ac 445 Final

The auditor has not received a response to his positive confirmation and the client's customer has not made a payment on the account. The auditor most likely would: A.Examine cancelled checks. B.Examine shipping documents. C.Request that the client wrote off the account. D.Use a negative confirmation.

Examine shipping documents.

Confirmation of accounts receivable tests the assertion of: A.Existence B.Presentation C.Detection risk. D.Completeness

Existence

(ch.10) 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

An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated: A. December 31, 20X8 B. January 17, 20X9 C. February 10, 20X9 D. February 16, 20X9

02/10/20X9The representation letter should be dated as of the date the audit was completed.

Hwang Corporation has engaged in a number expenditures relating to a land acquisition for a future plant. For each of the following, indicate whether your as the auditor of Hwang Corporation would propose an adjusting entry. Assume all transactions are material. (B) Yes- indicated a proposed adjusting entry is necessary. (A) No- indicates NO proposed adjusting is necessary. 1. Hwang purchased land for a new plant that it intends to construct. A portion of the cost was a commission paid to a real estate agent. That commission was capitalized as part of the cost of the land. 2. The purchased land was in part financed through obtaining a loan from a financial institution. Interest on that loan is being capitalized as part of the cost of the land. 3. An existing building on the land was torn down to allow construction of a new building on the land. The cost of the demolition was capitalized as part of the cost of the new building. 4. Subsequent to the land purchase, Hwang purchased certain equipment from a vendor who had filed for bankruptcy. Hwang's management believes that the equipment was purchased for an amount equal to approximately half what at least one other supplier sells it for. Hwang recorded the transaction at its cost. 5. Hwang cut down a number of trees on the land and sold the wood. Other income was recorded on the transaction for the amount of the cash received.

1. A, no 2. B, yes 3. A, no 4. A,no 5. B,yes

For each of the procedures described in the below, identify the audit procedures performed. Each answer is used, one answer is used twice. 1. Requested responses directly from customers as to the amounts due. 2.Compared total bad debts tis year with the totals for the previous two years. 3.Questions management about likely total uncollectable accounts. 4. Watched the accounting clerk record the daily deposit of cash receipts. 5. Examined invoices to obtain evidence in support of the ending recorded balance of a customer. 6. Compared a sample of sales invoices to credit files to determine whether the customers were on the approved customer list. 7. Examined a sample of sales invoices to see if there were initialized by the credit manager indicating credit approval. A.Confirmation B.Observation C.Inquiry D.Analytical Procedure E. Reperformance F. Inspection of records or documents.

1. Confirmation (A) 2. Analytical Procedure (D) 3. Inquiry (C) 4. Observation (B) 5. Inspection of records or docs (F) 6. Reperformance (E) 7. Inspection of records or docs (F)

During year 1 audit of Cellening Co., the auditor performed various procedures relating to inventory. Match each of the following procedures with the description. Each audit procedures may be used once, more than once, or not at all. Audit procedures: a. Analytical procedure b. External confirmation c. inquiry d. inspection of records or documents E. Inspection of tangible assets F. Observation G.recalculation H.reperformance. 1. During the physical inventory count, the auditor asked the client to open various boxes of inventory items so she was able to assess the quality of the item. 2.During a site visit to a construction site, the auditor determined that all employees were wearing proper safety equipment. 3. The auditor asked the warehouse manager about whether certain inventory items were becoming obsolete. . 4. The auditor obtained a purchase order from the purchase order file and compared it to the authorized supplier list to determine that the related goods had been purchased from an approved supplier. 5. The auditor calculated the accounts receivable turnover for the year. 6. The auditor obtained a copy of the company's accounting manual and read the section on inventory to prepare for the physical inventory observation. 7. The accounting firm's computer assisted audit specialist obtained an electronic inventory file from the company and checked the accuracy of the extensions and footings. A.Inquiry B.Observation C.Reperformance D.Analytical procedure E.Inspection of tangible assets F.Recalculation G.Inspection of records or documents

1. Inspection of tangible assets 2. Observation 3. Inquiry 4. Reporformance 5. Analytical Procedures 6. Inspection of records or docs 7. Recalculation

For each of the procedures described in the below, identify the classficiation of the audit procedure used. 1. Requested responses directly from customers as to the amounts due. 2. Compared total bad debts tis year with the totals for the previous two years. 3. Questions management about likely total uncollectable accounts. 4. Watched the accounting clerk record the daily deposit of cash receipts. 5. Examined invoices to obtain evidence in support of the ending recorded balance of a customer. 6. Compared a sample of sales invoices to credit files to determine whether the customers were on the approved customer list. 7. Examined a sample of sales invoices to see if there were initialized by the credit manager indicating credit approval. (options: substantive procedures or test of controls)

1. Substantive Procedures 2. Substantive Procedures 3. Substantive Procedures 4. Test of controls 5. Substantive Procedures 6. Test of controls 7. Test of controls

A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n): A.Analytical process B.Loss contingency C.Probable loss. D.Unasserted claim.

2. loss contingency A loss contingency is a possible loss stemming from past events that will be resolved in the future.

The search for unrecorded liabilities for a public company includes procedures usually performed through the: A.Day the audit report is issued. B.End of the client's year. C.Date of the auditors' report. D.Date the report is filed with the SEC.

3. date of the auditor's report The search for unrecorded liabilities should be completed as of the last day possible—ordinarily near the date of the audit report.

Which of the following would indicate the need for positive account receivable confirmations? A.A population consisting of 6,000 accounts; all with small balances. B.Accounts are with reputable companies. C.A population consisting of 10 accounts, all with large balances. D.Good internal controls over account receivable.

A population consisting of 10 accounts, all with large balances.

You are involved with the audit of Jelco Company for year 1 and have been asked to consider the confirmation reply results indicated below. For each confirmation reply as to the proper action to be taken from the possible actions. Each answer is used once, some more than once. A. "We mailed the check for this on December 31." B. "We returned those goods on December 2." You have been able to determine that the goods were received by the client on December 29, but not recorded until January 2. C. "We also owe for two more invoices for purchases we made around year-end; I'm not sure of the exact date." D. "We are very satisfied with Jelco and plan to purchase from them in the future." E. "While that's what we owe, we didn't owe it on December 31 since we didn't receive the goods until January 2 of year 2." F. You received no reply to a negative confirmation request to Adams Co. G. You received no reply to a positive confirmation request to Blake Co. Subsequently you recalled that Blake Co. has a policy of not responding to confirmation-in writing or orally. 1.Exception; propose an adjustment. 2.Send a second confirmation request to the customer. 3.Examine shipping documents and/or subsequent cash receipts. 4.Verify whether the additional invoices noted on the confirmation reply pertain to the year under audit or the subsequent year. 5.Not an exception, no further audit work is necessary.

A. (3) Examine shipping documents and/or subsequent cash receipts. B. (1) Exception; propose an adjustment. C. (2) Send a second confirmation request to the custom D. (5) Not an exception, no further audit work is necessary. E.(3) Examine shipping documents and/or subsequent cash receipts. F. (5) Not an exception, no further audit work is necessary. G. (3)Examine shipping documents and/or subsequent cash receipts.

Which of the following statements is not typical of property, plant and equipment as compared to most current asset accounts? A.A property, plant and equipment cutoff error near year-end has a more significant effect on net income. B.Relatively few transactions occur in property, plant and equipment during the year. C.The assets involved with property, plant and equipment ordinarily have relatively longer lives. D.Property, plant and equipment accounts typically have higher dollar value.

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

The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of transportation agreement is the: A.Bill of lading. B.Job time shipping. C.Production order. D.Production schedule.

A. Bill of lading.

(ch.10) 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: A.Details of bank deposit slips with details of credits to customer accounts. B.Daily cash summaries with the sums of the cash receipts journal entries. C.Individual bank deposit slips with the details of the monthly bank statements D.Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded.

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

When primary risk related to an audit is possible overstated inventory, the assertion most directly related is: A.Existence. B.Completeness. C.Clarity. D.Presentation.

A. Existence.

(ch.10) 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? A. Observe the consistency of the employees' use of cash registers and tapes. B. Inquire about employees' access to recorded but un-deposited cash. C.Trace deposits in the cash receipts journal to the cash balance in the general ledger. D.Compare the cash balance in the general ledger with the bank confirmation request.

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

Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? A.Accumulated depreciation. B.Cost of goods sold. C.Purchase returns and allowances. D.Purchase discounts.

A.Accumulated depreciation.

(ch.10) The auditors who physically examine securities should insist that a client representative be present in order to:

Acknowledge the receipt of securities returned

(ch.10) 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

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic: A. Increase in insurance coverage. B. Inspection of equipment and reconciliation with accounting records. C. Verification of liens, pledges and collateralizations. D. Accounting for work orders.

B. Inspection of equipment and reconciliation with accounting records.

(ch.11) Which of the following is not among the criteria that ordinarily exist for revenue to be recognized? A. Collectibility is reasonably assured. B. Delivery has occurred or is scheduled to occur in the near future. C. Persuasive evidence of an arrangement exists. D. The seller's price to the buyer is fixed or determinable.

B. Delivery has occurred or is scheduled to occur in the near future. Answer (Delivery has occurred or is scheduled to occur in the near future.) is not among the criteria because of the portion of the answer that states "scheduled to occur in the near future." Ordinarily delivery must have occurred. Answers (Collectibility is reasonably assured.), (Persuasive evidence of an arrangement exists.) and (The seller's price to the buyer is fixed or determinable.) all describe circumstances required to recognize revenue.

The primary objective of a CPA's observation of a client's physical inventory count is to: A.Discover whether a client has counted a particular inventory item or group of items. B.Obtain direct knowledge that the inventory exists and has been properly counted. C.Provide an appraisal of the quality of the merchandise on hand on the day of the physical count. D.Allow the auditor to supervise the conduct of the count in order to obtain assurance that inventory quantities are reasonably accurate.

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

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? A.Compare the physical quantities of slow-moving items with corresponding quantities in the prior year. B.Observe merchandise and raw materials during the client's physical inventory taking. C.Review the management's inventory representations letter for accuracy. D.Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.

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

(ch.10) 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: A.Supported by a vendor's invoice. B.Stamped "paid" by the check signer. C.Prenumbered can accounted for. D.Approved for authorized purchases

B.Stamped "paid" by the check signer. The auditor see whether each voucher is marked as paid by the check signer to avoid the situation of duplicate payments with the help of supporting documents.

An effective procedure for identifying unrecorded retirements of equipment is to: A. Foot related property records. B. Recalculate depreciation on the related equipment. C. Select items of equipment in the account records and then locate them in the plant. D. Select items of equipment and then locate them in the accounting records.

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

The auditors are most likely to seek information from the plant manager with respect to the: A. Adequacy of the provision for uncollectible accounts. B. Appropriateness of physical inventory observation procedures. C. Existence of obsolete machinery. D. Deferral of procurement of certain necessary insurance coverage.

C. Existence of obsolete machinery.

(ch.11) Which of the following is least likely to be considered an inherent risk relating to receivables and revenues? A. Decline in sales due to economic declines. B. Decline in sales due to product obsolescence. C. Over-recorded sales due to a lack of control over the sales entry function. D. Restrictions placed on sales by laws and regulations.

C. Over-recorded sales due to a lack of control over the sales entry function.Over-recorded sales due to a lack of control over the sales entry function relates to control risk not inherent risk. The other three replies all relate to inherent risk.

The receiving department in least likely to be responsible for the: (LO12-3,5) A.Determination of quantities of goods received. B.Detection of damaged or defective merchandise. C.Preparation of a shipping document. D.Transmittal of goods received to the store's department.

C. Preparation of a shipping document.

Which of the following is most likely to be considered a Type 1 subsequent event? A.A business combination completed after year-end, but for which negotiations began prior to year-end. B.A strike subsequent to year-end due to employee complaints about working conditions which originated two years ago. C.Customer checks deposited prior to year-end, but determined to be uncollectible after year-end. D.Introduction of a new line of products after year-end for which major research had been completed prior to year-end.

C.Customer checks deposited prior to year-end, but determined to be uncollectible after year-end. A Type 1 subsequent event relates to a condition that came into effect before year-end; Type 1 subsequent events result in an adjusting journal entry. In this situation, the customer's check may be assumed to have been uncollectible at year-end, and therefore it would be considered to be a Type 1 subsequent event. The other three replies refer to events most ordinarily considered to be Type 2 events—the events came into existence after 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? (LO-12-2) A.Determine that the valuation of inventories and cost of goods sold is arrived at by appropriate methods. B.Determine the existence of inventories and the occurrence of transactions affecting cost of goods sold. C.Establish that the client includes only inventory on hand at year-end in inventory totals. D.Establish the completeness of inventories.

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

Which of the following is not an overall test of the annual provision for deprecation expense? A.Compare rates used in the current year with those used in prior years. B.Test computation of depreciation provision for a representative number of units. C.Test deductions from accumulated depreciation for assets purchased during the year. D.Perform analytical procedures.

C.Test deductions from accumulated depreciation for assets purchased during the year.

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on: A. All transactions resulting in the ending balance. B. Tests of controls over disposals. C. Transactions that occurred during the year. D. Performing analytical procedures on beginning balances of the accounts.

C.Transactions that occurred during the year.

To assure accountability for fixed asset retirements, management should implement an internal control that includes: A.Continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets. B.Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired. C.Utilization of serially numbered retirement work orders. D.Periodic observation of plant assets by the internal auditors.

C.Utilization of serially numbered retirement work orders.

Which of the following is false regarding the audit of accounts receivable? A.Confirmation requests should be mailed directly by the auditors. B.Confirmation request should bear the auditor's return address. C.Confirmation requests should include a return envelope addressed to the auditors. D.Confirmation requests should be signed by the auditor.

Confirmation requests should be signed by the auditor.

(ch.10) 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

(ch.10) To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except: A.Cutoff bank statement. B.Year-end bank statement. C.Bank confirmation. D.General ledger.

D.General ledger.

As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditors should: A. Express and opinion that is qualified due to the inability of the client company to continue as a going concern. B. Evaluate management's performance in causing this decline. C. Require note disclosure. D. Consider the possibility of a misstatement in the financial statements.

D. Consider the possibility of a misstatement in the financial statements. The purpose of analytical procedures is to locate potential misstatements in the financial statements. The auditors should investigate this significant fluctuation to determine whether it results from a financial statement misstatement.

(ch.11) The auditors should confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low. A. Or accounts receivable are from extremely reputable customers. B. And the effectiveness of confirmations is absolutely determined. C. And accounts receivable are composed of large accounts. D. And accounts receivable are immaterial, or the use of confirmations would be ineffective.

D. And accounts receivable are immaterial, or the use of confirmations would be ineffective. Receivables should be confirmed unless the combined assessment of inherent risk and controls risk is at the low level, receivables are immaterial, or the existence of circumstances in which the use of confirmations would be ineffective.

( Ch. 11 )Which of the following would provide the most assurance concerning the valuation of accounts receivable? A. Trace amounts in the accounts receivable subsidiary ledger to details on shipping documents. B. Compare receivable turnover ratios to industry statistics for reasonableness. C. Inquire about receivables pledged under loan agreements. D. Assess the allowance for uncollectible accounts for reasonableness.

D. Assess the allowance for uncollectible accounts for reasonableness.Answer (Assess the allowance for uncollectible accounts for reasonableness.) is correct because receivables are valued at net realizable value, and assessing the allowance for uncollectible accounts for reasonableness will help the auditor determine the proper amount.

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? A. Depreciation. B. Accounts Payable. C. Cash. D. Repairs.

D. Repairs.

(ch.11) Which of the following is an example of misappropriation of assets relating to sales? A. Accidentally recording cash that represents a liability as revenue .B. Holding the sales journal open to record next year's sales as having occurred in the current year. C. Intentionally recording cash received from a new debt agreement as revenue. D. Theft of cash register sales.

D. Theft of cash register sales.Theft of cash register sales is an example of misappropriation of assets. Answer (Accidentally recording cash that represents a liability as revenue.) is an example of an error while answers (Holding the sales journal open to record next year's sales as having occurred in the current year.) and (Intentionally recording cash received from a new debt agreement as revenue.) are examples of fraudulent financial reporting.

(ch.10) In testing controls over cash disbursements, the auditors most likely would determine that the person who signs the checks also: A.Reviews the monthly bank reconciliation. B.Returns the checks to accounts payable. C.Is denied across to the supporting documents. D.Is responsible for mailing the checks.

D.Is responsible for mailing the checks. When checks get the signature, it shouldn't return back to the accounting department, this will reduce any fabrication of documents and then subsequent collection of checks by the accounts payable dept.

Which of the following is an internal control weakens related to factory equipment? A.Checks issued in payment of purchases of equipment are not signed by the controller. B.All purchases of factory equipment are not signed by the controller. C.Factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expired. D.Proceeds from sales of fully depreciated equipment are credited to other income.

D.Proceeds from sales of fully depreciated equipment are credited to other income. The purchase of factory equipment should be made by the purchasing department regardless of which unit of the company will use the equipment. The purchasing department has the expertise and the established procedures and documents to insure that all purchases are made in accordance with company policy.

Key controls relating to property, plant and equipment include all of the following except: A.A capital expenditure (plant) budget is utilized. B.A system requiring executive approval for expenditures has been implemented. C.All purchases are made through the purchasing department. D.Department heads have the authority to determine if an item is a capital or a revenue expenditure.

Department heads have the authority to determine if an item is a capital or a revenue expenditure.

(ch.16)An auditor should perform alternative procedures to substantiate the existence of accounts receivable when: A.Collectability of the receivables is in doubt. B.Pledging of the receivables is probable. C.No reply to a positive confirmation request is received. D.No reply to a negative confirmation request is received.

No reply to a positive confirmation request is received.

which of the following assertions are NOT tested during the auditor's observation of the physical inventory. A.Completeness B.Valuation C.Existence D.Rights E.Presentation

Presentation

What is the purpose of the auditors in making and recoding test counts of inventory quantities during their observation of the taking of the physical inventory? A.Test counts will be used to test the amount of inventory on consignment. B.Test counts will be used to test the amount of items sold. C.Test counts will be compared to quantities in the completed inventory listing. D.Test counts will be used to determine obsolete inventory.

Test counts will be compared to quantities in the completed inventory listing.

(ch.11) 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? A.The positive form when controls related to receivables are satisfactory, and the negative form when controls related to receivables are unsatisfactory. B.The positive form used for trade receivables and the negative form for other receivables. C.The positive form for small balances, and the negative form for large balances. D.The positive form used for large balances and the negative form for the small balances.

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

The aggregated misstatement in the financial statements is made up of: A.Known misstatements, projected misstatements and other misstatements B.Known misstatements and projected misstatements C.Projected misstatements D.Projected misstatements and other misstatements

The total likely misstatements composed of (a) known misstatements, (b) projected misstatements and (c) other misstatements.

Why does the auditor examine the repair and maintenance account. A.To identify expensed items that should have been capitalized. B.To identify impairment of property, plant and equipment. C.To identify legal expense that has been misclassified. D.To identify capital items that should have been recorded as an expense.

To identify expensed items that should have been capitalized.

To determine if all shipments were billed the auditor would: A.Review the aged trial balance. B.Trade the sales invoices to valid shipping documents. C.Trace the shipping document to a valid sales invoice. D.Examine the receiving report.

Trace the sales invoices to valid shipping sales invoices

(ch.10) The best way to verify the amounts of dividend revenue received during the year is

Verification by reference to dividend record books

Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next: A.Notify the board of directors that the auditor's report must no longer be associated with the financial statements. B.Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. C.Request that management disclose the effects of the newly discovered information by adding a footnote to subsequently issued financial statements. D.Issue revised pro forma financial statements taking into consideration to newly discovered information.

determine whether there are persons relying or likely to rely on the F/S who would attach importance to the info When the auditor becomes aware of facts existing at the report date that would have affected the report, s/he should next determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. If such persons are believed to exist, the next step is to determine the best manner in which to disclose the information.

Which of the following procedures is most likely to be included in the final review stage of an audit? A. Obtain an understanding of internal control. B. Confirmation of receivables. C. Observation of inventory. D. Perform analytical procedures

perform analytical procedures The performance of analytical procedures is a required part of the final review stage of an audit and is therefore most likely to be included in that stage of the audit.

Which of the following event occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements? A.A business combination. B.Early retirement of bonds payable. C.Settlement of litigation. D.Plant closure due to a strike.

settlement of litigation The settlement of litigation is most likely to result in an adjusting entry (i.e., be a "Type 1 subsequent event) because the cause of the litigation most likely occurred before 20X2.

(ch.10) 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. B. Prenumbered remittance advices. C.Monthly bank reconciliations. D.Daily deposit of cash receipts.

A. bank lockbox system. Explanation: A bank lockbox system would most likely reduce the risk of diversion of customer receipts by a clients employees. It is a post office box operated and controlled by a company's bank at which various remittances from the customer are recieved. With the help f this system company's bank bank immediately credits the entire cash to the account as soon as it collects the remittances. Use of this system makes it difficult for employees to divert remittances ( cash receipts) b/c cash receipts are sent directly to the post office controlled by the bank.

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 examinations, Mullins: A.Can issue an unqualified opinion without disclosing that she did not observe year-end inventories. B.Should comment in the scope paragraph as to her inability to observe year-end inventories, but can nevertheless issue an unqualified opinion. C.Is required, if the inventories are material, to disclaim an opinion on the financial statements taken as a whole. D.Should, if the inventories are material, qualify her opinion.

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

When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments? A. Capitalization. B. Financing. C. Investing. D. Operations.

A.Capitalization. The three sections of a statement of cash flows relate to operations, financing, and investing. Capitalization is not one of the sections.

(ch.10) Reconciliation of the bank account should not be performed by an individual who also: A.Processes cash disbursements. B.Has custody of securities. C.Prepares the cash budget. D.Reviews inventory reports

A.Processes cash disbursements

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 should be mailed by: A.The client's treasurer B.The client's assistant treasurer. C.The person who prepared the confirmation. D.The person who reconciles the bank account.

A.The client's treasurer

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: A.Want the client to schedule the physical inventory count at the end of the year. B.Insist that the client perform physical counts of inventory items several times during the year. C.Increase the extent of tests for unrecorded liabilities at the end of the year. D.Have to disclaim an opinion on the income statement for that year.

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

Instead of taking 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: A.Well-kept records of perpetual inventory are maintained. B.Inventory is slow-moving. C.Computer error reports are generated for missing prenumbered inventory tickets. D.Obsolete inventory items are segregated and excluded.

A.Well-kept records of perpetual inventory are maintained.

The auditors may conclude that depreciation charges are insufficient by noting: A.Insured values greatly in excess of book values. B.Large amounts of fully depreciated assets. C.Continuous trade-ins of relatively new assets. D.Excessive recurring losses on assets retired.

D.Excessive recurring losses on assets retired.