Auditing Exam 3

If purchasing agents accept _______, the entire purchasing cycle is compromised.

kickbacks

Many instances of misstatement are based on the inappropriate recognition of ______.

revenue

Determine that the valuation of warranty loss reserves is measured in accordance with GAAP.

7

Which of the assertions related to accounts receivable will confirmations be least likely to provide evidence in support of?

Completeness

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

Completeness.

Which of the following account balances reported on Hermida Co.'s balance sheet dated December 31, year 1 is most likely to rely on management estimates?

Deferred income taxes of $30,000.

"Check 2032 appears to result in the cash being recorded in both accounts per books as of year-end and thus overstates total cash by $1,500 at year-end."

Delete entire point 8.

"Documentation supporting change in capital stock outstanding."

Delete the text.

Which of the following is an example of misappropriation of assets relating to sales?

Theft of cash register sales.

Management may have fraudulently overstated revenue by making __________ journal entries

inappropriate

If purchasing employees are _______, they may negotiate bad purchases or purchase terms for the company.

incompetent

To help ensure that the physical inventory is taken accurately and completely, early in the audit the auditors should participate in the __________ of the count of physical inventory.

planning

The details of the auditors' __________ made during the observation of the physical inventory should be recorded in their working papers to later check the accuracy of the final inventory listing.

test counts

To test the existence assertion for recorded receivables, the auditors would select a sample from the:

Accounts receivable subsidiary ledger.

The auditors who physically examine securities should insist that a client representative be present in order to:

Acknowledge the receipt of securities returned.

_____considering information about the client and its environment, the auditors must assess the risks of material misstatement related to assertions about inventory.

After

Hall Company had large amounts of funds to invest on a temporary basis. The board of directors decided to purchase securities and derivatives and assigned the future purchase and sale decisions to a responsible financial executive. The best person or persons to make periodic reviews of the investment activity would be:

An investment committee of the board of directors.

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

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

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

Assess the allowance for uncollectible accounts for reasonableness.

"Vouchers supporting increase in leasehold improvements."

Delete the text.

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

Is responsible for mailing the checks.

The auditor will most likely perform extensive tests for possible understatement of:

Liabilities

An ___________ of customers' accounts receivable should be prepared at regular intervals for use by the credit department in carrying out its collection program.

aged trial balance

Side _________ can substantially alter the terms of a sale.

agreements

Receivables that have been sold should not remain as a(n) _____ on the company's books.

asset

Cash confirmations need to be mailed under the control of the __________.

auditor

Control over cash sales is increased if a centrally located ___________ participates in each transaction.

cashier

It is important to verify ______ of both cash receipts and cash disbursements.

cutoff

One way to avoid misstatement of revenue is to ensure the client has proper ________.

cutoff policies

The determination of the value of ending inventory ____ affects net income.

directly

After auditing cash, it is important to evaluate proper financial statement presentation and __________ of cash.

disclosure

Tests used to help identify the _____of controls help to evaluate the client's internal control structure.

effectiveness

Purchasing and cash disbursements can provide lots of opportunity for ______ by employees.

fraud

Purchasing and cash disbursements can provide opportunity for ______ by employees.

fraud

To test collectibility of receivables, auditors may consider credit ratings for debtors of _____receivables.

large

The count of securities on hand by the auditors should be made concurrently with the count of other _________.

liquid assets

Collection of accounts receivable through the mail should be initially listed by personnel in the ___________.

mail room

Inventories with a high risk of ______may be warranted as a signficant risk.

obsolescence

AR confirmations can be sent electronically or via ________.

paper form

An __________ of liabilities will exaggerate the financial strength of a company.

understatement

Accounts payable from important vendors should be confirmed, even though the accounts have __________ balances at year-end.

zero

For effective internal control, the purchasing manager generally should

Be responsible for negotiating terms with vendors.

The auditor suspects that a kiting scheme exists because an accounting department employee who can issue and record checks seems to be leading an unusually luxurious lifestyle. (Select only 1 procedure.)

E- Prepare a bank transfer schedule.

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

Existence

Which of the following is an example of an accrued liability?

Interest payable

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

Preparation of a shipping document.

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

Processes cash disbursements.

"5 percent"

Replace with "7.5 percent"

"sample deviation rate."

Replace with "tolerable deviation rate"

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 payable applies to the prior period.

Auditors often obtain written __________ from management regarding the existence of unrecorded payables.

representations

"Cash—First National Bank."

Replace with "Line of credit."

An auditor is establishing procedures for testing management's assertions regarding existence in relation to reported investments in marketable securities. The auditor is considering using confirmations or observation. Which of these techniques would be appropriate for obtaining evidence about existence?

Both confirmations and observation

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting?

Prepare a schedule of bank transfers.

Which of the following is most likely to be an example of fraudulent financial reporting relating to sales?

Recording sales when the customer is likely to return the goods.

"Account 7140.10 expense analysis."

Replace with "Account 7100.10 expense analysis."

"Accounts receivable summarized by date of most recent purchase."

Replace with "Accounts receivable aged by date due."

"The deposit in transit seems properly handled on the bank reconciliation (Exhibit 2) with a debit to cash."

Replace with "The deposit in transit seems to have taken too long to reach the bank; we should investigate this further."selected answer correct

"two sales recorded in year 5 that should have been recorded in year 6."

Replace with "no sales recorded in year 5 that should have been recorded in year 6."

"analyze the client's aging of receivables."

Retain the original text.

The details of invoices for equipment repairs were not clearly identified or explained to the accounting department employees. The auditor suspects that the bookkeeper incorrectly recorded the repairs as fixed assets. (Select only 1 procedure.)

B- Scan the debits to the fixed asset accounts and vouch selected amounts to vendors' invoices and management's authorization.

The auditor suspects that a lapping scheme exists because an accounting department employee who has access to cash receipts also maintains the accounts receivable ledger and refuses to take any vacation or sick days. (Select only 2 procedures.)

A,J- Compare the details of the cash receipts journal entries with the details of the corresponding daily deposit slips. , Send requests to confirm the entity's accounts receivable on a surprise basis at an interim date.

In an audit, the valuation of year-end accounts payable is most likely addressed by:

Confirmation.

The auditors suspect that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the:

Details of bank deposit slips with details of credits to customer accounts.

Which of the following auditing procedures will provide evidence to support management's assertions regarding the allocation and valuation of inventories?

Determining the replacement cost of inventories.

The auditor suspects that the entity is inappropriately increasing the cash reported on its balance sheet by drawing a check on one account and not recording it as an outstanding check on that account and simultaneously recording it as a deposit in a second account. (Select only 1 procedure.)

E- Prepare a bank transfer schedule.

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.

Which of the following audit procedures is aimed most directly at testing the completeness assertion for accounts payable?

Examining underlying documentation for cash disbursements in the period after year-end.

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

Existence.

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:

Inventory is slow-moving.

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.

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

Matching invoices with receiving documents before disbursements are authorized.

A portion of a client's accounts receivable consists of many small accounts, each of which is not significant. The company has a collection period of approximately one month and cash flows generally correspond to the previous month's sales. As a result, the auditor considers the risk of material misstatement to be relatively low. Which type of accounts receivable confirmation is likely to be used by the auditor for these accounts?

Negative confirmations

Your client left the cash receipts journal open after year-end for an extra day and included January 1 cash receipts in the 12/31/XX totals. All of those cash receipts were due to cash sales. Assuming the client uses a periodic inventory system with a 12/31/XX count of the physical inventory, which of the following is most likely to be true relating to the year XX financial statements?

Net income is overstated.

Which of the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?

Observe the consistency of the employees' use of cash registers and tapes.

The auditor suspects that fictitious employees have been placed on the payroll by the entity's payroll supervisor, who has access to payroll records and to the paychecks. (Select only 1 procedure.)

P- Observe payroll check distribution on a surprise basis.

In testing controls over purchases, an auditor most likely would determine that the person who receives inventory

Prepares receiving reports for all good received.

Which of the following procedures would be appropriate for an auditor testing management's assertions related to the existence of investments in securities?

Reconcile interest and dividends received.

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.

Cash reconciliations can be tested via __________.

Reperformance

"Shipping Point shortly after year-end to determine that the sale is recorded in the period goods were received by the customer."

Replace with "Destination shortly prior to year-end to determine that sale is recorded in the period goods were received by the customer."

"The comment is a "boilerplate" disclaimer of liability that definitely does not affect the reliability of the information we obtained."

Replace with "This comment (disclaimer) on the confirmation may cast doubt about the completeness and accuracy of the information contained in the response and, accordingly, we should obtain further audit evidence."

"No further audit response is necessary related to check 2027."

Replace with "We should perform further procedures to determine why the account reconciliation excludes this item, which should be listed as an outstanding check as of year-end."

"assessed level of control risk"

Replace with "planned level of detection risk"

. "indicates that the allowance for doubtful accounts seems adequate as of year-end and that no adjusting entry is necessary."

Replace with "should be written off as of year-end with a debit to the allowance for doubtful accounts and a credit to accounts receivable and we should perform further procedures on the adequacy of the allowance for doubtful accounts."

"we should determine that all "slow moving" items are valued at zero."

Replace with "we should calculate turnover ratios of inventory items."

In order to guard against the misappropriation of company-owned marketable securities, which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities?

Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent.

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

Search for unrecorded liabilities.

Which of the following is not confirmed on the standard confirmation form used for cash balances at financial institutions?

Securities held for the client by the financial institution.

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 the check signer.

The auditors' search for unrecorded liabilities is completed:

Subsequent to the balance sheet date.

Which of the following best describes the auditors' approach to the audit of accrued liabilities?

Test computations.

As one of the year-end audit procedures, the auditor instructed the client's personnel to prepare a confirmation request for a bank account that had been closed during the year. After the client's treasurer has signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure?

The request was mailed by the assistant treasurer.

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 statement is correct with respect to accounts payable confirmations?

They are more frequently used in situations in which some vendors don't send monthly statements.

X Company prepares a sales invoice, using a pre-printed sequentially numbered form, upon receipt of a copy of a bill of lading from the shipping department indicating that goods have been shipped. An auditor wishes to obtain evidence that all sales that occurred during the period were actually recorded. Which of the following procedures would likely be most effective for that purpose?

Trace a sample of bills of lading to the sales journal.

Which of the following cash transfers is most likely to result in a misstatement of cash at December 31, 20X7? Bank Transfer Schedule DisbursementReceipt Recordedin booksPaid by bankRecordedin booksReceived by bankA)12/31/X71/4/X812/31/X712/31/X7B)1/4/X81/5/X812/31/X71/4/X8C)12/31/X71/5/X812/31/X71/4/X8D)1/4/X81/11/X81/4/X81/4/X8

Transfer B

Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements?

Understatement of outstanding checks.

Place the general sequence of steps of the audit process (shown below) in the correct order for an audit of cash.

Use the understanding of the client and its environment to consider inherent risks related to cash. Obtain an understanding of internal control over cash. Assess the risks of material misstatement and design further audit procedures (tests of controls). Perform further audit procedures--tests of controls. Perform further audit procedures--substantive procedures for cash transactions and balances.

The best way to verify the amounts of dividend revenue received during the year is:

Verification by reference to dividend record books.

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.

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

a bank lockbox system

Revenues are deemed to be earned when the company has ______ what it must do to fulfill its obligation.

accomplished

Cutoff bank statements include activity for the period _______the period being audited.

after

Because the auditors are primarily concerned with the __________ of recorded payables, much of the audit work on accounts payable is performed after the year-end date.

completeness

Testing the reconciliation for accounts receivable to the general ledger ensures that the software is programmed _________.

correctly

Before goods are shipped on open account, the sale should be approved by the ___________.

credit department

Inventories are often a large _____ asset of a company's balance sheet.

current

Overstatement may occur when sales for the next period are recorded in the _______ period.

current

Auditors are often concerned with the _______of cash, as this is where most misstatements occur.

overstatement

When testing controls around inventory, auditors are considering the ________transaction cycle.

purchasing

Tracing __________ for several days before and after year-end to recorded purchases is designed to test the proper cutoff of purchase transactions.

receiving documents

Audit procedures for consignment inventory could include a comparison of the physical inventory with the client's _________.

records

It is necessary to ______ the client's cutoff of cash transactions.

verify

A test of the completeness of recorded sales involves tracing a sample of ___________ to recorded sales.

shipping documents

Auditors may choose not to confirm accounts payable because:

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

Which of the following is least likely to be considered an inherent risk relating to receivables and revenues?

Over-recorded sales due to a lack of control over the sales entry function.

The auditor suspects that selected employees of the entity received unauthorized raises from the entity's payroll supervisor, who has access to payroll records. (Select only 1 procedure.)

Q- Vouch data in the payroll register to documented authorized pay rates in the human resources department's files.

An opportunity for fraud involving lapping of accounts receivable is more likely when which two duties involving accounts receivable are not segregated?

Opening the mail and recording.

When observing the taking of a physical inventory at year-end, the auditors will record the serial number of the last __________ issued to verify the accuracy of the cutoff of accounts payable.

receiving report

Cash analyses need to be _______ to the general ledger.

reconciled

The accounting profession allows various methods for the __________ of inventory.

valuation

Establish the completeness of recorded accounts payable.

3

Determine the existence of year-end recorded accounts payable and that the client has obligations to pay these liabilities.

9

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

A bank lockbox system.

The entity's cash receipts of the first few days of the subsequent year were properly deposited in its general operating account after the year-end. However, the auditor suspects that the entity recorded the cash receipts in its books during the last week of the year under audit. (Select only 1 procedure.)

A- Compare the details of the cash receipts journal entries with the details of the corresponding daily deposit slips.

Required: In the table below, identify six potential issues that the auditor might have when examining the bank reconciliation prepared by Cubs from the list provided of potential issues. An issue may be used once or not at all.

A-Reconciliation balance was not properly agreed to the December 31 general ledger balance. 2 B-Reconciliation was not reviewed in a timely manner. 4 C-Reconciliation has unsubstantiated unrecorded items. 6 D-Reconciliation contains aged items that should have been added to the bank balance. 7 E-Reconciliation was not agreed to bank statement balance at the appropriate date. 11 F-Reconciliation contains stale checks. 15

A company employs three clerks and one purchasing manager. Their responsibilities are as follows: EmployeeResponsibilityPurchasing ManagerApproves purchase requests before they are processed and negotiates terms with vendors.Clerk 1, PurchasingPlaces orders with vendors.Clerk 2, Accounts PayablePrepares payment vouchers after verifying accuracy of vendor invoices and comparing supporting documentsClerk 3, ReceivingReceives delivery of goods from vendors Which of the following would indicate a weakness in the company's internal control?

Clerk 2 has custody of unused purchase orders.

To gather evidence regarding the balance per bank in a bank reconciliation, an auditor could examine all of the following except:

General ledger.

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

General ledger.

The entity borrowed funds from a financial institution. Although the transaction was properly recorded, the auditor suspects that the loan created a lien on the entity's real estate that is not disclosed in its financial statements. (Select only 1 procedure.)

H- Confirm the terms of borrowing arrangements with the lender.

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

Individual who signs the checks.

Which of the following would most likely be detected by an auditor's review of the client's sales cutoff?

Inflated sales for the year.

The primary objective of a CPA's observation of a client's physical inventory count is to:

Obtain direct knowledge that the inventory exists and has been properly counted.

While auditing inventory, the auditor analyzed the inventory turnover rates and made inquiries of production supervisors and inventory control personnel about slow-moving or obsolete items in inventory. These procedures are designed to provide evidence to support management's assertion regarding:

Valuation and allocation

The fact that a company has significant amounts of cash in the form of foreign currency would raise the inherent risk of which management assertion regarding cash?

Valuation or allocation

Confirmations do not necessarily mitigate the risk of _________.

bad debt

A ___________ is a shipping document that is prepared for goods shipped by a common carrier.

bill of lading

________ needs to be assured in order to recognize revenue.

collectibility

The best evidence of collectibility of accounts receivable is examination of subsequent ___________ of the accounts.

collections

Levels of authority in the manufacturing process need to be clearly __________.

communicated

A commitment to competence with respect to plant personnel is important to ensure that the ______ process is both effective and efficient.

manufacturing

An important step of testing controls is comparing quantity and _______ in the invoice, purchase order, and receiving report.

price

To determine that all sales have been recorded, the auditors would select a sample of transactions from the:

Shipping documents file.

The standard form to confirm cash accounts also requests the financial institution to confirm any __________ to the bank.

balanced owed

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.

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

Receiving report and the purchase order.

"This is because it was not written until 1/1/year 6."

Replace with "But since the bank transfer schedule shows that it was received on 12/31/year 5 in the special account, we should investigate this transaction further."

"For those not collected, we should corroborate that the client has taken its normal 2 percent estimate for credit losses."

Replace with "We should age all uncollected accounts as of year-end, paying particular attention to those to unauthorized customers to estimate likely doubtful accounts."

"We should carefully inspect items for pledging status during the count of inventory."

Replace with "We should examine cash confirmations and debt agreements."

"It would seem that the client has a policy of making no depreciation entries related to acquisitions or disposals during the year and we should consider the propriety of this policy."

Replace with "We should inquire of the client as to details of this year's depreciation calculation and entry."

"No adjusting entry is needed as of 12/31/year 5."

Replace with "We should propose an adjusting entry as of 12/31/year 5 debiting cash and crediting accounts receivable for $6,000."

"...be deleted from the outstanding check list; no adjusting journal entry seems necessary."

Replace with "be deleted from the check list, with a possible adjusting journal entry proposed debiting cash and crediting a miscellaneous revenue type account."

"exceed current market values of the items."

Replace with "equal or are less than current market prices of the items."

"vouch the cash disbursement."

Retain the original text.

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.

Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely:

Send positive confirmation requests.

Which of the following will generally not be included in a standard bank confirmation?

The dates on which inactive accounts were closed.

Regarding warranty reserves and their associated auditing issues,

The warranty reserve account can be manipulated to understate income during a good sales year.

X Company prepares a sales invoice, using a pre-printed sequentially numbered form, upon receipt of a copy of a bill of lading from the shipping department indicating that goods have been shipped. An auditor wishes to obtain evidence that all sales that that were recorded during the period actually occurred. Which of the following procedures would likely be most effective for that purpose?

Trace entries from the sales journal to sales invoices and bills of lading.

Even though the auditors are unable to obtain evidence regarding the fairness of beginning inventories, they may still issue an unmodified opinion on the client's __________ .

balance sheet

Serially numbered ____________ should be prepared and sent to vendors when goods are ordered.

purchase orders

"...although pass adjustment due to immateriality."

Retain the original text

"Software development cost invoices and other support."

Retain the original text.

Which of the following should be included as a part of inventory costs of a manufacturing company? Direct LaborRaw MaterialsFactory Overhead(1)YesYesYes(2)YesNoNo(3)NoYesNo(4)NoNoNo

(1)

"no changes in shareholders occurred during the year."

Replace with "no stock was issued or repurchased by Keystone during the year."

Under SEC rules, which of the following is not among the criteria that ordinarily exist for revenue to be recognized?

Delivery has occurred or is scheduled to occur in the near future.

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

Detect accounts payable that are substantially past due.

______ communication with debtors is the most conclusive step in verifying accounts receivable.

Direct

Which of the following is not an inherent risk of investments in derivative securities?

Ease of theft.

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.

The auditor suspects that vouchers were prepared and processed by an accounting department employee for merchandise that was neither ordered nor received by the entity. (Select only 1 procedure.)

U- Examine the supporting purchase orders and receiving reports for selected paid vouchers.

Determine that the presentation and disclosure of accounts payable are appropriate.

6

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.

McPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins:

Can issue an unqualified opinion without disclosing that she did not observe year-end inventories.

King Corporation often transfers funds from its general account into a special account that is used exclusively to make debt payments. Near the end of the year, the company had the following transfers: From General Account To Special AccountAmountRecorded in BooksRecorded by Bank Recorded in BooksRecorded by Bank$35,000 12/29/131/2/14 12/31/1312/31/13$20,000 12/30/1312/31/13 1/2/141/2/14$30,000 12/31/131/2/14 12/31/131/2/14$40,000 1/2/141/4/14 12/31/131/3/14 Given the information above, choose the correct statement about King's cash balance:

Cash is overstated by $20,000.

When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited?

Cash.

Which of the following schemes might be detected through the use of a bank cutoff statement?

Checks were written near year-end to reduce the balance in accounts payable but were not mailed until a week after year-end.

The assertion most directly addressed when performing the search for unrecorded liabilities is:

Completeness.

Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices?

Completeness.

Which of the following assertions is of principle concern to the auditors in the examination of accounts payable?

Completeness.

You have been assigned to the year-end audit of a financial institution and are planning the timing of audit procedures relating to cash. You decide that it would be preferable to:

Coordinate the count of cash with the count of marketable securities and other negotiable assets.

The organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the:

Cost Accounting Standards Board

An auditor suspects that the controller wrote several checks and recorded the cash disbursements just before year-end but did not mail the checks until after the first week of the subsequent year. (Select only 1 procedure.)

D- Obtain the cutoff bank statement and compare the cleared checks to the year-end bank reconciliation.

Which of the following procedures would an auditor most likely follow to assess the client's rights and obligations regarding its inventory?

Examine vendor invoices for the inventory

The auditor suspects that the entity's controller has overstated sales and accounts receivable by recording fictitious sales to regular customers in the entity's books. (Select only 2 procedures.)

J,L- Send requests to confirm the entity's accounts receivable on a surprise basis at an interim date. , Examine the entity's shipping documents to verify that the merchandise that produced the receivable was actually sent to the customer.

The auditor discovered an unusually large receivable from one of the entity's new customers. The auditor suspects that the receivable may be fictitious because the auditor has never heard of the customer and because the auditor's initial attempt to confirm the receivable has been ignored by the customer. (Select only 2 procedures.)

K,L- Send a second request for confirmation of the receivable to the customer and make inquiries of a reputable credit agency concerning the customer's creditworthiness. , Examine the entity's shipping documents to verify that the merchandise that produced the receivable was actually sent to the customer.

"Vouch invoices in support of the change in leasehold improvements. "

Replace with "Consider the reasonableness of amortization of leasehold improvements during the year."

"Management's review of receivables from officers."

Replace with "Copy of loan agreement with Mr. Best."

"Invoices supporting depreciation expense for the year."

Replace with "Schedule of details of depreciation expense calculation for 20X5."

"Detailed analysis and reconciliation of each unpaid account payable at year-end."

Replace with "Trial balance of accounts payable at the balance sheet date."

"invoices sent to customers and agree their details to the underlying customer purchase order and shipping document."

Replace with "shipping documents and determine that related sales have been recorded in the sales journal."

Which of the following audit procedures would be most effective in providing evidence regarding the existence of cash and cash equivalents?

Review bank confirmations to verify bank balances.

In testing management's rights and obligations assertion in relation to inventories, which of the following procedures would the auditor most likely consider most reliable?

Review consignment agreements.

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 is not a universal rule for achieving internal control over cash?

Separate recordkeeping from accounting for cash to the extent possible.

The auditor's analytical procedures will be facilitated if the client:

Uses a standard cost system that produces variance reports.

Analyzing bank transfers at the end of the period being audited and the beginning of the next period helps detect ____________.

kiting

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably:

Want the client to schedule the physical inventory count at the end of the year.

Identify the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable:

Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence.

A ___________ is a required minimum account balance that may be required by a bank when making a loan to a customer.

compensating balance

Confirmations are more persuasive than subsequent cash receipts as they help mitigate the risk of _______.

lapping