Audit Test

Basic auditing steps for accrued liabilities include:

-considering the need to accrual of other accrued liabilities not presently considered -examining contracts that provide the basis for accrual -identifying and evaluating the reasonableness of the assumptions that underlie the computation of the liability

A cash shortage may be concealed by:

-omitting a check form the outstanding check list -a deliberate error in reconciliation addition -hiding cells in a spreadsheet schedule

Auditors verify deposits in transit are shown on the year-end bank reconciliation appear as credits on the bank statement on the first business day of the new year to verify proper _______ of cash receipts

Cutoff

In order to be classified as a cash equivalent, an item must be:

convertible to cash on short notice

When performing substantive procedures, the auditors will obtain a schedule of listings of inventories that will be reconciled to the ______ ______.

general ledger

To document auditors understanding of internal controls over cash, auditors often use a flowchart or internal control ____.

questionnare

The validity of the amount in the general ledger control account is established by tracing posting to the ____ register and cash ______ journal.

voucher and disbursements

Accounts receivable can be confirmed at an interim date rather than at year-end if risk of material misstatement for existence is:

Low

The audit of receivables and revenue represents significant audit risk because:

Complex accounting rules exist for revenue recognition, Significant accounting estimates are used to value receivables and revenue

A purchase transaction begins with the:

purchase requisition

In the audit of accounts payable, an auditor may revise the risk of material misstatement based on the result of:

tests of controls

Objectives of the audit of accounts payable include obtaining an understating of ____ ____ over accounts payable.

internal control

A company can strengthen internal control of cash receipts by using a(n) _____, which is a post office box controlled by a company's bank at which cash remittances from customers are received.

lockbox

After performing tests of controls, auditors may revise the risk of ______ _____ based on the results.

material misstatement

Principal working papers include:

-lead schedule -confirmation requests

True or false: When performing any tests of sales transactions, auditors do not need to be concerned with consigned items

False

A prenumbered requisition for all items passing out of its hands should be required by the ________ department to serve as a signed receipt from the department accepting the goods

Stores

The best alternative auditing procedure when confirmation replies are not received is and examination of:

Subsequent cash receipts in payment of the receivable

To test notes and accounts written-off during they year auditors use an analysis of:

The allowance for doubtful accounts and notes

Audit evidence obtained as a direct written response to the auditors from a third party in paper form or by electronic or other medium is an external __________

confirmation

Incoming customer checks are opened by mail room employees who:

-send the remittance advices and a copy of the control listing to the employee responsible for the customers' accounts -endorse the checks "for deposit only"

An auditor procedure that reconciles the bank's record of cash activity with the client's accounting records for a test period is called a(n) ____ of _____.

proof of cash

Internal controls for ____ affect nearly all the functions involved in producing and disposing of the company's product.

inventories

Which of the following statements are true?

-Understanding liabilities is generally done by falling to make an entry -The primary objective of audit procedures for liabilities is a completeness

The audit procedures for the verification of sales transactions selected for immediate testing may begin with a comparison of the:

Clients sales orders, Duplicate copies of sales invoice, Customers purchase orders

Auditors working papers for cash typically include:

-cash count sheets -bank confirmations -a lead schedule

Analytical procedures performed to gain assurance about the overall reasonableness of accounts payable and related accounts include:

-computing ratios and comparing them to prior years -comparing amounts owed to individual creditors to balances in prior years

In planning for courts of physical inventory, the senior auditor in charge should:

Consider if a specialist is needed, Estimate the time required, Determine the date of the counts

The use of a(n) _____ inventory system allows companies to control the high cost of holding excessive inventory while minimizing the risk of running out of stock

Perpetual

Many companies have established ______ cost systems that help identify the causes of ineffectiveness and waste through a study of variances between actual and standard costs

Standard

When auditors are engaged after year end and thus were unable to observe the taking of physical inventory, a(n)

Unqualified opinion can only be issued if compensating tests are possible

To strengthen controls over credit sales and reduce the opportunity for fraud, companies should ________ for all revenue cycle activities

Divide duties between different departments

The auditors attend physical inventory counting by the client and :

Observe compliance with managements instructions, Obtain audit evidence about the reliability of the count procedures

Auditors may review the portion of accounts payable that is ____ at year-end and compare it to corresponding data for the previous years.

past-due

To supplement the auditors' assessments of the risk of material misstatements for the accounts payable assertions, auditors may need to obtain further evidence by:

performing tests of controls

Auditors obtain a trial balance of accounts payable and reconcile it with the general ledger to:

-determine that amount in the balance sheet is in agreement with the detailed records -provide a starting point for additional procedures

An IT-based inventory system:

-makes it easier to maintain control over inventories, purchasing and manufacturing -improves inventory tracking -may be linked to a system of suppliers to allow EDI to coordinate purchasing and production

A form designed to provide corroborating evidence about the clients account balances and outstanding loans is a(n) ______ _____ form

Standard Confirmation

Labor and machine time devoted to a particular production job is accumulated on a(n) _____ _____ ticket.

job time

A liability account that is most suited for preliminary audit work is the _____ account.

accrued property tax

Sales that are invoiced but not shipped are called _____ and _____ transactions

Bill, Hold

Which department is responsible for determining whether goods may be shipped to the customer on an open account?

Credit

Accounts receivable consists of:

Claims against customers from the sake of goods, Loans to officers or employees

For auditors, the audit of revenue and receivables represents an area of ______ risk

Significant

A subsequent procedure that establishes existence and valuation is _____ of accounts payable by direct correspondence with vendors.

confirmation

Proper disclosure of related party transactions should include:

-dollar amount of the transaction -nature of the relationship -description of the transaction

When addressing any significant risk related to inventories, auditors:

-may not rely solely on analytical procedures to address the risk -must determine if controls are implemented

A listing of individual customers accounts classified by the number of days each account has been outstanding is a(n) ________ _____ _______ of trade accounts receivables

Aged Trial Balance

Under the terms of a bank load agreement, the company may be required to keep the general cash account at a minimum amount, which is referred to as a(n) ________________ ____________

Compensating Balance

A commitment to ____ with respect to plant personnel is important to ensuring that the manufacturing process is efficient and effective and that prescribed control activities are being performed.

Competence

The auditors assessment of the risks of material misstatements included assessments of _______ risk and ______ risk, which are used to design further audit procedures.

Control, Inherent

Examples of fraud related to cash includes

Duplicate payments, Fictitious checks, Interception of cash receipts before record is made

Manipulations causing an amount of cash to be included simultaneously in the balance of two or more bank accounts is called

Kiting

Audit documentation (working papers) for receivables and revenues include:

Documentation of internal controls, Analysis of allowance for uncollectible accounts and notes, Aged trial balance of trade accounts receivable

Cash normally includes:

Saving accounts, General cash, Petty Cash, Payroll

In an effective purchasing system, receiving reports should be sent to the _____ departments.

-accounts payable -stores -purchasing

For effective control, the custodian of notes receivable should not have access to:

both cash and general accounting records

Accounting estimate(s) related to receivables and revenue include all of the following except:

Gross profit percentage

To determine that a client has consistently and accurately applied an inventory pricing method, such as FIFO, the auditor should:

Test the pricing of a sample of inventory items

Auditors use the understanding of the client and its environment to consider ________ risks, including fraud risks, related to receivables and revenue.

Inherent

Risks of material misstatement arise jointly from ______ risk and ______ risk

Inherent, Control

Auditors should test that reasonableness of sales tax payable by:

-examining sales invoices to confirm customers are being charge the correct amount of tax -applying the sales tax rate to total taxable sales

In a first-year audit, if the auditors have doubts about the validity of the beginning inventory figure, they will not be able to issue an unqualified opinion on the:

-income statement -statement of cash flows

The auditors prepare a list of all the clients cash accounts and related information. This information is traced and reconciled to the ________ _______

General Ledger

The financial statements should disclose details of any arrangements relating to ________ inventory in order to secure bank loans

Pledged

One problem that auditors may encounter while testing methods for receivables and revenue is that management or employees may have established certain _____ agreements that could effect the final terms of sale

Side

For companies that use a voucher system, the verification of individual vouchers is made most conveniently _____ the balance sheet date

at

Auditors analyze the Unclaimed Wages account for the purpose of determining that (debits/credits) ______ represent unclaimed wages after payroll distribution and (debits/credits) _____ represent only authorized payments to employees, remittances to the state under unclaimed property laws, or transfers back to general cash funds.

credits and debits

In a restaurant setting, control over cash sales is best handled when the sales ticket is prepared by a(n):

different employee than the centrally located cashier who receives cash

Agreements to maintain compensating balances should be ____ in the financial statements.

disclosed

Written instructions to personnel taking physical inventory are normally:

drafted by the client and reviewed by the auditors

Auditors will test the pricing of inventories by:

selecting items of large total value

Auditors should review invoices for inventory in-transit at year end. They should consider whether or not inventory shipped FOB ______ point is properly recorded as a liability.

shipping

Auditors obtain a trial balance of accounts payable as of the balance sheet date and use this list as a starting point for _____ procedures.

substantive

Vouching selected creditors' balances to ____ is a substantive procedure that addresses the existence and valuation of accounts payable.

supporting vouchers, invoices, and other documents

The auditors may ask the financial institutions for cutoff bank statements in order to:

test the accuracy of the year-end reconciliation

After the auditors have prepared a flowchart of internal control, they should determine that the controls are being implemented by procedures such as:

-inquiry -observation -inspection of documents

Auditors design substantive procedures to primarily address which assertions for receivables and revenue?

Cutoff, Existence, Valuation

A fraudulent act called __________ causes an amount of cash to be included in the balance of two or more bank accounts at the same time to conceal a cash shortage or meet short-term cash needs

Kiting

Analytical procedures of inventories and cost of goods sold include:

-Reviewing transactions classified by vendor and type of product -Reviewing ledgers and journal for unusual entries or amounts.