Audit Final Exam

incorrect

(Correct or incorrect) A combination of positive and negative request forms must be used if receivables are significant.

incorrect

(Correct or incorrect) Accounts receivable are ordinarily confirmed on a standard form developed by the American Institute of Certified Public Accountants and the Financial Executives Institute.

correct

(Correct or incorrect) Auditors may ignore individually immaterial accounts when confirming accounts receivable.

incorrect

(Correct or incorrect) Auditors should always confirm the total balances of accounts rather than individual portions (e.g., if the balance is made up of three sales, all three should be confirmed).

incorrect

(Correct or incorrect) Confirmation of accounts receivable is a generally accepted auditing standard.

correct

(Correct or incorrect) Confirmations address existence more than they address completeness.

correct

(Correct or incorrect) Second requests are ordinarily sent for positive form confirmations requests when the first request is not returned.

correct

(Correct or incorrect) The auditors ordinarily should confirm accounts receivable.

incorrect

(Correct or incorrect) The best way to evaluate the results of the confirmation process is to compare the total misstatements identified to the account's tolerable misstatements amounts.

correct

(Correct or incorrect) The confirmation requests should be mailed to respondents by the CPAs.

note

A notes payable analysis shows the beginning balance, additional notes, and the ending balance of each individual ________.

bank/lender

A wavier needs to be received from the ________.

paper form

AR confirmations can be sent electronically or via ________.

permanent

Actual signed copies of the notes are often put in the auditors' __________ file.

adverse

An __________ opinion is appropriate if a material misstatement is considered pervasive.

Audit Procedure: 8) Reperformance Classification of Audit Procedure: 10) Test of controls

Audit Procedures: Classification of Audit Procedure (1) Analytical procedure (9) Substantive procedures (2) Confirmation (10) Test of controls (3) Inquiry (4) Inspection of records or documents (5) Inspection of tangible assets (6) Observation (7) Recalculation (8) Reperformance Procedure: Compared a sample of sales invoices to credit files to determine whether the customers were on the approved customer list.

Audit Procedure: 4) Inspection of records of documents Classification of Audit Procedure: 10) Test of controls

Audit Procedures: Classification of Audit Procedure (1) Analytical procedure (9) Substantive procedures (2) Confirmation (10) Test of controls (3) Inquiry (4) Inspection of records or documents (5) Inspection of tangible assets (6) Observation (7) Recalculation (8) Reperformance Procedure: Examined a sample of sales invoices to see if they were initialized by the credit manager indicating credit approval.

Audit Procedure: 1) Analytical procedure Classification of Audit Procedure: 9) Substantive procedures

Audit Procedures: Classification of Audit Procedure (1) Analytical procedure (9) Substantive procedures (2) Confirmation (10) Test of controls (3) Inquiry (4) Inspection of records or documents (5) Inspection of tangible assets (6) Observation (7) Recalculation (8) Reperformance Procedure: Compared total bad debts this year with the totals for the previous two years.

Audit Procedure: 4) Inspection of records of documents Classification of Audit Procedure: 9) Substantive procedures

Audit Procedures: Classification of Audit Procedure (1) Analytical procedure (9) Substantive procedures (2) Confirmation (10) Test of controls (3) Inquiry (4) Inspection of records or documents (5) Inspection of tangible assets (6) Observation (7) Recalculation (8) Reperformance Procedure: Examined invoice to obtain evidence in support of the ending recorded balance of a customer.

Audit Procedure: 3) Inquiry Classification of Audit Procedure: 9) Substantive procedures

Audit Procedures: Classification of Audit Procedure (1) Analytical procedure (9) Substantive procedures (2) Confirmation (10) Test of controls (3) Inquiry (4) Inspection of records or documents (5) Inspection of tangible assets (6) Observation (7) Recalculation (8) Reperformance Procedure: Questioned management about likely total uncollectible accounts.

Audit Procedure: 2) Confirmation Classification of Audit Procedure: 9) Substantive procedures

Audit Procedures: Classification of Audit Procedure (1) Analytical procedure (9) Substantive procedures (2) Confirmation (10) Test of controls (3) Inquiry (4) Inspection of records or documents (5) Inspection of tangible assets (6) Observation (7) Recalculation (8) Reperformance Procedure: Requested responses directly from customers as to amounts due.

Audit Procedure: 6) Observation Classification of Audit Procedure: 10) Test of controls

Audit Procedures: Classification of Audit Procedure (1) Analytical procedure (9) Substantive procedures (2) Confirmation (10) Test of controls (3) Inquiry (4) Inspection of records or documents (5) Inspection of tangible assets (6) Observation (7) Recalculation (8) Reperformance Procedure: Watched the accounting clerk record the daily deposit of cash receipts.

Existence

Audit objective: Confirming debt

presentation and disclosure

Audit objective: Evaluating whether debt provisions and covenants have been met.

valuation

Audit objective: Examining copies of the actual signed not payable to determine the correct dollar amount of the liability

Completeness

Audit objective: Performing analytical procedures on debt and related accounts to ensure that all debt is properly included in the period under audit and that some notes have not been omitted.

Cutoff

Audit objective: Vouching borrowing and repayment terms

disclaim

Auditors _________ an opinion when they are unable to form an opinion.

convenants

Auditors need to determine whether debt ______ have been met.

trustee

Bond transactions are typically confirmed directly with the _________.

lapping

Confirmations are more persuasive than subsequent cash receipts as they help mitigate the risk of _______.

bad debt

Confirmations do not necessarily mitigate the risk of _________.

all

Confirmations should include a request that the bank confirm ____ borrowings.

A) Send positive confirmation requests.

Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely: A) Send positive confirmation requests. B) Send negative confirmation requests. C) Examine evidence of subsequent cash receipts. D) Inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

financial statements

Covenant violations should still be disclosed in the _______ __________.

Year-end

Covenants are typically calculated as of _____ ______.

payments

Debits to a mortgage payable account typically are _________ on the account.

A) Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence.

Identify the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable: A) Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence. B) Write-offs must be approved by the accounts receivable department. C) Write-offs must be authorized by the shipping department. D) Write-offs must be supported by an aging schedule showing that only receivables overdue by several months have been written off.

evidence

Limitations on the scope of an audit may create a situation in which the auditors are unable to obtain sufficient __________.

inappropriate

Management may have fraudulently overstated revenue by making __________ journal entries.

revenue

Many instances of misstatement are based on the inappropriate recognition of _________.

cash

Notes payable to financial institutions are often confirmed together with the _________ accounts.

cutoff policies

One way to avoid misstatement of revenue is to ensure the client has proper ________.

current

Overstatement may occur when sales for the next period are recorded in the _______ period.

materially

Qualified opinions are issued when the financial statements are _________.

asset

Receivables that have been sold should not remain as a(n) _____ on the company's books.

accomplished

Revenues are deemed to be earned when the company has ______ what it must do to fulfill its obligation.

agreements

Side _________ can substantially alter the terms of a sale.

correctly

Testing the reconciliation for accounts receivable to the general ledger ensures that the software is programmed _________.

A) And accounts receivable are immaterial , or the use of confirmations would be ineffective.

The auditors should confirm accounts receivable UNLESS the auditors' assessment of the risk of material misstatement is low A) And accounts receivable are immaterial, or the use of confirmations would be ineffective. B) And accounts receivable are composed of large accounts. C) And the effectiveness of confirmations is absolutely determined. D) Or accounts receivable are from extremely reputable customers.

A) Shipping documents file.

To determine that all sales have been recorded, the auditors would select a sample of transactions from the: A) Shipping documents file. B) Sales journal. C) Accounts receivable subsidiary ledger. D)Remittance advices.

large

To test collectibility of receivables, auditors may consider credit ratings for debtors of _____receivables.

C) Accounts receivable subsidiary ledger.

To test the existence assertion for recorded receivables, the auditors would select a sample from the: A) Sales orders file. B) Customer purchase orders. C) Accounts receivable subsidiary ledger. D) Shipping documents (bills of lading) file.

balance sheet

Waivers must be dated the same date as the __________ ______.

One year

Waivers must extend for a period of __________.

B) Completeness.

Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices? A) Existence or occurrence. B) Completeness. C) Rights and obligations. D) Presentation and disclosure.

B) Delivery has occurred or is scheduled to occur in the near future.

Which of the following is NOT among the criteria that ordinarily exist for revenue to be recognized? A) Collectibility is reasonably assured. B) Delivery has occurred or is scheduled to occur in the near future. C) Persuasive evidence of an arrangement exists. D) The seller's price to the buyer is fixed or determinable.

D) Theft of cash register sales.

Which of the following is an example of misappropriation of assets relating to sales? A) Accidentally recording cash that represents a liability as revenue. B) Holding the sales journal open to record next year's sales as having occurred in the current year. C) Intentionally recording cash received from a new debt agreement as revenue. D) Theft of cash register sales.

D) over-recorded sales due to a lack of control over the sales entry function.

Which of the following is least likely to be considered an inherent risk relating to receivables and revenues? A) Restrictions placed on sales by laws and regulations. B) Decline in sales due to economic declines. C) Decline in sales due to product obsolescence. D) Over-recorded sales due to a lack of control over the sales entry function.

D) Recording sales when the customer is likely to return the goods.

Which of the following is most likely to be an example of fraudulent financial reporting relating to sales? A) Inaccurate billing due to a lack of controls. B) Lapping of accounts receivable. C) Misbilling a client due to a data input error. D) Recording sales when the customer is likely to return the goods.

D) Inflated sales for the year.

Which of the following would most likely be detected by an auditor's review of the client's sales cutoff? A) Excessive goods returned for credit. B) Unrecorded sales discounts. C) Lapping of year-end accounts receivable. D) Inflated sales for the year.

D) Assess the allowance for uncollectible accounts for reasonableness.

Which of the following would provide the most assurance concerning the valuation of accounts receivable? A) Trace amounts in the accounts receivable subsidiary ledger to details on shipping documents. B) Compare receivable turnover ratios to industry statistics for reasonableness. C) Inquire about receivables pledged under loan agreements. D) Assess the allowance for uncollectible accounts for reasonableness.

direct

______ communication with debtors is the most conclusive step in verifying accounts receivable.

collectibility

________ needs to be assured in order to recognize revenue.

Individual

_________ transactions are examined for all large debt agreements.

permanent

a copy of debt agreements is typically housed in the _______ file.

letterhead

confirmations should be drafted on client __________.

emphasis-of-matter

when there is a significant doubt as to the ability to continue as a going concern an ________________________.