ACC 403 Final
What is a credit memo? A form showing the description, quantity, and other data pertaining to goods the customer is authorized to return. A report prepared on the receipt of goods from customers showing the kinds and quantities of goods received. A document used to record adjustments such as a provision for bad debt expense or an accounts receivable write-off in the general ledger. A form stating the particulars of a credit to accounts receivable, including the specific items returned, prices, and amount credited to a customer's account.
A form stating the particulars of a credit to accounts receivable, including the specific items returned, prices, and amount credited to a customer's account.
Which of the following situations could most likely lead to an embezzlement scheme? Vouchers and supporting documentation are examined and then canceled by the treasurer who personally mails the checks to vendors. Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement. The accounts receivable bookkeeper receives a list of payments prepared by the cashier and personally makes entries in the customers' accounts receivable subsidiary ledger. Each vendor invoice is matched with the related purchase order and receiving report by the vouchers payable bookkeeper who personally approves the voucher for payment.
Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement.
The auditor is studying a ratio of accounts payable turnover in days. Which of the following indicates a potential risk of unrecorded liabilities? Accounts payable turnover in days increased from 28 days to 45 days from year one to year two. Accounts payable turnover in days decreased from 28 days to 15 days from year one to year two. Accounts payable turnover in days increased from 28 days to 30 days from year one to year two. Accounts payable turnover in days decreased from 30 days to 25 days from year one to year two.
Accounts payable turnover in days decreased from 28 days to 15 days from year one to year two.
As a control for the assertion of cutoff of cash receipts, a daily exception report is generated for which of the following? Any cash receipts posted to the incorrect customer Any recorded cash receipts not supported by the bank remittance report Any recorded values of cash received not supported by an underlying remittance report Any cash receipts recorded in the incorrect time period
Any cash receipts recorded in the incorrect time period
An auditor most likely would assess control risk at a high level if the payroll department supervisor is responsible for Comparing payroll registers with original batch transmittal data. Hiring all subordinate payroll department employees. Authorizing payroll rate changes for all employees. Examining authorization forms for new employees.
Authorizing payroll rate changes for all employees.
During the recording sales function, which of the following are the auditor's major concerns regarding billing of customers? (pick 3) Billing only for actual shipments Billing for all shipments Billing at authorized prices Billing to match sales journal posts
Billing only for actual shipments Billing for all shipments Billing at authorized prices
When an entity has more than one class of employee, it is important to evaluate the reasonableness of payroll based on employee class. Which of the following procedures is commonly used to test this? Calculate revenue per employee Comparing payroll expenses with prior year balances or budgets Calculate average payroll cost per employee classification Calculate total payroll costs as a percent of revenue
Calculate average payroll cost per employee classification
An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all Receiving reports. Approved vouchers. Canceled checks. Purchase orders.
Canceled checks.
An auditor would be most likely to limit substantive audit tests of sales transactions when control risk is assessed as low for the existence or occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting Cutoffs of sales and purchases. Cash receipts and accounts receivable. Opening and closing inventory balances. Shipping and receiving activities.
Cash receipts and accounts receivable.
Which two of the following are involved in recording cash disbursements? Check or electronic funds transfer Purchases database Cash disbursements journal Voucher
Check or electronic funds transfer Cash disbursements journal
An auditor wants to determine that all sales adjustments are recorded. This relates to which of the following transaction-class assertions? Accuracy. Completeness. Classification. Occurrence.
Completeness.
An auditor decided to confirm accounts payable to accomplish a low level of detection risk for the completeness assertion. Which of the following is the most reasonable sampling plan? Confirm accounts payable using probability-proportionate to-size sampling. Confirm accounts payable with an emphasis on all vendors including zero and small balances. Confirm accounts payable with an emphasis on new vendors, irrespective of the size of the account balance. Confirm accounts payable with an emphasis on the largest account payables.
Confirm accounts payable with an emphasis on all vendors including zero and small balances.
When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the Credit memo. Debit memo. Vendor invoice. Unpaid voucher.
Debit memo.
An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that Payments to employees are computed at authorized rates. Segregation of duties exist between the preparation and distribution of the payroll. Controls relating to unclaimed payroll checks are operating effectively. Employees work the number of hours for which they are paid.
Employees work the number of hours for which they are paid.
Which three of the following are involved in the purchasing cycle? Establishing payment terms Selecting vendors Selling goods Purchasing goods
Establishing payment terms Selecting vendors Purchasing goods
Walk-throughs provide evidence that helps auditors to Confirm whether controls operate with absolute completeness. Evaluate design effectiveness of controls. Document systems flows throughout compliance testing of operational aspects of transactions. Substantiate account balances.
Evaluate design effectiveness of controls.
A client's materials-purchasing cycle begins with requisitions from user departments and ends with the receipt of materials and the recognition of a liability. An auditor's primary objective in reviewing this cycle is to Investigate the physical handling and recording of unusual acquisitions of materials. Consider the need to be on hand for the annual physical count if this system is not functioning properly. Ascertain that materials said to be ordered, received, and paid for are on hand. Evaluate the reliability of information generated as a result of the purchasing process.
Evaluate the reliability of information generated as a result of the purchasing process.
If a customer pays its receivable in full but a client fails to record cash received from the customer, which of the following account balance assertions related to accounts receivable is misstated? Completeness. Rights and obligations. Valuation at net realizable value. Existence.
Existence.
If the auditor is concerned about the risk of fraud in the purchasing process, which of the following best describes the auditor's potential fraud risk assessments? Fraudulent financial reporting-low risk; misappropriation of assets-high risk. Fraudulent financial reporting-low risk; misappropriation of assets-low risk. Fraudulent financial reporting-high risk; misappropriation of assets-high risk. Fraudulent financial reporting-high risk; misappropriation of assets-low risk.
Fraudulent financial reporting-high risk; misappropriation of assets-high risk.
When sending positive confirmations, which of the following would not be an appropriate way to address nonresponse by a customer? Match open invoices to underlying bills of lading and customer orders. Search for evidence of subsequent cash receipt from the customer. If the customer's account balance is individually immaterial, conclude that no further work or analysis is necessary. Assume that the nonresponse is 100% in error and project the misstatement on the population.
If the customer's account balance is individually immaterial, conclude that no further work or analysis is necessary.
Which three of the following are steps involved in controlling activities in an Evaluated Receipts Settlement (ERS) system? Processing cash payments Initiating an ERS transaction Receiving goods Recording payables
Initiating an ERS transaction Receiving goods Recording payables
Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests? Review the cash receipts journal for the month prior to the year-end. Increase the assessed level of detection risk for the existence assertion. Intensify the study of internal control concerning the revenue cycle. Inspect the shipping records documenting the merchandise sold to the debtors.
Inspect the shipping records documenting the merchandise sold to the debtors.
In testing controls over cash disbursements, an auditor would be most likely to determine that the person who signs checks also Is responsible for mailing the checks. Returns the checks to accounts payable. Is denied access to the supporting documents. Reviews the monthly bank reconciliation.
Is responsible for mailing the checks.
When a company's stock record books are maintained by an outside registrar or transfer agent, the auditor should obtain confirmation from the registrar or transfer agent concerning the Proper authorization of stock rights and warrants. Expected proceeds from stock subscriptions receivable. Amount of dividends paid to related parties. Number of shares issued and outstanding.
Number of shares issued and outstanding.
An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control procedures leave no audit trail of documentary evidence, the auditor will be most likely to test the procedures by Analytical procedures and confirmation. Inquiry and analytical procedures. Confirmation and observation. Observation and inquiry.
Observation and inquiry.
n determining the effectiveness of an entity's controls relating to the existence or occurrence assertion for payroll transactions, an auditor most likely would inquire about and Inspect evidence of accounting for prenumbered payroll checks. Recompute the payroll deductions for employee fringe benefits. Verify the preparation of the monthly payroll account bank reconciliation. Observe the segregation of duties concerning personnel responsibilities and payroll disbursement.
Observe the segregation of duties concerning personnel responsibilities and payroll disbursement.
In vouching revenue transactions, the auditor selects a sample of sales invoices to vouch to the supporting source documents in order to provide evidence pertaining to four assertions. Which ones are these (choose two options)? Occurrence and accuracy Classification and cutoff Understandability and classification Completeness and existence
Occurrence and accuracy Classification and cutoff
Accounting software starts with the population of payroll disbursements and develops a one-for-one match with underlying approved hours worked. A report is generated each pay period disclosing any payroll that is not supported by hours worked. The employee number is also compared with the approved master payroll file. A report is generated listing any transactions that are not supported by underlying documents or files. This is a description of a control over which of the following assertions for the payroll process? Completeness of payroll payables Completeness of payroll Occurrence of payroll Accuracy of payroll
Occurrence of payroll
At the warehouse, when goods are pulled from inventory, which of the following is normally produced to detail the items that will be shipped to the customer and the quantity of each item shipped? Bill of lading Packing slip Sales order Sales invoice
Packing slip
Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if There are usually invoices in an unmatched invoice file. Partial payments to vendors are continuously made in the ordinary course of business. It is difficult to reconcile vendors' monthly statements. Vendors' requests for confirmation of receivables often go unanswered for several months until paid invoices can be reviewed.
Partial payments to vendors are continuously made in the ordinary course of business.
A client just read about a business paying extraordinary sums of money to a variety of employees. How would the client company use an IT application control to prevent this type of valuation problem? Check the employee number against the master payroll file. Compare the total number of payroll disbursements with a predetermined batch total. Perform a limit test related to the class of employee. Test a check digit embedded in the employee number.
Perform a limit test related to the class of employee.
Immediately upon receipt of cash, a responsible employee should Prepare a deposit slip in triplicate. Update the subsidiary accounts receivable records. Record the amount in the cash receipts journal. Prepare a remittance listing.
Prepare a remittance listing.
ackson, the purchasing agent of Judd Hardware Wholesalers, has a relative who owns a retail hardware store. Jackson arranged for hardware to be delivered by manufacturers to the retail store on a COD basis thereby enabling his relative to buy at Judd's wholesale prices. Jackson was probably able to accomplish this because of Judd's poor internal control over Purchase orders. Perpetual inventory records. Purchase requisitions. Cash receipts.
Purchase orders.
During which of the following functions is the auditor primarily concerned that sales invoices are recorded accurately and in the proper period? Recording sales Accepting customer orders Shipping sales orders Filling sales orders
Recording sales
Which of the following is usually a benefit of using electronic funds transfer for international cash transactions? Improvement of the audit trail for cash receipts and disbursements. Creation of self-monitoring access controls. Reduction of the frequency of data entry errors. Off-site storage of source documents for cash transactions.
Reduction of the frequency of data entry errors.
Which of the following payroll control activities would most effectively ensure that payment is made only for work performed? Require employees to have their direct supervisors approve their time cards. Require all employees to record arrival and departure by using the time clock. Require all employees to sign their time cards. Have a payroll clerk recalculate all time cards.
Require employees to have their direct supervisors approve their time cards.
Which of the following industries would have the greatest concerns about purchases cutoff at month end, unrecorded liabilities, and accounting for advertising allowances provided by vendors? Hotel. Retail grocer. Local school district. Manufacturer of construction equipment.
Retail grocer.
Which of the following procedures is best for identifying unrecorded trade accounts payable? Examining unusual relationships between monthly accounts payable balances and recorded cash payments. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.
Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
To which of the following tests is the determination of FOB destination and FOB shipping point critical? Details of balances Sales cutoff test Vouch revenue transactions Trace revenue transactions
Sales cutoff test
An auditor is studying a ratio of accounts receivable growth rate to sales growth rate. Which of the following indicates a potential risk of collection problem in accounts receivable? Sales declined by 2% and receivables declined by 7% from year one to year two. Sales grew by 10% and receivables declined by 2% from year one to year two. Sales grew by 10% and receivables grew by 11% from year one to year two. Sales grew by 5% and receivables grew by 17% from year one to year two.
Sales grew by 5% and receivables grew by 17% from year one to year two.
Which of the following provides the basis for recording a sale in the sales journal? Bill of lading Master price file Packing slip Sales invoice
Sales invoice
Which of the following internal control procedures would most likely deter lapping of collections from customers? Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries. Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries. Segregation of duties between receiving cash and posting the accounts receivable ledger. Authorization of write-offs of uncollectible accounts by a supervisor independent of credit approval.
Segregation of duties between receiving cash and posting the accounts receivable ledger.
An internal control narrative indicates that an approved voucher is required to support every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? Select and examine canceled checks and ascertain that the related vouchers are dated no earlier than the checks Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks Select and examine vouchers and ascertain that the related canceled checks are dated no later than the vouchers. Select and examine vouchers and ascertain that the related canceled checks are dated no earlier than the vouchers.
Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks
Assume that an auditor is auditing a public company client that manufactures computer hardware and markets significant maintenance and consulting services. The auditor should be concerned about which of the following? Significant concerns about the completeness of revenues. Significant revenue issues associated with bundling products and services. Appropriate accounting for commissions on sales. More than the usual concern about collection risk.
Significant revenue issues associated with bundling products and services.
Which of the following situations increases the risk of fraud due to "lapping?" The accounts receivable clerk also has responsibilities for receiving cash. The shipping clerk in the warehouse has read-only access to sales orders. The accounts receivable clerk also has responsibilities for writing a sales invoice. The sales manager can approve credit limits for customers.
The accounts receivable clerk also has responsibilities for receiving cash.
Which of the following audit assertions is least likely to be accomplished by vouching payroll transactions to supporting documentation (e.g., time cards and employee contracts)? The occurrence of payroll transactions. Proper cutoff related to payroll transactions. The completeness of payroll transactions. The accuracy of payroll transactions.
The completeness of payroll transactions.
Which of the following is a control for the completeness (of cash receipts assertion)? The computer starts with the population of daily cash receipts recorded in the daily remittance report and compares the date recorded in the daily remittance report with the date received and deposited by the bank. The computer compares each item on the underlying information in the bank remittance report to develop a one for one match with recorded cash receipts in the daily remittance report. The computer starts with the population of daily cash receipts recorded in the daily remittance report and develops a one for one match with the underlying bank remittance report. The computer starts with the population of daily cash receipts recorded in the daily remittance report and it compares the dollar amount of each recorded cash receipt with the underlying bank remittance report.
The computer compares each item on the underlying information in the bank remittance report to develop a one for one match with recorded cash receipts in the daily remittance report.
Which of the following procedures represents a weakness in internal control for payroll? The payroll clerk distributes signed payroll checks. Undistributed checks are returned to the payroll department. The payroll department prepares checks using a signature plate. The treasurer supervises the process before payroll checks are distributed. The accounting department wires transfer funds to the payroll bank account. The transfer is based on totals from the payroll department summary. The payroll department prepares checks. The chief financial officer signs the payroll checks.
The payroll clerk distributes signed payroll checks. Undistributed checks are returned to the payroll department.
PCAOB AS 2310, The Confirmation Process and AU-C 505 state there is a presumption that the auditor will request the confirmation of receivables during an audit unless there are special conditions. Which of the following are among these conditions? (pick 2) The use of confirmations would be ineffective as an audit procedure. The auditor's assessed level of risk of material misstatement at the relevant assertion level is high. No other planned substantive procedures address the assessed risk. Accounts receivable are immaterial to the financial statements.
The use of confirmations would be ineffective as an audit procedure. Accounts receivable are immaterial to the financial statements.
Why does the client prepare independent bank reconciliation? To check accounts payable To validate purchase returns To record purchase returns and allowances To check for the completeness, existence, and valuation of cash balances
To check for the completeness, existence, and valuation of cash balances
In performing tests concerning the granting of stock options, an auditor should Determine that sufficient treasury stock is available to cover any new stock issued. Verify the existence of option holders in the entity's payroll records or stock ledgers. Confirm the transaction with the Secretary of State in the state of incorporation. Trace the authorization for the transaction to a vote of the board of directors.
Trace the authorization for the transaction to a vote of the board of directors.
To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would Inspect the faxes for forgeries or alterations and consider them to be acceptable if none are noted. Examine the shipping documents that provide evidence for the existence assertion. Verify the sources and contents of the faxes in telephone calls to the senders. Consider the faxes to be nonresponses and evaluate them as unadjusted differences.
Verify the sources and contents of the faxes in telephone calls to the senders.
In the initial procedures of the audit program for the revenue cycle, which of the following substantive tests come under the category of tests of details of transactions? (pick 3) Vouch cash receipt transactions to supporting bank remittance reports, remittance advices. Vouch recorded revenue transactions to supporting sales invoices, shipping documents, and sales orders. Vouch subsequent cash receipts identifiable with items comprising account balance at confirmation date to supporting documentation. Vouch sales adjustment transactions to authorizations for sales returns and allowance or uncollectible account write-offs.
Vouch cash receipt transactions to supporting bank remittance reports, remittance advices. Vouch recorded revenue transactions to supporting sales invoices, shipping documents, and sales orders. Vouch sales adjustment transactions to authorizations for sales returns and allowance or uncollectible account write-offs. (all but C)
For which of the following companies would the auditor have the least concern about the existence of inventory? A hotel. A computer manufacturer. A retail grocer. An oil and gas field equipment manufacturer.
a hotel
There is significant interaction between cash receipt transactions and accounts receivable because _______. a misstatement of cash receipts will result in a misstatement of accounts receivable. the settlement of an account receivable will result in a decrease to the cash account a misstatement of cash receipts will result in a misstatement of interest payments the creation of an account receivable indicates receipt of cash
a misstatement of cash receipts will result in a misstatement of accounts receivable.
If receivables are growing faster than sales, it may be an indication that the company is _________. slowing down sales growth by taking on increased credit risk accomplishing sales growth by taking on increased credit risk slowing down sales growth by taking steps to reduce credit risk accomplishing sales growth by taking steps to reduce credit risk
accomplishing sales growth by taking on increased credit risk
The rights and obligations assertion with respect to accounts payable relates to whether the _______. accounts receivable reflect the recorded liability of the entity accounts receivable reflect the recorded asset of the entity accounts payable reflect the recorded asset of the entity accounts payable reflect the recorded liability of the entity
accounts payable reflect the recorded liability of the entity
Control activities useful in reducing the risk of fraud focus on establishing the validity and occurrence of such transactions and include ________. the computer should match the debit memo information with the sales order all sales returns should be authorized by sales management ensuring top management approves all credit memos before agreeing to a reduction in accounts receivable a portion of sales returns should be authorized by sales management
all sales returns should be authorized by sales management
When no response has been received after the second or third positive confirmation request to a customer, ________. the auditor should simply confirm with the client instead the auditor should make inquiries of the client's legal counsel alternative procedures should ordinarily be performed the auditor should assume that no news is good news
alternative procedures should ordinarily be performed
Many clients build in redundant controls such that if one control does not detect a misstatement, ________. another control will detect the problem the control should immediately be eliminated no other control will find the same misstatement an exception report is generated
another control will detect the problem
Under an FOB shipping point arrangement, title passes from seller to buyer when goods ________. arrive at the customer's warehouse are invoiced are shipped arrive at the seller's warehouse
are shipped
With respect to understanding the client's revenue process, it is particularly important that the auditor ________. be knowledgeable about the entity, how the entity earns revenues, and particular revenue recognition issues that may be relevant to the entity uses accounting standards as an optional guide to determining what the client should be recording makes some preliminary inquiries with the client's attorney examines other firms within the client's industry to determine acceptable practices
be knowledgeable about the entity, how the entity earns revenues, and particular revenue recognition issues that may be relevant to the entity
Assume you are involved in an audit and your expectations regarding effective controls are not confirmed. In this situation, you will need to take all of the following steps, EXCEPT _______. determining if the client has a compensating control evaluating the significance of the weaknesses communicating the control weaknesses to management and those charged with governance All of the answer choices are correct
communicating the control weaknesses to management and those charged with governance
Purchases of inventory on credit should involve _______. debits to payables and credits to inventory debits to expenses and credits to cash debits to payables and credits to expenses debits to inventory and credits to payables
debits to inventory and credits to payables
When auditors perform analytical procedures during the risk assessment for purchases and payables, they should _______. specifically request the help of the internal auditors report any misstatements immediately to the SEC develop a skill in analyzing the likely assertions that might be misstated based on the data develop a skill in analyzing the likely assertions that might be correctly stated based on the data
develop a skill in analyzing the likely assertions that might be misstated based on the data
Understanding how the entity earns and recognizes revenue assists the auditor in ________. determining control risk related to accounts payable developing an expectation of total revenues by understanding the capacities of the client's key competitors discussing the audit with the predecessor auditor developing an expectation of total revenues by understanding the client's capacity, market place, and customers
developing an expectation of total revenues by understanding the client's capacity, market place, and customers
A walkthrough is important as _________. any growth in sales is usually accompanied by receivable growth that consumes operating cash companies with dominant market shares often obtain premium gross margins the volume of routine transactions in the revenue cycle is very high different companies often have different documents and transaction flows
different companies often have different documents and transaction flows
Confirmation of accounts receivable involves ________. confirming accounts receivable with the bank direct written communication between the client's customers and the client confirming accounts receivable with the client direct written communication between the client's customers and the auditor
direct written communication between the client's customers and the auditor
A debit memo is a form stating the particulars of a credit to accounts receivable, including the specific items returned, prices, and amount credited to a customer's account. True False
false
Analytical procedures are an optional part of every audit as part of audit planning. True False
false
Management often has more incentives to understate revenues than to overstate revenues. True False
false
Most auditors plan to test controls in the revenue cycle because of the relatively low volume of routine transactions in this cycle. True False
false
The cash receipts function, which includes the process of receipts from cash and credit sales, involves the following subfunctions: (1) disbursing cash, (2) depositing cash, and (3) recording the receipts. True False
false
Most auditors plan to test controls in the purchases cycle because of the _______. high volume of irregular transactions in this process high volume of routine transactions in this process low volume of irregular transactions in this process low volume of routine transactions in this process
high volume of routine transactions in this process
A common scheme to conceal the misappropriation of cash receipts ________. is usually committed by senior management and members of the board of directors is known as lapping is known as kiting should be handled by the internal audit function, not the external auditors
is known as lapping
An auditor may plan to test controls in the payroll process because, among other factors: outside governmental auditors spend considerable time investigating the payroll area in most companies. the chance of employee fraud is remote. audit risk in the area relates primarily to the hiring of competent personnel. payroll transactions are generally routine and processed in a high volume, which makes controls effective for management to employ.
payroll transactions are generally routine and processed in a high volume, which makes controls effective for management to employ.
An example of a factor that provides the incentive for management to misstate revenue cycle assertions would be ________. realistic sales targets within the firm strong support from top management of an ethical culture pressures to overstate revenues to achieve revenue or profitability targets that were not achieved pressures to accurately report revenues to achieve revenue or profitability targets that were achieved
pressures to overstate revenues to achieve revenue or profitability targets that were not achieved
When reviewing the results of analytical procedures, the auditor needs to bring an appropriate level of _______. professional confidence nonstatistical sampling professional skepticism statistical sampling
professional skepticism
The purchases cutoff test involves determining that _______. sales transactions occurring near the balance sheet date are recorded in the proper period purchase transactions occurring near the balance sheet date are recorded in the proper period purchase transactions occurring near the balance sheet date are recorded at the correct amounts sales and purchasing transactions occurring after the balance sheet date are recorded at the correct amounts
purchase transactions occurring near the balance sheet date are recorded in the proper period
If a company receives goods but waits to record the transaction until a vendor's invoice is received, _______. purchases and accounts payable will be overstated purchases will be understated and accounts payable will be overstated purchases will be overstated and accounts payable will be understated purchases and accounts payable will be understated
purchases and accounts payable will be understated
The purchasing process normally includes all of the following transactions: purchases on account, purchase returns, and cash receipts. purchases, inventory transactions, and cash receipts. purchases of inventory, plant and equipment, and depreciation. purchases on account, purchase returns, and cash disbursements.
purchases on account, purchase returns, and cash disbursements.
The sales cutoff test is designed to obtain reasonable assurance that ________. sales and accounts receivable are recorded in the accounting period in which the transactions occurred sales have been recorded for the correct amounts sales have been recorded in the correct accounts sales were actually made
sales and accounts receivable are recorded in the accounting period in which the transactions occurred
A credit sale should always include debits to accounts receivable and cost of goods sold, and credits to ________. sales discounts and allowances sales discounts and inventory sales and sales discounts sales and inventory
sales and inventory
The purchasing or procurement process involves _______. selecting vendors, establishing payment terms, negotiating contracts, purchasing goods, shipping goods, and recording of purchases and payment of liabilities selecting customers, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities selecting vendors, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities selecting vendors, establishing payment terms, negotiating contracts, selling goods, receiving goods, and recording of purchases and payment of liabilities
selecting vendors, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities
Segregation of duties ________. should always be considered an important internal control should be instituted by the auditor refers to ensuring employees take on as many tasks as possible, to save labor costs should be of primary concern to larger, more complex companies
should always be considered an important internal control
The search for unrecorded liabilities consists of procedures designed specifically to detect _______. significant unrecorded obligations at the income statement date (or as of an interim date) insignificant unrecorded obligations at the balance sheet date (or as of an interim date) significant recorded obligations at the balance sheet date (or as of an interim date) significant unrecorded obligations at the balance sheet date (or as of an interim date)
significant unrecorded obligations at the balance sheet date (or as of an interim date)
Many clients build in redundant controls _______. so if one control does not find a misstatement, another control will detect the problem so if one control does not find a misstatement, another control will also not detect the problem to increase automation and reduce human error due to their large size and lack of communication across the organization
so if one control does not find a misstatement, another control will detect the problem
In the initial procedures of the audit program for substantive tests of revenue cycle assertions, to determine that the trial balance is an accurate and complete representation of the underlying accounting records, the auditor should compare a sample of the customer balances shown in the ________ with that in the _________. (pick 2) subsidiary ledger; aged trial balance general ledger control account; allowance account sales journal; general ledger control account aged trial balance; subsidiary ledger
subsidiary ledger; aged trial balance aged trial balance; subsidiary ledger
When there is the potential for material misstatements from purchase adjustments transactions, _______. the auditor should obtain an understanding of all immaterial aspects of the internal control structure components and consider the factors that affect the risk of such misstatements the auditor should obtain an understanding of all relevant aspects of the internal control structure components and consider the factors that affect the risk of such misstatements the auditor should obtain an understanding of all relevant aspects of the client legal counsel's internal control structure components and consider the factors that affect the risk of such misstatements the auditor should obtain an understanding of all relevant aspects of the external control structure components and consider the factors that affect the risk of such misstatements
the auditor should obtain an understanding of all relevant aspects of the internal control structure components and consider the factors that affect the risk of such misstatements
When auditing the payroll process, the auditor will normally want to understand: the extent to which a company is capital-intensive or laborintensive. the relationship between net payroll and the company's tax liability. the predictability of the relationship between payroll expense and capital expenditures for the year. the relationship between payroll and significant customers.
the extent to which a company is capital-intensive or laborintensive.
An inherent risk of major concern to the auditor in the payroll process is: the completeness and occurrence assertions for payroll. the completeness of payroll. the occurrence assertion for payroll. the occurrence and cutoff assertions for payroll.
the occurrence and cutoff assertions for payroll.
For companies that sell goods or services on account, there is significant interaction between sales and accounts receivable. True False
true
Risks associated with revenue recognition are such that auditors often consider the occurrence of revenues and the existence of receivables assertions to be a significant inherent risk. True False
true
The effectiveness of IT controls usually depends on both effective entity level controls and effective IT general controls. True False
true
Understanding how the entity earns and recognizes revenue assists the auditor in developing an expectation of total revenues by understanding the client's capacity, market place, and customers. True False
true
The process used for developing an audit strategy for various assertions begins with _________. assessing whether controls exist to mitigate what can go wrong identifying relevant controls, performing tests of controls, and evaluating results understanding the flow of transactions in a given transaction cycle identifying what can go wrong from initiating the transaction to the recording in the general ledger
understanding the flow of transactions in a given transaction cycle
When auditing a fixed asset account such as land, buildings, and equipment, the auditor will normally: trace transactions from receiving documents to recording of the purchase. use a combination of of agreeing beginning balances to prior year working papers and then testing transactions during the year. place the greatest emphasis on tests of balances at year-end. vouch the book value of fixed assets to underlying purchase documents.
use a combination of of agreeing beginning balances to prior year working papers and then testing transactions during the year.
The internal document commonly used to record a credit purchase in the purchases journal is a: purchase order. vendor's invoice. voucher. purchase requisition.
voucher
An audit must be customized each year because inherent risk factors for a client _______. should be fixed over time will vary from year to year should be discussed with regulatory agencies should be invariant throughout the industry
will vary from year to year
When auditors choose to send confirmations of accounts payable, accounts with _______. zero or small balances should be among those selected for negative confirmation because they may be more understated than accounts with large balances extremely large balances should be among those selected for confirmation because they may be more understated than accounts with smaller balances zero or small balances should be ignored because they are likely immaterial zero or small balances should be among those selected for confirmation because they may be more understated than accounts with large balances
zero or small balances should be among those selected for confirmation because they may be more understated than accounts with large balances
