collection of paintings held as an investment provides greater assurance than the auditor's physical observation of the paintings.

An auditor is reporting on comparative financial statements for 3 years. Which of the following statements is correct regarding written representations from management?

The representation letter needs to address all of the years being covered in the report.

Which of the following could indicate source document fraud?

The same invoice number appears on different invoices.

Which of the following statements about audit evidence is true?

The sufficiency and appropriateness of audit evidence is a matter of professional judgment.

Which of the following is not a principal objective of the auditor in the audit of revenues?

To verify cash deposited during the year.

The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of

Transactions

When an auditor performs tests on a computerized inventory file containing over 20,000 line items, that auditor can maintain independence and perform most efficiently by

Using a generalized audit software package.

Auditors often make use of computer programs that perform routine processing functions, such as sorting and merging. These programs are made available by computer companies and others and are specifically referred to as

Utility programs.

During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on January 9, Year 2." The auditor would most likely

Verify that the amount was received.

To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would

Verify the sources and contents of the faxes in telephone calls to the senders.

After audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up audit documentation review. This second review usually focuses on

Whether the financial statements are consistent with the auditor's understanding of the entity.

For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve

Write-offs of customer accounts.

An auditor noted that the accounts receivable department is separate from other accounting activities. Credit is approved by a separate credit department. Control accounts and subsidiary ledgers are balanced monthly. Similarly, accounts are aged monthly. The accounts receivable manager writes off delinquent accounts after 1 year, or sooner if a bankruptcy or other unusual circumstances are involved. Credit memoranda are prenumbered and must correlate with receiving reports. Which of the following areas could be viewed as an internal control deficiency of the above organization?

Write-offs of delinquent accounts.