ACTG 135: Final Multiple Choice

Tests of controls for the acquisition and payment cycle are usually divided into: a. tests of acquisitions and classification. b. tests of authorization and acquisition. c. tests of authorization and disbursement. d. tests of acquisitions and disbursements.

d. tests of acquisitions and disbursements.

A proof of cash represents: a. a test of controls and substantive test of transactions. b. a substantive test of transactions. c. a substantive test of transactions and test of details of balances. d. a test of details of balances.

c. a substantive test of transactions and test of details of balances.

Income statement accounts resulting from allocations are typically verified as a part of: a. tests of controls. b. substantive tests of transactions. c. analytical procedures. d. planning.

c. analytical procedures.

Because of the importance of tests of controls and substantive tests of transactions for acquisitions and cash disbursements, it is common in this audit area to use: a. block sampling. b. variables sampling. c. attributes sampling. d. probability proportional to size sampling.

c. attributes sampling.

The process of transferring money from one bank account to another and improperly recording the transaction is referred to as: a. kiting. b. lapping. c. scamming. d. embezzling.

a. kiting.

Because many of the types of errors and irregularities that may be found in the acquisition and payment cycle represent a misstatement of earnings and are of significant concern to the auditor, the tolerable exception rate selected by the auditor will be: a. low. b. high. c. average. d. very high.

a. low.

When the auditor uses sampling to examine transactions in the acquisition and payment cycle, the tolerable exception rate is typically set at a(n) _______ level. a. low. b. medium. c. high. d. indeterminate.

a. low.

For retail and wholesale businesses, the most important inventory is: a. merchandise available for sale. b. work-in-process. c. raw materials. d. inventory held on consignment.

a. merchandise available for sale.

The auditor's tests of the adequacy of the physical controls over raw materials, work-in-process, and finished goods must be restricted to: a. observation and inquiry. b. documentation and observation. c. documentation and confirmation. d. documentation and inquiry.

a. observation and inquiry.

The erroneous inclusion of transactions that should properly be recorded as assets into accounts such as repairs expense, lease expense, or supplies is a common client error. The auditor should evaluate the likelihood of these types of misclassifications in conjunction with: a. obtaining an understanding of internal control. b. the test of controls. c. the tests of transactions. d. the tests of details of balances.

a. obtaining an understanding of internal control.

The test of details of balances procedure to "trace from account payable list to vendors' invoices and statements" satisfies the objective of: a. occurrence. b. completeness. c. classification. d. detail tie-in.

a. occurrence.

Which of the following audit objectives is not typically a major objective in the audit of current year fixed asset additions? a. Classification. b. Completeness. c. Existence. d. Accuracy.

c. Existence.

The auditor uses a proof of cash to determine whether: 1.All recorded cash disbursements were paid by the bank. 2.All amounts that were paid by the bank were recorded. a. Yes Yes b. No No c. Yes No d. No Yes

a. Yes Yes

The physical counting of inventory may be performed at which of the following times? 1.Interim dates 2.On a cycle basis during the year a. Yes Yes b. No No c. Yes No d. No Yes

a. Yes Yes

If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control? a. Account for a sequence of payroll checks. b. Examine procedures manual and observe the recording of transactions. c. Examine payroll records for indication of pay rate approval. d. Reconcile the payroll bank account.

a. Account for a sequence of payroll checks.

The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the a. Accounts payable master file b. Cash disbursements file. c. Acquisitions transaction file. d. Purchase approval file.

a. Accounts payable master file

When assets are being verified, auditors focus much of their attention on making sure that the accounts are not overstated. Alternatively, auditors focus their efforts on understatement when auditing liabilities. What is the primary reason for this difference in focus? a. Auditors' legal liability. b. GAAP. c. GAAS requirements. d. All of the above.

a. Auditors' legal liability.

Which of the following accounts is associated with a transaction cycle other than acquisition and payment? a. Common stock. b. Property, plant and equipment. c. Accrued property taxes. d. Income tax expense.

a. Common stock.

Which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash? a. Existence. b. Cutoff. c. Detail tie-in. d. Presentation and disclosure.

a. Existence.

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account? a. Extraordinary repairs have lengthened the life of an asset. b. Prior years' depreciation charges were erroneously understated. c. A reserve for possible loss on retirement has been recorded. d. An asset has been recorded at its fair value.

a. Extraordinary repairs have lengthened the life of an asset.

Which of the following is the focus of an audit of cash for most companies? a. General cash account. b. Payroll cash account. c. Petty cash account. d. Money market account.

a. General cash account

Which of the following situations would most likely require special audit planning? a. Inventory consists of precious stones. b. Some items of factory and office equipment do not bear identification numbers. c. Depreciation methods used on the client's tax return differ from those used on the books. d. Assets costing less than $500 are expensed even though their expected life exceeds one year.

a. Inventory consists of precious stones.

Almost all companies need physical controls over their assets to prevent loss. Which of the following is not an example of such a control? a. Perpetual inventory master files. b. Segregated, limited-access storage areas. c. Custody of assets assigned to specific responsible individuals. d. Approved prenumbered documents for authorizing movement of inventory.

a. Perpetual inventory master files.

A major consideration in verifying the ending balance in fixed assets is the possibility of existing legal encumbrances. Tests to identify possible legal encumbrances would satisfy the audit objective of: a. existence. b. presentation and disclosure. c. detail tie-in. d. classification.

b. presentation and disclosure.

If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count, the auditor should ordinarily: a. withdraw from the engagement. b. issue a qualified audit report. c. conduct expanded observation tests of physical inventory. d. hire a specialist to assist the auditor.

c. conduct expanded observation tests of physical inventory.

A company failed to record an acquisition of merchandise and its related liability, but the merchandise was included in ending inventory. The effect on the financial statements was to: a. understate both assets and liabilities. b. understate net income and owners' equity. c. understate assets and owners' equity. d. understate liabilities, and overstate both net income and owners' equity.

d. understate liabilities, and overstate both net income and owners' equity.

Which of the following balance-related objectives applies to auditing the general cash account? 1.Rights 2.Classification 3.Realizable value a. Yes No Yes b. No Yes No c. Yes Yes Yes d. No No No

d. No No No.

What typically initiates the acquisitions and payment cycle? a. Issuance of a purchase requisition or request for purchase of goods/services. b. Issuance of payment to vendor. c. Approval of a new vendor. d. Purchase requisition.

a. Issuance of a purchase requisition or request for purchase of goods/services.

If a bank does not respond to a bank confirmation request, an auditor may: 1. Perform alternative procedures 2. Send a second request 3.Ask the client to communicate with the bank to ask them to complete and return the confirmation a. No Yes Yes b. No No Yes c. Yes No Yes d. Yes Yes No

a. No Yes Yes

From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories? a. Observation of physical inventory counts. b. Written inventory representations from management. c. Confirmation of inventories in a public warehouse. d. Auditor's recomputation of inventory extensions.

a. Observation of physical inventory counts.

When a customer fails to include a remittance advice with a payment, it is common practice for the person opening the mail to prepare one. Consequently, mail should be opened by which of the following four company employees? a. Receptionist. b. Sales manager. c. Credit manager. d. Accounts receivable clerk.

a. Receptionist.

The inventory and warehousing cycle can be thought of as having two separate but closely related systems, one involving the actual physical flow of goods, and the other the: a. related costs. b. storage of the goods. c. internal control over those goods. d. prevention of waste, obsolescence, and theft.

a. related costs.

The audit of year-end physical inventories should include steps to verify that the client's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a: a. sale in the current period. b. sale in the subsequent period. c. purchase in the current period. d. purchase return in the subsequent period.

a. sale in the current period.

Most of the audit testing of the storage of finished goods as well as the shipment of merchandise takes place during the testing of the: a. sales and collection cycle. b. payroll and personnel cycle. c. acquisitions and payments cycle. d. inventory and warehousing cycle.

a. sales and collection cycle.

Johnson Co.'s physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record: a. sales. b. sales returns. c. purchases. d. purchase discounts.

a. sales.

The most important means of verifying account balances in the payroll and personnel cycle are: a. tests of controls and tests of transactions. b. analytical procedures and tests of controls. c. analytical procedures and tests of transactions. d. test of controls and tests of details of balances.

a. tests of controls and tests of transactions.

It is frequently possible to test the physical inventory prior to the balance sheet date when: a. there are accurate perpetual inventory master files. b. year-end sales are small. c. the internal control system is no better at year-end than at an earlier point in time. d. the client counts inventory at interim dates.

a. there are accurate perpetual inventory master files.

Which of the following is not correct regarding controls over the processing of payroll? a. The person authorized to sign paychecks should not be otherwise involved in the preparation of the payroll. b. A check-signing machine should not be used to replace a manual signature. c. Distribution of pay checks should be performed by someone who is not involved in the other payroll functions. d. Unclaimed paychecks should be immediately returned for redeposit.

b. A check-signing machine should not be used to replace a manual signature.

Which of the following statements about payroll checks is correct? a. After a payroll check is cashed and returned to the employee it is referred to as a depository check. b. As soon as a payroll check is signed by an authorized employee, it becomes an asset. c. Payroll checks are written for the amount of gross pay due employees. d. It is rare that payroll checks are direct-deposited into employees' bank accounts.

b. As soon as a payroll check is signed by an authorized employee, it becomes an asset.

Which of the following is not a key control in the acquisition and payment cycle? a. Authorization of purchases. b. Authorization of credit. c. Timely recording and independent review of transactions. d. Authorization of payments.

b. Authorization of credit.

When a client uses perpetual inventory records, the tests of details of balances for inventory can be significantly reduced if the auditor believes the records are accurate. The controls over the acquisitions included in the records are normally tested as a part of the: a. tests of controls. b. tests of controls and tests of transactions. c. tests of details of balances. d. analytical procedures and tests of controls.

b. tests of controls and tests of transactions.

Expense accounts analysis is closely related to tests of controls and substantive tests of transactions. The major difference is: a. the difference in the types of underlying documentation which is examined. b. the degree of concentration on an individual account. c. the use or nonuse of cutoff tests. d. that one emphasizes transactions and the other emphasizes amounts.

b. the degree of concentration on an individual account.

The receipt of goods and services in the normal course of business represents the date clients normally recognize: a. income. b. the liability. c. warranty assets. d. expenses.

b. the liability.

The auditor's main concerns in verifying transfers of inventory do not include whether: a. recorded transfers exist. b. transfers represent appropriate uses of company resources. c. all actual transfers are recorded. d. the details of the transfer are accurately recorded.

b. transfers represent appropriate uses of company resources.

Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors? a. Internal accounting control over accounts payable is adequate, and there is sufficient evidence on hand to minimize the risk of a material misstatement. b. Confirmation response is expected to be favorable, and accounts payable balances are of immaterial amounts. c. Creditor statements are not available and internal control over payables is unsatisfactory. d. The majority of accounts payable balances are with associated companies.

c. Creditor statements are not available and internal control over payables is unsatisfactory.

Which of the following tests of controls is least useful in assessing the transaction-related audit objective related to occurrence? a. Examine documents in voucher package for occurrence. b. Examine supporting documents for indication of approval. c. Account for sequence of vouchers. d. Attempt to input transactions with valid and invalid vendors.

c. Account for sequence of vouchers.

The major balance sheet account in the acquisition and payment cycle is: a. Notes payable. b. Accruals payable. c. Accounts payable. d. Accrued liabilities.

c. Accounts payable.

Debits to manufacturing equipment arise from which cycle(s)? a. Sales and collection b. Payroll c. Acquisition and disbursement d. Inventory and warehousing

c. Acquisition and disbursement

The is a computer-generated file that includes all acquisition transactions during a given period is the a. Accounts payable file b. Cash disbursements file. c. Acquisitions transaction file. d. Purchase approval file.

c. Acquisitions transaction file.

Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle? a. Depreciation expense. b. Insurance expense. c. Bad debts expense. d. Property tax expense.

c. Bad debts expense.

Which of the following statements is correct? a. Bank personnel are responsible for providing reasonable assurance that a response to a bank confirmation is accurate. b. Bank personnel are responsible for providing complete assurance that a bank confirmation is complete. c. Bank personnel are not responsible for searching their records for bank balances or loans beyond those included on the bank confirmation. d. Bank personnel are not responsible for providing information related to interest on the bank confirmation.

c. Bank personnel are not responsible for searching their records for bank balances or loans beyond those included on the bank confirmation.

The extent to which auditors verify current period acquisitions of property, plant and equipment normally depends upon: a. assessed control risk for acquisitions. b. tolerable misstatement. c. Both a and b. d. Neither a nor b.

c. Both a and b.

Which of the following is not an advantage of using an imprest payroll account? a. It limits the company's exposure to payroll fraud. b. It allows the delegation of payroll check-signing duties. c. Companies have fewer banking transactions. d. It facilitates cash management.

c. Companies have fewer banking transactions.

A surprise payroll payoff in which employees must pick-up and sign for their pay check is one means of: a. identifying employees who do not have proper work credentials. b. establishing a tightly controlled, fraud-free work environment . c. testing for nonexistent employees. d. identifying employees who have not submitted proper W-2 forms..

c. testing for nonexistent employees.

When an outside specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialist's report is acceptable if: a. the auditor's report contains a reference to the assumption of full responsibility. b. the auditor is satisfied through application of appropriate procedures as to the reputation and competence of the specialist. c. the auditor conducted the same audit tests and procedures as would have been applicable if the client's employees took the physical inventory. d. circumstances made it impracticable or impossible for the auditor either to do the work personally or observe the work done by the inventory firm.

c. the auditor conducted the same audit tests and procedures as would have been applicable if the client's employees took the physical inventory.

Assume that during cutoff testing you determined that the last receiving report number for inventory was 24986. Which of the following receiving report numbers would you not expect to be included in inventory and accounts payable at year-end? a. 24980 b. 19773 c. 23019 d. 24990

d. 24990

The standard bank confirmation form has been agreed upon by the: a. SEC and FASB. b. AICPA and the SEC. c. SEC and the American Bankers' Association. d. AICPA and the American Bankers' Association.

d. AICPA and the American Bankers' Association.

Who should maintain the perpetual inventory master files? a. Production personnel. b. Inventory storeroom personnel. c. Inventory receiving personnel. d. Accounting department personnel.

d. Accounting department personnel.

What are the two major balance-related audit objectives in testing payroll liabilities? a. Accuracy and detail tie-in b. Completeness and valuation c. Completeness and rights and obligations d. Accuracy and cutoff

d. Accuracy and cutoff

When the client's physical inventory occurs before the last day of the year, it is still necessary to perform an accounts payable cutoff at the time of the count. In addition, the auditor must verify whether all acquisitions taking place between the count and the end of the year were added to: a. the physical inventory. b. Accounts Payable. c. Accounts Payable and Cost of Goods Sold. d. the physical inventory and Accounts Payable.

d. the physical inventory and Accounts Payable.

A useful starting point for becoming familiar with the client's inventory is for the auditor to: a. read the AICPA's Industry Audit Guide. b. review accounting theory covering special problems, such as gas and oil accounting, or lease-purchase agreements. c. read the client's Accounting Manual. d. tour the client's facility.

d. tour the client's facility.

As a part of the auditor's responsibility for ____________, the auditor should review the preparation of at least one of each type of payroll tax form the client is responsible for filing. a. doing tests of controls. b. doing tests of balances. c. doing tests of transactions. d. understanding the client's internal controls.

d. understanding the client's internal controls.

The payroll cycle consists of how many classes of transactions? a. one b. two c. three d. four

a. one

Which of the following errors would be least likely to be discovered during the tests of the bank reconciliation? a. Payment was made to an employee for more hours than he worked. b. Cash received by the client subsequent to the balance sheet date was recorded as cash receipts in the current year. c. Payments on notes payable were debited directly to the bank balance by the bank were not entered in the client's records. d. Deposits were recorded in the cash receipts records near the end of the year, deposited in the bank, and were included in the bank reconciliation as a deposit in transit.

a. Payment was made to an employee for more hours than he worked.

Which of the following is a significant audit concern related to the transfer of inventory from one location to another? a. Recorded transfers occurred. b. Transfers were properly transported. c. Transfers were properly planned. d. Transfers represent efficient movement of assets.

a. Recorded transfers occurred.

Under which of the following circumstances would an auditor be most likely to intensify an examination of a $500 imprest petty cash fund? a. Reimbursement occurs twice each week. b. The custodian endorses reimbursement checks. c. Reimbursement vouchers are not prenumbered. d. The custodian occasionally uses the cash fund to cash employee checks.

a. Reimbursement occurs twice each week.

Which of the following is an effective internal accounting control over cash payments? a. Signed checks should be mailed under the supervision of the check signer. b. Spoiled checks that have been voided should be disposed of immediately. c. Checks should be prepared only by persons responsible for cash receipts and disbursements. d. A check-signing machine with two signatures should be used.

a. Signed checks should be mailed under the supervision of the check signer.

Insurance expense for the period is a function of which of the following? a. The beginning prepaid balance, current premium payments and the ending prepaid balance. b. The beginning prepaid balance and the current period premium payments. c. The current period premium payments. d. The current period premium payments and the ending prepaid balance.

a. The beginning prepaid balance, current premium payments and the ending prepaid balance.

What occurred at the McKesson & Robbins Company to change the way in which auditors audit inventory? a. The company recorded nonexistent inventory. b. The auditor did not perform any audit tests of the inventory. c. The auditor and company colluded to overstate inventory balances. d. The company counted inventory three months prior to year-end.

a. The company recorded nonexistent inventory.

Which of the following should sign checks under conditions of effective internal control? a. Treasurer. b. Purchasing agent. c. Accounts payable clerk. d. Person preparing the checks.

a. Treasurer.

For which of the following functions is the use of prenumbered documents least important? a. Use of prenumbered time cards in the payroll function. b. Use of prenumbered sales invoices in the sales function. c. Use of prenumbered receiving reports in the acquisitions function. d. Use of prenumbered deposit slips in the cash receipts function.

a. Use of prenumbered time cards in the payroll function.

In the audit of property, plant, and equipment, it is helpful to separate the tests into all but which one of the following categories? a. Verification of the beginning balance. b. Verification of current year acquisitions. c. Verification of current year disposals. d. Verification of the ending balance.

a. Verification of the beginning balance.

Which of the following statements is correct regarding the auditor's responsibility with respect to the year-end inventory procedures of an audit client? 1.The auditor is responsible for reconciling the physical count with the perpetual inventory matter files. 2.The auditor is responsible for taking and compiling the inventory. 3.The auditor is responsible for observing the physical counting of inventory. a. Yes No No b. No No Yes c. Yes No Yes d. No Yes No

a. Yes No No

Auditors may extend their tests of payroll in which of the following circumstances? 1.Payroll materially affects the valuation of inventory. 2.The auditor is concerned there may be nonexistent employees on the payroll. a. Yes Yes b. No No c. Yes No d. No Yes

a. Yes Yes

In audits of companies in which payroll is a significant portion of inventory, the improper account classification of payroll can: Increase asset valuations. Decrease asset valuations. a. Yes Yes b. No No c. Yes No d. No Yes

a. Yes Yes

The usual audit test for a public company's officer compensation is to obtain the authorized salary of each officer from the minutes of the board of directors and compare it with: 1.the SEC's 10-K report. 2.the company's federal income tax return. a. Yes Yes b. No No c. Yes No d. No Yes

a. Yes Yes

When may auditors observe the physical inventory count? 1. At an interim date 2.At year-end a. Yes Yes b. No No c. Yes No d. No Yes

a. Yes Yes

Which of the following would be an appropriate initiation of a purchase requisition? 1. One initiated based on a periodic count of raw materials. 2. One initiated by stockroom personnel as raw materials are needed. a. Yes Yes b. No No c. Yes No d. No Yes

a. Yes Yes

Tests of payroll are usually not extensive because: 1.employees will likely complain if underpaid. 2. payroll transactions are uniform and uncomplicated. 3. payroll transactions are subject to audit by federal and state governments. a. Yes Yes Yes b. No Yes No c. No No Yes d. Yes No No

a. Yes Yes Yes

The starting point for the verification of the balance in the general bank account is to obtain: a. a bank reconciliation from the client. b. the client's cash account from the general ledger. c. a cutoff bank statement directly from the bank. d. the client's year-end bank statement and reconcile it.

a. a bank reconciliation from the client.

A document indicating a reduction in the amount owed to a vendor because of returned goods is: a. a debit memo. b. a credit memo. c. a receiving room report. d. a shipping room report.

a. a debit memo.

Changing circumstances may require a change in the useful life of an asset. When this occurs, it involves a change in: a. accounting estimate rather than a change in accounting principle. b. accounting principle rather than a change in accounting estimate. c. both accounting principle and accounting estimate. d. neither accounting principle nor accounting estimate.

a. accounting estimate rather than a change in accounting principle.

To test for cutoff errors which overstate liabilities, the auditor should trace, to vendors' invoices, the receiving reports issued: a. after year-end. b. before year-end. c. the last day of the fiscal year. d. both before and after year-end.

a. after year-end.

A written purchase order is a legal document that is: a. an offer to buy. b. not enforceable if it is not in writing. c. a binding agreement between purchaser and vendor. d. an acceptance of a vendor's catalog offer to sell.

a. an offer to buy.

A CPA learns that his client has paid a vendor twice for the same shipment, once based upon the original invoice and once based upon the monthly statement. A control procedure that should have prevented this duplicate payment is: a. attachment of the receiving report to the disbursement report. b. prenumbering of disbursement vouchers. c. use of a limit or reasonableness test. d. prenumbering of receiving reports.

a. attachment of the receiving report to the disbursement report.

To achieve effective internal accounting control over fixed asset additions, a company should establish procedures that require: a. authorization and approval of major fixed asset additions. b. capitalization of the cost of fixed asset additions in excess of a specific dollar amount. c. classification, as investments, of those fixed asset additions that are not used in the business. d. performance of recurring fixed asset maintenance work solely by maintenance department employees.

a. authorization and approval of major fixed asset additions.

The total of the individual employee earnings in the payroll master file equals the total: a. balance of gross payroll in general ledger accounts. b. of the checks drawn to employees for payroll. c. gross payroll plus the total contributed by the employer for payroll taxes. d. gross pay for the current week's payroll.

a. balance of gross payroll in general ledger accounts.

The test of details of balances procedure to "examine vendors' invoices of closely related accounts such as repairs to uncover items that should be property, plant, and equipment" satisfies the audit objective of: a. classification. b. detail tie-in. c. cutoff. d. existence.

a. classification.

Once the auditor has decided on the specific procedures, the acquisitions tests and the cash disbursements tests are typically performed: a. concurrently. b. sequentially. c. independently. d. separately.

a. concurrently.

The most important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the: a. consistent accrual of these liabilities relative to those of preceding periods. b. actual expense incurred for the prior period. c. amount expended to date in the current period. d. profitability of the client which will enable these liabilities to be met.

a. consistent accrual of these liabilities relative to those of preceding periods.

The approach used to verify manufacturing equipment is different than the one used to verify: a. current assets. b. patents. c. copyrights. d. all other types of property, plant, and equipment.

a. current assets.

To minimize the opportunity for fraud, unclaimed salary checks should be: a. deposited in a special bank account. b. kept in the payroll department. c. left with the employee's supervisor. d. held for the employee in the personnel department.

a. deposited in a special bank account.

The test details of balances procedure that requires the auditor to trace the book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of: a. detail tie-in. b. existence. c. completeness. d. accuracy.

a. detail tie-in.

A weak internal control system allows a department supervisor to "clock in" for a fictitious employee and then approve the employee's time card at the end of the pay period. This fraud would be detected if other controls were in place, such as having an independent party: a. distribute paychecks. b. recompute hours worked from time cards. c. foot the payroll journal and trace postings to the general ledger and the payroll master file. d. compare the date of the recorded check in the payroll journal with the date on the canceled checks and time cards.

a. distribute paychecks.

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

a. general ledger.

A common inventory observation procedure is to select a random sample of tag numbers and identify the tag with that number attached to the actual inventory item. The audit objective being achieved by this procedure is: a. inventory as recorded on tags actually exists (existence). b. existing inventory is counted and tagged (completeness). c. inventory is counted accurately (accuracy). d. inventory is classified correctly (classification).

a. inventory as recorded on tags actually exists (existence).

An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed. If the acquisition is included in accounts payable and purchases, but excluded from inventory, the result: a. is an understatement of net earnings. b. is an overstatement of net earnings. c. is an overstatement of working capital. d. is an overstatement of owner's equity.

a. is an understatement of net earnings.

The overall objective in the audit of accounts payable is to determine whether accounts payable: a. is fairly stated and properly disclosed. b. is overstated. c. is understated. d. is accurately stated.

a. is fairly stated and properly disclosed.

Listing all bank transfers made a few days before and after the balance sheet date and tracing each to the accounting records for proper recording is a useful approach to test for: a. kiting. b. lapping. c. income smoothing. d. channel stuffing.

a. kiting.

Testing the reasonableness of the cash balance at year-end is less important when the year-end bank reconciliation is verified: a. on a 100% basis. b. by someone in client's organization who is independent of the treasurer's function. c. by someone in client's organization who is independent of the controller's function. d. by the owner/manager.

a. on a 100% basis.

The file for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date is the: a. payroll master file. b. summary payroll report. c. payroll journal. d. job time ticket.

a. payroll master file.

Hardy Company mass-produces eight different products. The controller who is interested in strengthening internal controls over the accounting for materials used in production would be most likely to implement a(n): a. perpetual inventory system. b. job order cost accounting system. c. economic order quantity system. d. separation of duties among production personnel.

a. perpetual inventory system.

Records that include data such as employment date, performance ratings and pay rates are the: a. personnel records. b. employee screening forms. c. summary payroll reports. d. employee folders.

a. personnel records.

After a purchase requisition is approved, a _________ must be initiated to purchase the goods or services. a. purchase order b. vendor order c. call order d. vendor invoice

a. purchase order

For several years, a client's physical inventory count has been lower than what was shown on the books at the time of the count so that downward adjustments to the inventory account were required. Contributing to the inventory problem could be weaknesses in internal control that led to the failure to adjust the accounting records for some: a. purchases returned to vendors. b. sales returns received. c. sales discounts allowed. d. cash purchases.

a. purchases returned to vendors.

Once the auditor has determined the company's policy for accruing wages and knows it is consistent with that of previous years, the appropriate audit procedure to test for cutoff and accuracy is to: a. recalculate the client's accruals. b. compare the ledger balance with the journal and the tax form. c. confirm the amount with employees. d. compare the recorded accrued wages with the amount approved in the minutes of the Board.

a. recalculate the client's accruals.

Once the auditor determines that the company's policy for accruing wages is consistent with prior years, the appropriate audit procedure to test for accuracy and cutoff is: a. recalculating the client's accrual. b. performing extensive tests of controls. c. performing extensive tests of details. d. none of the above.

a. recalculating the client's accrual.

The auditor gets highly reliable evidence about individual transactions by examining: a. vendors' invoices. b. vendors' statements. c. confirmations of accounts payable balances. d. detailed inventory counting instructions.

a. vendors' invoices.

A document used by organizations to establish a formal means of recording and controlling acquisitions which usually contains a package of documents about the acquisition is the: a. voucher. b. purchase order. c. receiving report. d. purchase requisition.

a. voucher.

Which of the following statements is false? a. The payroll cycle consists of one class of transactions. b. Balance sheet accounts related to payroll are generally more significant than related transactions. c. Internal controls over payroll are effective for most companies. d. Small companies usually have effective controls over payroll.

b. Balance sheet accounts related to payroll are generally more significant than related transactions.

The emphasis in verifying petty cash is normally on which of the following? a. Year-end balance b. Controls over petty cash c. Transactions for the period d. Balance sheet classifications

b. Controls over petty cash

The retirement savings deductions, number of exemptions for withholding allowances, union dues deductions, and other deductions are found on what form? a. Time cards b. Deduction authorization form c. Rate authorization form d. Job time ticket

b. Deduction authorization form

The audit procedure that requires an auditor to "foot the acquisition schedule" relates to which balance-related audit objective? a. Classification. b. Detail tie-in. c. Existence. d. Cut-off.

b. Detail tie-in.

Which of the following would normally not be discovered as part of the audit of the bank reconciliation? a. Failure to bill a customer. b. Failure to include a deposit in transit on the bank reconciliation. c. Duplicate payment of a vendor's invoice. d. Payment to an employee for more hours than she worked.

b. Failure to include a deposit in transit on the bank reconciliation.

The payroll and personnel cycle begins with which of the following events? a. Interviewing job candidates. b. Hiring a new employee. c. Existing employees submitting requests for payment for work performed. d. Issuance of paychecks.

b. Hiring a new employee.

Which of the following cycles does not affect cash in bank? a. Capital acquisitions cycle. b. Inventory and warehousing. c. Payroll and personnel cycle. d. Acquisitions and disbursements.

b. Inventory and warehousing.

What typically ends the acquisitions and payment cycle? a. Issuance of a purchase requisition or request for purchase of goods/services. b. Issuance of a payment to a vendor. c. Approval of a new vendor. d. Purchase requisition.

b. Issuance of a payment to a vendor.

_________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred. a. Just-in-time production systems b. Job order cost systems c. Process cost systems d. Manufacturing systems

b. Job order cost systems

Which of the following is not a generally recognized inventory method? a. FIFO b. LOFO c. LIFO d. Specific identification

b. LOFO

Which of the following statements about the audit of fixed assets is not correct? a. The primary accounting record for manufacturing equipment and other property, plant and equipment is generally a fixed asset master file. b. Manufacturing equipment and current assets are normally audited in the same fashion regardless of the activity within a particular account. c. The emphasis on auditing fixed assets is on verification of current-period acquisitions. d. Failure to record the acquisition of a fixed asset affects the income statement until the assets is fully depreciated.

b. Manufacturing equipment and current assets are normally audited in the same fashion regardless of the activity within a particular account.

Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received? a. Count goods upon receipt in storeroom. b. Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department. c. Compare goods received with goods requisitioned in receiving department. d. Verify vouchers for accuracy and approval in internal audit department.

b. Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department.

An imprest petty cash fund would least likely be used to pay for which of the following items? a. Minor office supplies b. Monthly interest expense c. Stamps for small mailings d. Small contributions to a local charity

b. Monthly interest expense

Which of the following is not likely to be a test related to the audit of manufacturing equipment? a. Verify current year additions. b. Observe current year disposals. c. Verify depreciation expense. d. Perform analytical procedures.

b. Observe current year disposals.

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? a. Compare the physical quantities of slow-moving items with corresponding quantities of the prior year. b. Observe merchandise and raw materials during the client's physical inventory count. c. Review the management's inventory representation letter for accuracy. d. Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.

b. Observe merchandise and raw materials during the client's physical inventory count.

Which of the following control procedures would most likely be used to maintain accurate perpetual inventory records? a. Independent storeroom count of goods received. b. Periodic independent comparison of records with goods on hand. c. Periodic independent reconciliation of control and subsidiary records. d. Independent matching of purchase orders, receiving reports, and vendors' invoices.

b. Periodic independent comparison of records with goods on hand.

If an auditor were concerned with obtaining evidence about the appropriateness of the value of inventory, which of the following tests would be most appropriate? a. Compilation tests. b. Price tests. c. Confirmation of inventory held by outside parties. d. Physical examination of the inventory.

b. Price tests.

Once the initial audit of a newly constructed industrial plant has been performed, with respect to consistency, which of the following is of least concern to the continuing auditor in the following year? a. Prior years' capitalization policy. b. Prior years' capitalization costs. c. Prior years' depreciation methods. d. Prior years' depreciable life.

b. Prior years' capitalization costs.

The most important controls over cash disbursements include all but which of the following? a. Signing of checks by an authorized employee. b. Random examination of the supporting documents by the authorized check signer before signing checks. c. Separation of responsibilities for signing the checks and performing the accounts payable function. d. Prenumbering of checks and investigations of missing checks.

b. Random examination of the supporting documents by the authorized check signer before signing checks.

Which department should initiate a report when goods arrive from a vendor? a. Manufacturing b. Receiving c. Accounting d. Treasury

b. Receiving

Which of the following internal controls in the payroll and personnel cycle is generally least important to an auditor? a. Formal methods of informing payroll personnel of new employees. b. Reconciliation of total payroll expense in the general ledger with the payroll tax returns and the W-2 forms. c. Authorization of changes in pay rates. d. Notice of the termination date of employees no longer working for the company.

b. Reconciliation of total payroll expense in the general ledger with the payroll tax returns and the W-2 forms.

Which of the following audit procedures would be least likely to lead the auditor to find an unrecorded fixed asset disposal? a. Examination of insurance policies. b. Review of repairs and maintenance expense. c. Review of property tax files. d. Scanning of invoices for fixed asset additions.

b. Review of repairs and maintenance expense.

If auditors rely on the internal controls of an outside payroll service provider, they will receive a(n) _____ report. a. reliance b. SAS 70 c. outsourcer's d. quality assurance

b. SAS 70

Which of the following type of employee typically does not complete time cards? a. Hourly employees. b. Salaried employees. c. All employees must complete time cards. d. Time cards are typically completed by salaried employees, but may also be completed by hourly employees.

b. Salaried employees.

Which one of the following procedures would not be appropriate for an auditor in discharging his responsibilities concerning the client's physical inventories? a. Confirmation of goods in the hands of public warehouses. b. Supervising the taking of the annual physical inventory. c. Carrying out physical inventory procedures at an interim date. d. Obtaining written representation from the client as to the existence, quality, and dollar amount of the inventory.

b. Supervising the taking of the annual physical inventory.

____________ both have the effect of simultaneously verifying balance sheet and income statement accounts. a. Analytical procedures and substantive tests of transactions b. Tests of controls and substantive tests of transactions c. Tests of details of balances and substantive tests of transactions d. Tests of controls and analytical procedures

b. Tests of controls and substantive tests of transactions

If the client fails to record disposals of property, plant, and equipment, both the original cost of the asset account and the net book value will be incorrect. a. Both will be overstated indefinitely. b. The original cost will be overstated indefinitely, and the net book value will be overstated until the asset is fully depreciated. c. The original cost will be overstated indefinitely, and the net book value will be understated indefinitely. d. The original cost will be overstated indefinitely, and the net book value will be understated until the asset is fully depreciated.

b. The original cost will be overstated indefinitely, and the net book value will be overstated until the asset is fully depreciated.

Which of the following is the most important internal control procedure over acquisitions of property, plant, and equipment? d. Requiring acquisitions to be made by user departments. b. Using a budget to forecast and control acquisitions and retirements. c. Analyzing monthly variances between authorized expenditures and actual costs. a. Establishing a written company policy distinguishing between capital and revenue expenditures.

b. Using a budget to forecast and control acquisitions and retirements.

When there are no perpetual inventory files and inventory is material: a. an audit cannot be performed, so the auditor must issue a disclaimer. b. a physical inventory should be taken by the client near year-end. c. the auditor will have to perform the inventory count and determine valuation. d. the auditor need not observe inventory counts but must do test counts.

b. a physical inventory should be taken by the client near year-end.

The careful and timely preparation of all payroll tax returns is necessary to avoid penalties and criminal charges. The most important control in the timely preparation of these returns is: a. computerized preparation of tax returns. b. a well-defined set of policies that indicate when each form must be filed. c. independent verification of computer output by a competent individual. d. a Gaant chart.

b. a well-defined set of policies that indicate when each form must be filed.

Handling the receipt of ordered goods is a part of the ________ cycle. a. purchasing b. acquisition and payment c. inventory d. inventory and warehousing

b. acquisition and payment

The test of transactions which requires one to "reconcile recorded cash disbursements with the cash disbursements on the bank statement" satisfies the objective of: a. occurrence. b. completeness. c. accuracy. d. posting and summarization.

b. completeness.

The reason for testing the client's bank reconciliation is to verify whether the client's recorded bank balance is the same amount as the actual cash in bank, except for deposits in transit, checks outstanding, and other reconciling items. The information needed to complete the tests of the reconciliation are provided by the: a. client's records and ledgers for the year under audit. b. cutoff bank statement. c. client's records and ledgers for the subsequent year. d. canceled checks for the year under audit.

b. cutoff bank statement.

The general cash account is considered significant in almost all audits: a. where the ending balance is material. b. even when the ending balance is immaterial. c. except those of not-for-profit organizations. d. where either the beginning or ending balance is material.

b. even when the ending balance is immaterial.

On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account in bank B to cover a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this form of kiting by: a. examining the composition of deposits in both bank A and bank B subsequent to year-end. b. examining paid checks returned with the bank statement of the next account period after year-end. c. preparing, from the cash disbursements records, a summary of bank transfers for one week prior to and subsequent to year-end. d. comparing the detail of cash receipts as shown by the client's cash receipts records with the detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year-end.

b. examining paid checks returned with the bank statement of the next account period after year-end.

The primary accounting record for manufacturing equipment and other fixed assets is the: a. depreciation ledger. b. fixed asset master file. c. asset inventory. d. equipment roster.

b. fixed asset master file.

The failure to capitalize a permanent asset, or the recording of an asset acquisition at the improper amount, affects the income statement: a. for the current period. b. for the depreciable life of the asset. c. until the firm disposes of the asset. d. forever.

b. for the depreciable life of the asset.

Cash is important to auditors primarily because of the potential for: a. errors. b. fraud. c. liquidity. d. expenditures.

b. fraud.

Many companies do not maintain an accounts payable master file by vendor. These companies pay on the basis of: a. vendors' monthly statements. b. individual vendors' invoices. c. the accounts payable account in the general ledger. d. dunning letters.

b. individual vendors' invoices.

Because cash is the most desirable asset for people to steal, it has a higher: a. control risk. b. inherent risk. c. detection risk. d. liquidity risk.

b. inherent risk.

A record of insurance policies in force and the due date of each policy is contained in the: a. voucher register. b. insurance register. c. insurance expense account. d. prepaid insurance account.

b. insurance register.

To check the accuracy of hours worked, an auditor would ordinarily compare clock cards with: a. personnel records. b. job time tickets. c. labor variance reports. d. time recorded in the payroll register.

b. job time tickets.

Inherent risk is typically _____ for balance-related audit objectives as they relate to payroll. a. not considered b. low c. moderate d. high

b. low

The extent of a search for unrecorded liabilities largely depends on: a. materiality and inherent risk. b. materiality and control risk. c. materiality only. d. inherent risk only.

b. materiality and control risk.

The auditor's objective during an observation of a client's physical inventory count is to: a. discover whether a client has counted a particular inventory item or group of items. b. obtain direct knowledge that the inventory exists and has been properly counted. c. provide an appraisal of the quality of the merchandise on hand on the day of the physical count. d. allow the auditor to supervise the conduct of the count so as to obtain assurance that inventory quantities are reasonably accurate.

b. obtain direct knowledge that the inventory exists and has been properly counted.

The auditor's internal control objective to determine that "recorded acquisitions are for goods and services received" satisfies the audit objective of: a. accuracy. b. occurrence. c. authorization. d. completeness.

b. occurrence.

The main difference between job order and process costing systems is that: a. one accumulates costs by materials issued and the other by labor incurred. b. one accumulates costs by individual jobs and the other by particular processes. c. one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process. d. one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence.

b. one accumulates costs by individual jobs and the other by particular processes.

Vendors' statements and vendors' invoices are both relatively reliable evidence because they: a. come directly to the auditor without being in client's possession. b. originate from a third party. c. validate the effectiveness of the control system. d. are compared to and reconciled with sales invoices.

b. originate from a third party.

When examining payroll transactions, an auditor is primarily concerned with the possibility of: a. incorrect summaries of employee time records. b. overpayments and unauthorized payments. c. under withholding of amounts required to be withheld. d. posting of gross payroll amounts to incorrect salary expense accounts.

b. overpayments and unauthorized payments.

When labor is a significant part of inventory, verifying the proper accounting of these costs should be tested in the: a. inventory and warehousing cycle. b. payroll and personnel cycle. c. acquisitions and payments cycle. d. cash cycle.

b. payroll and personnel cycle.

A ____________ includes all payroll transactions processed by the accounting system for a given period of time. a. payroll journal b. payroll transaction file c. time report d. payroll summary

b. payroll transaction file

To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditor should review and test the: a. terms of the open purchase orders. b. purchase cutoff procedures. c. contractual commitments made by the purchasing department. d. purchase invoices received on or around year-end.

b. purchase cutoff procedures.

Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the: a. department that initiated the requisition. b. receiving department. c. purchasing agent. d. accounts payable department.

b. receiving department.

Receipt of ordered materials by the receiving department will generate the completion of a form called the: a. bill of lading. b. receiving report. c. materials requisition. d. inventory acquisition summary.

b. receiving report.

The concern in a monthly proof of cash is with: a. adjusting account balances. b. reconciling the amounts per books and bank. c. determining the month-end balance. d. identifying cash transfers.

b. reconciling the amounts per books and bank.

When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were: a. received prior to the balance sheet date. b. shipped prior to the balance sheet date. c. both shipped and received prior to the balance sheet date. d. paid for in advance.

b. shipped prior to the balance sheet date.

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: a. this is a duplication of cutoff tests. b. there is likely to be other reliable external evidence available to support the balances. c. accounts payable balances at the balance sheet date may not be paid before the audit is completed. d. correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment.

b. there is likely to be other reliable external evidence available to support the balances.

Contact with banks for the purpose of opening company bank accounts should normally be the responsibility of the corporate: a. board of directors. b. treasurer. c. controller. d. executive committee.

b. treasurer.

By tracing receiving reports issued at and before year-end to vendors' invoices and making sure they are included in accounts payable, the auditor is testing for: a. theft of merchandise by employees. b. unrecorded obligations. c. lapping. d. kiting.

b. unrecorded obligations.

An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all: a. merchandise received. b. vendors' invoices. c. canceled checks. d. receiving reports.

b. vendors' invoices.

The audit procedure "observe the client taking a physical inventory count and test the count" is sufficient to determine all of the following except: a. whether recorded inventory actually exists. b. whether recorded inventory was properly valued by the client. c. whether recorded inventory was properly counted by the client. d. whether client inventory instruction had properly been followed.

b. whether recorded inventory was properly valued by the client.

Which one of the following analytical procedures would be most helpful in alerting the auditor to the possibility of obsolete inventory? a. Compare gross margin percentage with previous years'. b. Compare unit costs of inventory with previous years'. c. Compare inventory turnover ratio with previous years'. d. Compare current year manufacturing costs with previous years'.

c. Compare inventory turnover ratio with previous years'.

In connection with a review of the prepaid insurance account, auditors would typically not perform which of the following procedures? a. Recompute the portion of the premium that expired during the year. b. Prepare excerpts of insurance policies for audit working papers. c. Confirm premium rates with an independent insurance broker. d. Examine support for premium payments.

c. Confirm premium rates with an independent insurance broker.

Which of the following is most reliable for verifying the correct balance of accounts payable? a. Vendors' invoices. b. Vendors' statements. c. Confirmations. d. Bills of lading.

c. Confirmations.

The test of details of balances procedure that requires the auditor to foot the outstanding check list and deposits in transit is an attempt to satisfy which audit objective? a. Cutoff. b. Presentation and disclosure. c. Detail tie-in. d. Completeness.

c. Detail tie-in.

Which of the following is not an assertion related to the classes of transactions underlying the payroll cycle? a. Classification b. Accuracy c. Existence d. Occurrence

c. Existence

Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation? a. Duplicate payment of a vendor's invoice. b. Billing a customer at a lower price than indicated by company policy. c. Failure to record a collection of a note receivable by the bank on the client's behalf. d. Payment to an employee for more than the hours actually worked.

c. Failure to record a collection of a note receivable by the bank on the client's behalf.

The audit objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger can be tested by which of the following procedures? a. Performing tests for kiting. b. Receiving and testing a cutoff bank statement. c. Footing the outstanding checks list and the list of deposits in transit. d. Examining the minutes of the board of directors for restrictions on the use of cash.

c. Footing the outstanding checks list and the list of deposits in transit.

When auditing a public warehouse, which of the following is the most important audit procedure with respect to disclosing unrecorded liabilities? a. Observation of inventory. b. Review of outstanding receipts. c. Inspection of receiving and issuing procedures. d. Confirmation of negotiable receipts with holders.

c. Inspection of receiving and issuing procedures.

Which of the following is the best way for an auditor to determine that every name on a company's payroll is that of a bona fide employee presently on the job? a. Examine personnel records for accuracy and completeness. b. Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. c. Make a surprise observation of the company's regular distribution of paychecks. d. Visit the working areas and confirm with employees their badge or identification numbers.

c. Make a surprise observation of the company's regular distribution of paychecks.

Which of the following items would not normally appear on bank reconciliations? a. Balance per bank b. List of deposits in transit c. Outstanding deposits d. Outstanding checks

c. Outstanding deposits

Which of the following errors would be least likely to be discovered during the audit of the acquisitions and payments cycle? a. Duplicate payment of a vendor's invoice. b. Improper payments of officers' personal expenditures. c. Payment of interest to a related party for an amount in excess of the going rate. d. Payment for raw materials that were not received.

c. Payment of interest to a related party for an amount in excess of the going rate.

In an effort to satisfy the completeness objective, the auditor could perform which of the following test of details of balance procedures? a. Trace the book balance on the reconciliation to the general ledger. b. Trace outstanding checks to subsequent period bank statements. c. Perform a four-column proof of cash. d. Review financial statements to make sure that material savings accounts and certificates of deposit are disclosed separately.

c. Perform a four-column proof of cash.

Which of the following controls would be appropriate regarding the release of materials from a stockroom? a. Production employees request materials be delivered to their work areas as they need them. b. Stockroom employees deliver materials to work areas throughout the day to maintain acceptable levels of safety stock - no written records are maintained. c. Production employees submit approved requisition forms to the stockroom for materials needed. d. Production employer in need of materials should personally pick up needed materials from the stockroom.

c. Production employees submit approved requisition forms to the stockroom for materials needed.

Which of the following accounts is not included in the acquisitions class of transactions? a. Inventory. b. Prepaid expenses. c. Purchase discounts. d. Accounts payable.

c. Purchase discounts.

At what point do most companies recognize liabilities in the acquisition and payment cycle? a. The issuance of a purchase order. b. Receipt of acknowledgement of order by vendor. c. Receipt of goods or services. d. The receipt of a vendor statement.

c. Receipt of goods or services.

Which of the following is a substantive test of transactions? a. Review personnel policies. b. Account for a sequence of payroll checks. c. Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement. d. Examine printouts of transactions rejected by the computer as having invalid employee IDs.

c. Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement.

_____ is cash stolen from an organization before it is recorded in the accounting records. a. Theft b. Cash larceny c. Skimming d. Floating

c. Skimming

Because the failure to record disposals of property, plant, and equipment can significantly affect the financial statements, the search for unrecorded disposals is essential. Which of the following is not a procedure used to verify disposals? a. Make inquiries of management and production personnel about the possibility of the disposal of assets. b. Review whether newly acquired assets replace existing assets. c. Test the valuation of fixed assets recorded in prior periods. d. Review plant modifications and changes in product line, taxes, or insurance coverage.

c. Test the valuation of fixed assets recorded in prior periods.

Which of the following types of audit tests is usually emphasized due to a lack of independent third-party evidence related to payroll transactions? a. Analytical procedures b. Tests of details of balances c. Tests of controls d. Each of the above is emphasized.

c. Tests of controls

Which of the following best describes proper internal control over payroll? a. The preparation of the payroll must be under the control of the personnel department. b. The confidentiality of employee payroll data should be carefully protected to prevent fraud. c. The duties of hiring, payroll computation, and payment to employees should be segregated. d. The payment of cash to employees should be replaced with payment by checks.

c. The duties of hiring, payroll computation, and payment to employees should be segregated.

Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions? a. The supervising department. b. The accounting department. c. The human resources department. d. The treasurer's department.

c. The human resources department.

Paychecks should be distributed by someone: 1.independent of the timekeeping function. 2.who reports to the company controller. a. Yes Yes b. No No c. Yes No d. No Yes

c. Yes No

Which of the following acquisition transactions is likely to be covered by a general authorization by company policy? Purchase of office equipment maintenance services Purchase of office buildings for company use a. Yes Yes b. No No c. Yes No d. No Yes

c. Yes No

Which of the following statements about the payroll and personnel cycle is correct? There are three classes of transactions within the payroll cycle - salaried employees, hourly employees, and commissioned employees. Transactions are less significant than related balance sheet accounts. Internal controls over payroll are effective for almost all companies, even small ones. a. No No Yes b. Yes No Yes c. Yes Yes No d. No Yes No

c. Yes Yes No

A partial-period bank statement and the related canceled checks, duplicate deposit slips, and other documents included in bank statements, mailed by the bank directly to the CPA firm's office, is called: a. a four-column proof of cash. b. a year-end bank statement. c. a cutoff bank statement. d. a short-period bank statement.

c. a cutoff bank statement.

Verification of the legitimacy of year-end unpaid bonuses to officers and employees can be accomplished by comparing the recorded accrual to the amount: a. in the expense account. b. used in the prior period. c. authorized in the minutes of the board. d. paid in the subsequent period.

c. authorized in the minutes of the board.

The auditor's starting point for verifying disposals of property, plant, and equipment is the: a. equipment account in the general ledger. b. file of shipping documents. c. client's schedule of recorded disposals. d. equipment subsidiary ledger.

c. client's schedule of recorded disposals.

Controls which provide a means of ensuring that the physical counts are properly summarized, priced at the same amount as the unit records, correctly extended and totaled, and included in the general ledger at the proper amount are known as: a. standard cost controls. b. pricing internal controls. c. compilation internal controls. d. count quantity internal controls.

c. compilation internal controls.

The internal control that requires that "checks are prenumbered and accounted for" satisfies the objective of: a. accuracy. b. existence. c. completeness. d. posting and summarization.

c. completeness.

When auditing depreciation expense, the two major concerns related to the accuracy audit objective are: a. consistent application of depreciation method and useful lives. b. consistent application of depreciation method and classification of assets. c. correctness of calculations and consistent application of depreciation method. d. cost of the fixed asset and useful lives.

c. correctness of calculations and consistent application of depreciation method.

Master files, worksheets, and reports that accumulate material, labor, and overhead as the costs are incurred are: a. accounting systems. b. storeroom documents. c. cost accounting records. d. finished goods inventory records.

c. cost accounting records.

A major difficulty in the verification of inventory cost records is determining reasonableness of: a. direct labor's hourly rate. b. raw materials per unit cost. c. cost allocations. d. number of direct labor hours applied.

c. cost allocations.

Proper authorization for acquisition is essential because it: a. ensures that goods/services are used efficiently by company employees. b. ensures that goods/services were purchased from approved vendors. c. ensures that goods/services are for authorized company purposes. d. ensures that goods/services were purchased at the lowest possible price.

c. ensures that goods/services are for authorized company purposes.

For effective internal control purposes, the vouchers payable department generally should: a. obliterate the quantity ordered on the receiving department copy of the purchase order. b. stamp, perforate, or otherwise cancel supporting documentation after payment is mailed. c. establish the agreement of the vendor's invoice with the receiving report and purchase order. d. ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee.

c. establish the agreement of the vendor's invoice with the receiving report and purchase order.

A set of records for each piece of equipment that includes descriptive information, date of acquisition, original cost, current year depreciation, and accumulated depreciation is the: a. acquisitions journal. b. depreciation schedule. c. fixed asset master file. d. file of purchase requisitions.

c. fixed asset master file.

When a physical count of inventory is performed at an interim date, the auditor observes it at that time and tests the perpetual records for transactions: a. throughout the year. b. which are a representative sample of the period under audit. c. from the date of the count to year-end. d. from the date of the count to the end of the audit field work.

c. from the date of the count to year-end.

Matching the supplier's invoice, the purchase order, and the receiving report normally should be the responsibility of the: a. warehouse receiving function. b. purchasing function. c. general accounting function. d. treasury function.

c. general accounting function.

Most systems of internal control for payroll are: a. loosely structured but well controlled. b. loosely structured and loosely controlled. c. highly structured and well controlled. d. highly structured but loosely controlled.

c. highly structured and well controlled.

The audit of ______ is often the most difficult and complex part of an audit. a. property, plant and equipment b. cash c. inventory d. prepaid insurance

c. inventory

The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the: a. acquisition and payments cycle. b. payroll and personnel cycle. c. inventory and warehousing cycle. d. sales and collection cycle.

c. inventory and warehousing cycle.

The audit of the acquisition and payment cycle often takes ____ time to audit than other cycles. a. less b. about the same c. more d. no less

c. more

The auditor ___________ to test the accuracy or classification of fixed assets recorded in prior periods. a. normally needs b. never needs c. normally does not need d. is required

c. normally does not need

When an auditor observes that personnel who are responsible for physically counting inventory are not following the inventory instructions, the auditor should: a. contact a client's supervisor in an attempt to correct the problem. b. modify the client's physical inventory instructions. c. not discuss the problem with client's supervisor in order to maintain independence. d. assign audit staff to the inventory count.

c. not discuss the problem with client's supervisor in order to maintain independence.

In determining that the accounts payable cutoff is correct, it is essential that the cutoff tests be coordinated with the: a. confirmation of payables. b. tests on long-term liabilities. c. observation of inventory. d. cash count.

c. observation of inventory.

In rare cases, the auditor may believe it is necessary that a complete physical inventory of fixed assets be taken to make sure they actually exist. If an inventory is taken, the auditor normally: a. takes the inventory. b. requires client to take the inventory and provide documentation to the auditor. c. observes the count. d. requires that it be done by an outside, independent third party.

c. observes the count.

It usually takes more time to audit the acquisition and payment cycle than other cycles because: a. there is a greater possibility of fraud in these transactions. b. internal controls in this area are usually the weakest. c. of the large number of accounts affected. d. there is a greater likelihood of lawsuits against the CPA relating to these accounts.

c. of the large number of accounts affected.

Assume that the client's valuation of an inventory item is $10 per unit for 1,000 units, using first-in, first-out (FIFO). If the most recent acquisition of inventory was for 600 units at $10 per unit and the immediately preceding acquisition was for 700 units at $9 per unit, the inventory item is in error and it is: a. understated $400. b. understated $300. c. overstated $400. d. overstated $700.

c. overstated $400.

No individual with access to time cards, payroll records, or checks should also be permitted access to: a. the computer. b. job time tickets. c. personnel records. d. the canceled check file.

c. personnel records.

When labor is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning: a. fictitious employees. b. authorization of wage rates. c. proper valuation and allocation of balances. d. completeness of recorded transactions.

c. proper valuation and allocation of balances.

An auditor would be least likely to use confirmations in connection with the examination of: a. inventories. b. long-term debt. c. property, plant, and equipment. d. stockholders' equity.

c. property, plant, and equipment.

The accounts payable department usually has responsibility for verifying the propriety of acquisitions by comparing the details on the: a. vendor's invoice and the receiving report. b. vendor's invoice and the purchase requisition. c. purchase order, receiving report, and vendor's invoice. d. purchase requisition, purchase order, and receiving report.

c. purchase order, receiving report, and vendor's invoice.

If the perpetual inventory master files show lower quantities of inventory than the physical count, an explanation of the difference might be unrecorded: a. sales. b. sales discounts. c. purchases. d. purchase discounts.

c. purchases.

Cost accounting controls are those related to the physical inventory and the consequent costs from the point at which: a. materials are ordered for purchase until the finished product is sold. b. the customer's order is received until the finished product is shipped. c. raw materials are requisitioned until the finished product is sent to storage. d. raw materials are requisitioned until the finished product is completely manufactured.

c. raw materials are requisitioned until the finished product is sent to storage.

A common inventory observation procedure is to be alert for items that are damaged, rust- or dust-covered, or located in inappropriate places. The balance-related audit objective being achieved by this procedure is: a. classification. b. cutoff. c. realizable value. d. rights.

c. realizable value.

With respect to a small company's system of purchasing supplies, an auditor's primary concern should be to obtain satisfaction that supplies ordered and paid for have been: a. requested by and approved by authorized individuals who have no incompatible duties. b. used in the course of business and solely for business purposes during the year under audit. c. received, counted, and checked to quantities and amounts on purchase orders and invoices. d. properly recorded as assets and systematically amortized over the estimated useful life of the supplies.

c. received, counted, and checked to quantities and amounts on purchase orders and invoices.

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the: a. receiving report and the voucher. b. vendor's packing slip and the voucher. c. receiving report and the purchase order. d. vendor's packing slip and the purchase order.

c. receiving report and the purchase order.

There must be a periodic physical count by the client of the inventory items on hand: a. only if the client uses the LIFO method. b. only if the client uses a lower-of-cost-or-market method. c. regardless of the client's inventory valuation method. d. only if the client uses either the LIFO or FIFO method.

c. regardless of the client's inventory valuation method.

After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items: a. included in the listing have been counted. b. represented by inventory tags actually exist. c. represented by inventory tags are included in the listing. d. included in the listing are represented by inventory tags.

c. represented by inventory tags are included in the listing.

An imprest payroll account ordinarily carries a balance that is: a. larger than the other company bank accounts. b. larger than the amount of the periodic payroll disbursement. c. small. d. below zero.

c. small.

The auditor interviews the plant manager. The auditor is most likely to rely upon this interview as primary support for an audit conclusion on: a. capitalization vs. expensing policy. b. allocation of fixed and variable cost. c. the necessity to record a provision for deferred maintenance costs. d. the adequacy of the depreciation expense.

c. the necessity to record a provision for deferred maintenance costs.

Cutoff information for inventory acquisitions should be obtained during: a. the interim period prior to year-end. b. the interim period immediately following year-end. c. the physical observation of inventory. d. either the interim period prior to or immediately following year-end..

c. the physical observation of inventory.

The primary concern in testing payroll-related liabilities is to make sure that: a. accruals are properly valued. b. transactions are recorded in the proper period. c. there are no understated or omitted accruals. d. the accruals are not overstated.

c. there are no understated or omitted accruals.

The auditor normally does not need to test the accuracy or classification of fixed assets recorded in prior periods because: a. they are rarely material to the audit. b. they rarely contain misstatements. c. they are verified in previous audits. d. they don't affect the balance sheet.

c. they are verified in previous audits.

If a client intends to count inventory at an interim date, the auditor should expect there to be all of the following except: a. controls over the preparation and maintenance of perpetual inventory records. b. competent personnel assigned to count the inventory. c. third-party inventory counting specialists. d. an adequately designed plan to count the inventory.

c. third-party inventory counting specialists.

The overall objective in the audit of the acquisition and payment cycle is: a. to ensure the reliability of the affected accounts. b. to ensure the accuracy of the affected accounts. c. to evaluate whether the affected accounts are fairly stated in accordance with GAAP. d. to evaluate whether fraudulent payments were made.

c. to evaluate whether the affected accounts are fairly stated in accordance with GAAP.

The direct receipt of a confirmation from every bank with which the client does business is: a. required by auditing standards for every audit. b. not necessary unless material fraud is suspected. c. typically done but not required by auditing standards. d. necessary for every audit except when there are an unusually large number of active accounts.

c. typically done but not required by auditing standards.

The purpose of the audit procedure to "examine underlying documentation for subsequent cash disbursements" is to: a. uncover liabilities on the balance sheet which should not have been recorded until a subsequent period. b. find the documentation relating to a cash disbursement. c. uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date. d. uncover cash disbursements recorded in a subsequent accounting period which should be recorded in this period.

c. uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date.

The main focus taken by the auditor in verifying liability balances is on the discovery of: a. understated liabilities. b. overstated liabilities. c. understated or omitted liabilities. d. overstated or extraneous liabilities.

c. understated or omitted liabilities.

In any company involved in manufacturing, an adequate cost accounting internal control system is necessary to indicate the relative profitability of the various products for management planning and control and to: a. determine variances from standards. b. determine variances from budgets. c. value inventories for financial statement purposes. d. value inventories for audit verification.

c. value inventories for financial statement purposes.

When goods are received, the receiving clerk should match the goods with the: a. purchase order and the requisition form. b. vendor's invoice and the receiving report. c. vendor's shipping document and the purchase order. d. receiving report and the vendor's shipping document.

c. vendor's shipping document and the purchase order.

In valuing inventory, the auditor must consider all but which of the following factors? a. The valuation method must be in accordance with GAAP. b. The valuation method must be applied on a consistent basis. c. The inventory must be valued at the lower of cost or market. d. All inventory must be valued using the same valuation method under GAAP.

d. All inventory must be valued using the same valuation method under GAAP.

Which of the following tests are typically not necessary when auditing a client's schedule of recorded disposals? a. Footing the schedule. b. Tracing schedule totals to the general ledger. c. Tracing cost and accumulated depreciation of the disposals to the property master file. d. All of the above are necessary.

d. All of the above are necessary.

Methods used to determine if there are legal encumbrances related to fixed assets include all but which of the following? a. Reading terms of loan and credit agreements. b. Reviewing loan confirmations received from banks. c. Inquiring of the client regarding possible legal encumbrances. d. All of the above may be used to identify legal encumbrances.

d. All of the above may be used to identify legal encumbrances.

Internal controls for prepaid insurance are typically categorized into all but which of the following? a. Controls over the acquisition and recording of insurance. b. Controls over the insurance register. c. Controls over the charge-off of insurance expense. d. All of the above.

d. All of the above.

Which type of audit procedure is often sufficient for purposes of auditing prepaid expenses and deferred charges? a. Tests of controls. b. Tests of transactions. c. Tests of details of balances. d. Analytical procedures.

d. Analytical procedures.

Which of the following statements is correct? a. Auditors must obtain bank confirmations on every audit. b. Auditors obtain bank confirmations at their discretion. c. Auditing standards do not address specific requirements regarding bank confirmations. d. Auditing standards do not require bank confirmations except when there is an unusually large number of inactive bank accounts.

d. Auditing standards do not require bank confirmations except when there is an unusually large number of inactive bank accounts.

A failure to record acquisitions of goods most likely will affect all but which of the following? a. Accounts payable. b. Net income. c. Retained earnings. d. Cash.

d. Cash.

A proof of cash is effective at identifying which of the following misstatements? a. Checks written for incorrect amounts. b. Checks issued to invalid vendors. c. Fraudulent checks. d. Checks recorded by the books for an amount different than the check.

d. Checks recorded by the books for an amount different than the check.

Failure to record the acquisition of goods is a violation of which audit objective? a. Accuracy b. Occurrence c. Authorization d. Completeness

d. Completeness

Which of the following is an effective internal accounting control used to prove that production department employees are properly validating payroll time cards at a time-recording station? a. Internal auditors should make observations of distribution of paychecks on a surprise basis. b. Time cards should be carefully inspected by those persons who distribute pay envelopes to the employees. c. One person should be responsible for maintaining records of employee time for which salary payment is not to be made. d. Daily reports showing time charged to jobs should be approved by the supervisor and compared to the total hours worked on the employee time cards.

d. Daily reports showing time charged to jobs should be approved by the supervisor and compared to the total hours worked on the employee time cards.

Which of the following errors gives the auditor the least concern in auditing payroll transactions? a. An error that indicates possible fraud. b. Computational errors in formulas when a computerized system is used. c. Classification errors in charging labor to inventory and job cost accounts. d. Each of the above gives the auditor significant concern.

d. Each of the above gives the auditor significant concern.

Which of the following is a customary audit procedure for the verification of the legal ownership of real property? a. Examination of correspondence with the corporate counsel concerning acquisition matters. b. Examination of ownership documents registered and on file at a public hall of records. c. Examination of corporate minutes and resolutions concerning the approval to acquire property, plant, and equipment. d. Examination of deeds and title guaranty policies on hand.

d. Examination of deeds and title guaranty policies on hand.

Which of the following is not a procedure that can be performed on canceled checks in an effort to detect defalcations? a. Compare the endorsements on checks with authorized signatures. b. Scan endorsements for unusual or recurring second endorsements. c. Examine voided checks to be sure they haven't been used. d. Examine the payroll records in subsequent periods to determine that terminated employees are no longer being paid.

d. Examine the payroll records in subsequent periods to determine that terminated employees are no longer being paid.

Inventory is a complex area to audit for all but which of the following reasons? a. Inventory is often in different locations. b. There are several acceptable valuation methods and some entities use different methods for different types of inventory. c. Inventory is often the largest account in working capital. d. Inventory valuation includes few estimates.

d. Inventory valuation includes few estimates.

The payroll and personnel cycle ends with which of the following events? a. Interviewing job candidates. b. Hiring a new employee. c. Existing employees submitting requests for payment for work performed. d. Issuance of paychecks.

d. Issuance of paychecks.

Most companies use an imprest account to pay the payroll. Which of the following is not an advantage of such an account? a. It facilitates cash management. b. It limits the company's exposure to payroll fraud. c. It allows the delegation of payroll check-signing duties. d. It eliminates the requirement of keeping a minimum balance in a checking account.

d. It eliminates the requirement of keeping a minimum balance in a checking account.

Which of the following is not a "cash equivalent"? a. Time deposits. b. Certificates of deposit. c. Money market funds. d. Marketable securities.

d. Marketable securities.

Auditor tests of physical controls over raw materials, work-in-process, and finished goods are performed by: 1.Examination 2.Observation 3.Inquiry a. Yes No Yes b. No Yes No c. Yes Yes No d. No No Yes

d. No No Yes

The most important controls for petty cash relate to: 1.The use of a separate bank account 2.The use of an imprest fund a. Yes Yes b. No No c. Yes No d. No Yes

d. No Yes

The most important balance-related audit objectives in the audit of cash include all but which of the following? a. Existence b. Accuracy c. Completeness d. Occurrence

d. Occurrence

It would be appropriate for the payroll department to be responsible for which of the following functions? a. Approval of employee time records. b. Maintain records of employment, firings, and raises. c. Temporary retention of unclaimed employee paychecks. d. Preparation of governmental reports as to employees' earnings and withholding taxes.

d. Preparation of governmental reports as to employees' earnings and withholding taxes.

Which of the following is not a function within the inventory and warehousing cycle? a. Process the goods. b. Store raw materials. c. Ship finished goods. d. Process invoices for shipped goods.

d. Process invoices for shipped goods.

Which of the following business functions is not considered to be part of the acquisitions class of transactions? a. Processing purchase orders. b. Recognizing liabilities. c. Receiving goods and services. d. Processing cash disbursements.

d. Processing cash disbursements.

Which department within a manufacturing company is often responsible for the review of production and scrap reports? a. Purchasing. b. Accounts Payable. c. Accounting. d. Production.

d. Production.

Which balance-related audit objective is not relevant to an audit of prepaid expenses? a. Rights. b. Accuracy. c. Detail tie-in. d. Realizable value.

d. Realizable value.

Which of the following is not an aspect of concern when auditing the cost accounting system? a. Unit cost records. b. Physical controls over inventory. c. Documents and records for transferring inventory. d. Safeguarding the raw materials from point of receipt to the storeroom.

d. Safeguarding the raw materials from point of receipt to the storeroom.

A proof of cash is not an effective procedure for identifying which of the following types of misstatements? a. All recorded disbursements were paid by the bank. b. All recorded cash receipts were deposited. c. All amounts that were paid by the bank were recorded. d. Some checks were written for incorrect amounts.

d. Some checks were written for incorrect amounts.

Which of the following types of audit procedures is ordinarily emphasized the least when auditing payroll? a. Tests of controls b. Tests of transactions c. Analytical procedures d. Tests of details of balances

d. Tests of details of balances

In auditing payroll, which of the following procedures will ordinarily require the least amount of auditor time under normal circumstances? a. Tests of controls. b. Substantive tests of transactions. c. Analytical procedures. d. Tests of details of balances.

d. Tests of details of balances.

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items? a. The cycle basis is used for physical counts. b. Supplies of relatively little value are expensed when purchased. c. Perpetual inventory records are maintained only for items of significant value. d. The storekeeper is responsible for maintenance of perpetual inventory records.

d. The storekeeper is responsible for maintenance of perpetual inventory records.

Which of the following statements is false? a. The ownership objective is an important part of verifying assets but not liabilities. b. In auditing liabilities, the emphasis is on the search for understatements rather than overstatements. c. Because of the emphasis on understatements in liability accounts, out-of-period liability tests are important for accounts payable. d. The success of the auditor's search for unrecorded liabilities is not dependent upon the materiality of the potential balance in the account.

d. The success of the auditor's search for unrecorded liabilities is not dependent upon the materiality of the potential balance in the account.

Which of the following statements is correct? a. The overhead charged to inventory at the balance sheet date can be understated if the salaries of administrative personnel are inadvertently or intentionally charged to indirect manufacturing overhead. b. When jobs are billed on a cost-plus basis, revenue and total expenses are both affected by charging labor to incorrect jobs. c. Payroll is a significant portion of inventory for retail and service industry companies. d. The valuation of inventory is affected if the direct labor cost of individual employees is improperly charged to the wrong job or process.

d. The valuation of inventory is affected if the direct labor cost of individual employees is improperly charged to the wrong job or process.

Which of the following circumstances would not cause an auditor to extend payroll procedures considerably? a. Payroll significantly affects inventory valuation. b. There is a possibility of material fraudulent payroll transactions. c. There is a weak internal control structure. d. There is a lack of independent third-party evidence, such as confirmations.

d. There is a lack of independent third-party evidence, such as confirmations.

Which of the following documents is best for verifying the correct balance in accounts payable? a. Bills of lading. b. Confirmations. c. Vendors' invoices. d. Vendors' statements.

d. Vendors' statements.

Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment? a. Verification of depreciation expense. b. Analytical procedures. c. Verification of current-period disposals. d. Verification of the beginning balance in accumulated depreciation.

d. Verification of the beginning balance in accumulated depreciation.

A form issued for each employee summarizing the earnings and income tax deductions for the calendar year is the: a. rate authorization form. b. summary payroll report. c. payroll master file. d. W-2 form.

d. W-2 form.

What potential problems may arise when an auditor considers the relationship between payroll and inventory valuation? 1.Improper account classification. 2. Improper allocation to jobs or processes. 3.Non-manufacturing payroll expenses charged to inventory. a. Yes Yes Yes b. No Yes No c. No No Yes d. Yes No No

d. Yes No No

The auditor must know the client's capitalization policies to determine whether acquisitions are: Recorded in accordance with GAAP Treated consistently with those of the preceding year Necessary a. Yes Yes Yes b. Yes No No c. No No No d. Yes Yes No

d. Yes Yes No

Depreciation expense is one of the few expense accounts that is not verified as a part of: a. tests of controls. b. tests of transactions. c. test of details of balances. d. a and b, but not c.

d. a and b, but not c.

To be capitalized as part of property, plant and equipment, assets must: a. have expected useful lives of more than one year. b. not be acquired for resale. c. be useful in multiple productive capacities within the organization. d. a and b, but not c.

d. a and b, but not c.

The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because: a. accrued liability balances are less material than accounts payable balances. b. accrued liabilities at year end will become accounts payable during the following year. c. evidence supporting accrued liabilities is non-existent, whereas evidence supporting accounts payable is readily available. d. accrued liabilities usually pertain to services of a continuing nature, whereas accounts payable are the result of completed transactions.

d. accrued liabilities usually pertain to services of a continuing nature, whereas accounts payable are the result of completed transactions.

The test of details of balances procedure which requires a "recalculation of investment credit" satisfies the audit objective of: a. classification. b. detail tie-in. c. existence. d. accuracy.

d. accuracy.

Controls over the acquisition and recording of insurance are a part of the ________. a. inventory and warehousing cycle b. capitalization cycle c. treasury cycle d. acquisition and payment cycle

d. acquisition and payment cycle

In most manufacturing companies, the inventory and warehousing cycle begins with the: a. receipt of a customer's order. b. completion of production of a customer's order. c. initiation of production of a customer's order. d. acquisition of raw materials for production of an order.

d. acquisition of raw materials for production of an order.

During the audit of prepaid insurance, the auditor should keep in mind that the amount in insurance expense is based on: a. the beginning balance in prepaid insurance. b. the payment of premiums during the year. c. the ending balance in prepaid insurance. d. all three of the above.

d. all three of the above.

It should ordinarily be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it is customary to verify: a. all large transactions. b. all unusual transactions. c. a representative sample of typical additions. d. all three of the above.

d. all three of the above.

The accounts payable account includes obligations for the acquisition of: a. raw materials. b. equipment. c. utilities. d. all three of the above.

d. all three of the above.

When auditing the inventory and warehousing cycle, the use of analytical procedures is: a. not important for this cycle. b. less important than for any other cycle. c. more important than for any other cycle. d. as important as their use in any other cycle.

d. as important as their use in any other cycle.

For good internal control, the purchasing department should not be responsible for: a. finding the lowest cost vendor. b. reviewing vendors' catalog descriptions and prices for standardized items. c. designing the purchase order form. d. authorizing the acquisition of goods.

d. authorizing the acquisition of goods.

Failure to capitalize a fixed asset at the correct amount affects __________ until the company disposes of the asset. a. the balance sheet only b. the income statement only c. the cash flow statement only d. both the income statement and the balance sheet

d. both the income statement and the balance sheet

Failure to capitalize a fixed asset at the correct amount will affect ___________ until the asset is fully depreciated. a. the balance sheet b. the income statement c. the cash flow statement d. both the income statement and the balance sheet

d. both the income statement and the balance sheet

Inadequate controls and misstatements discovered through tests of controls and substantive tests of transactions are an indication of the likelihood of misstatements in: a. the balance sheet. b. the income statement. c. the cash flow statement. d. both the income statement and the balance sheet.

d. both the income statement and the balance sheet.

Many companies use outside payroll services to process payroll. Auditors _____ rely on the internal controls of these outside payroll services. a. must b. cannot c. rarely d. can often

d. can often

An important control in the accounts payable and IT departments is to ensure that those personnel who record acquisitions do not have access to: a. vendors' price lists. b. the accounts payable master file. c. lists of vendors' names and addresses. d. cash, marketable securities, and other easily convertible assets.

d. cash, marketable securities, and other easily convertible assets.

The test of details of balance procedure which requires the auditor to account for unused inventory tag numbers to make sure none have been deleted is associated with the audit objective of: a. accuracy. b. existence. c. detail tie-in. d. completeness.

d. completeness.

The tests of details of balances procedure for fixed assets which require the auditor to examine vendors' invoices of closely related accounts such as repairs and maintenance to uncover items that should be fixed assets would satisfy the audit objective of: a. accuracy. b. existence. c. detail tie-in. d. completeness.

d. completeness.

Pricing manufactured inventory is difficult. Auditors must evaluate the method of allocating manufacturing overhead for all but which of the following? a. reasonableness. b. computational correctness. c. adherence to FASB pronouncement d. consistency.

d. consistency.

With regard to the physical count of inventory, necessary control procedures include: a. proper instructions for the physical count. b. independent third-party verification of the counts. c. third-party reconciliations of the physical counts with perpetual inventory master files. d. counting the inventory only on the year-end date.

d. counting the inventory only on the year-end date.

The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of: a. detail tie-in. b. existence. c. completeness. d. cutoff.

d. cutoff.

When the auditor believes the year-end bank reconciliation may be intentionally misstated, it is appropriate to perform extended tests of the year-end bank reconciliation. Assuming the client has a October 31 year-end, these extended tests would not include: a. comparing all September 30 reconciling items with canceled checks and other documents in the October bank statement. b. comparing all canceled checks and deposit slips in the October bank statement with the October cash disbursements and receipts records. c. carrying out all proper procedures subsequent to the end of the year with the use of the bank cutoff statement. d. determining that all outstanding checks had cleared by the date of the bank cutoff statement.

d. determining that all outstanding checks had cleared by the date of the bank cutoff statement.

Tests of the perpetual inventory master files for the purpose of reducing the tests of physical inventory or changing their timing are done through the use of: a. inquiry. b. observation. c. confirmation. d. documentation.

d. documentation.

The classes of transactions in the acquisition and payment cycle include acquisition of: a. goods. b. goods and services. c. goods and services, and cash disbursements. d. goods and services, cash disbursements, and purchase returns and allowances.

d. goods and services, cash disbursements, and purchase returns and allowances.

A major consideration in the audit of the general cash balance is the possibility of fraud. The auditor must extend his or her procedures in the audit of year-end cash to determine the possibility of a material fraud when there are: a. large cash balances at the end of the year. b. large cash receipts and disbursements during the year. c. no imprest accounts used for payroll. d. inadequate internal controls.

d. inadequate internal controls.

If an auditor "proves" the bank statement in the month subsequent to the balance sheet date, it is primarily a test for: a. errors. b. omissions. c. kiting. d. intentional misstatements.

d. intentional misstatements.

Auditors test the quantity of materials charged to work-in-process by tracing these quantities to: a. cost ledgers. b. perpetual inventory records. c. receiving reports. d. material requisitions.

d. material requisitions.

Property, plant, and equipment are assets that: a. have expected lives of more than one year. b. are used in the business. c. are not acquired for resale. d. meet all of the requirements stated above.

d. meet all of the requirements stated above.

Assume that the client's valuation of an inventory item is $10 per unit for 1,000 units, using LIFO. If the most recent acquisition of a layer of inventory was for 600 units at $10 per unit and the immediately preceding layer was for 700 units at $9 per unit, the inventory item is in error and it is: a. understated $700. b. understated $300. c. overstated $400. d. overstated $700.

d. overstated $700.

Effective internal accounting control over unclaimed payroll checks that are kept by the company would include accounting department procedures that require: a. effective cancellation and stop payment orders for checks representing unclaimed wages. b. preparation of a list of unclaimed wages on a periodic basis. c. accounting for all unclaimed wages in a current liability account. d. periodic accounting for the actual checks representing unclaimed wages.

d. periodic accounting for the actual checks representing unclaimed wages.

The test of details of balance procedure which requires the auditor to perform tests of lower-of-cost-or-market, selling price, and obsolescence is an attempt to satisfy the objective of: a. existence. b. completeness. c. accuracy. d. realizable value.

d. realizable value.

Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather than the entity being audited satisfy the control objective that: a. acquisitions are correctly valued. b. existing acquisitions are recorded. c. acquisitions are correctly classified. d. recorded acquisitions are for goods and services received.

d. recorded acquisitions are for goods and services received.

Comparing expenses to prior years is an effective analytical procedure for accounts payable because expenses from year to year are: a. erratic. b. variable. c. dynamic. d. relatively stable.

d. relatively stable.

The periodic payment from the general cash account to the payroll account for net payroll should be tested for at least one payroll period. The primary audit procedure is a(n): a. analytical review procedure that net pay is reasonable. b. test of controls that an imprest account is being used for payroll. c. substantive test that the correct amount was transferred for this test period. d. test of transactions that the check is prepared for the proper amount and deposited before payroll checks are handed out.

d. test of transactions that the check is prepared for the proper amount and deposited before payroll checks are handed out.

During his examination of a January 19, 2008 cutoff bank statement, an auditor noticed that the majority of checks listed as outstanding at December 31, 2007, had not cleared the bank. This would indicate: a. a high probability of kiting. b. a high probability of lapping. c. that the 2007 cash disbursements records had been closed prior to December 31, 2007. d. that the 2007 cash disbursements records had been held open past December 31, 2007.

d. that the 2007 cash disbursements records had been held open past December 31, 2007.

The most important part of the observation of inventory is to determine whether: a. all counts are accurate. b. the inventory-takers are qualified. c. obsolete inventory has been identified. d. the physical count is being taken in accordance with the client's instructions.

d. the physical count is being taken in accordance with the client's instructions.

A well-designed computerized system of perpetual inventory master files includes information about the: a. units of inventory purchased, sold, and on hand. b. unit costs of inventory purchased, sold, and on hand. c. units of raw materials, work-in-process, and finished goods. d. units and unit costs of inventory purchased, sold, and on hand.

d. units and unit costs of inventory purchased, sold, and on hand.

The failure to capitalize a permanent asset, or the recording of an asset acquisition at the improper amount, affects the balance sheet: a. forever. b. for the current period. c. for the depreciable life of the asset. d. until the firm disposes of the asset.

d. until the firm disposes of the asset.