ACCT 3222 Quiz 4

1. Which of the following formulas is used to calculate the dividend payout rate? A. Cash dividends/net income B. Cash dividends * net income C. Cash dividends − net income D. Average total assets − total dividends

A. Cash dividends/net income

1. Which assertion do auditors test when they trace a sample of sales, cash receipts, and sales adjustment transactions to their recording in the accounting records? A. Completeness B. Accuracy C. Cutoff D. Classification

A. Completeness

1. While conducting which type of inventory count will the client frequently identify a small portion of items in the perpetual inventory, count actual inventory, and investigate discrepancies? A. Cycle B. Perpetual C. Virtual D. Accuracy

A. Cycle

1. Which of the following risks is addressed by preparing periodic independent bank reconciliations? A. Errors being made in journalizing cash receipts B. Receipts being posted to the wrong customer account C. Cash sales may not be recorded. D. Cash not being deposited intact daily

A. Errors being made in journalizing cash receipts

1. The "classification and understandability" assertion describing relevant disclosures is part of which of the following? A. Key purchasing cycle assertions B. Cash and purchase discounts C. Purchase returns and allowances D. Purchase transactions

A. Key purchasing cycle assertions

1. Which of the following is/are essential to the proper statement of cash at the balance sheet date? A. Proper cutoff of cash receipts and cash disbursements at the end of the year B. Proper cutoff of cash receipts, but not disbursements, at the end of the year C. Cash disbursements at the end of the year D. Cash assets at the end of the year

A. Proper cutoff of cash receipts and cash disbursements at the end of the year

1. Financing activities typically include which of the following? A. Retirement of debt B. Selling to customers C. Acquisition of a building for resale D. Acquisition of a building to be used for core business operations

A. Retirement of debt

1. To which of the following tests is the determination of FOB destination and FOB shipping point critical? A. Sales cutoff test B. Details of balances C. Vouch revenue transactions D. Trace revenue transactions

A. Sales cutoff test

1. Which of the following is a control for the completeness (of cash receipts assertion)? A. The computer compares each item on the underlying information in the bank remittance report to develop a one for one match with recorded cash receipts in the daily remittance report. B. The computer starts with the population of daily cash receipts recorded in the daily remittance report and develops a one for one match with the underlying bank remittance report. C. The computer starts with the population of daily cash receipts recorded in the daily remittance report and it compares the dollar amount of each recorded cash receipt with the underlying bank remittance report. D. The computer starts with the population of daily cash receipts recorded in the daily remittance report and compares the date recorded in the daily remittance report with the date received and deposited by the bank.

A. The computer compares each item on the underlying information in the bank remittance report to develop a one for one match with recorded cash receipts in the daily remittance report.

1. Many frauds can be avoided with strong controls over the vendor master files, determining the appropriateness of support for payments to vendors before recording a liability (voucher), and the willingness to dispute inappropriate items with vendors. A. True B. False

A. True

1. A transfer agent is _______. A. a trust company, bank, or similar financial institution assigned by a corporation to maintain records of investors and account balances B. responsible for handling the client's foreign currency exchanges C. responsible for handling the client's banks foreign currency exchanges D. seldom used by a publicly traded client due to prohibitive costs

A. a trust company, bank, or similar financial institution assigned by a corporation to maintain records of investors and account balances

1. Analytical procedures performed as part of risk assessment activities _______. A. are typically cost effective and may alert the auditor to potential misstatements B. are typically expensive to perform, but may alert the auditor to potential misstatements C. should only be performed with the express approval of senior management D. should be coordinated with the client's legal counsel beforehand

A. are typically cost effective and may alert the auditor to potential misstatements

1. Controls over cash receipts and cash disbursements _______. A. are usually tested as part of testing controls in the revenue process and the purchasing process B. are usually tested as part of testing controls in the financing process and the purchasing process C. receive relatively little auditor attention due to their low inherent risk D. should not be tested as part of the external audit

A. are usually tested as part of testing controls in the revenue process and the purchasing process

1. When an auditor finds that a client has engaged in significant new debt or equity transactions, the auditor should_______. A. be prepared to study a significant volume of legal documents related to the financing transaction in order to determine the impact of any legal requirements B. be prepared to study a small volume of legal documents related to the financing transaction in order to determine the impact of any legal requirements C. be prepared to study a significant volume of legal documents related to the operating transaction in order to determine the impact of any legal requirements D. attempt to obtain additional written representations from management to increase the assurance level

A. be prepared to study a significant volume of legal documents related to the financing transaction in order to determine the impact of any legal requirements

1. An analytical procedure related to the substantive testing of cash balances would be to _______. A. calculate cash as a percent of total assets and compare with auditor expectations B. calculate cash as a percent of total assets and compare with internal auditor expectations C. send notes payable confirmations to creditors D. send confirmations to the client firm's stockholders

A. calculate cash as a percent of total assets and compare with auditor expectations

1. Tests of cash balances focus on the account balance assertions of _______. A. completeness, right and obligations, and valuation B. completeness, right and obligations, and disclosure C. existence, cutoff, and valuation D. cutoff, existence, going concern

A. completeness, right and obligations, and valuation

1. An inventory markdown by a client _______. A. could indicate obsolescence B. is required every three years as part of GAAP C. means the client has violated the accounting principle of conservatism D. is not the responsibility of the auditor to check

A. could indicate obsolescence

1. The auditor will usually test the effectiveness of computer general controls as part of testing _______ level controls. A. entity B. division C. transaction D. function

A. entity

1. Most auditors plan to test controls in the purchases cycle because of the _______. A. high volume of routine transactions in this process B. low volume of routine transactions in this process C. high volume of irregular transactions in this process D. low volume of irregular transactions in this process

A. high volume of routine transactions in this process

1. In assessing inherent risk for the purchasing process assertions, the auditor should consider pervasive factors that _______. A. influence the understatement or overstatement of payables and expenses B. influence the understatement of expenses only C. influence the overstatement of payables only D. lead to risk factors associated with purchases

A. influence the understatement or overstatement of payables and expenses

1. If the financial statements show a trend of increased profit margin combined with an increase in the number of inventory turnover in days, _______. A. inventory may be overstated B. inventory may be understated C. inventory may be becoming obsolete D. inventory turnover to payables should increase also

A. inventory may be overstated

1. The first step in auditing investing activities _______. A. involves understanding the assets that are needed to support the entity's operations B. involves understanding the assets that are needed to support the entity's sales C. involves understanding the assets that are needed to support the entity's compliance with debt covenants D. is to issue a preliminary audit opinion

A. involves understanding the assets that are needed to support the entity's operations

1. Relevant assertions relating to purchases of materials or goods are _______. A. occurrence, completeness, accuracy, cutoff, classification B. going concern, completeness, accuracy, cutoff, classification C. occurrence, completeness, accuracy, cutoff, verifiability D. occurrence, completeness, accuracy, comparability

A. occurrence, completeness, accuracy, cutoff, classification

1. If a company receives goods but waits to record the transaction until a vendor's invoice is received, _______. A. purchases and accounts payable will be understated B. purchases and accounts payable will be overstated C. purchases will be overstated and accounts payable will be understated D. purchases will be understated and accounts payable will be overstated

A. purchases and accounts payable will be understated

1. The search for unrecorded liabilities consists of procedures designed specifically to detect _______. A. significant unrecorded obligations at the balance sheet date (or as of an interim date) B. insignificant unrecorded obligations at the balance sheet date (or as of an interim date) C. significant unrecorded obligations at the income statement date (or as of an interim date) D. significant recorded obligations at the balance sheet date (or as of an interim date)

A. significant unrecorded obligations at the balance sheet date (or as of an interim date)

1. The auditor should be alert to cutoff problems _______. A. that might have resulted in overstating inventory B. that might have resulted in correct inventory balances C. which relate to revenues being valued improperly D. which relate to expenses being misclassified

A. that might have resulted in overstating inventory

1. In tracing beginning inventory balances to prior year working papers, _______. A. the auditor should make certain that any audit adjustments agreed upon in the prior year did in fact get recorded B. the auditor should make certain that any audit adjustments agreed upon in the subsequent years did in fact get recorded C. the auditor should be mindful of the relationship between inventory sales and accounts payable D. the auditor should be mindful of the relationship between inventory sales and notes payable

A. the auditor should make certain that any audit adjustments agreed upon in the prior year did in fact get recorded

1. The purchasing or procurement process involves selecting customers, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities. A. True B. False

B. False

1. A voucher is an external document indicating the vendor, the amount due, and payment terms for the purchases received. A. True B. False

B. False A voucher is an INTERNAL document indicating the vendor, the amount due, and payment terms for the purchases received. It is used to authorize recording and paying a liability.

1. The transaction flow in a typical purchases process for a client purchasing goods includes approving purchases, shipping goods, recording purchases and recording accounts payable A. True B. False

B. False The transaction flow in a typical purchases process for a client purchasing goods includes approving purchases, receiving goods, recording purchases and recording accounts payable.

1. Which of the following serves as the basis for initiating the sales return and internal processing of the customer return by the seller? A. Cash receipts journal B. Sales return authorization C. Credit memo D. Receiving report

B. Sales return authorization

1. Control activities useful in reducing the risk of fraud focus on establishing the validity and occurrence of such transactions and include ________. A. a portion of sales returns should be authorized by sales management B. all sales returns should be authorized by sales management C. the computer should match the debit memo information with the sales order D. ensuring top management approves all credit memos before agreeing to a reduction in accounts receivable

B. all sales returns should be authorized by sales management

1. Many elements of valuing inventory _______. A. should be handled by the internal auditors B. involve professional judgment and accounting estimates C. involve professional judgment and strict accounting rules D. should be ignored by the auditor due to complicated valuation issues

B. involve professional judgment and accounting estimates

1. The population of debt and equity instruments _______. A. is typically large in terms of the number of instruments B. is typically small in terms of the number of instruments C. is usually of no concern to the auditor D. should all carry the same interest rates

B. is typically small in terms of the number of instruments

1. Key assertions relating to relevant disclosures for payables are _______. A. going concern, completeness, classification and understandability, accuracy and valuation B. occurrence and rights and obligations, completeness, classification and understandability, accuracy and valuation C. occurrence and rights and obligations, completeness, classification and understandability, note disclosure D. credibility, completeness, classification and understandability, accuracy and valuation

B. occurrence and rights and obligations, completeness, classification and understandability, accuracy and valuation

1. If discounts are taken for early payment, _______. A. purchase discounts are deferred when recording the cash disbursement B. purchase discounts are recorded when recording the cash disbursement C. accounts receivable should be debited for the amount of the discount D. accounts payable should be credited for the amount of the discount

B. purchase discounts are recorded when recording the cash disbursement

1. For companies that purchase goods on account, the transaction should _______. A. record purchases and accounts payable upon ordering of the goods B. record purchases and accounts payable upon the receipt of goods C. be input into the ledger by the auditor once it has been reviewed D. overstate equity until the goods are paid for

B. record purchases and accounts payable upon the receipt of goods

1. Goods in transit shipped FOB (free-on-board) destination should _______. A. remain in the inventory of the buyer and be excluded from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department. B. remain in the inventory of the seller and be excluded from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department. C. remain in the inventory of the buyer and be included from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department. D. remain in the inventory of the seller and be included from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department.

B. remain in the inventory of the seller and be excluded from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department.

1. The purchasing or procurement process involves _______. A. selecting customers, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities B. selecting vendors, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities C. selecting vendors, establishing payment terms, negotiating contracts, selling goods, receiving goods, and recording of purchases and payment of liabilities D. selecting vendors, establishing payment terms, negotiating contracts, purchasing goods, shipping goods, and recording of purchases and payment of liabilities

B. selecting vendors, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities

1. What is a remittance advice? A. A document prepared by the bank showing the details of electronic funds transfers received by the bank from customers B. A receipt from the bank showing the total amount deposited to the client's account at the bank C. A document received from the customer showing the details of payments made by the customer D. A daily report showing cash recorded in the cash receipts journal identifying customers making payments on account and the amounts received

C. A document received from the customer showing the details of payments made by the customer

1. As a control for cash receipts, which assertion is addressed when the computer starts with the population of daily cash receipts recorded in the daily remittance report (or cash receipts journal) and develops a one for one match with the underlying bank remittance report A. Accuracy B. Classification C. Occurrence D. Completeness

C. Occurrence

1. The rights and obligations assertion with respect to accounts payable relates to whether the _______. A. accounts receivable reflect the recorded asset of the entity B. accounts receivable reflect the recorded liability of the entity C. accounts payable reflect the recorded liability of the entity D. accounts payable reflect the recorded asset of the entity

C. accounts payable reflect the recorded liability of the entity

1. If a company is growing, it is common to expect purchases, inventory, and _______. A. accounts receivable to grow at different rates B. accounts payable to grow at different rates C. accounts payable to grow at approximately the same rates D. accounts receivable to grow at approximately the same rates

C. accounts payable to grow at approximately the same rates

1. Confirmation of accounts receivable involves ________. A. confirming accounts receivable with the client B. confirming accounts receivable with the bank C. direct written communication between the client's customers and the auditor D. direct written communication between the client's customers and the client

C. direct written communication between the client's customers and the auditor

1. Before proceeding with tests of details of cash balances, the auditor should _______. A. attempt to confirm cash balances with the firms' creditors B. ensure that an understanding has been obtained regarding the auditor and its environment and the importance of cash balances to the entity C. ensure that an understanding has been obtained regarding the entity and its environment and the importance of cash balances to the entity D. issue a tentative audit opinion related to cash

C. ensure that an understanding has been obtained regarding the entity and its environment and the importance of cash balances to the entity

1. Goods shipped FOB (free on board) shipping point should be _______. A. included in inventory by both the buyer and seller upon shipment B. included in the inventory and accounts payable of the selling entity upon shipment C. included in the inventory and accounts payable of the purchasing entity upon shipment D. excluded by both the buyer and seller upon shipment

C. included in the inventory and accounts payable of the purchasing entity upon shipment

1. The second step in auditing investing activities _______. A. is to confirm the auditors issued opinion B. involves determining what assets were disposed of during the period C. involves determining what assets were acquired during the period D. involves contacting the client's prior auditor to assist with geographically dispersed locations

C. involves determining what assets were acquired during the period

1. When an auditor performs risk assessment activities and develops a business-based approach to auditing financing activities, _______. A. the auditor should be prepared to make recommendations pertaining to which arrangements should be refinanced B. it is essential to understand how the entity chooses an investing strategy, and the types of financial instruments used by the entity C. it is essential to understand how the entity chooses a financing strategy, and the types of financial instruments used by the entity D. it is essential to understand how the entity chooses to finance an operating strategy, and the types of financial instruments used by the entity

C. it is essential to understand how the entity chooses a financing strategy, and the types of financial instruments used by the entity

1. Plant assets should be _______. A. classified as current assets if the intention is to sell them B. listed as a liability if the assets are financed C. relatively stable and grow at approximately the rate of sales growth D. relatively stable and grow at a higher rate than the rate of sales growth

C. relatively stable and grow at approximately the rate of sales growth

1. Auditing the cutoff assertion pertaining to cash receipts is important because ________. A. the auditor needs to ensure expenses are being matched with revenues B. the bank may have recorded cash receipts in incorrect period C. the client should have recorded cash receipts in the correct period D. the recording of revenue and the corresponding receipt of cash should always be in the same fiscal period

C. the client should have recorded cash receipts in the correct period

1. The auditor often makes inquiries of personnel responsible for clearing exceptions ________. A. to determine that all exceptions have been automatically approved B. to ensure that no employees that handle exception reports are lapping C. to determine their awareness of the types of misstatements that might appear on exception reports D. to ensure that it is always one type of misstatement that will appear on the report

C. to determine their awareness of the types of misstatements that might appear on exception reports

1. Auditors often use test data on programmed application controls _______. A. to determine how likely the system is to hacking and phishing attempts B. to ensure expected results do not appear on exception reports C. to determine whether expected results appear on exception reports D. as a way to enter dummy transactions designed to increase audit fees

C. to determine whether expected results appear on exception reports

1. Cost of goods sold is determined by calculating _______. A. beginning inventory plus purchases B. beginning inventory minus ending inventory C. value of goods available for sale minus ending inventory D. value of goods available for sale plus ending inventory

C. value of goods available for sale minus ending inventory

1. If an entity is a public company, the auditor will most likely _______. A. not feel the need to test the client's controls B. will test controls and follow a higher assessed level of control risk approach C. will test controls and follow a lower assessed level of control risk approach D. outsource the testing of controls to the internal audit function

C. will test controls and follow a lower assessed level of control risk approach

1. When auditors choose to send confirmations of accounts payable, accounts with _______. A. zero or small balances should be among those selected for negative confirmation because they may be more understated than accounts with large balances B. zero or small balances should be ignored because they are likely immaterial C. zero or small balances should be among those selected for confirmation because they may be more understated than accounts with large balances D. extremely large balances should be among those selected for confirmation because they may be more understated than accounts with smaller balances

C. zero or small balances should be among those selected for confirmation because they may be more understated than accounts with large balances

1. Which of the following is a receipt from the bank showing the total amount deposited to the client's account at the bank? A. Remittance advice B. Remittance report from the bank C. Monthly statements of receivable balances D. Bank deposit slip

D. Bank deposit slip

1. In larger public companies where the internal auditor tests controls over cash and cash budgeting, the external auditor_______. A. should ignore the results of the internal audit B. will automatically rely on the work performed and results obtained C. will determine if it is appropriate to use the work of a specialist to support the audit conclusion. D. will determine if it is appropriate to use the work of the internal auditor to support the audit conclusion.

D. will determine if it is appropriate to use the work of the internal auditor to support the audit conclusion.

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting? a. Review authenticated deposit slips. b. Review subsequent bank statements and canceled checks received directly from the bank. c. Prepare a schedule of bank transfers from the client's books. d. Prepare a year-end bank reconciliation.

c. Prepare a schedule of bank transfers from the client's books.