A4 mcq

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables? A. Compare cash payments occurring after the balance sheet date with the accounts payable trial balance. B. Vouch a sample of creditor balances to supporting invoices, receiving reports, and purchase orders. C. Reconcile receiving reports with related cash payments made just prior to year-end. D. Contrast the ratio of accounts payable to purchases with the prior year's ratio.

A. Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be: A. Vendors with whom the entity has previously done business. B. Amounts recorded in the accounts payable subsidiary ledger. C. Invoices filed in the entity's open invoice file. D. Payees of checks drawn in the month after the year-end.

A. Vendors with whom the entity has previously done business.

Which of the following does not demonstrate an inappropriate segregation of duties? A. A billing clerk prepares invoices and records the resulting increase in accounts receivable. B. The purchasing manager approves vendor invoices for payment. C. An accounting clerk receives customer payments and records the resulting reduction in accounts receivable. D. The cashier performs the monthly bank reconciliation.

A. A billing clerk prepares invoices and records the resulting increase in accounts receivable.

Which of the following controls most likely would give the greatest assurance that securities held as investments are safeguarded? A. Access to securities requires the signatures and presence of two designated officials. B. Investment acquisitions are authorized by a member of the Board of Directors before execution. C. There is no access to securities between the year-end and the date of the auditor's security count. D. Proceeds from the sale of investments are received by an employee who does not have access to securities.

A. Access to securities requires the signatures and presence of two designated officials.

An auditor's plan to examine long-term debt most likely would include steps that require: A. Correlating interest expense recorded for the period with outstanding debt. B. Comparing the carrying amount of the debt to its year-end market value. C. Inspecting the accounts payable subsidiary ledger for unrecorded long-term debt. D. Verifying the existence of the holders of the debt by direct confirmation.

A. Correlating interest expense recorded for the period with outstanding debt.

The primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to: A. Corroborate information regarding deposit and loan balances. B. Request information about contingent liabilities and secured transactions. C. Detect kiting activities that may otherwise not be discovered. D. Provide the data necessary to prepare a proof of cash.

A. Corroborate information regarding deposit and loan balances.

An auditor would consider a cashier's job description to contain compatible duties if the cashier receives remittances from the mailroom and also prepares the: A. Daily deposit slip. B. Remittance advices. C. Monthly bank reconciliation. D. Prelist of individual checks.

A. Daily deposit slip.

When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor would least likely: A. Increase the assessed level of detection risk for the valuation assertion. B. Send a second positive confirmation request. C. Examine shipping documents and sales invoices. D. Search for subsequent cash receipts.

A. Increase the assessed level of detection risk for the valuation assertion.

For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the: A. Internal auditor. B. Accounts receivable accountant. C. Accounts payable accountant. D. Controller.

A. Internal auditor.

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all: A. Receiving reports. B. Payment vouchers. C. Purchase requisitions. D. Vendor's invoices.

A. Receiving reports.

Which of the following payroll control activities would most effectively ensure that payment is made only for work performed? A. Require employees to have their direct supervisors approve their time cards. B. Require all employees to record arrival and departure by using the time clock. C. Require all employees to sign their time cards. D. Have a payroll clerk recalculate all time cards.

A. Require employees to have their direct supervisors approve their time cards.

An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to: A. Seek information about contingent liabilities and security agreements. B. Detect kiting activities that may otherwise not be discovered. C. Provide the data necessary to prepare a proof of cash. D. Request a cutoff bank statement and related checks be sent to the auditor.

A. Seek information about contingent liabilities and security agreements.

A weakness in internal control over recording retirements of equipment may cause an auditor to: A. Select certain items of equipment from the accounting records and locate them in the plant. B. Inspect certain items of equipment in the plant and trace those items to the accounting records. C. Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year. D. Trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used.

A. Select certain items of equipment from the accounting records and locate them in the plant.

Which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed? A. Two company officials have joint control of marketable securities, which are kept in a bank safe-deposit box. B. The internal auditor and the controller independently trace all purchases and sales of marketable securities from the subsidiary ledgers to the general ledger. C. The investment committee of the board of directors periodically reviews the investment decisions delegated to the treasurer. D. The chairman of the board verifies the marketable securities, which are kept in a bank safe-deposit box, each year on the balance sheet date.

A. Two company officials have joint control of marketable securities, which are kept in a bank safe-deposit box.

Which of the following control objectives is achieved by reviewing and testing control procedures over physical inventory count? A. Verification of existence of inventory. B. Posting and summarization of inventory transactions. C. Validation of purchase transactions. D. Authorization of the manufacturing orders.

A. Verification of existence of inventory.

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? A. Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions. B. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices. C. Vouch a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file. D. Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance.

B. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices.

In establishing the existence and ownership of long-term investments in the form of publicly-traded stock, an auditor most likely would inspect the securities or: A. Inspect the cash receipts journal for amounts that could represent the sale of securities. B. Confirm the number of shares owned that are held by an independent custodian. C. Correspond with the investee company to verify the number of shares owned. D. Apply analytical procedures to the dividend income and investments accounts.

B. Confirm the number of shares owned that are held by an independent custodian.

Which of the following procedures would an auditor least likely perform before the balance sheet date? A. Assessment of the risk of material misstatement. B. Confirmation of accounts payable. C. Identification of related parties. D. Observation of merchandise inventory.

B. Confirmation of accounts payable.

Which audit procedure is most likely related to the classification and understandability of the financial statements with respect to inventory? A. Examining consignment agreements. B. Confirming inventories pledged under loan agreements. C. Obtaining quotations for the current market value of inventory. D. Analyzing inventory turnover.

B. Confirming inventories pledged under loan agreements.

Which of the following control activities is not usually performed in the vouchers payable department? A. Determining the mathematical accuracy of the vendor's invoice. B. Controlling the mailing of the check and remittance advice. C. Having an authorized person approve the voucher. D. Matching the receiving report with the purchase order.

B. Controlling the mailing of the check and remittance advice.

An auditor finds several errors in the financial statements that the client prefers not to correct. The auditor determines that the errors are not material in the aggregate. Which of the following actions by the auditor is most appropriate? A. Do not summarize the uncorrected errors in the working papers, and do not document a conclusion about whether the uncorrected errors cause the financial statements to be misstated. B. Document the errors in the summary of uncorrected errors, and document the conclusion that the errors do not cause the financial statements to be misstated. C. Summarize the uncorrected errors in the working papers, but do not document whether the errors cause the financial statements to be misstated. D. Document the conclusion that the errors do not cause the financial statements to be misstated, but do not summarize uncorrected errors in the working papers.

B. Document the errors in the summary of uncorrected errors, and document the conclusion that the errors do not cause the financial statements to be misstated.

Which of the following matters is most likely to be included in a management representation letter as a specific representation? A. The competency and objectivity of the internal audit department. B. Information concerning fraud by the CFO. C. Reason for a significant increase in revenue over the prior year. D. Length of a material contract with a new customer.

B. Information concerning fraud by the CFO.

Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance? A. Inventory is properly valued. B. Inventory is complete. C. The entity has rights to the inventory. D. Inventory is properly presented in the financial statements.

B. Inventory is complete.

Which of the following audit procedures would be most appropriate to test the valuation of the collateral of a delinquent loan receivable? A. Performing a site visit to physically inspect the collateral. B. Obtaining a current value appraisal of the collateral. C. Sending a positive confirmation letter to the debtor to confirm the loan balance. D. Reviewing the debtor's purchase records to test the historical value of the collateral.

B. Obtaining a current value appraisal of the collateral.

The sampling unit in a test of controls pertaining to the existence of payroll transactions ordinarily is a (an): A. Employee Form W-2. B. Payroll register entry. C. Employee personnel record. D. Clock card or time ticket.

B. Payroll register entry.

Which of the following internal controls most likely would be used to maintain accurate inventory records? A. Requisitions, receiving reports, and purchase orders are independently matched before payment is approved. B. Periodic inventory counts are used to adjust the perpetual inventory records. C. A just-in-time inventory ordering system keeps inventory levels to a desired minimum. D. Perpetual inventory records are periodically compared with the current cost of individual inventory items.

B. Periodic inventory counts are used to adjust the perpetual inventory records.

Under properly designed internal control, the same employee most likely would match vendors' invoices with receiving reports and also: A. Reconcile the accounts payable ledger. B. Recompute the calculations on vendors' invoices. C. Post the detailed accounts payable records. D. Cancel vendors' invoices after payment.

B. Recompute the calculations on vendors' invoices.

To reduce the risks associated with accepting e-mail responses to requests for confirmation of accounts receivable, an auditor most likely would: A. Consider the e-mail responses to the confirmations to be exceptions. B. Request the senders to mail the original forms to the auditor. C. Mail second requests to the e-mail respondents. D. Examine subsequent cash receipts for the accounts in question.

B. Request the senders to mail the original forms to the auditor.

An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year-end? A. Resend confirmations for any significant customer balances remaining at year-end. B. Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year-end. C. Send confirmations for all new customer balances incurred from the interim date to year-end. D. Review cash collections subsequent to the interim date and the year-end.

B. Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year-end.

Which of the following internal control procedures most likely would deter lapping of collections from customers? A. Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries. B. Segregation of duties between receiving cash and posting the accounts receivable ledger. C. Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries. D. Authorization of write-offs of uncollectible accounts by a supervisor independent of credit approval.

B. Segregation of duties between receiving cash and posting the accounts receivable ledger.

Which of the following procedures is performed first for unreturned positive confirmations of accounts receivable? A. Comparing current sales with budgeted sales. B. Sending second requests for confirmation of accounts receivable. C. Asking the client to obtain additional correspondence from the customers. D. Performing subsequent procedures.

B. Sending second requests for confirmation of accounts receivable.

Which of the following events occurring in the year under audit would most likely indicate that internal controls utilized in previous years may be inadequate in the year under audit? A. The frequency of accounts payable check runs was changed from biweekly to weekly. B. The chief financial officer waived approvals on all checks to one vendor to expedite payment. C. The audit committee chairperson unexpectedly resigned during the year under audit. D. The entity announced that the internal audit function would be eliminated after the balance sheet date.

B. The chief financial officer waived approvals on all checks to one vendor to expedite payment.

Which of the following internal controls would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments? A. The treasurer vouches the acquisition of securities by comparing brokers' advices with canceled checks. B. The internal auditor compares the securities in the bank safe deposit box with recorded investments. C. The controller compares the current market prices of recorded investments with the brokers' advices on file. D. Senior management verifies that securities in the bank safe deposit box are registered in the entity's name.

B. The internal auditor compares the securities in the bank safe deposit box with recorded investments.

Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable? A. Are assets that collateralize notes payable critically needed for the entity's continued existence? B. Are two or more authorized signatures required on checks that repay notes payable? C. Are direct borrowings on notes payable authorized by the board of directors? D. Are the proceeds from notes payable used for the purchase of noncurrent assets?

C. Are direct borrowings on notes payable authorized by the board of directors?

The primary evidence regarding year-end cash balances in the financial statements is documented in the: A. Bank deposit lead schedule. B. Interbank transfer schedule. C. Bank reconciliations. D. Standard bank confirmations.

C. Bank reconciliations.

Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? A. Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation. B. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry. C. Confirming with third parties the details of arrangements to maintain financial support. D. Inspecting title documents to verify whether any assets are pledged as collateral.

C. Confirming with third parties the details of arrangements to maintain financial support.

In an entity under audit, employees have the opportunity to change their time worked after their time cards have been approved. This is an example of which of the following types of deficiency? A. Operating. B. Accounting. C. Design. D. Procedural.

C. Design.

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the: A. Feasibility of plans to purchase leased equipment at less than market value. B. Ability to expand operations into new product lines in the future. C. Marketability of assets that management plans to sell. D. Committed arrangements to convert preferred stock to long-term debt.

C. Marketability of assets that management plans to sell.

Which of the following internal controls most likely would justify a reduced assessed level of control risk concerning plant and equipment acquisitions? A. Comparison of current-year plant and equipment account balances with prior-year actual balances. B. Approval of periodic depreciation entries by a supervisor independent of the accounting department. C. Periodic physical inspection of plant and equipment by the internal audit staff. D. The review of prenumbered purchase orders to detect unrecorded trade-ins.

C. Periodic physical inspection of plant and equipment by the internal audit staff.

Which of the following internal control procedures most likely addresses the completeness assertion for inventory? A. Work in process account is periodically reconciled with subsidiary records. B. There is a separation of duties between payroll department and inventory accounting personnel. C. Receiving reports are prenumbered and periodically reconciled. D. Employees responsible for custody of finished goods do not perform the receiving function.

C. Receiving reports are prenumbered and periodically reconciled.

The purpose of tracing a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items: A. Included on the listing were properly counted. B. Included in the listing were properly valued. C. Represented by tags were included on the listing. D. Represented by tags were reduced to the lower of cost or market.

C. Represented by tags were included on the listing.

Tracing shipping documents to prenumbered sales invoices provides evidence that: A. All prenumbered sales invoices were accounted for. B. No duplicate shipments or billings occurred. C. Shipments to customers were properly invoiced. D. All goods ordered by customers were shipped.

C. Shipments to customers were properly invoiced.

In auditing accounts receivable the negative form of confirmation request most likely would be used when: A. The combined assessed level of inherent and control risk relative to accounts receivable is low. B. Recipients are likely to return positive confirmation requests without verifying the accuracy of the information. C. The auditor performs a dual purpose test that assesses control risk and obtains substantive evidence. D. A small number of accounts receivable are involved but a relatively large number of errors are expected.

C. The auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

When communicating internal control related matters noted in a financial statement audit of a nonissuer, an auditor's report issued on significant deficiencies should indicate that: A. Errors or fraud may occur and not be detected because there are inherent limitations in any internal control. B. The issuance of an unmodified opinion on the financial statements may be dependent on corrective follow-up action. C. The purpose of the audit was to report on the financial statements and not to provide assurance on internal control. D. A material weakness exists when the deficiencies noted were not detected within a timely period by employees in the normal course of performing their assigned functions.

C. The purpose of the audit was to report on the financial statements and not to provide assurance on internal control.

An auditor determines that there is a high level of control risk surrounding the revenue cycle. Which situation is most likely to have given rise to this assessment? A. The auditor discovers a sale that was recorded in the current year although title did not pass until the subsequent year. B. A related party sale is identified which has not been properly disclosed in the financial statements. C. The sales manager does not enforce the client's stated policies regarding authorization and approval of sales transactions. D. The sales clerk is a newly hired, recent college graduate, with no previous experience in sales.

C. The sales manager does not enforce the client's stated policies regarding authorization and approval of sales transactions.

An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that: A. Payments to employees are computed at authorized rates. B. Segregation of duties exists between the preparation and distribution of the payroll. C. Employees work the number of hours for which they are paid. D. Internal controls relating to unclaimed payroll checks are operating effectively.

Choice "C" is correct. By vouching to time card data, the auditor is testing the occurrence assertion for hours worked.

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: A. Correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment. B. Accounts payable balances at the balance sheet date may not be paid before the audit is completed. C. This is a duplication of cutoff tests. D. There is likely to be other reliable external evidence available to support the balances.

D. There is likely to be other reliable external evidence available to support the balances.

Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees? A. Daily deposit of cash receipts. B. Prenumbered remittance advices. C. Monthly bank reconciliations. D. A bank lockbox system.

D. A bank lockbox system.

The date of the management representation letter should coincide with the date of the: A. Latest related party transaction. B. Balance sheet. C. Latest interim financial information. D. Auditor's report.

D. Auditor's report.

An insignificant portion of a client's inventory is in public warehouses. Evidence of the existence of this merchandise can most efficiently be acquired through which of the following methods? A. Inspection. B. Calculation. C. Observation. D. Confirmation.

D. Confirmation.

An auditor's principal objective in analyzing repairs and maintenance expense accounts is to: A. Verify that all recorded plant and equipment assets actually exist. B. Identify plant and equipment assets that cannot be repaired and should be written off. C. Determine that all obsolete plant and equipment assets were written off before the year-end. D. Discover expenditures that were expensed but should have been capitalized.

D. Discover expenditures that were expensed but should have been capitalized.

Which of the following statements is correct with regard to management use of a broker's quotation to support a fair value estimate? A. The auditor is not required to obtain an understanding of the broker's methodology for obtaining the fair value estimate. B. A broker's quotation that is based on a cash flow methodology cannot be accepted. C. A broker's quotation that is based on a combination of methodologies cannot be accepted. D. If the quotation is from the broker who initially sold the instrument, the evidence might be less objective and might need supplementation.

D. If the quotation is from the broker who initially sold the instrument, the evidence might be less objective and might need supplementation.

Which of the following strategies most likely could improve the response rate of the confirmations of accounts receivable? A. Ask customers to respond to the confirmation requests directly to the auditor by fax. B. Restrict the selection of accounts to be confirmed to those customers with large balances. C. Explain to customers that discrepancies will be investigated by an independent third party. D. Include a list of items or invoices that constitute the customers' account balances.

D. Include a list of items or invoices that constitute the customers' account balances.

When auditing prepaid insurance, an auditor discovers that the original insurance policy on plant equipment is not available for inspection. The policy's absence most likely indicates the possibility of a (an): A. Insurance premium due but not recorded. B. Understatement of insurance expense. C. Deficiency in the coinsurance provision. D. Lien on the plant equipment.

D. Lien on the plant equipment.

Which of the following expressions most likely would be included in a management representation letter? A. Certain computer files and other required audit evidence may exist only for a short period of time and only in computer-readable form. B. There are no significant deficiencies in internal control identified during the prior-year's audit of which those charged with governance are unaware. C. We do not intend to provide any information that may be construed to constitute a waiver of the attorney-client privilege. D. No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements.

D. No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements.

Which of the following procedures would be most appropriate for testing the completeness assertion as it applies to inventory? A. Examining paid vendor invoices. B. Tracing inventory items from the tag listing back to the physical inventory quantities. C. Scanning perpetual inventory, production, and purchasing records. D. Performing cutoff procedures for shipping and receiving.

D. Performing cutoff procedures for shipping and receiving.

Which of the following best represents a key control for ensuring sales are properly authorized when assessing control risks for sales? A. Copies of approved sales orders sent to the shipping, billing, and accounting departments. B. The separation of duties between the billing department and the cash receipts approval department. C. The use of an approved price list to determine unit selling price. D. Sales orders are sent to the credit department for approval.

D. Sales orders are sent to the credit department for approval.

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation? A. Reviewing shipping and receiving cutoff procedures for inventories. B. Obtaining confirmation of inventories pledged under loan agreements. C. Tracing test counts to the entity's inventory listing. D. Testing the entity's computation of standard overhead rates.

D. Testing the entity's computation of standard overhead rates.