Audit Exam #3

A CPA examines a sample of copies of December and January sales invoices for the initials of the person verified the quantitative data (attribute). This is an example of a: A. test of control B. substantive test C. cutoff test D. Statistical test

A

Assertion: Determine the presentation and disclosure or receivables are adequate

Presentation and disclosure

During year 1, audit of Cellening Co., the auditor performed various procedures relating to inventory. MATCH description to type. (analytical procedures, external confirmation, inquiry, inspection of records or documents, inspection of tangible assets, observation, recalculation, and reperformance) G. The auditing firm's computer assisted audit specialist obtained an electronic inventory file from the company and checked the accuracy of the extensions and footings

Recalculation

Assertion: Observe procedures, including segregation of duties, or approving sales orders

Occurence

What is the purpose of the auditor's observation of the physical inventory?

to make sure the items are being counted properly. Also to make sure that items collecting dust are still counted as inventory (existence)

For each of the following audit objectives, select the substantive test that would most likely provide support for the objective... 1. verify existence of accounts receivable 2. determine that accounts receivable are valued at their net receivable value 3. determine that proper receivable disclosures are presents A. perform tests of subsequent cash receipts after the balance sheet date B. Read the financial statements (including notes) for completeness C. Review and assess an aging schedule of accounts receivable D. Compare recognized revenue to related industry statistics

1. A 2. C 3. B

Describe 3 conditions which should exist for the auditor's to use the negative form of request

1. large number of low balance 2. low exceptions rate 3. low risk material misstatement

If a response is not received to an initial positive confirmation request, describe the action that should be taken by the auditor's, including a discussion of at least 3 alternative auditing procedures.

1. send another confirmation 2. call the client 3. audit the account receivable to see if the invoice has been paid

Purchase cutoff procedures should be designed to test that: A. inventory purchased and received just before the balance sheet data is recorded in the year under audit B. the inventory year-end balance is shown at the lower cost or market C. the inventory that is in the possession of the company is owned by the company D. adjustments for inventory obsolesce have been made

A

To assure that all purchases are authorized before payment is made, the accounting department should match the vendor's invoice with: A. the purchase order B. the receiving order C. the bank reconciliation D. the accounts receivable subsidiary ledger

A

Which of the following assertions are NOT tested during the auditor's observation of the physical inventory A. presentation B. Existence C. Completeness D. Rights E. Valuation

A

Which of the following conditions would normally not cause the auditor to use negative accounts receivable confirmations? A. Control risk was assessed at a high level B. a large number of small balances C. reason to believe that the person receiving the confirmation will give it consideration D. a low level of control risk

A

Assertion: Test the aging of accounts receivable, discussing long overdue accounts with the client's credit manager

Accuracy and valuation

During year 1, audit of Cellening Co., the auditor performed various procedures relating to inventory. MATCH description to type. (analytical procedures, external confirmation, inquiry, inspection of records or documents, inspection of tangible assets, observation, recalculation, and reperformance) E. The auditor calculated the accounts receivable turnover for the year

Analytical procedures

During the audit of property, plant, and equipment the auditor would most likely examine large and unusual debits to the repairs and maintenance account to determine if: A. items are included in the capital expenditure budget B. items should be capitalized instead of expensed C. items have been fully depreciated D. items have the appropriate useful life

B

The auditor has received no reply to his positive confirmation. He most likely would: A. Increase the testing of the physical inventory B. examine subsequent receipts for those receivables for which a positive request was sent and not returned C. verify cash receipt and disbursement cutoffs D. Perform a proof of cash

B

The client's physical count of inventory is lower than the inventory quantities in the perpetual records. This could be caused by a failure to record: A. purchases B. sales C. purchase discount D. sales discount

B

Which of the following is LEAST likely to be typically considered to be an alternate procedure for handling non-replies to accounts receivable confirmation requests? A. examine bills of lading B. Physically examine items sold C. Examine correspondence D. Examine subsequent cash receipts

B

Which of the following is NOT true about the confirmation of accounts receivable? A. confirmation requests should bear the auditors return address B. confirmation requests should be signed by the auditors C. confirmation requests should be mailed directly by the auditors D. confirmation requests should include a return envelope addressed to the office of the auditors

B

Which of the following is NOT true relating to the auditor's observation of the client's physical inventory? A. the auditor's should evaluate the client's planning of the physical inventory B. the auditors should make certain that consigned items from suppliers are included in physical inventory totals C. the auditor's should evaluate the adequacy of the client's counting procedures D. the auditor's should take test counts of the client's inventory

B

Which of the following is false regarding the audit of accounts receivable? A. confirmation requests should bear the auditor's return address B. confirmations requests should be signed by the auditor C. confirmation requests should be mailed directly by the auditors D. Confirmation requests should include a return envelope addressed to the auditors

B

Which of the following would indicate the need for positive account receivable confirmations? A. a population consisting of 6,000 accounts; all with small balances B. A population consisting of 10 accounts; all with large balances C. good internal controls over account receivable D. accounts are with reputable companies

B

Why does the auditor examine the repair and maintenance account. A. to identify capital items that should have been recorded as an expense B. to identify expensed items that should have been capitalized C. to identify legal expense that has been misclassified D. to identify impairment of property, plant, and equipment.

B

A CPA has audited a company for several years. In regard to the beginning of the year balance for the property, plant, and equipment accounts he normally would: A. Trace individual items from the property, plant, and equipment listing to the property, plant, and equipment general ledger B. trace the prior year's purchases to approved purchase orders C. trace the beginning balances to the previous year's work papers D. Confirm the asset existence with the plant manager

C

As one of the year-end audit procedures, the auditor instructed the client's personnel to prepare a confirmation request for a bank account that had been closed during the year. After the client's treasurer has signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure? A. the confirmation request was signed by the treasurer B. sending the request was meaningless because the account was closed before the year end C. the request was mailed by the assistant treasurer D. the CPA did not sign the confirmation request before it was mailed.

C

The auditors obtain audit evidence for accounts receivable by using positive or negative confirmation requests. Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful? A. a substantial number of accounts are in disputes B. the combination of inherent risk and control risk is high C. client records include a large number of relatively small balances D. the auditors believe that recipients of the requests are unlikely to give them consideration

C

Which of the following constitutes a weakness in the internal control for accounts receivable? A. an aged trial balance of accounts receivable is prepared monthly B. Statements are mailed to customers monthly C. all credit memos are prepared by the cashier D. Subsidiary accounts receivable ledgers are balanced to the general ledger on a weekly basis

C

Which of the following is true about the auditor's observations of the client's inventory? A. the inventory count must be on the last day of the client's fiscal year B. The auditor's should supervise the client's taking of the inventory C. the auditor's observation addresses the existence assertion D. The auditor need not be concerned about obsolete inventory during the physical inventory inspection

C

Which of the following situations would be most conducive to an embezzlement involving lapping of accounts receivable? A. the cashier prepares the daily deposit and is the petty cash custodian B. the cashier prepares the daily deposit and takes the deposit to the bank C. the cashier prepares the daily deposit and posts amounts to the accounts receivable subsidiary records D. the cashier prepares the daily deposit and prepares the monthly bank reconciliation

C

Assertion: Examine check register for the month following year-end for disbursements relating to the current period

Completeness (account balances)

Assertion: Trace shipping documents to sales invoices

Completeness (transactions and events)

The aged trial balance would be used to test the assertion: A. completeness B. existence C. Presentation D. Valuation

D

The auditors compare information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that: A. Recorded cash disbursement transactions are properly authorized B. Proper cash purchase discounts have been recorded. C. Cash disbursements are for goods and services actually received D. No discrepancies exist between the data on the checks and the data in the journal

D

Which of the following is not normally a procedure that is used by the auditor's in their examination of a client's goods held in the custody of a public warehouse? A. confirmation B. obtaining a report on the internal control at the warehouse C. observation D. testing the warehouse bank reconciliation

D

Which of the following is not true regarding the auditor's test counts made during the observation of inventory? A. the auditor should determine that the client is accounting for inventory tags. B. the test counts should be traced by the auditor to the client's inventory listing C. the auditor should not review any obsolete or damaged merchandise D. the inventory observation provides the auditor with an opportunity to test the presentation assertion

D

Which of the following is true about the auditor's observation of the client's physical inventory? A. the auditor should plan the physical inventory. B. The auditor should supervise the physical inventory C. the auditor should segregate damaged and obsolete goods D. the auditors should evaluate he adequacy of the client's counting principles

D

Assertion: Inspect major new additions to furniture and fixtures during the current period

Existence

True or False Accounts receivable that are written-off should NOT be turned over to a collection agency

False

True or False Confirmation requests should contain a "business reply" envelope addressed to the auditors at the client's address.

False

True or False Confirmations for cash balances should be mailed only to the financial institutions with which the client has a cash balance at year-end.

False

True or False Signed checks should be returned to the cash disbursements clerk for mailing.

False

True or False The auditors typically observe all major items of property, plant, and equipment every year

False

During year 1, audit of Cellening Co., the auditor performed various procedures relating to inventory. MATCH description to type. (analytical procedures, external confirmation, inquiry, inspection of records or documents, inspection of tangible assets, observation, recalculation, and reperformance) C. the auditor asked the warehouse manager about whether certain inventory items were becoming obsolete

Inquiry

During year 1, audit of Cellening Co., the auditor performed various procedures relating to inventory. MATCH description to type. (analytical procedures, external confirmation, inquiry, inspection of records or documents, inspection of tangible assets, observation, recalculation, and reperformance) F. The auditor obtained a copy of the company's accounting manual and read the section on inventory to prepare for the physical inventory observation

Inspection of records and documents

During year 1, audit of Cellening Co., the auditor performed various procedures relating to inventory. MATCH description to type. (analytical procedures, external confirmation, inquiry, inspection of records or documents, inspection of tangible assets, observation, recalculation, and reperformance) a. During the physical inventory count, the auditor asked the client to open various boxes of inventory items so she was able to assess the quality of the item

Inspection of tangible assets

During year 1, audit of Cellening Co., the auditor performed various procedures relating to inventory. MATCH description to type. (analytical procedures, external confirmation, inquiry, inspection of records or documents, inspection of tangible assets, observation, recalculation, and reperformance) B. during a site visit to a construction site, the auditor determined that all employees were wearing proper safety equipment

Observation

During year 1, audit of Cellening Co., the auditor performed various procedures relating to inventory. MATCH description to type. (analytical procedures, external confirmation, inquiry, inspection of records or documents, inspection of tangible assets, observation, recalculation, and reperformance) D. the auditor obtained a purchase order from the purchase order file and compared it to the authorized supplier list to determine that the related goods had been purchased from an approved supplier

Reperformance

Assertion: Examine consignment agreements

Rights and obligations

True or False Material purchases of assets from an affiliated company should be disclosed in the financial statements

True

True or False The auditor's approach to the audit of property, plant, and equipment largely results from the facts that relatively few transactions occur.

True

True or False The use of a tagging system for inventory taking is designed to prevent double counting of goods.

True

True or False When it is impossible to confirm accounts receivable, the auditors may be able to satisfy themselves as the existence of accounts receivable by alternative procedures

True

True or False To test the client's cutoff of inventories, the auditors will make a record of the serial number of the final receiving and shipping documents used prior to the taking of the physical inventory ( at the time of the physical inventory)

True

Assertion: Inquire of production and sales personnel concerning possible obsolete inventory items

Valuation