Auditing Final

Perry Pinkney, CPA, is one of the general partners in a partnership, which in turn invested 70 percent of its assets in the common stock of Pinkney's audit client (Darby Corporation). According to the AICPA Code of Professional Conduct, Pinkney is considered to have an indirect financial interest in Darby. a direct financial interest in Darby. no financial interest in Darby. a partial financial interest in Darby.

A direct financial interest in Darby.

independence

A mental attitude and the appearance that the auditor is not influenced by others in judgments and decisions.

When auditing the revenue and collection cycle, auditors normally select balances to confirm from the: sales journal. accounts receivable listing. general ledger. cash receipts listing.

Accounts Receivable Listing

techniques

An audit data analytic technique should be thought of in terms of the different ways in which an ADA might be used on an audit. These may include, for example, the way in which data is analyzed in light of a particular audit objective.

tools

An audit data analytic tool includes the software (i.e., IDEA) or features within a particular software tool (i.e., Benford's Law) that are used by the auditor.

A Bank Lockbox System

An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using

The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the human resources function from the controllership function. administrative controls from the internal accounting controls. authorization of transactions from the custody of related assets. operational responsibility from the recordkeeping responsibility.

Authorization of transactions from the custody of related assets.

Which of the following personnel department procedures reduces the risk of payroll fraud and represents an appropriate responsibility for the department? Distributing paychecks Authorizing overtime hours Authorizing the addition or deletion of employees from the payroll. Collecting and retaining unclaimed paychecks

Authorizing the addition or deletion of employees from the payroll.

covered member

Broadly defined, any individual who might be in a position to compromise the integrity of an audit. In the AICPA Code of Professional Conduct, the term is defined as any individual, among others, who is (1) on the audit engagement team, (2) in a position to influence the audit engagement, (3) a partner or manager of a nonaudit client service team, or (4) a partner from the local office of the public accounting firm.

information produced by the entity (IPE)

Broadly defined, information provided by the entity is any information that is produced by the company's information systems that is being used by the auditor for substantive testing procedures or used by the audit client to execute a control activity.

Tracing a sample of time clock cards to payroll registers (journals) is a procedure designed to obtain evidence about the transaction assertion(s) of occurrence only occurrence and accuracy only. completeness only. accuracy only.

Completeness only.

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because: many customers merely sign and return the confirmation without verifying its details. recipients usually respond only if they disagree with the information on the request. customers may not be inclined to report understatement errors in their accounts. auditors typically select many accounts with low recorded balances to be confirmed.

Customers may not be inclined to report understatement errors in their accounts.

Data from which of the following sources is most likely to be unreliable? Data obtained directly from the client with strong internal controls Data obtained from a third-party sent directly to the auditor Data obtain through direct personal observation of the auditor Data obtained directly from the client with weak internal controls

Data obtained directly from the client with weak internal controls.

Which of the following is not a key element of the definition of ethics? Reflective choice Moral principles Definitive conclusions Consequences of decisions

Definitive Conclusions

To be recognized, revenues must also be realized or realizable and: foreseeable. collected. earned. shipped.

Earned

Confirmations of accounts receivable provide the most evidence for which of the following assertions? Existence. Valuation or allocation. Rights and obligations. Completeness.

Existence

To gather evidence regarding the bank's balance in a bank reconciliation, an auditor would examine all of the following except the: cutoff bank statement. general ledger. bank confirmation. year-end bank statement.

General Ledger

Which of the following is not important when considering the reliability of client data? The source reliability Client controls over data preparation If the auditor's information system has been subject to reliability testing All of the above are important

If the auditor's information system has been subject to reliability testing.

The document that generates recording of a sale is the: customer order. shipping order. invoice. purchase order.

Invoice

The mail which includes payments should be opened by two people. This control is called: separation of duties. joint custody. anti-collusion. lapping.

Joint Custody

CPA Krogstad is the executive in charge of the Omaha office of the audit firm. He is responsible for the practice in all areas of audit, tax, and consulting, but he does not serve as a field audit partner or a reviewer. CPA Ward is the partner in charge of the Dodger, Inc. audit (an SEC filing). The audit firm's independence is impaired if: Krogstad owns Dodger common stock. Krogstad's brother owns 10 shares of Dodger common stock. Ward's sister-in-law is a sales representative with a territory in California. Ward's fellow partner CPA Felix in the Omaha office has a wife who owns Dodger stock through a mutual fund held in her own employer's employee benefit plan.

Krogstad owns Dodger common stock.

Which of the following is not a major control risk in the payroll cycle? Paying fictitious "employees" Overpaying for time or production Losing employees to competitors. Incorrect accounting for costs or expenses

Losing employees to competitors.

An auditor should normally perform alternative procedures to substantiate the existence of accounts receivable when: no reply to a positive confirmation request is received. no reply to a negative confirmation request is received. collectability of the receivables is in doubt. pledging of the receivables is probable.

No reply to a positive confirmation is received.

Which aspect of data is not important for data used in Audit Data Analytics (ADA)? Reliability Relevance Completeness None of these choices are correct.

None of these choices are correct.

An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control activities leave no audit train of documentary evidence, the auditor most likely will test the activities by confirmation and observation. observation and inquiry. analytical procedures and confirmation. inquiry and analytical procedures.

Observation and inquiry

The assertion that auditors will probably emphasize in the revenue and collection cycle is: occurrence. completeness. accuracy. classification.

Occurrence

Vouching debits from a sample selection of customers' accounts receivable records to supporting sales invoices is an audit procedure designed to obtain evidence about the assertion of: occurrence. completeness. classification. accuracy.

Occurrence

Your client is in the process of acquiring another company. You have been requested to verify that cash for the company being acquired is properly stated. The audit technique that will yield the most persuasive evidence is: examination of the company's escrow account. interview with the company's treasurer and cash manager. preparation and review of standard bank confirmation inquiries. analytical computations comparing current cash in the bank with previous accounting periods.

Preparation and review of standard bank confirmation inquiries.

The auditor maintains control of the mailing and receipt of confirmations by typically performing all of the following except: preparing the confirmation letters. mailing the confirmation letters. receiving the confirmation letters. None of these choices are correct.

Preparing the confirmation letters.

Red and Green, CPAs, are the external auditors for Blue Corporation, a publicly-held company. Blue Corporation has outsourced its internal audit function to Red and Green. Which of the following statements is true? Doing internal audit work does not impair the independence of Red and Green. The independence of Red and Green is impaired only if employees of Red and Green act in a management capacity or make management decisions. The independence of Red and Green is impaired only if a member of Red and Green's engagement team is hired to manage an accounting function in Blue Corporation. Public accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence.

Public accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence.

An audit plan of substantive procedures for cash would not include: request a cutoff bank statement be mailed to the client. request client to prepare bank reconciliations. prepare a schedule of interbank transfers for a period of ten business days before and after year-end date. obtain a written client representation concerning compensating balance agreements.

Request a cutoff bank statement be mailed to the client

The most effective audit procedure for determining the collectability of an account receivable is the: review of the subsequent cash collections. examination of the related sales invoice(s). confirmation of the account. review of authorization of credit sales to the customer and the previous history of collections.

Review of the subsequent cash collections.

In the audit of cash the auditor obtains a bank cutoff statement primarily to

Test the propriety of items appearing on the client's year-end bank reconciliation.

Revenues are normally considered to have been earned when: all possibility of return has expired. the company has substantially accomplished what it must to be entitled to the benefits. the cash is collected. goods have been shipped.

The company has substantially accomplished what it must to be entitled to the benefits.

independent in appearance

To be independent in appearance, the auditor must not have any obligations or interests (in the client, its management, or its owners) that could cause others to believe the auditor is biased with respect to the client, its management, or its owners. Even if the auditor does not have any direct or indirect financial interest or obligation with the client in fact, they must assure that no part of their behavior or actions appear to affect their independence in the opinion of the public.

independent in fact

To be independent in fact, an auditor must have integrity, a character of intellectual honesty and candor; and objectivity, a state of mind of judicial impartiality that recognizes an obligation of fairness to management and owners of a client, creditors, prospective owners or creditors, and other stakeholders.

Which of the following audit procedures is the most effective in testing sales for understatement? Analyze the aged trial balance of recorded accounts receivable. Confirm recorded accounts receivable. Trace a sample of shipping documents to sales invoices recorded in the sales journal. Vouch a sample of recorded sales from the sales journal to shipping documents.

Trace a sample of shipping documents to sales invoices recorded in the sales journal.

Which of the following philosophical principles in ethics places emphasis on the consequences of action, rather than on following the rules? Imperative principle. Utilitarianism principle. Generalization principle. Moral principle.

Utilitarianism Principle

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of: existence. valuation or allocation. completeness. rights and obligations.

Valuation or Allocation

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the

cutoff bank statement is reconciled