Audit: Exam 2 Material

An auditor generally tests the segregation of duties related to inventory by: personal inquiry and observation. test counts and cutoff procedures. analytical procedures and invoice recomputation. document inspection and reconciliation.

personal inquiry and observation.

Under PCAOB Auditing Standard 1215, the auditor should complete the final set of audit documentation within how many days following the report release date? 30 days 45 days 60 days 90 days

45 days

Under the Statements on Auditing Standards (SASs), the auditor should complete the assembly of the final audit file on a timely basis, but within how many days following the report release date? 30 days 45 days 60 days 90 days

60 days

Which of the following procedures would yield the most appropriate evidence? A scanning of trial balances An inquiry of client personnel A comparison of beginning and ending retained earnings A recalculation of bad debt expense

A recalculation of bad debt expense

Which of the following would not be included in an accountant's documentation of a compilation of a client's financial statements? Discussion with the client regarding the proper presentation of gross cash flows for investment purchases An engagement letter A memo to the CFO about a potentially significant fraud revealed during compilation procedures A review of the segregation of duties in the cash disbursement process

A review of the segregation of duties in the cash disbursement process

Which of the following procedures does a firm not need to consider when adopting policies for retention of engagement documentation? Ability to retrieve and access the engagement documentation during the entire retention period Ability to provide a record of changes made to engagement documentation after assembly of engagement files has been completed Ability to provide authorized external parties access to and review of specific engagement documentation for quality control or other purposes Ability to retrieve and access the engagement documentation in perpetuity

Ability to retrieve and access the engagement documentation in perpetuity

Which of the following controls is not usually performed in the vouchers payable department? Matching the vendor's invoice with the related receiving report Approving vouchers for payment by having an authorized employee sign the vouchers Indicating the asset and expense accounts to be debited Accounting for unused prenumbered purchase orders and receiving reports

Accounting for unused prenumbered purchase orders and receiving reports

Compilation documentation at a minimum should include which of the following? A copy of the financial statements The engagement letter A copy of the accountant's report All of the answer choices are correct.

All of the answer choices are correct.

If an accountant has no previous experience in the prospective client's industry, he or she may obtain the required level of knowledge through which of the following? AICPA guides Industry publications Financial statement of other entities in the industry All of the answer choices are correct.

All of the answer choices are correct.

In an engagement to review the financial statements of a nonissuer, the accountant most likely would perform which of the following procedures? Physical inspection of inventory Vouching of inventory purchase transactions Analysis of inventory turnover Evaluation of internal control over inventory

Analysis of inventory turnover

In performing interviews and examining documents related to preliminary work in a financial statement audit of a nonissuer, an auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result? Modify the scope of the engagement to include an analysis of the budget for the new product line and consider the new risk in conjunction with other risks after the budget items have been analyzed. Analyze the newly identified risk in conjunction with economic circumstances related exclusively to the new product line and consider whether there is an immediate consequence for the risk of material misstatement for affected classes of transactions. Modify the financial statement disclosures to include the newly identified risk if it is likely that the new product line will have an adverse effect on the company's profitability. Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit.

Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit.

After the documentation completion date, the auditor must: not add or change any audit documentation, including signatures, unless he or she documents the date and reason(s) for such additions or changes. not delete or discard audit documentation before the end of his or her firm's retention period. Both of the answer choices are correct. Neither of the answer choices is correct.

Both of the answer choices are correct.

When a PCAOB auditing standard indicates that an auditor "could" perform a specific procedure, how should the auditor decide whether and how to perform the procedure? By comparing the PCAOB standard with related AICPA auditing standards By exercising professional judgment in the circumstances By soliciting input from the issuer's audit committee By evaluating whether the audit is likely to be subject to inspection by the PCAOB

By exercising professional judgment in the circumstances

Which of the following does an auditor usually confirm on one form? Accounts payable and purchase commitments Cash in bank and collateral for loans Inventory on consignment and contingent liabilities Account receivable and accrued interest receivable

Cash in bank and collateral for loans

The auditor determines that the entity has effective controls and the auditor intends to design substantive procedures based on the effective operation of those controls. As a result, the auditor elects to perform tests of controls to obtain evidence about their operating effectiveness. This often is done for what type of transactions? Class of transactions that is reasonably uniform, noncomplex, and routinely processed and controlled by the entity's information system Complex transactions that require nonroutine processing Transactions that require substantial estimation Transactions subject to high risk of fraud

Class of transactions that is reasonably uniform, noncomplex, and routinely processed and controlled by the entity's information system

Which of the following procedures would an auditor most likely perform in planning a financial statement audit? Inquiring of the client's legal counsel concerning pending litigation Comparing the financial statements to anticipated results Examining computer-generated exception reports to verify the effectiveness of internal controls Searching for unauthorized transactions that may aid in detecting unrecorded liabilities

Comparing the financial statements to anticipated results

When planning a review of an audit client's interim financial statements, which of the following procedures should the accountant perform to update the accountant's knowledge about the entity's business and its internal control? Perform analytical procedures on selected accounts by comparing the interim amounts to the amounts for the previous audited fiscal year-end Inquire of the entity's outside legal counsel about the status of any previous pending litigation and any new litigation involving the entity Select a sample of material revenue transactions occurring during the interim period and examine supporting documentation Consider the results of audit procedures performed with respect to the current year's financial statements

Consider the results of audit procedures performed with respect to the current year's financial statements

When applying analytical procedures during an audit, which of the following is the best approach for developing expectations? Considering unaudited account balances and ratios to calculate what adjusted balances should be Identifying reasonable explanations for unexpected differences before talking to client management Considering the pattern of several unusual changes without trying to explain what caused them Comparing client data with client-determined expected results to reduce detailed tests of account balances

Identifying reasonable explanations for unexpected differences before talking to client management

Interpretation No. 1 to AU-C 230, Audit Documentation, entitled "Providing Access to or Copies of Audit Documentation to a Regulator," contains guidance relating to providing access to or copies of audit documentation to a regulator. Under what circumstances does this apply to an attestation engagement? In all cases In no cases In all cases; however, the letter to the regulator should outline the purpose of the regulatory request as understood by the practitioner In all cases for access, but not for copies

In all cases; however, the letter to the regulator should outline the purpose of the regulatory request as understood by the practitioner

Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable? Including a list of items or invoices that constitute the account balance Restricting the selection of accounts to be confirmed to those customers with relatively large balances Requesting customers to respond to the confirmation requests directly to the auditor by fax or e-mail Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner

Including a list of items or invoices that constitute the account balance

On December 30, 20X1, Vida Co. had cash of $200,000, a current ratio of 1.5:1 and a quick ratio of 0.5:1. On December 31, 20X1, all cash was used to reduce accounts payable. How did these cash payments affect the ratios? Increased current ratio and decreased quick ratio Increased current ratio and no effect on quick ratio Decreased current ratio and increased quick ratio Decreased current ratio and no effect on quick ratio

Increased current ratio and decreased quick ratio

Which of the following inquiries would an accountant most likely make during a review of financial statements? Inquiries directed toward internal audit personnel related to their activities concerning the design and effectiveness of the entity's internal control Inquiries directed toward management regarding the entity's accounting principles and practices and the methods followed in applying them Inquiries directed toward in-house legal counsel related to litigation, compliance with laws and regulations, fraud or suspected fraud, etc. Inquiries directed toward marketing, sales, or production personnel related to change in the entity's marketing or production strategies, sales trends, etc.

Inquiries directed toward management regarding the entity's accounting principles and practices and the methods followed in applying them

Which of the following risk assessment procedures should be performed and documented in order to obtain an understanding of the entity and its environment? Inquiries of management and others within the entity Confirmation of significant receivables Monitoring Sampling

Inquiries of management and others within the entity

Which of the following audit procedures, if used, should be combined with other audit procedures when testing the operating effectiveness of controls? Observation Inspection Inquiry Reperformance

Inquiry

Which of the following procedures should an accountant perform during an engagement to compile prospective financial statements? Test the entity's internal controls to determine if adequate controls exist so that financial projections can be reasonably achieved Make inquiries prior to the date of the report about possible future transactions that may impact the forecast once the report is issued Make inquiries about the accounting principles used in the preparation of the prospective financial statements Compare the prospective financial statements with the entity's historical results for the prior year

Make inquiries about the accounting principles used in the preparation of the prospective financial statements

When should the auditor's report be dated? The date that substantially all fieldwork is completed The date the auditor grants the entity permission to use the auditor's report in connection with the financial statement The date of all significant subsequent events coming to the attention of the auditor No earlier than the date on which the auditor has obtained sufficient appropriate audit evidence

No earlier than the date on which the auditor has obtained sufficient appropriate audit evidence

How long do the standards require a firm to retain documentation for engagements other than audits? 7-10 years The firm should establish policies and procedures for the retention of the records for a sufficient period. There is no specific requirement. As long as the client wants the records retained

The firm should establish policies and procedures for the retention of the records for a sufficient period.

Which of the following procedures is usually the first step in reviewing the financial statements of a nonissuer? Make preliminary judgments about risk and materiality to determine the scope and nature of the procedures to be performed. Obtain a general understanding of the entity's organization, its operating characteristics, and its products or services. Assess the risk of material misstatement arising from fraudulent financial reporting and the misappropriation of assets. Perform a preliminary assessment of the operating efficiency of the entity's internal control activities.

Obtain a general understanding of the entity's organization, its operating characteristics, and its products or services.

Which of the following procedures would be generally performed when evaluating the accounts receivable balance in an engagement to review financial statements in accordance with the Statements on Standards for Accounting and Review Services (SSARS)? Perform a reasonableness test of the balance by computing days' sales in receivables Vouch a sample of subsequent cash receipts from customers Confirm individually significant receivable balances with customers Review subsequent bank statements for evidence of cash deposits

Perform a reasonableness test of the balance by computing days' sales in receivables

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to accumulated depreciation accounts in the current year? Prior years' depreciation expenses were erroneously understated. The current year's depreciation expense was erroneously understated. The estimated remaining useful lives of plant assets were revised upward. Plant assets were retired during the current year.

Plant assets were retired during the current year.

Which of the following would not be considered an analytical procedure? Converting dollar amounts of income statement account balances to percentages of net sales for comparison with industry averages Developing the current year's expected net sales based on the sales trend of similar entities within the same industry Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics Estimating the current year's expected expenses based on the prior year's expenses and the current year's budget

Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics

Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a nonissuer? Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles Obtaining written representations from management indicating that the compiled financial statements will not be used to obtain credit Making inquiries of management concerning actions taken at meetings of the stockholders and the board of directors Applying analytical procedures designed to corroborate management's assertions that are embodied in the financial statement components

Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles

When an auditor requests information from the in-house legal counsel, which of the following would the auditor not request? Litigation Receivables schedule Compliance with laws and regulations Knowledge of fraud

Receivables schedule

A practitioner reporting on pro forma financial information does not possess an understanding of the client's business and the industry in which the client operates. The practitioner should take which of the following actions? Issue a disclaimer, because the scope of work was not sufficient to express an opinion. Review industry trade journals. Refer a substantial portion of the audit to another CPA who will act as the principal practitioner. Perform ratio analysis of the financial data of comparable prior periods.

Review industry trade journals.

An auditor reviews a client's accounting policies and procedures when considering which of the following planning matters? Method of sampling to be used Preliminary judgments about materiality levels Nature of reports to be rendered Understanding the client's operations and business

Understanding the client's operations and business

Which of the following procedures would an auditor least likely perform in planning a financial statement audit? Coordinating the assistance of entity personnel in data preparation Discussing matters that may affect the audit with firm personnel responsible for nonaudit services to the entity Selecting a sample of vendor invoices for comparison to receiving reports Reading the current year's interim financial statements

Selecting a sample of vendor invoices for comparison to receiving reports

Heath Co.'s current ratio is 4:1. Which of the following transactions would normally increase its current ratio? Purchasing inventory on account Selling inventory on account Collecting an account receivable Purchasing machinery for cash

Selling inventory on account

Under PCAOB Auditing Standard 1215, audit documentation should be retained no fewer than how many years following the report release date? One year Three years Five years Seven years

Seven years

Which of the following most likely would be detected by an auditor's review of a client's sales cutoff? Shipments lacking sales invoices and shipping documents Excessive write-offs of accounts receivable Unrecorded sales at year-end Lapping of year-end accounts receivable

Unrecorded sales at year-end

Which of the following statements is most accurate regarding sufficient and appropriate documentation? Accounting estimates are not considered sufficient and appropriate documentation. Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed. If additional evidence is required to document significant findings or issues, the original evidence is not considered sufficient and appropriate, and therefore should be deleted from the working papers. Audit documentation is the property of the client, and sufficient and appropriate copies should be retained by the auditor for at least five years.

Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.

Which of the following is an example of an inherent risk that an auditor should consider? Technological developments that may render inventory obsolete Posting of unauthorized journal entries An incorrect formula in a worksheet used to calculate a LIFO inventory reserve Inaccurate physical inventory count

Technological developments that may render inventory obsolete

When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate? Test the operating effectiveness of such controls in the current audit Document that reliance and proceed with the original audit strategy Inquire of management as to the effectiveness of the controls Report the reliance in the report on internal controls

Test the operating effectiveness of such controls in the current audit

Which of the following statements best describes why an auditor would use only substantive procedures to evaluate specific relevant assertions and risks? The relevant internal control components are not well documented. The internal auditor already has tested the relevant controls and found them effective. Testing the operating effectiveness of the relevant controls would not be efficient. The cost of substantive procedures will exceed the cost of testing the relevant controls.

Testing the operating effectiveness of the relevant controls would not be efficient.

At the completion of an audit, which of the following entities has ownership of the audit working papers? The client The client's audit committee The CPA firm that performed the audit The client's stockholders

The CPA firm that performed the audit

Interpretation No. 1 to AU-C 230, Audit Documentation, entitled "Providing Access to or Copies of Audit Documentation to a Regulator," contains guidance relating to providing access to or copies of audit documentation to a regulator. Which of the following is not considered a "regulator" under this Interpretation? State insurance and utility regulators Various health care authorities Federal agencies such as the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Department of Housing and Urban Development, the Department of Labor, and the Rural Electrification Administration The Internal Revenue Service

The Internal Revenue Service

Which of the following statements is correct about actions taken after the documentation completion date? An auditor must not make any amendments to audit documentation before the end of the specified retention period. An auditor must not make any additions to audit documentation before the end of the specified retention period. An auditor must not make any changes to audit documentation before the end of the specified retention period. The auditor must not make any deletions to audit documentation before the end of the specified retention period.

The auditor must not make any deletions to audit documentation before the end of the specified retention period.

Which of the following statements is most accurate regarding audit documentation requirements? The auditor should document findings that could result in a modification of the auditor's report. If different audit procedures were performed due to a lack of responsiveness by the client, the lack of responsiveness should not be included in the working papers. If an oral explanation serves as sufficient support for the work the auditor performed, the explanation should be documented in the working papers. If the results of audit procedures indicate a need to revise the previous assessment of risk, the new assessment should be documented and the original assessment should be removed.

The auditor should document findings that could result in a modification of the auditor's report.

Which of the following statements concerning audit evidence is correct? To be appropriate, audit evidence should be either persuasive or relevant, but need not be both. The auditor should use professional judgment in evaluating the sufficiency and appropriateness of audit evidence. The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for omitting the test without modifying the report. A client's accounting data can be sufficient appropriate audit evidence by itself to support the financial statements.

The auditor should use professional judgment in evaluating the sufficiency and appropriateness of audit evidence.

When planning an engagement to audit the effectiveness of the entity's internal control in an integrated audit of a nonissuer, a practitioner would least likely consider which of the following factors? Preliminary judgments about the effectiveness of internal control The extent of recent changes in the entity and its operations The type of available evidential matter pertaining to the effectiveness of the entity's internal control The evaluation of the operating effectiveness of the controls

The evaluation of the operating effectiveness of the controls

Which of the following cash transfers results in a misstatement of cash on December 31, 20X1? BANK TRANSFER SCHEDULE Disbursement Date Receipt Date Transfers Per Books Per Bank | Per Books Per Bank A. 12/31/X1 01/05/X2 12/31/X1 01/04/X2 B. 01/04/X2 01/11/X2 01/04/X2 01/04/X2 C. 12/31/X1 01/04/X2 12/31/X1 12/31/X1 D. 01/04/X2 01/05/X2 12/31/X1 01/04/X2 Transfer A Transfer B Transfer C Transfer D

Transfer D

Which of the following factors would least influence an auditor's consideration of the reliability of data for purposes of analytical procedures? Whether the data were processed in an EDP system or in a manual accounting system Whether sources within the entity were independent of those who are responsible for the amount being audited Whether the data were subjected to audit testing in the current or prior year Whether the data were obtained from independent sources outside the entity or from sources within the entity

Whether the data were processed in an EDP system or in a manual accounting system

If the audit objective of a test of details is to detect overstatements of sales, the auditor should vouch transactions from the: cash receipts journal to the sales journal. sales journal to the cash receipts journal. source documents to the accounting records. accounting records to the source documents.

accounting records to the source documents.

In testing the existence assertion for an asset, an auditor ordinarily works from the: financial statements to the potentially unrecorded items. potentially unrecorded items to the financial statements. accounting records to the supporting evidence. supporting evidence to the accounting records.

accounting records to the supporting evidence.

According to PCAOB standards, each of the following items of information should be included in the documentation of an engagement quality review, except: identification of the engagement quality reviewer and others who assisted the reviewer. identification of the documents reviewed by the engagement quality reviewer and others who assisted the reviewer. the date on which the engagement quality reviewer provided concurring approval of issuance. an assessment by the engagement quality reviewer of the instances of fraud identified by the audit team.

an assessment by the engagement quality reviewer of the instances of fraud identified by the audit team.

Although the quantity and content of audit documentation varies with each particular engagement, an auditor's permanent files most likely include: schedules that support the current year's adjusting entries. prior years' accounts receivable confirmations that were classified as exceptions. documentation indicating that the audit work was adequately planned and supervised. analyses of capital stock and other owners' equity accounts.

analyses of capital stock and other owners' equity accounts.

Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should: consider the likelihood of assessing the risk of incorrect rejection too low. project sampling risk at the maximum for tests covering the remaining period. ascertain that accounts receivable are immaterial to the financial statements. assess the difficulty in controlling the incremental audit risk.

assess the difficulty in controlling the incremental audit risk.

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. approved vouchers. receiving reports. vendors' invoices.

cash disbursements.

Audit documentation should enable an experienced auditor, having no previous connection to the audit, to understand all of the following except: the nature, timing and extent of the auditing procedures performed. the results of the audit procedures performed and the audit evidence obtained. changes in the audit plan from the prior year. that the accounting records agree or reconcile with the auditing financial statements.

changes in the audit plan from the prior year.

In establishing the existence and ownership of long-term investments in the form of publicly traded stock, an auditor most likely would inspect the securities or: correspond with the investee company to verify the number of shares owned. confirm the number of shares owned that are held by an independent custodian. apply analytical procedures to the dividend income and investments accounts. inspect the cash receipts journal for amounts that could represent the sale of securities.

confirm the number of shares owned that are held by an independent custodian.

In documenting the nature, timing, and extent of audit procedures performed, the auditor should include all of the following except: who performed the audit work and the date such work was completed. who reviewed specific audit documentation and the date of such review. identifying characteristics of the specific items tested when performing tests of operating effectiveness or substantive tests of details. copies of client invoices supporting the tests of operating effectiveness or substantive tests of details.

copies of client invoices supporting the tests of operating effectiveness or substantive tests of details.

The auditor evaluates all of the following when testing the entity's fair value measurements and disclosures except: that management's assumptions are reasonable and reflect, or are not inconsistent with market information. that the fair value measurement was determined using an appropriate model, if applicable. that management used relevant information that was reasonably available at the time. inquiring of the entity's attorney.

inquiring of the entity's attorney.

An auditor is testing the reasonableness of dividend income from investments in publicly held companies (issuers). The auditor most likely would compute the amount that should have been received and recorded by the client by: reading the details of the board of directors' meetings. confirming the details with the investee companies' registrars. electronically accessing the details of dividend records on the internet. examining the details of the client's most recent cutoff bank statement.

electronically accessing the details of dividend records on the internet.

Vouching selected items from the payroll register to employee timecards that have been approved by supervisory personnel provides evidence that: internal controls relating to payroll disbursements were operating effectively. payroll checks were signed by an appropriate officer independent of the payroll preparation process. only bona fide employees worked and their pay was properly computed. employees worked the number of hours for which their pay was computed.

employees worked the number of hours for which their pay was computed.

In an electronic environment, auditors and practitioners frequently carry forward and update files or schedules from one audit or attest period to the next. The auditor or practitioner must be careful, however, to adopt reasonable procedures that: all such files or schedules be printed and bound in the firm's working papers. enable him or her to access the electronic audit or attest documentation throughout the entire retention period. Both of the answer choices are correct. Neither of the answer choices is correct.

enable him or her to access the electronic audit or attest documentation throughout the entire retention period.

Analytical procedures used in planning an audit should focus on: reducing the scope of tests of controls and substantive tests. providing assurance that potential material misstatements will be identified. enhancing the auditor's understanding of the client's business. assessing the adequacy of the available audit evidence.

enhancing the auditor's understanding of the client's business.

To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would: inspect the stock certificates evidencing the investment. examine the audited financial statements of the investee company. review the broker's advice or canceled check for the investment's acquisition. obtain market quotations from financial newspapers or periodicals.

examine the audited financial statements of the investee company.

An auditor's inquiries of management disclosed that the entity recently invested in a series of energy derivatives to hedge against the risks associated with fluctuating oil prices. Under these circumstances, the auditor should: perform analytical procedures to determine if the derivatives are properly valued. examine the contracts for possible risk exposure and the need to recognize losses. confirm the marketability of the derivatives with a commodity specialist. document the derivatives in the auditor's communication with the audit committee.

examine the contracts for possible risk exposure and the need to recognize losses.

The documentation of the inquiry and analytical procedures on a review engagement should include all of the following except: additional procedures performed in response to significant unexpected differences arising from the analytical procedure and the results of such additional procedures. legal representation letter. communications regarding fraud or noncompliance with laws and regulations. management representation letter.

legal representation letter.

In determining the effectiveness of an entity's policies and procedures relating to the existence assertion for payroll transactions, an auditor most likely would inquire about and: observe the segregation of duties concerning personnel responsibilities and payroll disbursement. 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.

One of the responsibilities of the auditor in an audit conducted in accordance with generally accepted auditing standards is to: provide analyses, evaluations, assurances, and recommendations to management. monitor the performance of the entity's internal control. advise management on efficient operation to achieve objectives. obtain evidence to support his opinion.

obtain evidence to support his opinion.

An auditor may achieve audit objectives related to particular assertions by: performing analytical procedures. adhering to a system of quality control. preparing auditor workpapers. inspecting inventory receiving reports for a date stamp.

performing analytical procedures.

On receiving a client's bank cutoff statement, an auditor most likely would trace: prior-year checks listed in the cutoff statement to the year-end outstanding checklist. deposits in transit listed in the cutoff statement to the year-end bank reconciliation. checks dated after year-end listed in the cutoff statement to the year-end outstanding checklist. deposits recorded in the cash receipts journal after year-end to the cutoff statement.

prior-year checks listed in the cutoff statement to the year-end outstanding checklist.

A client has a large and active investment portfolio that is kept in a bank safe-deposit box. If the auditor is unable to count the securities at the balance sheet date, the auditor most likely will: request the bank to confirm to the auditor the contents of the safe-deposit box at the balance sheet date. examine supporting evidence for transactions occurring during the year. count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance sheet date. request that the client have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.

request that the client have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.

The form and content of documentation in a review engagement should include all of the following except: results of tests of operating effectiveness of the entity's internal controls. results of review procedures that indicate the financial statements could be materially misstated. actions taken to address such findings. basis for the final conclusions reached regarding such findings.

results of tests of operating effectiveness of the entity's internal controls.

An accountant should perform analytical procedures during an engagement to: compile a nonissuer's financial statements. review a nonissuer's financial statements. both compile and review a nonissuer's financial statements. neither compile nor review a nonissuer's financial statements.

review a nonissuer's financial statements.

To obtain an understanding of a continuing client's business in planning an audit, an auditor most likely would: perform tests of details of transactions and balances. review prior-year working papers and the permanent file for the client. read specialized industry journals. reevaluate the client's internal control.

review prior-year working papers and the permanent file for the client.

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would: analyze the liquidity and turnover ratios of the inventory. perform analytical procedures designed to identify cost variances. review the entity's descriptions of inventory policies and procedures. perform test counts of inventory during the entity's physical count.

review the entity's descriptions of inventory policies and procedures.

In testing for unrecorded retirements of equipment, an auditor most likely would: select items of equipment from the accounting records and then locate them during the plant tour. compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment. inspect items of equipment observed during the plant tour and then trace them to the equipment subsidiary ledger. scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.

select items of equipment from the accounting records and then locate them during the plant tour.

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is: supported by a vendor's invoice. stamped "paid" by the check signer. prenumbered and accounted for. approved for authorized purchases.

stamped "paid" by the check signer.

When engaged to compile the financial statements of a nonissuer, an accountant is required to possess a level of knowledge of the entity's accounting principles and practices. This requirement most likely will include obtaining a general understanding of the: stated qualifications of the entity's accounting personnel. design of the entity's internal controls placed in operation. risk factors relating to misstatements arising from noncompliance with laws and regulations. internal control awareness of the entity's senior management.

stated qualifications of the entity's accounting personnel.

Regardless of the assessed risk of material misstatement, an auditor would perform: tests of controls to determine the effectiveness of internal control policies. analytical procedures to verify the design of internal control procedures. substantive tests to restrict detection risk for significant transaction classes. dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.

substantive tests to restrict detection risk for significant transaction classes.

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs: tests of controls and extensive tests of property and equipment balances at the end of the year. analytical procedures for current year property and equipment transactions. tests of controls and limited tests of current year property and equipment transactions. analytical procedures for property and equipment balances at the end of the year.

tests of controls and limited tests of current year property and equipment transactions.

In auditing accounts receivable, the negative form of confirmation request most likely would be used when: recipients are likely to return positive confirmation requests without verifying the accuracy of the information. the combined assessed level of inherent and control risk relative to accounts receivable is low. a few accounts receivable are involved, but many errors are expected. the auditor performs a dual-purpose test that assesses control risk and obtains substantive evidence.

the combined assessed level of inherent and control risk relative to accounts receivable is low.

The accounts receivable turnover ratio increased significantly over a 2-year period. This trend could indicate that: the accounts receivable aging has deteriorated. the company has eliminated its discount policy. the company is more aggressively collecting customer accounts. customer sales have substantially decreased.

the company is more aggressively collecting customer accounts.

Knowledge of the client's "industry, regulatory, and other factors" includes an understanding of all of the following, except: broad economic environment in which the client operates. relevant accounting pronouncements. supplier and customer relationships. the entity's accounting policies and procedures.

the entity's accounting policies and procedures.

Guidance on the quantity, type, and content of attest documentation for attestation engagements requires that attest documentation for attestation engagements indicate: the specific procedures that would have to be performed for the engagement to be unlimited in scope. the work was adequately planned and supervised, indicating observance of the fieldwork. the limited responsibility being taken by the practitioner with respect to the final report. that the attest documentation be regarded as a part of or a substitute for the client's records when the procedures relate to specific account balances or classes of transactions found in the client's financial statements.

the work was adequately planned and supervised, indicating observance of the fieldwork.

An auditor scans a client's investment records for the period just before and just after the year-end to determine that any transfers between categories of investments have been properly recorded. The primary purpose of this procedure is to obtain evidence about management's financial statement assertion of: rights and obligations. classification and understandability. existence. valuation and allocation.

valuation and allocation.

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be: vendors with whom the entity has previously done business. amounts recorded in the accounts payable subsidiary ledger. payees of checks drawn in the month after the year-end. invoices filed in the entity's open invoice file.

vendors with whom the entity has previously done business.