MGT 132 Exam 2 Guide

Which of the following symbols indicate that a file has been consulted?

4

Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees?

A bank lockbox system

Which of the following should not normally be included in the engagement letter for an audit?

A listing of the client's branch offices selected for testing

To test the existence assertion for recorded receivables, an auditor would select a sample from the.

Accounts receivable subsidiary ledger

The auditors who physically examine securities should insist that a client representative be present in order to:

Acknowledge the receipt of securities returned

Hall Company had large amounts of funds to invest on a temporary basis. The board of directors decided to purchase securities and derivatives and assigned the future purchase and sale decisions to a responsible financial executive. The best person or persons to make periodic reviews of the investment activity would be:

An investment committee of the board of directors

In planning and performing an audit, auditors are concerned about risk factors for two distinct types of fraud: fraudulent financial reporting and misappropriation of assets. Which of the following is a risk factor for misappropriation of assets?

An unreliable accounting system

Which of the following would provide the most assurance concerning the valuation of accounts receivable?

Assess the allowance for uncollectible accounts for reasonableness

Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices?

Completeness

Which of the following is not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purposes?

Confirmation

When a CPA decides that the work performed by internal auditors may have an effect on the nature, timing, and extent of the CPA's procedures, the CPA should consider the competence and objectivity of the internal auditors. Relative to objectivity, the CPA should:

Consider the organizational level to which the internal auditors report the results of their work

You have been assigned to the year-end audit of a financial institution and are planning the timing of audit procedures relating to cash. You decide that it would be preferable to

Coordinate the count of cash with the count of marketable securities and other negotiable assets

Which of the following is not among the criteria that ordinarily exist for revenue to be recognized?

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

The auditors suspect that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the:

Details of bank deposit slips with details of credits to customer accounts

The primary objective of tests of details of transactions performed as substantive procedures is to:

Detect material misstatements in the financial statements

Which of the following would be least likely to be considered an objective of internal control?

Detecting management fraud

The risk that the auditors will conclude, based on substantive procedures, that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as

Detection risk

Effective internal control in a small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by:

Direct participation by the owner in key record keeping and control activities of the business

Which of the following is not an advantage of establishing an enterprise risk management system within an organization?

Eliminates all risk

To have an adequate basis to issue a management report on internal control under Section 404(a) of the Sarbanes-Oxley Act, management must do all of the following, except:

Establish internal control with no material weakness

Which of the following best describes what is meant by the term "fraud risk factor"?

Factors often observed in circumstances where frauds have occurred

Which of the following should the auditors obtain from the predecessor auditors before accepting an audit engagement?

Facts that might bear on the integrity of management

To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except:

General ledger

Which of the following would most likely be detected by an auditor's review of the client's sales cutoff?

Inflated sales for the year

In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also:

Is responsible for mailing the checks

A primary objective of procedures performed to obtain an understanding of internal control is to provide the auditors with

Knowledge necessary to determine the nature, timing, and extent of further audit procedures

Which of the following elements underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting?

Materiality and audit risk

The audit committee of a company must be made up of:

Members of the board of directors who are not officers or employees

Which of the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?

Observe the consistency of employees' use of cash registers and tapes

Which of the following is least likely to be considered an inherent risk relating to receivables and revenues?

Over-recorded sales due to a lack of control over the sales entry function

Controls over financial reporting are often classified as preventative, detective, or corrective. Which of the following is an example of a detective control?

Preparing bank reconciliations

Reconciliation of the bank account should not be performed by an individual who also:

Processes cash disbursements

As one step in testing sales transactions, a CPA traces a random sample of sales journal entries to debits in the accounts receivable subsidiary ledger. This test provides evidence as to whether:

Recorded sales have been properly posted to customer accounts

Which of the following is most likely to be an example of fraudulent financial reporting relating to sales?

Recording sales when the customer is likely to return the goods

In order to guard against the misappropriation of company-owned marketable securities, which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities

Require that safekeeping function for securities be assigned to a bank or stockbroker that will act as custodial agent

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

Send positive confirmation requests

To determine that all sales have been recorded, the auditors would select a sample of transactions from the:

Shipping documents file

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is

Stamped "paid" by the check signer

Which portion of an audit is least likely to be completed before the balance sheet date?

Substantive procedures

An auditor may compensate for a weakness in internal control by increasing the extent of:

Substantive tests of details

Three conditions generally are present when fraud occurs. Select the one that is not one of those conditions

Supervisory position

When the auditors are performing a first-time internal control audit in accordance with the Sarbanes-Oxley Act and PCAOB standards, they should:

Test controls for all significant accounts

Which of the following is an example of misappropriation of assets relating to sales?

Theft of cash register sales

Which of the following is most likely to be an overall response to fraud risks identified in an audit?

Use less predictable audit procedures

The best way to verify the amounts of dividend revenue received during the year is:

Verification by reference to dividend record books

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:

Write-off must be approved by a responsible official after review of credit department recommendations and supporting evidence

The auditors should confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low and

accounts receivable are immaterial, or the use of confirmations would be ineffective

An entity's ongoing monitoring activities often include

management review of weekly performance reports