Final Review
Cash test of details: Subtract Outstanding Checks
1 .VOUCH to cash disbursements journal. 2. TRACE checks cleared from cutoff bank statement.
For uncollectible accounts, name 4 ways an auditor could verify accounts
1. Inspect customer files for collectability. 2. Recalculate allowance and bad debt expense. 3. Verify reasonableness of allowance and bad debt expense. 4. Inspect documentation for appropriateness of accounts written off.
Five steps that need to be conducted when completing audit data analytics
1. Plan the ADA 2. Access and prepare the data for the purposes of the ADA 3. Consider the relevance and reliability of the data used 4. Perform the ADA 5. Evaluate the results and conclude as the whether the purpose and specific objectives of performing the ADA have been achieved
Ethical behavior is that which (3):
1. Produces the greatest good, and/or. 2. Conforms to moral rules and principles, and/or. 3. Best demonstrates the virtues you value most.
Three-step approach for using the audit risk model to plan an engagement:
1. Set audit risk at desired levels (normally, low) 2. Assess risk of material misstatement, which incorporated inherent risk based on the nature of the account balance or class of significant transactions and control risk based on gaining an understanding of internal control 3. Determine detection risk at the significant account and assertion level based on the level of audit risk and material misstatement
Cash test of details: Add deposits-in-transit
1. TRACE to cash receipts journal. 2. VOUCH to CUTOFF BANK STATEMENT.
Two key issues that the auditor faces when accessing a client's data
1. The auditor needs to gain access to the data in a format (Excel file) that the auditor can use on the financial statement audit 2. Auditor must make sure that the integrity of the data is properly maintained and that the data is complete and accurate
are the systematic computational analysis of data (how we use the information).
Analytics
Used to test for payees, amounts, or dates that do not match the cash disbursements journal
Canceled Checks
Name the audit evidence that are used to test for cash: The company's detailed record of entries for checks written and electronic payments made during the period being audited
Cash disbursements journal
Name the audit evidence that are used to test for cash: cash credit entries
Cash disbursements journal
Name the audit evidence that are used to test for cash: (debits to the cash account), including cash deposits
Cash receipts journal
Name the philosophy: what would the world be like if everyone did it? If everyone did it, is that the world you want to live in?
Kant
asks for a response only if something is wrong with the balance; thus, lack of response is considered evidence that the account is fairly stated
Negative Confirmations
describes the goods being shipped, and the quantity of goods shipped, if often included with the shipment
Packing slip
asks the customer to response as to whether the balance is correct or incorrect (asks for a response)
Positive Confirmations
Substantive procedures used in the revenue cycles (2)
Procedures are classified as substantive analytical procedures and substantive tests of details
is one in which the auditor substantiates an account of disclosure by directly testing the transactions that make up the account or the items that constitute the balance of the account
Substantive test of details
True/False: Missing canceled checks are a red flag
True
makes explicit some of the criteria for conduct unique to the profession
a code
Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide the strongest evidence concerning the: a) Existence of the balances confirmed. b) Ownership of the balances confirmed. c) Internal control over balances confirmed. d) Collectability of the balances confirmed.
a) Existence of the balances confirmed.
In the audit of accounts receivable, the most important emphasis should be on the: a) Completeness assertion. b) Existence assertion. c) Rights and obligations assertion. d) Presentation and disclosure assertion.
b) Existence assertion.
To be recognized, revenues must also be realized or realizable and: a) foreseeable. b) collected. c) earned. d) shipped.
c) earned.
Auditors will review items in the pending orders file for evidence of the (assertion) of recorded sales and AR
completeness
A sample of the customer master file can be tested for __________
current status, including up-to-date credit limit information
Best control over whether cash is received and recorded is the _______
customer
Which of the following is a common use of ADA in performing tests of controls? a) The auditor performs an aging of accounts receivable. b) The auditor conducts a trend analysis on inventory costs. c) The auditor runs a predictive model of interest expense. d) The auditor performs journal entry exception testing for employee entry amount limits.
d) The auditor performs journal entry exception testing for employee entry amount limits.
Most audit procedures related to payroll consist of evaluation of _______ and ________
internal control; analytical procedures
Sales transactions that were initiated but are not yet completed, and thus not yet recorded as sales, are kept in the
pending order master file
Due to the lack of predictability of the cash balance, auditors rarely, if ever, use _______________ to test cash
substantive analytical procedures
The auditor always performs ___________ in the revenue cycle
substantive procedures
To test for cash, auditors will typically rely exclusively on ________
tests of details (test the bank reconciliation)
Most banks now only complete confirmation requests electronically ____________
through a third part intermediary (for example, Confirmation, formerly known as confirmation.com).
Name the philosophy: the quest to understand and live a life of moral virtue
virtue ethics
An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the: a) check register for the last month is reviewed b) cutoff bank statement is reconciled c) bank confirmation is reviewed d) search for unrecorded liabilities is performed.
b) cutoff bank statement is reconciled
The mail which includes payments should be opened by two people. This control is called: a) separation of duties. b) joint custody. c) anti-collusion. d) lapping.
b) joint custody.
An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the activities by: a) confirmation and observation b) observation and inquiry c) analytical procedures and confirmation d) inquiry and analytical procedures.
b) observation and inquiry
Revenues are normally considered to have been earned when: a) all possibility of return has expired. b) the company has substantially accomplished what it must to be entitled to the benefits. c) the cash is collected. d) goods have been shipped.
b) the company has substantially accomplished what it must to be entitled to the benefits.
In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of: a) existence. b) valuation or allocation. c) completeness. d) rights and obligations.
b) valuation or allocation.
Identify an substantive procedure to test for cash
The auditor substantiates an account or disclosure by developing an independent estimate of the amount and then comparing the recorded balance to the estimate
Name 5 strong internal controls over cash
1 .Dual custody of cash at all times. 2. Lockbox arrangement. 3. Fidelity bonds (an insurance policy that covers most kinds of cash embezzlement losses) 4. Unused checks secured 5. Deposit cash and checks daily and intact
Auditors are interested in having independence in appearance because: a) They need to comply with the fundamental principles of GAAS. b) They want the public at large to have confidence in the profession. c) Audits should be planned and properly supervised. d) They want to impress the public with their independence in fact.
b) They want the public at large to have confidence in the profession.
All of the following procedures are common uses of audit data analytics in risk assessment procedures except: a) analyzing trends in inventory costs. b) identifying sales which did not follow the typical three way match control in the revenue cycle. c) comparing cash collections to sales invoices and discounts in the revenue cycle. d) calculating accounts receivable collection periods by region.
c) comparing cash collections to sales invoices and discounts in the revenue cycle.
Tracing a sample of time clock cards to payroll registers (journals) is a procedure designed to obtain evidence about the transaction assertion(s) of: a) occurrence only. b) occurrence and accuracy only. c) completeness only. d) accuracy only.
c) completeness only.
The document that generates recording of a sale is the: a) customer order. b) shipping order. c) invoice. d) purchase order.
c) invoice.
situation may be described as one in which the choice of alternative actions affects the well-being of other persons.
ethical problem
Auditors will generally send confirmations to customers to substantivate the (assertion) and (assertions) assertions of AR
existence; rights and obligations
Using confirmations primarily for verifying (assertion) as well as (assertions)
existence; rights and obligations.
The amount of cash in the bank is almost always different from the amount in the general ledger (financial statements), and the reconciliation is designed to
explain the difference between these two amounts
exists when an individual must make a choice among alternative actions and the right choice is not absolutely clear.
problem situation
An auditor must plan and perform an audit with __________, and must exercise __________
professional skepticism; professional judgement.
To gather evidence regarding the bank's balance in a bank reconciliation, an auditor would examine all of the following except the: a) cutoff bank statement. b) general ledger. c) bank confirmation. d) year-end bank statement.
b) general ledger.
Name the 5 audit evidence activities that are used to test cash
1. Cash receipts journal 2. Cash disbursements journal 3. Bank reconciliations 4. Bank confirmations 5. Schedule of interbank transfers
An ethical decision process includes (3)
1. Define all facts and circumstances (what is the problem?). a)Identify stakeholders. b)Identify stakeholders' rights and obligations in general and to each other. 2. Specify the actor's major decision alternatives and consequences. 3. Choose a course of action.
Ethics requires (3)
1. Ethics involves questions requiring reflective choices (decision problems) 2. Guides of right and wrong (moral principles) 3. Concerned with consequences (good or bad) decisions
Inherent risk in the payroll cycle
1. Ghost employees (employees who do not exist) - invalid transactions 2. Paying terminated employees 3. Overpaying (padding) for time or production (inaccurate transactions, improper valuation). 4. Incorrect accounting for costs and expenses (incorrect classification, improper or inconsistent presentation and disclosure). 5. Failure to pay third-parties (for example, payroll taxes, insurance).
Inherent risks to the revenue and collection cycle (3)
1. Improper Revenue Recognition 2. Returns and Allowances. 3. Collectability of Receivables.
that branch of philosophy which is the systematic study of reflective choice, of the standards of right and wrong by which it is to be guided, and of the goods toward which it may ultimately be directed.
Ethics
The primary document used to test the cash balance in the financial statements
Bank Reconciliations
Equation for proof of cash (Substantive Analytical Procedure)
Beginning Cash + Receipts - Disbursements = Ending Cash
a form that the carrier signs to verify that the goods are shipped
Bill of lading
should be used if the recipient is likely to return a positive confirmation without verifying the accuracy of the information.
Blank Confirmations
Products delivered with a high likelihood that the products will be returned
Channel Stuffing
temporary storage places for transactions awaiting final accounting; should have a zero balance after the accounting is completed
Clearing accounts
In regards to the cash disbursements journal, name a company procedure that companies should require
Company procedures should require that "voided" checks be retained, and auditors should review these checks to ensure they were in fact actually voided and have not been recorded in bank statements
are facts and statistics collected together for reference or analysis (the information).
Data
special journal; contains a row for each employee with columns for the gross regular pay, gross overtime, income tax withheld, etc
Payroll register
Name the philosophy: consequences of what you are doing
Utilitarianism
Which of the following responses to an accounts receivable confirmation at December 31 would cause an audit team the most concern? a) "These goods were returned for credit on November 15." b) "This amount was paid on December 30." c) "The balance does not reflect our sales discount for paying by January 5." d) "We received this shipment on January 2."
a) "These goods were returned for credit on November 15."
An audit team is auditing sales transactions. One step is to vouch a sample of debit entries from the accounts receivable subsidiary ledger back to the supporting sales invoices. The purpose of this audit procedure is to establish that: a) Entries in the accounts receivable subsidiary ledger were properly invoiced. b) All sales invoices have been properly posted to customer accounts. c) All sales have been recorded. d) Sales invoices represent bona fide sales.
a) Entries in the accounts receivable subsidiary ledger were properly invoiced.
When performing confirmation of cash balances with a bank, the auditor is primarily gathering evidence related to which financial statement assertion? a) Existence b) Completeness c) Valuation d) Presentation and Disclosure
a) Existence
Confirmations of accounts receivable provide the most evidence for which of the following assertions? a) Existence. b) Valuation or allocation. c) Rights and obligations. d) Completeness.
a) Existence.
CPA Krogstad is the executive in charge of the Omaha office of the audit firm. He is responsible for the practice in all areas of audit, tax, and consulting, but he does not serve as a field audit partner or a reviewer. CPA Ward is the partner in charge of the Dodger, Inc. audit (an SEC filing). The audit firm's independence is impaired if: a) Krogstad owns Dodger common stock. b) Krogstad's brother owns 10 shares of Dodger common stock. c) Ward's sister-in-law is a sales representative with a territory in California. d) Ward's fellow partner CPA Felix in the Omaha office has a wife who owns Dodger stock through a mutual fund held in her own employer's employee benefit plan.
a) Krogstad owns Dodger common stock.
Which of the following is considered a close relative (but not an immediate family member) as defined by the AICPA? a) Parent. b) Spousal equivalent. c) Spouse. d) Uncle.
a) Parent.
Immediately upon receipt of cash, a responsible employee should: a) Prepare a remittance listing. b) Record the amount in the cash receipts journal. c) Update the subsidiary accounts receivable records. d) Prepare a deposit slip in triplicate.
a) Prepare a remittance listing.
Analysis of accounts receivable collection periods by region is most likely a part of which of the following types of ADA? a) Risk assessment procedures b) Tests of controls c) Substantive analytical procedures d) Tests of details
a) Risk assessment procedures
When accounts receivable are confirmed at an interim date, auditors need not be concerned with: a) Sending negative confirmations to all customers as of the year-end date. b) Obtaining a year-end trial balance of receivables, comparing it to the interim trial balance, and obtaining evidence and explanations for large variations. c) Considering the necessity for some additional confirmations as of the balance sheet date if balances have increased materially. d) Obtaining a summary of receivables transactions from the interim date to the year-end date.
a) Sending negative confirmations to all customers as of the year-end date.
Which of the following internal control activities most likely would deter lapping of collections from customers? a) Separation of duties between receiving cash and posting the accounts receivable ledger. b) Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries. c) Authorization of write-offs of uncollectable accounts by a supervisor independent of credit approval. d) Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries.
a) Separation of duties between receiving cash and posting the accounts receivable ledger.
Which of the following control activities could prevent a paid disbursement voucher from being presented for payment a second time? a) The official signing the check should compare it with the voucher and should stamp "paid" on the voucher documents. b) The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment. c) Disbursement vouchers should be approved by at least two responsible management officials. d) Vouchers should be prepared by individuals who are responsible for signing disbursement checks.
a) The official signing the check should compare it with the voucher and should stamp "paid" on the voucher documents.
An auditor should normally perform alternative procedures to substantiate the existence of accounts receivable when: a) no reply to a positive confirmation request is received. b) no reply to a negative confirmation request is received. c) collectability of the receivables is in doubt. d) pledging of the receivables is probable.
a) no reply to a positive confirmation request is received.
The assertion that auditors will probably emphasize in the revenue and collection cycle is: a) occurrence. b) completeness. c) accuracy. d) classification.
a) occurrence.
Vouching debits from a sample selection of customers' accounts receivable records to supporting sales invoices is an audit procedure designed to obtain evidence about the assertion of: a) occurrence. b) completeness. c) classification. d) accuracy.
a) occurrence.
The auditor maintains control of the mailing and receipt of confirmations by typically performing all of the following except: a) preparing the confirmation letters. b) mailing the confirmation letters. c) receiving the confirmation letters. d) None of these choices are correct.
a) preparing the confirmation letters.
An audit plan of substantive procedures for cash would not include: a) request a cutoff bank statement be mailed to the client. b) request client to prepare bank reconciliations. c) prepare a schedule of interbank transfers for a period of ten business days before and after year-end date. d) obtain a written client representation concerning compensating balance agreements.
a) request a cutoff bank statement be mailed to the client.
The most effective audit procedure for determining the collectability of an account receivable is the: a) review of the subsequent cash collections. b) examination of the related sales invoice(s). c) confirmation of the account. d) review of authorization of credit sales to the customer and the previous history of collections.
a) review of the subsequent cash collections.
Pricing file can be compared to an official price source for (assertion)
accuracy
AR aging information is used in connection with assessing the _________
allowance for doubtful accounts
Canceled checks are used to verify:
appropriate use of certain important internal controls, such as dual signatures for expenditures greater than a certain amount
A public accounting firm's independence is not impaired when a member of the audit engagement team does which of the following for a public company audit client? a) Prepares special purchase orders for active plutonium in secure national defense installations. b) Completes operational internal audit assignments under the directions of the client's director of internal auditing. c) Prepares outsourced internal audit work on the client's financial accounting control monitoring. d) Prepares actuarial assumptions used by the client's actuaries for life insurance actuarial liability determination. e) All of the choices would impair the public accounting firm's independence.
b) Completes operational internal audit assignments under the directions of the client's director of internal auditing.
During an audit of cash, the auditor is most concerned with the management assertion of: a) Valuation or allocation. b) Existence. c) Rights and obligations. d) Occurrence.
b) Existence.
Each morning the controller gets the prior day's list of remittances, a copy of the payment report, and a copy of the deposit slip returned from the bank. When comparing these items, the controller would be able to determine that: a) The assistant controller does not also reconcile the subsidiary accounts payable. b) The cash received and remittance advice received were maintained in a single batch. c) The accounts receivable system has controls over unauthorized access. d) No checks were returned for insufficient funds.
b) The cash received and remittance advice received were maintained in a single batch.
Which of the following is true? a) Audit team partners who leave the public accounting firm for employment with audit clients can retain variable annuity retirement accounts established in the person's former firm retirement plan. b) The public accounting firm must discuss with the audit client's board or its audit committee the independence implications of the client's having hired the audit engagement team manager as its financial vice president. c) Members of an audit engagement team cannot speak with audit client officers about matters outside the scope of the audit while the audit engagement is in progress. d) Audit team members who leave the public accounting firm for employment with audit clients can provide audit efficiencies (next year) because they are very familiar with the firm's audit plans.
b) The public accounting firm must discuss with the audit client's board or its audit committee the independence implications of the client's having hired the audit engagement team manager as its financial vice president.
Which of the following philosophical principles in ethics places emphasis on the consequences of action, rather than on following the rules? a) Imperative principle. b) Utilitarianism principle. c) Generalization principle. d) Moral principle.
b) Utilitarianism principle.
Perry Pinkney, CPA, is one of the general partners in a partnership, which in turn invested 70 percent of its assets in the common stock of Pinkney's audit client (Darby Corporation). According to the AICPA Code of Professional Conduct, Pinkney is considered to have: a) an indirect financial interest in Darby. b) a direct financial interest in Darby. c) no financial interest in Darby. d) a partial financial interest in Darby.
b) a direct financial interest in Darby.
When auditing the revenue and collection cycle, auditors normally select balances to confirm from the: a) sales journal. b) accounts receivable listing. c) general ledger. d) cash receipts listing.
b) accounts receivable listing.
contains orders for products that are out of stock currently
back-order master file
Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance list that is forwarded to the cashier. A copy of the list should be sent to the: a) Entity's bank to compare the list with the cashier's deposit slip b) Treasurer to compare the list with the monthly bank statement c) Accounts receivable bookkeeper to update the subsidiary accounts receivable records. d) Internal auditor to investigate the list for unusual transactions.
c) Accounts receivable bookkeeper to update the subsidiary accounts receivable records.
When auditing the revenue and collection cycle, auditors normally select balances to confirm from the: a) General ledger. b) Sales journal. c) Accounts receivable listing. d) Cash receipts listing.
c) Accounts receivable listing.
When auditing a client in the merchandising business, an auditor became concerned that the client was recording fraudulent credit sales. Which of the following procedures would have most likely alerted them to this potential fraud? a) Observing the credit sales figure on the income statement b) Recalculating depreciation on fixed assets c) Analyzing cash receipts as a percentage of sales by month d) Analyzing gross profit percentage by class of revenue
c) Analyzing cash receipts as a percentage of sales by month
Which of the following is true about electronic cash confirmations obtained through Confirmation (Confirmation.com)? a) Responses to electronic confirmations are often delayed compared with manual confirmations. b) Electronic cash confirmations provide more convincing evidence for the completeness assertion than manual confirmations. c) Auditors must obtain evidence supporting the reliability of controls surrounding the Confirmation (Confirmation.com) process. d) It is more difficult to determine the authenticity of an electronic confirmation obtained through Confirmation compared with confirmations mailed to the auditors.
c) Auditors must obtain evidence supporting the reliability of controls surrounding the Confirmation (Confirmation.com) process.
Which of the following personnel department procedures reduces the risk of payroll fraud and represents an appropriate responsibility for the department? a) Distributing paychecks b) Authorizing overtime hours c) Authorizing the addition or deletion of employees from the payroll. d) Collecting and retaining unclaimed paychecks
c) Authorizing the addition or deletion of employees from the payroll.
Which of the following is not a key element of the definition of ethics? a) Reflective choice b) Moral principles c) Definitive conclusions d) Consequences of decisions
c) Definitive conclusions
Which of the following is not important when considering the reliability of client data? a) The source reliability b) Client controls over data preparation c) If the auditor's information system has been subject to reliability testing d) All of the above are important
c) If the auditor's information system has been subject to reliability testing
The financial records of the Movitz Company show that R. Dennis owes $4,100 on an account receivable. An independent audit is being carried out, and the auditors send a positive confirmation to R. Dennis. What is the most likely reason as to why a positive confirmation rather than a negative confirmation was used here? a) Dennis's account was not yet due. b) Control risk was particularly low for accounts receivable. c) Inherent risk was particularly high for accounts receivable. d) Dennis's account was not with a related party.
c) Inherent risk was particularly high for accounts receivable.
Which of the following is not a major control risk in the payroll cycle? a) Paying fictitious "employees" b) Overpaying for time or production c) Losing employees to competitors. d) Incorrect accounting for costs or expenses
c) Losing employees to competitors.
An auditor noted that client sales increased 10 percent for the year. At the same time, Cost of Goods Sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. Based on this information, the auditor interviewed the sales manager, who stated that the increase in sales without a corresponding increase in cost of goods sold was due to a price increase enacted by the company during the year. How would the auditor test the sales manager's representation? a) Vouch vender invoices to payments made after year-end. b) Perform additional inquiries with sales personnel. c) Obtain copies of all price lists in use during the year and vouch the prices to sales invoices. d) Send confirmations asking customers about unit prices paid for product.
c) Obtain copies of all price lists in use during the year and vouch the prices to sales invoices.
The negative request form of accounts receivable confirmation is useful particularly when the: Assessed Level of Risk of Material Misstatement Relating to Receivables Is; Number of Small Balances Is; Proper Consideration by the Recipient Is a. Low Many Likely b. Low Few Unlikely c. High Few Likely d. High Many Likely a) Option b. b) Option d. c) Option a. d) Option c.
c) Option a.
Which of the following accounts is not normally part of the revenue and collection cycle? a) Cash. b) Accounts Receivable. c) Purchases Returns and Allowances. d) Sales.
c) Purchases Returns and Allowances.
Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances? a) The cashier makes the daily deposit at a local bank. b) The cashier prepares the daily deposit. c) The cashier posts the receipts to the accounts receivable subsidiary ledger cards. d) The cashier endorses the checks.
c) The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
Which of the following audit procedures is the most effective in testing sales for understatement? a) Analyze the aged trial balance of recorded accounts receivable. b) Confirm recorded accounts receivable. c) Trace a sample of shipping documents to sales invoices recorded in the sales journal. d) Vouch a sample of recorded sales from the sales journal to shipping documents.
c) Trace a sample of shipping documents to sales invoices recorded in the sales journal.
The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the a) human resources function from the controllership function. b) administrative controls from the internal accounting controls. c) authorization of transactions from the custody of related assets. d) operational responsibility from the recordkeeping responsibility.
c) authorization of transactions from the custody of related assets.
The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because: a) many customers merely sign and return the confirmation without verifying its details. b) recipients usually respond only if they disagree with the information on the request. c) customers may not be inclined to report understatement errors in their accounts. d) auditors typically select many accounts with low recorded balances to be confirmed.
c) customers may not be inclined to report understatement errors in their accounts.
Your client is in the process of acquiring another company. You have been requested to verify that cash for the company being acquired is properly stated. The audit technique that will yield the most persuasive evidence is: a) examination of the company's escrow account b) interview with the company's treasurer and cash manager c) preparation and review of standard bank confirmation inquiries d) analytical computations comparing current cash in the bank with previous accounting periods.
c) preparation and review of standard bank confirmation inquiries
Which of the following control activities would best protect against the preparation of improper or inaccurate cash disbursements? a) All checks must be signed by an officer designated by the board of directors. b) All checks must be sequentially numbered and accounted for by internal auditors. c) All checks must be perforated or otherwise effectively canceled when they are returned with the bank statement. d) All signed checks must be reviewed and compared with supporting documentation by the treasurer before mailing.
d) All signed checks must be reviewed and compared with supporting documentation by the treasurer before mailing.
In preparing for the audit of cash, the auditors perform analytical procedures concerning cash balances. Which of the following would be the best source of information for use in the estimate of cash? a) Prior-years' balances. b) Management inquiry. c) Aged accounts receivable reports. d) Cash budgets.
d) Cash budgets.
When identifying and assessing inherent risk through the use of audit data analytics, what type of analytic would an auditor most likely perform first? a) Detail analysis of specific sales transactions. b) Dimension analysis of sales transactions by region. c) Trend analysis of sales by month. d) Comparison of sales revenue to prior period and expectations.
d) Comparison of sales revenue to prior period and expectations.
Allison Everhart, an employee in accounts payable, believes she can run a fictitious invoice through the accounts payable system and collect the money. She knows payments are subject to an audit. Which account would be the best place to hide the fraud? a) Inventory. b) Wage expense. c) Property tax expense. d) Consulting service expense.
d) Consulting service expense.
Data from which of the following sources is most likely to be unreliable? a) Data obtained directly from the client with strong internal controls b) Data obtained from a third-party sent directly to the auditor c) Data obtain through direct personal observation of the auditor d) Data obtained directly from the client with weak internal controls
d) Data obtained directly from the client with weak internal controls
When an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following except: a) Send a second request. b) Examine shipping documents. c) Examine client correspondence files. d) Do nothing for immaterial balances.
d) Do nothing for immaterial balances.
The audit committee's responsibility for auditor independence concerns: a) Ensuring that all nonaudit services are provided by auditors who do not perform the financial statement audit. b) Ensuring that partners of the public accounting firm are not stockholders in the company. c) Reporting on auditor independence to the PCAOB. d) Ensuring that nonaudit services provided by the auditor do not impair independence.
d) Ensuring that nonaudit services provided by the auditor do not impair independence.
Which aspect of data is not important for data used in Audit Data Analytics (ADA)? a) Reliability b) Relevance c) Completeness d) None of these choices are correct.
d) None of these choices are correct.
Which of the following is an effective audit procedure that an auditor might use to detect kiting between intercompany banks? a) Review subsequent bank statements. b) Review the composition of authenticated deposit slips. c) Prepare a year-end bank reconciliation. d) Prepare a schedule of the bank transfers.
d) Prepare a schedule of the bank transfers.
Red and Green, CPAs, are the external auditors for Blue Corporation, a publicly-held company. Blue Corporation has outsourced its internal audit function to Red and Green. Which of the following statements is true? a) Doing internal audit work does not impair the independence of Red and Green. b) The independence of Red and Green is impaired only if employees of Red and Green act in a management capacity or make management decisions. c) The independence of Red and Green is impaired only if a member of Red and Green's engagement team is hired to manage an accounting function in Blue Corporation. d) Public accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence.
d) Public accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence.
An auditor imports a client's purchasing cycle transactions for the purposes of testing authorization controls. Which of the following is true regarding the implementation of this audit data analytic? a) The use of statistical sampling in the performance of the ADA increases the auditor's confidence. b) The use of ADA for purchasing transactions often significantly increases audit risk relative to traditional auditing procedures. c) A disadvantage of implementation is the increased costs associated with ADA. d) Testing can be more efficiently conducted across 100% of transactions.
d) Testing can be more efficiently conducted across 100% of transactions.
An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using: a) employee fidelity bonds b) independently prepared mailroom prelists c) daily check summaries d) a bank lockbox system
d) a bank lockbox system.
In the audit of cash the auditor obtains a bank cutoff statement primarily to: a) identify old outstanding checks that the client may exclude from the year-end bank reconciliation in order to misappropriate cash b) obtain sufficient information to reconcile the client's bank account as of year-end c) obtain direct confirmation of the client's bank balances as of year-end d) test the propriety of items appearing on the client's year-end bank reconciliation
d) test the propriety of items appearing on the client's year-end bank reconciliation.
