Auditing II - Exam 2
BS item of PPE
depreciation
the CPA's opinion on the ____of the FS may be changed by subsequent events
fairness
BS item of Securities/investments
gains on sale
Analytical procedures, in conjunction with other substantive procedures, are often used for verification of income statement accounts. True False
true
a lawsuit that was in progress as of year end was settled shortly after thereafter type 1 or type 2
type 1
Auditors generally consider the evidence regarding accounts payable in the client's possession as more reliable than that for accounts receivable. True False
true
additional evidence about conditions that existed at the BS date type 1 or type 2
type 1
during the audit, a customer with a large A/R balance at year end delcares bankruptcy type 1 or type 2
type 1
when searching for unrecorded Liabilities the auditors consider transactions recorded _____ year end
after
BS item of intangible assets:
amortization
auditors consider the ____ expense when determining the correct allowance for doubtful accounts
bad debt
BS item of : AR
bad debt or sales
AP ____ can be mailed to vendors from whom substantial purchases have been made
confirmations
it is difficult to audit ___ without consideration of the property account
depreciation
The auditors should determine that the issuance of bonds were approved by the company's stockholders. True False
false
Auditors must communicate internal control "significant deficiencies" to: the SEC. the Federal Trade Commission. the shareholders. the audit committee.
the audit committee.
A registrar/transfer agent system relating to capital stock is most likely used by: no companies use this system anymore. a small, nonpublic company. a large, publicly traded company. all companies must use this type of system.
a large, publicly traded company.
Accrued liabilities generally differ from accounts payable in that accrued liabilities: accumulate over time. depend upon the existence of a transaction for original recording of the account. are never included in cost of goods sold. are usually confirmed at year-end.
accumulate over time.
When auditing the statement of cash flows of a profitable, rapidly growing company that is past the startup phase, which combination is most likely (where "positive" = "source of cash" and "negative" = "use of cash")? Cash from operations and cash flows from investing
$ from operations - positive $ from investing - negative
Understatement of which of the following is most likely to overstate net income? Cash. Accounts receivable. Property, plant and equipment. Accounts payable.
Accounts payable.
An audit program for the examination of the retained earnings account should include a step that requires the verification of the: Market value used to charge retained earnings to account for a two-for-one stock split. Authorization for both cash and stock dividends. Gain or loss resulting from disposition of treasury shares. Approval of the adjustment of the beginning balance as a result of a write-down of an account receivable.
Authorization for both cash and stock dividends.
the audit of inventories may help in the auditor determination of ____
COGS
An auditor who is auditing for treasury stock acquired will normally expect to see an entry in which journal? Purchases. Cash disbursements. Cash receipts Sales.
Cash disbursements.
When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited? Accounts Receivable. Cash. Accrued liabilities. Cost of goods sold.
Cash.
The employees of our client, a manufacturing concern, are paid once a month, on the 4th day of the month following the balance sheet date. What audit issue(s) pertaining to labor costs exists at year end? Rights. Completeness & Cutoff. Existence. Presentation & Disclosure.
Completeness & Cutoff.
Which of the following procedures is least likely carried out in the audit of capital stock for a public company? Examine all outstanding stock certificates for completeness. Evaluate compliance with stock option plans. Account for the proceeds from stock issues. Reconcile shares outstanding with the general ledger.
Examine all outstanding stock certificates for completeness.
Which of the following auditing procedures is ordinarily performed last and that Professor Phillips does not think holds much weight? Obtaining a management representation letter. Testing of the purchasing function. Reading of the minutes of the directors' meetings. Confirming accounts payable.
Obtaining a management representation letter.
Which of the following is an example of an accrued liability? Prepaid insurance. Accounts payable. Product warranty liability. Notes payable.
Product warranty liability.
In auditing the balance sheet, most revenue and expense accounts are also audited. Which accounts are most likely to be audited when auditing Accounts Receivable? Interest and Cost of Goods Sold. Sales and Bad Debt Expense. Sales and Cost of Goods Sold. Interest and Bad Debt Expense.
Sales and Bad Debt Expense.
Subsequent events that provide additional evidence as to conditions that existed at the balance sheet date may result in adjusting journal entries. True False
TRUE
type 1 subsequent events require FS be ___ if needed
adjusted
type 2 subsequent events come into existence _____ the BS date
after
amortization relates to ____ assets like depreciationn relates to PPE
intangible
BS item of NP
interest
The auditor will most likely perform extensive tests for possible understatement of: capital. assets. revenues. liabilities.
liabilities.
many subsequent events may involve the settling of ____
litigation
when auditors find unrecorded liabilites, before adjusting they must consider _____
materiality
subsequent events need to be disclosed in the FS, otherwise the FS would be ____
misleading
The review of audit working papers by the audit partner is normally completed: near the completion of the audit. after issuance of the audit report, but prior to required subsequent event review procedures. prior to year-end. immediately as each working paper is completed.
near the completion of the audit.
invoice dated 1/5 for January security protection .. not included in AP as 12/31 -PI -IE -PE -II
properly exluded
invoice dated 12/20 for maintenance services and unpaid as of yr end listed in AP at 12/31 -PI -IE -PE -II
properly included
to gain overall assurance as the reasonableness of AP the auditor may consider ___
ratios
auditors need to consider ____terms for determining ownership and whether a liability should be recorded
shipping
Which of the following procedures is least likely a procedure that is completed near the end of the engagement? Review accumulated depreciation. Review to identify subsequent events. Obtain the letter of representations. Perform procedures to identify loss contingencies.
Review accumulated depreciation.
invoice dated 1/20 for cleaning services for the month of December, not included in AP at 12/31 -PI -IE -PE -II
improperly excluded
invoice received 12/30 for January temporary workers, included in AP at 12/31 -PI -IE -PE -II
improperly included in AP
The auditors' search for unrecorded liabilities is completed: during an interim period. at the balance sheet date. at any time during the examination. subsequent to the balance sheet date.
subsequent to the balance sheet date.
Changes in and/or additions to capital stock accounts should normally be approved by: the vice president of sales. the stockholders. the audit committee. the board of directors.
the board of directors.
a flood damages a significant portion of the operating facility after year end type 1 or type 2
type 2
conditions have come into existence after the BS date type 1 or type 2
type 2
financial statements that _____ the results almost never lead to legal actions by financial statement users
understate
When the auditors discover an understatement of liabilities, they would most likely also expect to find an: understatement of assets. understatement of revenues. overstatement of expenses. understatement of owners' equity.
understatement of assets.