Attempt #4

The auditor is concerned with establishing that dividends are paid to client corporation shareholders who hold stock as of the Record date. Declaration date. Issue date. Payment date.

A

The most effective audit procedure for determining the collectibility of an account receivable is the Review of the subsequent cash collections. Review of authorization of credit sales to the customer and the previous history of collections. Examination of the related sales invoice(s). Confirmation of the account.

A

When auditing payroll transactions, an auditor is primarily concerned with the possibility of Overpayments and unauthorized payments. Posting of gross payroll amounts to incorrect salary expense accounts. Excess withholding of amounts required to be withheld. Misfooting of employee time records.

A

When confirmation for accounts payable is undertaken, which form of confirmation should be used? Positive confirmation. Either positive or negative confirmation, depending on the significance, or amount of the account. Neither positive nor negative confirmation; accounts payable cannot be confirmed. Negative confirmation.

A

An auditor's plan to audit noncurrent debt most likely includes steps that require Correlating interest expense recorded for the period with outstanding debt. Inspecting the accounts payable subsidiary ledger for unrecorded noncurrent debt. Verifying the existence of the holders of the debt by direct confirmation. Comparing the carrying amount of held-to-maturity securities with its year-end market value.

A

Smith Corporation has numerous customers. A customer file is kept on disk storage. Each customer record contains the name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow is to Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit. Request a printout of all account balances so they can be manually checked against the credit limits. Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations. Request a printout of a sample of account balances so they can be individually checked against the credit limits.

A

Which of the following activities most likely would not be an internal control activity designed to reduce the risk of errors in the billing process? Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger. Matching shipping documents with approved sales orders before invoice preparation. Comparing control totals for shipping documents with corresponding totals for sales invoices. Using computer programmed controls over the pricing and accuracy of sales invoices.

A

Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events? Investigate changes in noncurrent debt occurring after year end. Recompute depreciation charges for plant assets sold after year end. Inquire about payroll checks that were recorded before year end but cashed after year end. Determine that changes in employee pay rates after year end were properly authorized.

A

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the Billing (sales) register to the accounts receivable ledger. Meter department records to the billing (sales) register. Billing (sales) register to the meter department records. Accounts receivable ledger to the billing (sales) register.

B

After issuing an auditor's report, an auditor has no obligation to make continuing inquiries about audited financial statements unless A final resolution is made of a contingent liability that had been disclosed in the financial statements. Information that existed at the report date and may affect the report comes to the auditor's attention. An event occurs just after the auditor's report was issued that affects the entity's ability to continue as a going concern. Information about a material transaction that occurred just after the auditor's report was issued is deemed to be reliable.

B

An auditor's tests of controls for completeness of the revenue cycle usually include determining whether Each invoice is supported by a customer purchase order. An invoice is prepared for each shipping document. Each credit memo is properly approved. Each receivable is collected subsequent to the year end.

B

When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the Unpaid voucher. Debit memo. Credit memo. Vendor invoice.

B

Which of the following audit procedures is best for identifying unrecorded trade accounts payable? Examining unusual relationships between monthly accounts payable balances and recorded cash payments. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.

B

Which of the following procedures would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet? Inquire about employee's access to recorded but undeposited cash. Observe the consistency of the employee's use of cash registers and tapes. Compare the cash balance in the general ledger with the bank confirmation request. Trace the deposits in the cash receipts journal to the cash balance in the general ledger.

B

Your objective is to determine that nonrecurring purchases, initiated by various user organizations, have been properly authorized. If all purchases are made through the purchasing department, to which of the following documents should you vouch purchases? Receiving reports. Purchase requisitions. Purchase orders. Invoices.

B

An auditor noted that the accounts receivable department is separate from other accounting activities. Credit is approved by a separate credit department. Control accounts and subsidiary ledgers are balanced monthly. Similarly, accounts are aged monthly. The accounts receivable manager writes off delinquent accounts after 1 year, or sooner if a bankruptcy or other unusual circumstances are involved. Credit memoranda are prenumbered and must correlate with receiving reports. Which of the following areas could be viewed as an internal control deficiency of the above organization? Handling of credit memos. Credit approvals. Write-offs of delinquent accounts. Monthly aging of receivables.

C

An auditor suspects 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 auditor most likely would compare the Individual bank deposit slips with the details of the monthly bank statements. Daily cash summaries with the sums of the cash receipts journal entries. Dates checks are deposited per bank statements with the dates remittance credits are recorded. Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded.

C

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. Internal controls relating to unclaimed payroll checks are operating effectively. Employees work the number of hours for which they are paid. Segregation of duties exists between the preparation and distribution of the payroll.

C

If the business environment is experiencing a recession, the auditor most likely would focus increased attention on which of the following accounts? Purchase returns and allowances. Noncontrolling interest of a subsidiary purchased during the year. Allowance for doubtful accounts. Common stock.

C

In a purchases-payables computer system, a purchase order is created after which document has been processed? Receiving report. Vendor invoice. Purchase requisition. Authorization to accept shipment.

C

In the audit of which of the following types of profit-oriented enterprises is the auditor most likely to place special emphasis on testing the controls over proper classification of payroll transactions? A retailing organization. A wholesaling organization. A manufacturing organization. A service organization.

C

Which of the following controls is most effective in providing reasonable assurance that salary, wage, and benefit expenses are incurred only for work performed? Actual payroll amounts are regularly compared against budgeted amounts by management, with all material budget variances being investigated. The payroll register is used as the source document for posting employment-related expenses to the general ledger. All time cards and reports are reviewed and approved in writing by immediate line supervisors having no responsibilities for paycheck distribution. The accuracy of extensions of hours worked and pay rates is rechecked by an independent party, and pay rate and other key payroll information is changed only upon the receipt of a written authorization from the human resources department.

C

Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department? Comparing the vendor's invoice with the receiving report. Approving the voucher for payment by an authorized person. Canceling supporting documentation after payment. Verifying the mathematical accuracy of the vendor's invoice.

C

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated? Examining reported purchase returns that appear too low. Searching for customer-returned goods that were not reported as returns. Examining vendor statements for amounts not reported as purchases. Reviewing bank transfers recorded as cash received from customers.

C

Which of the following would be the best protection for a company that wishes to prevent the lapping of trade accounts receivable? Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. Segregate duties so that no employee has access to both checks from customers and currency from daily cash receipts. Have customers send payments directly to the company's depository bank. Request that customers' payment checks be made payable to the company and addressed to the CFO.

C

An auditor most likely would assess the risks of material misstatement as unacceptable if the payroll department supervisor is responsible for Hiring all subordinate payroll department employees. Comparing payroll registers with original batch transmittal data. Examining authorization forms for new employees. Authorizing payroll rate changes for all employees.

D

Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments? Credit. Accounts payable. Accounts receivable. CFO.

D

To obtain assurance that items reflected in a client's perpetual inventory records actually exist, an auditor would most likely trace Inventory tags noted during the auditor's test counts to items listed in receiving reports and vendors' invoices. Items listed in receiving reports and vendors' invoices to the perpetual inventory records. Inventory tags noted during the auditor's test counts to items in the perpetual inventory records. Items in the inventory perpetual records to inventory tags and the auditor's test counts.

D

When performing procedures to test assertions about purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which relevant assertion would this procedure most likely support? Classification. Completeness. Valuation and allocation. Occurrence.

D

Which of the following are not directly involved in the revenue cycle? Billing clerk. Sales manager and the credit manager. Chief financial officer and controller. Receiving department clerk.

D

Which of the following is the best reason an auditor should consider observing a client's distribution of regular payroll checks? Employee turnover is excessive. The auditor did not observe the distribution of the entire regular payroll during the audit in the prior year. Total payroll costs are a significant part of total operating costs. Separation of payroll duties is not effective enough to reduce control risk.

D

Which of the following questions would an auditor least likely include on an internal control questionnaire concerning the initiation and execution of equipment transactions? Are requests for major repairs approved at a higher level than the department initiating the request? Are competitive bids solicited for purchases of equipment? Are prenumbered purchase orders used for equipment and periodically accounted for? Are procedures in place to monitor and properly restrict access to equipment?

D

Zero Corp. suffered a loss having a material effect on its financial statements as a result of a customer's bankruptcy that rendered a trade receivable uncollectible. This bankruptcy occurred suddenly because of a natural disaster 10 days after Zero's balance sheet date but 1 month before the issuance of the financial statements and the auditor's report. Under these circumstances, the

Event Requires Financial Statement Disclosure but no Adjustment

An auditor is reviewing a sales cutoff as of March 31. All sales are shipped FOB destination, and the company records sales 3 days after shipment. The auditor notes the following items: If the client records the required adjustments, the net effect on income in thousands of dollars for the period ended March 31 is...

Increase of $8

The negative request form of accounts receivable confirmation may be used when the...

Risk of material misstatements is Low. Number of small balances is Many. Consideration by the recipient is Likely.