ATG 457: Smartbook Ch 11,12,14

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

Completeness

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

Accounts receivable subsidiary ledger.

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

Accounts receivable subsidiary ledger.

Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts?

Aging of Accounts Receivable

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.

Accrued liabilities generally differ from accounts payable in that accrued liabilities:

Are often based on estimates.

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

Assess the allowance for uncollectible accounts for reasonableness.

With properly designed internal control, the same employee should not be permitted to:

Prepare disbursement vouchers and sign checks.

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.

Which of the following is true about the auditors' observation of the client's physical inventory?

The auditors' observation addresses the existence assertion.

Which of the following is least likely to be used as an alternate procedure for handling nonreplies to accounts receivable confirmation requests?

Physically examine items sold.

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

Preparation of a shipping document.

Which of the following fraudulent activities most likely could be perpetrated because of ineffective internal controls in the revenue cycle?

The write-off of receivables by personnel who receive cash permits the misappropriation of cash.

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

Theft of cash register sales

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers?

For subsequent comparison with the completed inventory listing.

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 Corporation 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.

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

Cash

If a company failed to record goods returned by customers near year end, the auditors would most likely discover this issue by:

Confirming accounts receivable.

Which procedure would be of most assistance to an auditor discovering a large credit sale that has erroneously been recorded twice?

Confirming accounts receivable.

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.

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

Cost of Good Sold

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.

Which of the following should be included as a part of inventory costs of a manufacturing company?

Direct Labor: Yes, Raw Materials: Yes, Factory Overhead: Yes

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

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

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Examine shipping documents for matching sales invoices.

An auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to:

Existence

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

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

Matching invoices with receiving documents before disbursements are authorized.

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

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

The 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.

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.

A client recorded a payable for a large purchase twice. Which of the following controls would be most likely to detect this error in a timely and efficient manner?

Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

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.

Which of the following is the best control procedure to prevent the payment of an invoice twice?

Review of supporting documentation by the person signing the check

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.

For effective internal control, the billing function should not be performed by the:

Sale Department

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

Search for unrecorded liabilities.

The least likely approach in auditing management's estimate relating to an accrued liability is to:

Send confirmations relating to the estimate.

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

Shipping documents file

When control risk for the existence assertion is assessed at a high level, which of the following is a likely effect with respect to the auditors' confirmation of receivables?

The account balances as of year-end will generally be confirmed.

Which of the following is not true relating to the auditors' observation of the client's physical inventory?

The auditors should supervise the taking of the inventory.

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.

Assume that the auditors are concerned about disbursement transactions that have been recorded for improper amounts. Which procedure(s) would possibly identify these transactions?

Trace from documents to journal and Vouch from journal to source documents

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

Uses a standard cost system that produces variance reports.

An auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and:

Valuation

An auditor most likely would analyze inventory turnover rates to obtain evidence about:

Valuation

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address:

Valuation

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.

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

Well-kept records of perpetual inventory are maintained.

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.

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

interest payable

During the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to:

Completeness

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

Completeness

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

Completeness

Which of the following is a likely procedure to test the adequacy of the allowance for doubtful accounts?

Examine cash receipts received after year-end.

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.

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.

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all:

Cash disbursements

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

Existence

Purchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client company, if the company:

Holds legal title to the merchandise

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.