Audit

Which of the following is most likely to be considered a Type 1 subsequent event?

Customer checks deposited prior to year-end, but determined to be uncollectible after year-end.

The auditors' plan 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.

Various factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?

Smaller measure of tolerable misstatement.

Which of the following is not an overall test of the annual provision for depreciation expense?

Test deductions form accumulated depreciation for assets purchased during the year.

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.

When there are numerous property and equipment transactions during the year, an auditor planning to assess the risk of material misstatement at a low risk level must perform

Tests of controls and limited tests of current year property and equipment transactions.

An auditor discovered that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This may indicate that:

there was an improper cutoff of sales at the end of the year.

Auditors should perform audit procedures relating to subsequent events?

through the date of the audit report

Which of the following is accurate regarding tolerable misstatement?

tolerable misstatements are directly related to materiality

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is

transactions that occurred during the year

Which of the following most likely would approve the issuance of notes payable?

treasurer

An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance for uncollectible accounts.

true

Analytical procedures are used by auditors to gain evidence about the adequacy of the allowance for uncollectible accounts.

true

Even when internal control is weak, a significant portion of the audit work on property, plant, and equipment may be performed at an interim date.

true

In attributes sampling, an increase in the tolerable deviation rate results in a decrease in required sample size.

true

Registered bondholders receive periodic interest payments without any action on their part

true

When the total of uncorrected misstatements in the financial statements exceeds a material amount, it is likely to lead to an audit report modification.

true

Which of the following is an element of sampling risk?

Concluding that no material misstatement exists in a materially misstated population based on taking a sample that includes no misstatement.

The audit procedure of confirmation is least appropriate with respect to:

holders of common stock

The Standard Form to Confirm Account Balances with Financial Institutions includes information on all of the following except:

the principal amount paid on a direct liability.

Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts?

A property, plant, and equipment cutoff error near year-end has a more significant effect on net income.

Which of the following procedures would an auditor generally perform regarding subsequent events?

Compare the latest available interim financial statements with the statements being audited.

Which of the following would provide the most assurance concerning the valuation of accounts receivable?

Assess the allowance for uncollectible accounts for reasonableness.

Where an independent stock transfer agent is not employed and the corporation issues its own stocks and maintains stock records, canceled stock certificates should:

Be defaced to prevent reissuance and attached to their corresponding stubs.

To measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into:

COGS

Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department?

Canceling supporting documentation after payment.

Which of the following manipulations would understate receivables on the financial statements?

Closing the sales journal prior to year-end.

Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold?

Establish that the client includes only inventory on hand at year-end in inventory totals.

Which of the following is most likely to be an audit objective in the audit of owner's equity?

Determine that the presentation and disclosure of owners' equity are appropriate.

Which of the following is not a primary objective of the auditors in the examination of accounts receivable?

Determine the expected day of collection of each of the receivables.

Effective internal control in a small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by:

Direct participation of the owner in key record keeping and control activities of the business.

To have an adequate basis to issue a management report on internal control under Section 404(a) of the Sarbanes-Oxley Act, management must do all of the following, except:

Establish internal control with no material weakness.

To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except:

GL

Which of the following is an auditor least likely to consider a departure from U.S. generally accepted accounting principles?

Including in inventory items that are consigned out to vendors, but not yet sold.

Which of the following is correct relating to kiting?

It is more difficult to accomplish in an electronic environment as contrasted to a non-electronic environment.

A primary objective of procedures performed to obtain an understanding of internal control is to provide the auditors with:

Knowledge necessary to determine the nature, timing, and extent of further audit procedures.

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a:

Letter of audit inquiry to the client's lawyer.

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:

No reply to a positive confirmation request is received.

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory?

Observe merchandise and raw materials during the client's physical inventory taking.

The auditors should confirm accounts receivable unless the auditors' assessment of the risk material misstatement is low.

Or accounts receivable are immaterial, or the use of confirmations would be ineffective.

Which of the following procedures is most likely to be included near completion of an audit

Perform analytical procedures.

The receiving department is least likely to be responsible for the:

Preparation of a shipping document.

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.

When performing an audit of the property, plant, and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles?

Repairs have been capitalized to equipment to keep it in normal working order.

After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items:

Represented by inventory tags are included in the listing.

Which of the following is not a control that should be established for purchases of equipment?

Requiring that the department that ordered the equipment is the same that requested the equipment.

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

SURL

Which of the following is correct concerning nonstatistical variables sampling?

Sample size may be determined using professional judgment rather than formulas or tables.

An effective procedure for identifying unrecorded retirements of equipment is to:

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

When confirming accounts payable, the approach is most likely to be one of:

Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts.

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Of the following, which combination is it most likely that the auditors will use?

The positive form used for large balances and the negative form for the small balances

To verify that all sales that have been shipped to customers have been recorded, a test of transactions should be completed on a representative sample drawn from:

The shipping clerk's file of duplicate copies of bills of lading.

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.

Which of the following is not correct relating to representation letters?

They often serve as a substitute for the application of other procedures.

n the course of the audit of financial statements for the purpose of expressing an opinion thereon, the auditors will normally prepare a schedule of unadjusted differences for which the auditors did not propose adjustments when they were identified. What is the primary purpose served by this schedule?

To identify the potential financial statement effects of misstatement or disputed items that were considered immaterial when discovered.

Which of the following best describes the reason for the auditors' review of the client's cost accounting system?

To obtain evidence about the valuation of work in process, finished goods, and cost of goods sold

Which of the following statements represents the correct audit procedure and related assertion?

Tracing sales invoices to shipping documents to test the occurrence of reported sales.

an audit basically consists of having the auditor form an opinion regarding management's financial statement assertions. The auditor therefore develops general and specific procedures to apply to the accounts and transactions. In a particular case, s/he might do this by:

Tracing sales invoices to shipping documents to test the occurrence of reported sales.

An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily in order to:

Verify reconciling items on the client's bank reconciliation.

The auditor's plan to examine interest-bearing debt most likely will include steps that require:

Vouching borrowing and repayment transactions

Instead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and:

Well-kept records of perpetual inventory are maintained.

The auditors' primary objective in selecting a sample of items from an audit population is to obtain:

a representative sample

Accounts payable generally present the auditors with difficult valuation problems.

false

CPAs use negative accounts receivable confirmation requests more frequently than positive accounts receivable confirmation requests.

false

The auditors expect a population deviation rate of billing errors of three percent, and have established a tolerable rate of six percent. The sampling approach most likely to be used is:

attributes sampling

Which of the following sampling techniques is typically used for tests of controls?

attributes sampling

Confirmation of accounts payable is a required auditing procedure.

false

Confirmations for cash balances should be mailed only to the financial institutions with which the client has a cash balance at year-end.

false

Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees?

bank lockbox system

The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the:

bill of lading

Which of the following statistical sampling techniques is least desirable for use by the auditors?

block

Bond transactions are normally confirmed with:

bond trustee

likely reason that consideration of client compliance with debt provisions is important to an audit is that violation of such debt provisions may affect the total recorded:

current liabilities

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

completeness

Which of the following is not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purposes?

confirmation

Which of the following COSO internal control framework components encompasses establishing structures, reporting lines, authorities, and responsibilities?

control environment

An auditor's purpose for performing tests of controls is to provide reasonable assurance that:

controls are operating efficiently

For audit purposes, a corporation's articles of incorporation are normally:

copied and placed in the permanent files

Auditors often request that the audit client send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, or assessments. The primary reason for this request is to provide the auditors with:

corroborative audit evidence

When the auditors have decided to use statistical rather than nonstatistical sampling, a disadvantage is that:

cost of training staff may be higher

Controls over accounts payable are unnecessary since an external vendor is involved.

false

Signed checks should be returned to the cash disbursements clerk for mailing.

false

The Miscellaneous Revenue account should only be analyzed if it is material in amount.

false

The auditors typically observes all major items of property, plant, and equipment every year

false

A material weakness involves an amount that could result in a misstatement that is

greater than a significant deficiency

Which of the following would be least likely to be considered an objective of internal control?

detecting management fraud

The confirmation of accounts receivable is most closely associated with:

detection risk

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

When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is:

existence

The auditors are most likely to seek information from the plant manager with respect to the

existence of obsolete machinery

A plant manager would be most likely to provide information on which of the following?

existence of obsolete production equipment.

The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are:

included in the final inventory schedule

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

interest payments

For purposes of an audit of financial statements, electronic confirmation of cash balances:

is acceptable when properly controlled

In testing controls over cash disbursements, the auditors most likely would determine that the person who signs the checks also:

is responsible for mailing the checks

A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n):

loss contingency

An entity's ongoing monitoring activities often include:

managements review of weekly performance reports

Which of the following is a control procedure that is usually applied to accounts payable?

matching invoices with receiving documents before disbursements are authorized.

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

minutes of the BOD

A continuing audit client's property, plant, and equipment and accounts receivable accounts have approximately the same year-end balance. In this circumstance, when compared to property, plant and equipment, one would normally expect the audit of accounts receivable to require:

more audit time

The review of audit working papers by the audit partner is normally completed:

near the completion of the audit

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

numbered stock certificates on hand

An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the following is most likely?

plant assets were retired during the year

For which of the following accounts is it most likely that much of the audit work can be performed in advance of the balance sheet date?

plant, property, and equipment

Controls over financial reporting are often classified as preventative, detective, or corrective. Which of the following is an example of a detection control?

preparing bank recs

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

Reconciliation of the bank account should not be performed by an individual who also:

processes cash disbursements

To assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor's invoice to:

purchase order

A client's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record:

purchases

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

receiving report and purchase order

Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated?

repairs

The date the auditor grants the client permission to use the audit report in connection with the financial statements is the:

report release date

Which of the following would be least likely to be regarded as a test of a control?

review of a confirmation of accounts payable

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:

shared issues and outstanding

To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is:

stamped paid by he check signer

The auditors' search for unrecorded liabilities is completed:

subsequent to the balance sheet date

An auditor may compensate for a weakness in internal control by increasing the extent of:

substantive test of details

CPA examines a sample of copies of December and January sales invoices for the initials of the person who verified the quantitative data. This is an example of a:

test of control

inventory turnover analysis is useful to the auditor because it may detect:

the existence of obsolete merchandise