ACCTG 403W Final

*Company A does not employ an independent stock transfer agent, but rather issues its own stock and maintains its stock records. When outstanding shares are transferred from one holder to another, the certificate of the selling shareholder should be:

Canceled (generally perforation) and attached to the certificate book

The organization established by Congress to narrow the options in cost accounting that are available under GAAP is the:

Cost Accounting Standards Board

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

Direct Labor, Raw Materials, and Factory Overhead

**Which of the following is LEAST likely to be among the auditor's 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 procedures is least likely in the audit of capital stock?

Examine all outstanding stock certificates for completeness

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

Existence

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

*in which of the following accounts would one expect a related party transaction to be easiest to detect?

Notes payable

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

*An auditor who is auditing for acquired treasury stock will normally expect to see an entry in which journal?

Purchases

*For a large publicly traded client, the auditors' examination of capital stock accounts will not normally include:

Reconciliation on a stock certificate book with the general ledger

*Which of the following statements is correct relating to common stock certificates of a publicly traded company that uses the services of a transfer agent?

Stock certificates often are not issued in today's electronic environment

**When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably:

Want to schedule the physical inventory count at the end of the year

****auditors expect a debit to goodwill due to:

a business combination

****a registrar/transfer agent system relating to capital stock is most likely used by:

a large, publicly traded company

which of the following statements is NOT typical of property, plant, and equipment as compared to most current asset accounts?

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

**the auditors' primary objective in selecting a sample of items from an audit population is to obtain:

a representative sample

****which is NOT true about statistical sampling vs. nonstatistical sampling?

a. statistical samples are more representative of the sampling (last question on exam)

audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment?

accumulated depreciation

**which of the following is an internal control weakness related to factory equipment?

all purchases of factory equipment are required to be made by the department in need of the equipment

*When the auditors obtain an understanding of internal control for the financing cycle documentation will frequently include a written description as well as:

an internal control questionnaire

which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?

are direct borrowings on notes payable authorized by the board of directors?

****most audit work for accounts payable is done when?

at year end

****which sampling method for testing controls?

attribute

**which of the following sampling techniques is typically used for tests of controls?

attribute sampling

*an audit plan for the examination of the retained earnings account should include a step that requires verification of the:

authorization for both cash and stock dividends

*a primary responsibility of a registrar of capital stock is to:

avoid any over issuance of stock

**where an independent stock transfer agent is not employed and the corporation issues its own stocks and maintains stock records, canceled stock certificates should:

be defaced to prevent reissuance and attached to their corresponding stubs

**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

**which of the following statistical sampling techniques is least desirable for use by the auditors?

block selection

****bond transactions are confirmed with who?

bond trustees

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 Mullings, 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

*In auditing long term debt, an auditor would be most likely to:

compare interest expense with the long term debt amount for reasonableness

****which assertion is most important for A/P?

completeness

**ordinarily, the most significant assertion relating to accounts payable is:

completeness

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

Which of the following is an element of sampling risk?

concluding that no material misstatement exists in a materially misstated population based on taking a sample that includes no misstatement

in an audit, the valuation of year-end accounts payable is most likely addressed by:

confirmation

**the auditors can best verify a client's bond sinking fund transactions and year-end balance by:

confirmation with the bond trustee

*the auditor can best verify a client's bond sinking fund transactions and year end balance by:

confirmation with the bond trustee

****when an auditor finds a debit to accounts payable, the credit is:

credit to cash

a likely reason that consideration of client compliance with debt provisions is important to an audit is that violation of such debt provisions may affect the total recorded:

current liabilities

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 is MOST likely to be an audit objective in the audit of owners' equity?

determine that the presentation and disclosure of owners' equity are appropriate

which of the following is LEAST likely to be an audit objective for debt?

determining that the client has rights to receive proceeds relating to the redemption of debt

**in assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the:

efficiency of the audit

*which of the following is not a primary objection in the audit of interest bearing debt?

establish the legality of outstanding debt

****which is not an objective in auditing depreciation?

establish the reasonableness of the company's replacement policy

* the auditors' program for the examination of long term debt should include steps that require the:

examination of any bond trust indenture

**the auditors' plan for the examination of long-term debt should include steps that require the:

examination of copies of debt agreements

**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

**the auditors may conclude that depreciation charges are insufficient by noting:

excessive recurring losses on assets retired

the auditors are most likely to seek information from the plant manager with respect to the

existence of obsolete machinery

the audit procedure of confirmation is least appropriate with respect to:

holders of common stock

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

to strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic:

inspection of equipment and reconciliation with accounting records

the auditors would be most likely to find unrecorded long-term liabilities by analyzing:

interest payments

the auditors are using unstratified mean-per-unit sampling to audit accounts receivable as they did in the prior year. Which of the following changes in characteristics or specifications would result in a larger required sample size this year than that required in the prior year?

larger variance in the dollar value of accounts

an auditor needs to estimate the average highway weight of tractor-trailer trucks using a state's highway system. Which estimation method is most appropriate?

mean per unit

****an auditor usually obtains evidence of stockholders' equity transactions by reviewing the entity's:

minutes of board directors meetings

**an auditor usually obtains evidence of stockholders' equity transactions by reviewing the entity's:

minutes of board directors meetings

**all corporate capital stock transactions should ultimately be traced to the:

minutes of the board of directors

**an auditor is most likely to trace treasury stock purchase transactions to the:

numbered stock certificates on hand

****which is true about an auditors observation of the inventory count?

observation addresses the existence assertion

**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 might not confirm accounts payable because:

other externally generated documents will substantiate the balance

**in the continuing audit of a manufacturing company of medium size, which of the following areas would you expect to require the LEAST amount of audit time?

owners' equity

****which is not generally used for selecting samples?

physical representation number

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

preparation of a shipping document

**an auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of:

presentation and disclosure

****which is an example of an accrued liability?

product warranty liability

****the use of a blind purchase order is designed to prevent errors by which department?

receiving

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

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

****a bill and hold scheme is most likely to include:

recording as sales items that the company retains

**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?

repairs

****a continuing audit clients PPE and A/R accounts have the same balance. The audit of A/R should:

require more audit time

****which is not a control that should be established for the purchase of equipment?

require that the department in need of equipment be responsible for ordering it

****which would an auditor question being included in the overhead rate for a manufacturing client?

sales expense

**which of the following procedures is LEAST likely to be completed before the balance sheet date?

search for unrecorded liabilities

in an audit of a sole proprietorship, a common difficulty is lack of:

segregation of person net worth and business capital

**an effective procedure for identifying unrecorded retirements of equipment is to:

select items of equipment in the accounting records and then locate them in the plant

**when confirming accounts payable, the approach is most likely to be one of:

selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts.

**the LEAST likely approach in auditing management's estimate relating to an accrued liability is to:

send confirmations relating to the estimate

**a transfer agent and a registrar are most likely to provide the auditor with evidence on:

shares issued and outstanding

*For a corporation that does not utilize the services of an independent registrar and stock transfer agent, which of the following represents a weakness in internal control over stock issuance?

stock certificates are signed immediately upon receipt from the printer

****which procedure provides assurance that the valuation is proper?

test calculation

which of the following is NOT an overall test of the annual provision for depreciation expense?

test deductions from accumulated depreciation for assets purchased during the year

**discovery sampling is particularly effective when:

the auditors are looking for critical deviations that are not expected to be frequent in number

*changes in capital stock accounts should normally be approved by:

the board of directors

*internal control over bonds payable is best when:

the company utilizes the services of a bond trustee

in which of the following circumstances is it least likely that tests of controls will be performed?

the expected deviation rate exceeds the tolerable deviation rate

**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

which of the following is accurate regarding tolerable misstatement?

tolerable misstatement is directly related to materiality

****which is the auditor most likely to confirm from the registrar?

total shares of stock issued

*which of the following is an auditor most likely to confirm from the transfer agent and the registrar?

total shares of stock issued

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on:

transactions that occurred during the year

****which would most likely approve issuance of notes payable?

treasurer

*during an audit of a publicly held company, the auditors should obtain written confirmation regarding debenture transactions from the:

trustee

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

uses a standard cost system that produces variance reports

to assure accountability for fixed asset retirements, management should implement an internal control that includes:

utilization of serially numbered retirement work orders

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

valuation

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

**the primary responsibility of a bank acting as registrar of capital stock is to:

verify that stock is issued in accordance with the authorization of the board of directors and the articles on incorporation

*the auditor's plan to examine interest bearing debt most likely will include steps that require:

vouching borrowing and repayment transactions

the audit of intangible assets typically involves

vouching the cost of assets and testing allocation methods

**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