Auditing Three Final

Long-lived assets only include the tangible assets of an organization. Select one: True False

'False'.

Natural resource companies cannot reassess the amount of reserves even if more information becomes available during the course of mining harvesting or extracting resources. Select one: True False

'False'.

The auditor typically makes a physical inspection of most of the material fixed asset acquisitions. Select one: True False

'False'.

The existence of fair value estimates that are unreasonable or unsupportable is indicative of a potential fraud scheme. Select one: True False

'True'.

To identify any possible impairment of manufacturing equipment the auditor can tour the facility during operations to determine if any of the machines are idle. Select one: True False

'True'.

Which of the following evidences delivery of product to customers sufficient for company recording as revenues? Select one: a. A check received from the customer. b. An agreement to purchase product signed by the customer. c. A pick ticket in the warehouse. d. A bill of lading and tracking number with the shipper.

A bill of lading and tracking number with the shipper.

After an audit report is issued the auditor discovers through a peer review that an important audit procedure has been omitted. In this case what should the auditor do? Select one: a. Notify all parties known to be relying on the report. b. Immediately request the client recall the report. c. Contact his or her professional liability insurance carrier. d. Determine whether the report can still be supported in light of the omitted procedure.

Determine whether the report can still be supported in light of the omitted procedure.

Which of the following procedures would the auditor perform in testing the completeness assertion for accounts payable? Select one: a. Examine a sample of cash disbursements made after year end to determine whether the disbursements were for goods applicable to the previous year. b. Reconcile vendor's statements with the accounts receivable trial balance. c. Examine production equipment for useful lives. d. Gather purchase orders immediately previous to and subsequent to year-end.

Examine a sample of cash disbursements made after year end to determine whether the disbursements were for goods applicable to the previous year.

Which of the following is the least important in helping the auditor develop an independent expectation of interest expense as a substantive analytical procedure? Select one: a. Determine average interest rates. b. Determine average debt outstanding. c. Examine disaggregated data by type of debt. d. Examine an interest revenue schedule.

Examine an interest revenue schedule.

Which of the following will an auditor not perform when looking for debt reductions? Select one: a. Examine proceeds into the cash receipts records. b. Examine canceled checks. c. Examine payments through the cash disbursements records. d. Examine canceled notes.

Examine proceeds into the cash receipts records.

Reconciling the physical asset inventory with the property ledger on a periodic basis is a control related to which management assertion? Select one: a. Completeness. b. Rights and Obligations. c. Existence. d. Valuation

Existence.

Which of the following is not a potential fraud indicator in the acquisition cycle? Select one: a. Expenses that are significantly above or below industry norms. b. Expense accounts that have significant debit entries. c. Unexpected increases in gross margin. d. Capital assets that seem to be growing faster than the business.

Expense accounts that have significant debit entries.

How would an auditor generally measure the value of a stock option expense? Select one: a. Fair value. b. Appraised value c. By computing a weighted average value of all classes of stock authorized. d. All of these methods can be used.

Fair value.

Bar code scanning may best be utilized in the receiving process to accomplish which of the following? Select one: a. Identify goods arriving automatically in conjunction with a count. b. Notify the shipper that product has arrived. c. Order new items on behalf of the purchasing department. d. Record inventory that has been written off the books.

Identify goods arriving automatically in conjunction with a count.

If the auditor determines that the client's current ratio is below a particular covenant level which of the following would the auditor not do? Select one: a. Assess the effects of the violation. b. Assume that the debt will need to be reclassified if the violation is not waived. c. Consider that the debt will be due and payable if the violation is not waived. d. Issue an adverse audit opinion.

Issue an adverse audit opinion.

The allowance for doubtful accounts will not be precise by either the client or the auditor because of which of the following reasons? Select one: a. It is an accounting estimate based upon judgment. b. GAAP is not clear on the calculation of the allowance. c. It is merely a reserve that is reversed by the client as income is needed for profitable results. d. The precision is determined by the results of confirmation responses.

It is an accounting estimate based upon judgment.

Which one of the following factors is not an inherent risk associated with long-lived assets? Select one: a. Obsolescence of assets. b. Impairment of assets. c. Incomplete recording of disposals. d. Lack of physical controls over the long-lived assets.

Lack of physical controls over the long-lived assets.

Which of the following is not a rationale for purchasing to be a separate function? Select one: a. Purchasing promotes efficiency and effectiveness. b. Purchasing eliminates potential favoritism. c. Purchasing reduces the opportunity for fraud. d. Purchasing decentralizes control.

Purchasing decentralizes control.

Which of the following is NOT a element of internal controls for inventory? Select one: a. Authorization for all purchases. b. Proper accounting for receipt of inventory. c. Perpetual inventory system. d. Rapid introduction of new products without market studies.

Rapid introduction of new products without market studies.

Calculating the turnover of receivables is often used in testing the sales cycle by auditors when performing which of the following? Select one: a. Trend analysis. b. Ratio analysis. c. Reasonableness testing. d. Non-statistical sampling.

Ratio analysis

Lithgow and Harris CPAs are performing the audit of WildFlower Grocery Stores. Lithgow and Harris relates annual revenue by sales per square feet and sales per customer. What type of analysis is Lithgow and Harris most likely performing? Select one: a. Ratio analysis. b. Critical analysis. c. Reasonableness tests. d. Non-statistical analysis.

Reasonableness tests.

Which of the following procedures is a typical substantive procedure related to the relevant assertion of valuation and allocation for debt obligations? Select one: a. Determine the related parties resulting from debt transactions. b. Reviewing debt agreements for the restrictive covenants. c. Recalculating accrued interest. d. Confirming debt obligations with relevant outside parties.

Recalculating accrued interest.

When a purchasing agent benefits personally by accepting payment from a vendor the purchasing agent is guilty of which of the following? Select one: a. Performing kiting. b. Committing embezzlement. c. Receiving kickbacks. d. Stealing company assets.

Receiving kickbacks.

In those audits where there is a heightened risk of fraud related to stockholders' equity accounts which of the following will the auditor typically not perform? Select one: a. Confirm terms of equity arrangements and shares held directly with shareholders. b. Account for and vouch all proceeds from stock issues. c. Confirm with shareholders whether there are any side agreements. d. Review equity authorizations in the board meeting minutes.

Review equity authorizations in the board meeting minutes.

A client has implemented a policy requiring the establishment and enforcement of property management training for all personnel involved in the use stewardship and management of equipment. Which of the following is not a test that could be used in testing the control? Select one: a. Inquiry. b. Observation. c. Inspection of documentation. d. Review financial statements.

Review financial statements.

To determine whether any accounts receivable are pledged or assigned to others the auditor would most likely perform which of the following procedures? Select one: a. Examine subsequent collections. b. Test a sample of transactions to the general ledger. c. Review loan agreements and board of directors' meeting minutes. d. Derive an independent estimate of the allowance and compare it to pledged assets.

Review loan agreements and board of directors' meeting minutes.

Which of the following controls is not a typical control that affects multiple assertions for long-lived assets? Select one: a. Reviewing insurance policies for adequate replacement coverage of assets. b. Formal budgeting process with appropriate follow-up variance analysis. c. Periodic comparison of physical assets to subsidiary records with the general ledger. d. Periodic reconciliations of subsidiary records with the general ledger.

Reviewing insurance policies for adequate replacement coverage of assets.

An auditor determines that there is an inherent risk that stock options exercised or expired remain on the organization's books. This determination is most likely tied to which of the following management assertions? Select one: a. Valuation. b. Presentation and disclosure. c. Rights and obligations. d. Existence.

Rights and obligations.

In an audit of financial statements the risk of the high rate of return of products sold includes relates to which of the following? Select one: a. Sales that are recorded improperly. b. An estimate of accrued returns that reduces net income. c. A reduction of net sales for an increase to the sales returns and allowance account. d. Consignment goods that are returned and forwarded to third parties.

Sales that are recorded improperly.

Which of the following statements is typically not true regarding controls related to proper accounting for stock option grants? Select one: a. The proper accounting for stock option grants is researched by the organization's accountant. b. The analysis of the accountant regarding stock option grants is reviewed by the CFO. c. The analysis of the accountant regarding stock option grants is reviewed by the organization's legal counsel. d. The analysis of the accountant regarding stock option grants is reviewed by the board of directors.

The analysis of the accountant regarding stock option grants is reviewed by the board of directors.

Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately? Select one: a. Sales are recorded at the invoice price expected to be collected from customers. b. Sales orders have sequential numbering. c. Recorded sales transactions are evidenced by valid invoices and shipping documents. Incorrect d. Credits to customer accounts are classified as liabilities.

a. Sales are recorded at the invoice price expected to be collected from customers.

Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following? Select one: a. Shipping documents and tracing them to the sales journal. b. Accounts receivable and tracing them to cash receipts. c. Recorded sales transactions and tracing them to the general ledger. d. Inventory records and tracing them to the shipping documents

a. Shipping documents and tracing them to the sales journal.

A control that may be implemented to ensure all sales that occur are recorded in the general ledger includes which of the following? a. Use of prenumbered shipping, invoice and sales documents. b. Use of prenumbered statements, inventory lists and credit memos. c. Reconciliation of invoices with customer statements. d. Use of pre-authorized price lists.

a. Use of prenumbered shipping, invoice and sales documents.

A sample of positive confirmations is mailed for material accounts receivable balances. Frequently there is a lack of response. Which of the following is not an acceptable alternative procedure? Select one: a. Reviewing collections on the account subsequent to the confirmation date. b. Inquiry of management. c. Mailing second and third confirmations. d. Examination of supporting documents.

b. Inquiry of management.

Alternative procedures that would provide evidence of the existence of receivables would include which of the following? Select one: a. Physical observation of customer facilities. b. Review of subsequent collections. c. Analysis of the aged trial balance. d. A confirmation to the client management for customer accounts.

b. Review of subsequent collections.

The aged accounts receivable report is utilized by the auditor to accomplish which of the following? Select one: a. Encourage the client to collect on receivables that are long past due. b. Select the type of confirmations that will be sent to banks. c. Assess the adequacy of the allowance for doubtful accounts. d. Identify debits in the receivables balance that should be reclassified to payables.

c. Assess the adequacy of the allowance for doubtful accounts

The auditor traces recorded sales to invoices sales orders and shipping documents in order to substantiate which assertion? Select one: a. Cutoff. b. Completeness. c. Legality. d. Occurrence.

Occurrence.

In the audit of the revenue of Hiram Manufacturing Company, the auditors obtain a number of shipping documents shortly before year-end and immediately following the year under audit. The auditors compare the documents to the sales journal in order to test which of the following assertions? Select one: a. Existence of sales. b. Presentation and disclosure of receivables. c. Cutoff of sales transactions. d. Completeness of receivables.

c. Cutoff of sales transactions.

Fraud related to revenue recognition will most likely be identified by the auditor through which of the following independent situations? Select one: a. Sales have increased 5% in the current period over the previous period and is consistent with the results of competitors. b. Gross margin is equivalent in the current period to previous periods and is below that of the industry. c. Sales are higher in the month preceding each quarter end. d. The sales of a revolutionary new product are increasing beyond that of the competition in the periods immediately following its introduction.

c. Sales are higher in the month preceding each quarter end.

Which one of the following procedures would be considered improper by the auditor in the process of confirming receivables? Select one: a. The auditor allows the client's staff to prepare the confirmation letters after the auditor has chosen the items to be confirmed. b. The auditor allows the client to sign the confirmations after they are prepared. c. The auditor allows the client's staff to mail the confirmation letters after he or she has proofed the typing of the letters. d. The auditor asks the addressee to return the confirmation to the audit firm's office.

c. The auditor allows the client's staff to mail the confirmation letters after he or she has proofed the typing of the letters.

Which of the following criteria must be met in order to recognize revenue in the current accounting period? Select one: a. Delivery has occurred or the services have been rendered. b. Price is fixed or determinable. c. Collectibility if reasonably assured. d. All of the above.

d. All of the above.

A key indicator of fraud in the revenue cycle is the auditor's detection of which of the following? Select one: a. Customer collections that are over 90 days past due. b. Credit entries in customer accounts receivable for authorized writeoffs. c. Recurring entries in the sales journal. d. Altered shipping documents and invoices.

d. Altered shipping documents and invoices.

The significance of the bill of lading is to provide which of the following? Select one: a. The warehouse personnel with the product that must be shipped to customers. b. Invoices to customers for proper collection. c. A credit application for customer approval. d. Evidence of title transfer of goods to customers.

d. Evidence of title transfer of goods to customers.

A cross-sectional analysis of revenue recorded across multiple sales location is a form of what type of testing? Select one: a. Trend analysis b. Common size analysis c. Ratio analysis d. Regression analysis

d. Regression analysis

An auditor's examination of the sales account using a cut-off test would most likely detect which of the following? Select one: a. Kiting. b. Sales made with improper credit terms. c. Lapping of accounts receivable. d. Sales recorded in the wrong period.

d. Sales recorded in the wrong period.

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons? Select one: a. Confirmations are selected based upon zip codes. b. A P.O. Box is more reliable than a street address. c. Confirmations should be sent only to business addresses and not residential. d. The address may be routed to the client for retrieval and fraudulent signing.

d. The address may be routed to the client for retrieval and fraudulent signing.

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product? Select one: a. The cash is realized on the sale of the product. b. A price is discussed based upon the customer's resale of the product. c. The customer is given the option to return the product at any time. d. The product is adequately delivered to the customer.

d. The product is adequately delivered to the customer.

An example of alternative procedures for the confirmation of accounts receivable includes which of the following actions? Select one: a. Inquiry of management. b. Tracing source documents to recorded amounts. c. Review of subsequent collections on account by the client. d. Providing an estimate of the allowance for doubtful accounts to be recorded by the client.

review of subsequent collection on account by the client

As natural resources are used up the client has to recognize which of the following types of expense? Select one: a. Depreciation expense. b. Depletion expense. c. Amortization expense. d. Reclamation expense.

Depletion expense.

Which of the following expense accounts is associated with natural resources? ? Select one: a. Depreciation expense. b. Amortization expense. c. Depletion expense. d. Capitalization expense.

Depletion expense.

Please indicate the proper sequence of the acquisition cycle: 1. Approval of items for payment. 2. Authorized requisition for goods or services. 3. Cash disbursements. 4. Receipt of goods and services. 5. Authorized purchase of goods or services. Select one: a. 2 5 4 1 3 b. 2 4 5 1 3 c. 2 1 4 5 3 d. 2 5 1 4 3

2 5 4 1 3

The acquisition cycle begins with which of the following? Select one: a. A payment. b. A purchase order. c. A requisition. d. A receiving report.

A requisition.

A method used by companies to fraudulently inflate revenues includes which of the following? Select one: a. Use of hidden "side letters" giving the customer an irrevocable right to return the product. b. Recording of fictitious sales. c. Shipment of product not ordered by customers. d. All of the above.

All of the above

Which of the following accounts is NOT a major account in the acquisition and payment cycle? Select one: a. Inventory. b. Cost of goods sold. c. Accounts payable. d. All of the above are major accounts.

All of the above are major accounts.

Which of the following procedures is not a substantive procedure used for testing the valuation of long-lived assets? Select one: a. Assess management's impairment estimates. b. Inquire of management about assets that are idle. c. Develop an independent estimate of amortization expense. d. All of the above are procedures used for testing the valuation assertion.

All of the above are procedures used for testing the valuation assertion.

Which of the following controls is not a typical internal control over intangible assets? Select one: a. Procedures to provide reasonable assurance that decisions are appropriately made as to when to capitalize or expense research and development expenditures. b. Development of amortization schedules that reflect the remaining useful life of patents or copyrights associated with the assets. c. Procedures to identify and account for intangible asset impairment. d. All of the above are typical controls for intangible assets.

All of the above are typical controls for intangible assets.

For intangible assets controls should be designed to do which of the following? Select one: a. Identify and account for intangible asset impairments. b. Develop amortization schedules that reflect the remaining useful life of patents or copyrights associated with the asset. c. Provide reasonable assurance that decisions are appropriately made as to when to capitalize or expense research and development expenditures. d. All of the above.

All of the above.

Which of the following is a reason why an automated purchasing system is beneficial? Select one: a. It applies preloaded specifications and materials lists to the system. b. It automatically flags invoices that do not reconcile with purchase orders. c. It creates change orders and analyzes variances from purchase orders. d. All of the above.

All of the above.

Which of the following are not included in a fixed-asset ledger? Select one: a. List of all the assets. b. Estimated useful life. c. Salvage value. d. All the above are included.

All the above are included.

Which of the following information should be included in management's documentation regarding intangible assets? Select one: a. Manner of acquisition. b. Basis for the capitalized amount c. Expected period of benefit. d. All the above should be included.

All the above should be included.

Which of the following is not a common transaction affecting stockholders' equity? Select one: a. The purchase of treasury stock. b. The declaration and payment of dividends. c. The exercises and expirations of stock options and warrants. d. Bond amortization.

Bond amortization.

Which of the following does an auditor consider when gaining an overall understanding of the client's internal controls? Select one: a. Entity-wide controls at the account level only. b. Transaction controls at the account level only. c. Entity-wide controls at the assertion level only. d. Both entity-wide controls and transaction controls at the account and assertion levels.

Both entity-wide controls and transaction controls at the account and assertion levels.

If tests of controls result in identified control deficiencies how will the auditor assess those deficiencies? Select one: a.By estimating interest expense based on average interest rates and average debt outstanding. b. By comparing current year account balances with prior year account balances. c. By determining their severity and the impact on the opinion of internal control effectiveness. d. By calculating the long-term debt-to-equity ratio and performing a trend analysis with prior periods.

By determining their severity and the impact on the opinion of internal control effectiveness.

Which of the following statement is true? Select one: a. Intangible assets should be recorded at fair market value. b. Intangible assets should be recorded at cost. c. Intangible assets should be recorded at future market value. d. Intangible assets should not be recorded.

Intangible assets should be recorded at cost.

The internal control that requires that "checks are pre-numbered and accounted for" satisfies which assertion? Select one: a. Accuracy. b. Existence. c. Completeness. d. Posting and summarization.

Completeness.

Which assertion has the greatest emphasis when auditing accounts payable? Select one: a. Existence. b. Completeness. c. Presentation. d. Disclosure.

Completeness.

An auditor's review of the repair expense to identify any capital expenditures is a test related to which management assertion? Select one: a. Existence b. Completion c. Valuation d. Rights and Obligation

Completion

Which statement is true? Select one: a. Management is always reluctant to write down asset values. b. Intangible assets do not require effective controls because they have low inherent risk. c. Complex ownership structures may create challenges in the recording of assets. d. The incomplete recording of asset disposals understates the asset balance.

Complex ownership structures may create challenges in the recording of assets.

What is the primary reason for management's ability to easily overvalue inventory without rapid detection by auditors? Select one: a. The limited volume of transactions in the inventory accounts. b. The auditor's assessment of inventory as a low-risk area. c. Complexity in the valuation of inventory. d. Consideration by the auditor of non-financial indicators of inventory fraud.

Complexity in the valuation of inventory.

During your audit of Brown Company you are trying to determine whether all accounts payable were recorded. Which assertion are you gathering evidence for? Select one: a. Occurrence. b. Presentation and Disclosure.. c. Completeness. d. Valuation or allocation.

Completeness.

If the auditor is testing long-lived asset account balances to see if they include all relevant transactions that have taken place during the period what is the primary assertion being tested? Select one: a. Presentation and Disclosure. b. Existence. c. Completeness. d. Valuation.

Completeness.

According to auditing standards accounts receivable confirmations are required to be used in which of the following situations? Select one: a. On every audit engagement. b. If the client agrees in writing to the procedure. c. If the balance is material. d. If environmental risk is low.

If the balance is material

Which of the following controls is not a typical internal control over fixed assets? Select one: a. Reconcile physical inventory with the property ledger. b. Periodically reassess the appropriateness of depletion categories. c. Identify obsolete or scrapped equipment and write it down to scrap value. d. Periodically review management strategy and systematically assess the impairment of assets.

Periodically reassess the appropriateness of depletion categories.

List potential fraud schemes related to long-lived assets.

Potential fraud schemes related to long-lived assets include not properly capitalizing the asset but writing it off as an expense not recording impairment of assets over the years incorrectly valuing the intangible assets, not disposing of the assets correctly and not writing off assets that are obsolete.

In auditing equity accounts the auditor primarily focuses on which of the following two assertions? Select one: a. Valuation and completeness. b. Valuation and existence. c. Presentation and disclosure and valuation. d. Presentation and disclosure and completeness.

Presentation and disclosure and valuation.

Which of the following would not typically be included as part of the balance sheet disclosures related to stockholders' equity? Select one: a. Accumulated other comprehensive income b. Details on stock repurchases c. Price/earnings ratios for stock d. Prior period adjustments to retained earnings

Price/earnings ratios for stock

Which of the following is not a standard procedure that the auditor normally should follow in the observation of inventory at year-end? Select one: a. Observe the client taking inventory. b. Make selected test counts and trace into client's inventory compilation. c. Look for slow-moving obsolete or damaged inventory. d. Review disclosure of inventory valuation.

Review disclosure of inventory valuation.

Which of the following is not a common debt covenant restriction? Select one: a. Maintenance of a minimum level of retained earnings before dividends can be paid. b. Maintenance of a minimum working-capital ratio. c. Specification of a maximum debt-equity ratio. d. Specification of a minimum earnings per share.

Specification of a minimum earnings per share.

Auditors will examine significant sales returns immediately subsequent to the period under audit in order to do which of the following? Select one: a. Substantiate cutoff and the occurrence of net sales transactions. b. Test the sufficiency of cash balances to cover refunds. c. Monitor customer satisfaction for disclosure. d. Assess the nature of procedures that will be performed for the next period's audit.

Substantiate cutoff and the occurrence of net sales transactions.

Which of the following is not a circumstance indicating potential impairment of intangible assets? Select one: a. A change in circumstances such as the legal environment or business climate that could affect the asset's value. b. An accumulation of costs that are significantly in excess of the amount originally expected to be needed to acquire or construct the asset. c. The asset generates just as much cash flow as in the past. d. Losses or projections indicating continuing losses associated with an asset used to generate revenue.

The asset generates just as much cash flow as in the past.

Which of the following statements is true regarding the appropriate audit procedures to perform for debt and stockholder's equity accounts? Select one: a. The auditor will usually decide to test debt obligations including interest using only substantive procedures. b. Testing debt obligations including interest is typically accomplished using only control procedures. c. When auditing stockholders' equity transactions the auditor commonly uses a control procedure approach but uses only substantive procedures to test debt obligation transactions. d. None of these statements is true.

The auditor will usually decide to test debt obligations, including interest, using only substantive procedures.

In its 2004 through 2006 inspections which of the following was not a deficiency the PCAOB noted related to inadequate testing of stockholders' equity transactions? Select one: a. The auditors failed to properly address and evaluate the substance business purpose or significant terms of the equity arrangements. b. The auditors failed to consider the accounting principles potentially applicable to the equity transactions. c. The auditors failed to evaluate whether the audit clients had appropriately determined the fair values assigned to equity-based transactions and to test the reasonableness of such fair values. d. The auditors failed to disclose each class of stock issued by the clients.

The auditors failed to disclose each class of stock issued by the clients.

Which of the following is a typical control for debt obligations? Select one: a. The board of directors approves all new debt. b. The stockholders approve all new debt. c. The CFO approves all new debt. d. Upper managers approve all new debt.

The board of directors approves all new debt.

Which of the following is not true regarding appropriate tests of controls? Select one: a. The auditor selects controls that are important to the auditor's conclusion about whether the organization's controls adequately address the assessed risk of material misstatement for the relevant debt and equity accounts. b. The client's audit committee selects controls that are important to the auditor's conclusion about whether the organization's controls adequately address the assessed risk of material misstatement for the relevant debt and equity accounts.as of the client's year end. c. The auditor will select both entity-wide and transaction controls for testing. d. If the auditor wants to rely on controls for the financial statement audit the auditor would test the operating effectiveness of those controls throughout the year.

The client's audit committee selects controls that are important to the auditor's conclusion about whether the organization's controls adequately address the assessed risk of material misstatement for the relevant debt and equity accounts.as of the client's year end.

Which of the following is a condition which would not create a conducive situation for a client to take a physical inventory at an interim date before year end? Select one: a. The control risk over inventory is high. b. The auditor will be able to review material transactions in the roll-forward period. c. The auditor can effectively test the year-end balance through a combination of analytical procedures and selective testing of transactions between the physical count and the year-end. d. The auditor reviews the intervening transactions for evidence of any manipulation or unusual activity.

The control risk over inventory is high.

The auditor would be most likely to request a schedule of repairs and maintenance expense to satisfy the auditor about the existence of long-lived assets. Select one: True False

The correct answer is 'False'.

Which of the following would a bond indenture not provide information about? Select one: a. The time period before repayment. b. Whether the bond is convertible. c. Whether the bond is callable. d. The date the bond will be called.

The date the bond will be called.

Which of the following would the auditor most likely do when testing the valuation assertion for inventory? Select one: a. Confirm inventory on consignment. b. Examine receiving reports for inventory tracing the recorded amounts. c. Observe the taking of physical inventory. d. Vouch inventory purchases to vendor invoices..

Vouch inventory purchases to vendor invoices..

How are most bonds marketed? Select one: a. Through the board of directors. b. Through an underwriter. c. Through auditors. d. Through employees.

Through an underwriter.

Why should the client's legal expenses be examined? Select one: a. To compare with previously released attorney's letters. b. To determine the types of fraud occurring in the organization. c. To ensure proper recording of vendor payables. d. To determine if there is any litigation pending or threatened.

To determine if there is any litigation pending or threatened.

Credit approval policies are implemented by organizations primarily to accomplish which of the following objectives? Select one: a. To determine revenue recognition policies. b. To ensure customer satisfaction. c. To prevent lapping by the accounts receivable department. d. To ensure the realization of receivables.

To ensure the realization of receivables.

If the auditor wants to obtain evidence as to whether the dividend payment was made to the stockholders who owned the stock as of the dividend record date which of the following would the auditor do? Select one: a. Recalculate the dividends per share. b. Examine the minutes of the board of directors meetings for authorization. c. Trace the payee's name on the canceled check to the dividend records. d. Determine that dividend restrictions are adequately disclosed in the financial statements.

Trace the payee's name on the canceled check to the dividend records.

Which of the following is the auditor's primary objective when auditing debt obligations? Select one: a. Understatement of the debt obligation focusing on the completeness assertion. b. Proper valuation of bond premiums or bond discounts including amortization valuation. c. Valuation of gains or losses on refinancing debt. d. Proper presentation and disclosure including important restrictions contained in the debt obligations.

Understatement of the debt obligation focusing on the completeness assertion.

When auditing expense accounts which of the following would the auditor be least likely to subject to a detailed test of transactions? Select one: a. Legal expense. b. Utilities expense. c. Repairs and maintenance expense. d. Travel expense.

Utilities expense.

Question 7 The auditor selects a sample of asset disposals and examines the sales documentation evidencing disposal of the equipment and recomputes gain or loss on the disposal. This audit steps primarily tests which of the following assertions for the equipment account? Select one: a. Existence. b. Presentation and disclosure. c. Rights. d. Valuation.

Valuation.

The auditor may discover that the recorded cost of inventory exceeds the designated market price when testing which assertion? Select one: a. Existence. b. Cutoff. c. Valuation. d. Rights.

Valuation.

Which is the primary assertion tested in conjunction with obtaining evidence regarding impairment? Select one: a. Valuation. b. Cutoff. c. Existence. d. Rights.

Valuation.

Which of the following results in a situation where an auditor has the least amount of difficulty in determining stock valuation? Select one: a. When stock is issued for land. b. When stock is exchanged for another business. c. When stock options are issued and exercises occur. d. When stock is issued for cash.

When stock is issued for cash.

What evidence is utilized by the auditor for analytical purposes in substantiating the completeness of the allowance for bad debt estimate? Select one: a. Accounts receivable aging schedule. b. Copies of checks received from customers. c. Confirmations returned without exception. d. Stock prices of customer companies.

a. Accounts receivable aging schedule

Much of the understanding of revenue transactions for compliance with GAAP can be performed by accomplishing which of the following tasks? Select one: a. Examining sales contracts and inquiry of management. b. Confirming sales with customers. c. Discussing the transactions with qualified members of the Financial Accounting Standards Board. d. Comparing shipping documents with invoices.

a. Examining sales contracts and inquiry of management.