Audit Gleim - 12.1, 3, 7

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

Receiving reports.

An auditor's purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning relevant assertions about

Classification and understandability.

Determining that proper amounts of depreciation are expensed provides assurance about management's assertions of valuation and allocation and

Classification and understandability.

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?

Compare cash payments made after the balance sheet date with the accounts payable trial balance.

In auditing payroll when control risk is assessed as low, an auditor most likely will

Compare payroll costs with entity standards or budgets.

An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the following management assertions is supported by this test?

Completeness.

In auditing accounts payable, an auditor's procedures most likely will focus primarily on the relevant assertion about

Completeness.

Which of the following procedures would an auditor least likely perform before the balance sheet date?

Confirmation of accounts payable.

Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors?

Creditor statements are not available and internal controls relating to accounts payable are unsatisfactory.

Confirmation of accounts payable with creditors is most appropriate when

Creditor statements are not available, and internal control over accounts payable is unsatisfactory.

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about the relevant assertion regarding

Cutoff.

Vouching selected items from the payroll journal to employee time cards that have been approved by supervisory personnel provides evidence that

Employees worked the number of hours for which their pay was computed.

When few property and equipment transactions occur during the year, the continuing auditor usually obtains an understanding of the related internal controls and performs

Extensive tests of current year property and equipment transactions.

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?

Extraordinary repairs have lengthened the life of an asset.

In verifying the amount of goodwill recorded by a client in the current period, the most convincing evidence an auditor can obtain is by comparing the recorded amounts of assets acquired and liabilities assumed with the

Fair values as evidenced by independent appraisals.

When auditing prepaid insurance, an auditor discovers that the original insurance policy on plant equipment is not available for inspection. The policy's absence most likely indicates the possibility of a(n)

Lien on the plant equipment.

Which of the following procedures would an auditor most likely complete to test the existence assertion for property, plant, and equipment?

Obtaining a listing of all current-year additions, vouching significant additions to original invoices, and determining that they have been placed in service.

When performing procedures to test assertions about purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which relevant assertion would this procedure most likely support?

Occurrence.

When auditing payroll transactions, an auditor is primarily concerned with the possibility of

Overpayments and unauthorized payments.

An auditor most likely increases substantive tests of payroll when

Overpayments are discovered in performing tests of details.

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to accumulated depreciation accounts in the current year?

Plant assets were retired during the current year.

When confirmation for accounts payable is undertaken, which form of confirmation should be used?

Positive confirmation.

Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the client's employees?

Prepare a schedule of accounts payable.

In an audit of a purchasing department, which of the following usually is considered a risk factor?

Purchases are made from parties related to buyers or other company officials.

The primary audit procedure to determine whether accounts payable are measured properly is

Vouching accounts payable to supporting documentation.

Which of the following results of analytical procedures would most likely indicate possible unrecorded liabilities?

Ratio of accounts payable to total current liabilities of 4:1, compared to 6:1 for the prior period.

When the risk of material misstatement is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying analytical procedures and

Recalculating payroll accruals.

In searching for unrecorded liabilities, an auditor most likely would examine the

Receiving reports for items received before year end, but not yet recorded.

When performing a substantive test of a random sample of cash disbursements, an auditor is supplied with a photocopy of vendor invoices supporting the disbursements for one particular vendor rather than the original invoices. The auditor is told that the vendor's original invoices have been misplaced. What should the auditor do in response to this situation?

Reevaluate the risk of fraud and design alternate tests for the related transactions.

Which of the following audit procedures is least likely to detect an unrecorded liability?

Analysis and recomputation of depreciation expense.

An auditor most likely would perform substantive tests of details on payroll transactions and balances when

Analytical procedures indicate unusual fluctuations in recurring payroll entries.

In the audit of property, plant, and equipment, the auditor tries to do all of the following except to

Assess the adequacy of replacement funds.

In auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of the relevant financial statement assertion of

Valuation and allocation.

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely is

Vendors with whom the entity has previously done business.

An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all

Vendors' invoices.

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?

Vouch a sample of cash disbursements recorded just after year end to receiving reports and vendor invoices.

Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence and valuation assertions about recorded accounts payable?

Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.

Unrecorded liabilities are most likely to be found during the review of which of the following documents?

Unpaid bills.

A company sells a particular product only in the last month of its fiscal year. The company uses commission agents for such sales and pays them 6% of their net sales 30 days after the sales are made. The agents' sales were $10,000,000. Experience indicates that 10% of the sales are usually not collected and 2% are returned in the first month of the new year. The auditor would expect the year-end balance in the accrued commissions payable account to be

$588,000

An analysis of which of the following accounts would best aid in verifying that all fixed assets have been capitalized?

Repairs and maintenance.

In testing the existence assertion for an asset, an auditor ordinarily works from the

Accounting records to the supporting evidence.

A client's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditor's primary concern with respect to liabilities resulting from the procurement system?

Accounts payable are not materially understated.

The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because

Accrued liabilities usually pertain to services of a continuing nature whereas accounts payable are the result of completed transactions.

An entity's internal control requires that an approved voucher, a prenumbered purchase order, and a prenumbered receiving report accompany every check request. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all

Canceled checks.

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all

Cash disbursements.

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

Determine that purchases were properly recorded.

An audit assistant found a purchase order for a regular supplier in the amount of $5,500. The purchase order was dated after receipt of the goods. The purchasing agent had forgotten to issue the purchase order. Also, a disbursement of $450 for materials did not have a receiving report. The assistant wanted to select additional purchase orders for investigation but was unconcerned about the lack of a receiving report. The audit director should

Disagree with the assistant because the lack of a receiving report has a greater risk of loss associated with it.

An auditor's principal objective in analyzing repairs and maintenance expense accounts is to

Discover expenditures that were expensed but should have been capitalized.

An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that

Employees work the number of hours for which they are paid.

An auditor determines that a client has properly capitalized a leased asset (and corresponding lease liability) as representing, in substance, an installment purchase. As part of the auditor's procedures, (s)he should

Evaluate the propriety of the interest rate used in discounting the future lease payments.

In violation of a company policy, Lowell Company erroneously capitalized the cost of painting its warehouse. The auditor examining Lowell's financial statements would most likely detect this error when

Examining the construction work orders supporting items capitalized during the year.

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated?

Examining vendor statements for amounts not reported as purchases.

The auditor may conclude that depreciation charges are insufficient by noting

Excessive recurring losses on assets retired.

In testing plant and equipment balances, an auditor physically examines new additions listed on an analysis of plant and equipment. This procedure most likely obtains evidence concerning management's assertion of

Existence.

In testing plant and equipment balances, an auditor may inspect new additions listed on the analysis of plant and equipment. This procedure is designed to obtain evidence concerning relevant assertions about

Existence: Yes Classification and Understandability: No

An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the relevant assertion that all

Expenditures for property and equipment have not been charged to expense.

The controller of Excello Manufacturing, Inc. wants to use ratio analysis to identify the possible existence of idle equipment or the possibility that equipment has been disposed of without having been written off. Which of the following ratios would best accomplish this objective?

Gross manufacturing equipment cost to units produced.

Audit procedures applied to purchase transactions at year end address the cutoff assertion. An entity should include goods in its inventory if it

Holds legal title to the goods.

In performing a search for unrecorded retirements of fixed assets, an auditor most likely would

Inspect the property ledger and the insurance and tax records, and then tour the client's facilities.

Which of the following combinations of procedures would an auditor most likely perform to obtain evidence about fixed asset additions?

Inspecting documents and physically examining assets.

When auditing a public warehouse, which of the following is the most important audit procedure with respect to disclosing unrecorded liabilities?

Inspection of receiving and issuing procedures.

The client's bookkeeper perpetrated a theft by preparing erroneous W-2 forms. The bookkeeper's FICA withheld was overstated by $2,000 and the FICA withheld from all other employees was understated by the same amount. Which of the following is an audit procedure that would detect such a fraud?

Multiplication of the applicable FICA rate by each individual's gross annual taxable earnings.

The auditor is least likely to learn of retirements of equipment through which of the following?

Review of the purchase return and allowance account.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

The auditor is most likely to verify accrued commissions payable in conjunction with the

Sales cutoff test.

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

Search for unrecorded liabilities.

An internal control narrative indicates that an approved voucher is required to support every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?

Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks.

A weakness in internal control over recording retirements of equipment may cause an auditor to

Select certain items of equipment from the accounting records and locate them in the plant.

In testing for unrecorded retirements of equipment, an auditor most likely would

Select items of equipment from the accounting records and then locate them during the plant tour.

Which of the following is the best reason an auditor should consider observing a client's distribution of regular payroll checks?

Separation of payroll duties is not effective enough to reduce control risk.

To check the accuracy of hours worked, an auditor would ordinarily compare clock cards with

Shop job time tickets.

Which of the following comparisons would an auditor most likely make in evaluating an entity's costs and expenses?

The current year's payroll expense with the prior year's payroll expense.

Which of the following factors most likely would heighten an auditor's concern about the risk of material misstatement arising from the misappropriation of assets?

The entity's fixed assets lack ownership identification.

The auditor who interviews the plant manager is most likely to rely upon this interview as primary support for an audit conclusion on

The necessity to record a provision for deferred maintenance costs.

Which of the following circumstances most likely will cause an auditor to suspect an employee payroll fraud scheme?

There are significant unexplained variances between standard and actual labor cost.