Audit Final
in auditing debits and credits to retained earnings, other than net income and dividends, the auditor's first concern is: a. whether the transactions should have been included in retained earnings b. whether the transactions have been accurately recorded c. whether the transactions are classified correctly in the footnotes d. whether the transactions existed as of the balance sheet date
a
petty cash is verified primarily because of the potential for defalcation and the client's expectation of an audit review even when the amount is immaterial. a. true b. false
a
responsibility for the issuance of new notes payable would normally be vested in the: a. board of directors b. purchasing department c. accounting department d. accounts payable department
a
sales returns and allowances are often ignored by auditors because they are often immaterial a. true b. false
a
the appropriate test of controls for separation of duties are ordinarily restricted to the auditor's observations of activities and discussions with personnel. a. true b. false
a
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
the auditor's primary concern in performing audit procedures of the write off of uncollectible accounts relates to the risk that the client writes off customer accounts that have already been collected. the primary control for preventing this fraud is: a. examining authorized credit memos b. examining uncollectible acccount authorization form c. examining debit memos d. examining the vouchers payable register
b
this document indicates the jobs on which an employee worked during a given time period. a. time card b. personal records c. job time ticket d. payroll check or paycheck
c
what should the auditor do if the client does not allow inquiry of outside legal counsel? a. withdraw from the engagement b. give a qualified audit report c. give a disclaimer audit report d. give a standard report with an explanatory paragraph e. give an adverse opinion
c
which of the following balance related audit objectives typically is assessed as having high inherent risk for cash? a. existence b. cut off c. detail tie in d. presentation and disclosure
a
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. estimated liability for warranties d. property tax expense
c
which of the following internal control objectives is likely to be the most important in the audit of the payroll cycle? a. payroll transactions are properly disclosed and presented in the notes to the financial statements b. payroll transaction are processed by an outside service provider c. recorded transactions represent valid payments d. recorded transactions are recorded in the proper accounting period
c
which of the following is a business function related to sales returns and allowances? a. processing customer orders b. writing off uncollectible accounts c. processing and recording credit memos d. granting credit
c
all of the following would be uncovered by a bank reconciliation except for: a. cash receipts recorded in the cash receipts journal but lost before deposit b. a check recorded in the cash disbursements journal for an amount $100 greater than the amount that the check was written for. c. a stop payment by a customer where the client was not informed that the stop payment had taken place d. failure to bill a customer
d
an attorney is responding to an independent auditor as a result of the clients letter of inquiry. the attorney may appropriately limit the response to: a. asserted claims and litigation b. asserted, overtly threatened, or pending claims and litigation c. items which have an extremely high probability of being resolved to the client's detriment d. matters to which the attorney has given substantive attention in the form of legal consultation or representation
d
auditing standards do not require the auditor to communicate all management frauds and illegal acts to the audit committee a. only if the act is immaterial b. only if the act is material c. only if the act is highly material d. all of the above is required to be communicated with the audit committee
d
auditor tests of physical controls over raw materials, work in process, and finished goods are performed by: examination, observation, inquiry a. yes, no, yes b. no, yes, no c. yes, yes, no d. no, yes, yes
d
failure to capitalize a fixed asset at the correct amount would impact which financial statement 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
in the accounts receivable subsidiary ledger the length of time the account has been due can be useful to the client and the auditor in preparing the: a. trial balance b. working trial balance c. accounts receivable trial balance d. aged accounts receivable trial balance
d
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. LIFO must be used for WIP inventory
d
gain contingencies need not be recorded or disclosed. a. true b. false
a
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
a ____ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped a. sales order b. customer order c. vendor invoice d. sales invoice
a
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
when positive confirmations are used, auditing standards require alternative procedures for confirmations not returned by the customer. which of the following would not be considered an alternative procedure? a. send a second confirmation request b. examine subsequent cash receipts to determine if the receivable has been paid c. examine shipping documents to verify that the merchandise was shipped d. examine customer's purchase order and the duplicate sales invoice to determine that the merchandise was order
a
which of the following accounts is not associated with the acquisition and payment cycle? a. common stock b. property plant and equipment c. accrued property taxes d. income tax expense
a
the process of transferring money from one bank account to another and improperly recording the transaction is referred to as a. skimming b. lapping c. kiting d. embezzling
c
a document prepared to initiate shipment of the goods sold by an independent shipper is the: a. sales order b. bill of lading c. sales invoice d. customer order
b
a document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the: a. accounts receivable subsidiary ledger b. monthly statement c. remittance advice d. sales invoice
b
an attorney is aware of a violation of a patent agreement that could result in a significant loss to the client if it were known. this is an example of a. commitment b. unasserted claim c. asserted claim d. pending litigation
b
an auditor selects a random sampling of tag numbers and identifies the tag with that number attached to the actual inventory. the purpose of the procedure is to: a. obtain proper cutoff information b. uncover the inclusion of nonexistent items as inventory c. to determine if the client has adequately price the inventory item d. to verify that the client has not changed the recorded counts after the auditor left the premises
b
any company with stock listed on a securities exchange may engage an independent registrar as a control to make sure stock certificates are issued properly. a. true b. false
b
auditing standards requires the auditor to evaluate whether there is a substantial doubt about a client's ability to continue as a going concern for at least one year from: a. balance sheet date b. financial statement issuance date c. audit report issuance date d. december 31 of each year
b
for cash receipts, the occurrence transaction related audit objective affects which of the following balance related audit objective? a. existence b. completensess c. rights d. detail tie in
b
generally, this many signatures of properly authorized officials are required for all loan agreements a. one b. two c. three d. all in the board of directors
b
it is ordinarily not necessary for the independent auditor to be present at the time of count and, by suitable observation, tests, and inquiries, satisfy himself respecting the effectiveness of the methods of inventory taking and the measure of reliance which may be placed upon the client's representations about the quantities and physical condition of the inventories a. true b. false
b
misstatements involving the completeness objective for sales lead to overstatements of assets and income a. true b. false
b
which of the following is not an objective of the auditor's examination of notes payable? a. to determine whether internal controls are adequate b. to determine whether client's financing arrangements are effective and efficient c. to determine whether transactions regarding the principal and interest of notes are properly authorized d. to determine whether the liability for notes and related interest expense and accrued liabilities are properly stated.
b
which of the following misstatements will be uncovered by a carefully prepared independent bank reconciliation? a. a defalcation of cash by interception of cash receipts from customers before they are recorded, with the account charged off as a bad debt b. deposits received by the bank on behalf of the company from credit card agencies and other vendors making payments electronically, but not recorded in the client's records c. duplicate payment of vendor's invoice d. improper payments of officers personal expenditures e. payment for raw materials that were not received
b
which of the following misstatements will be uncovered by a carefully prepared independent bank reconciliation? a. cash receipt lost before it was recorded in the cash receipts journal b. bank debit memo that should have been charged to a different customer c. a check written for $100 more than the amount on the vendor's invoice d. payment to an employee for more hours worked e. payment of interest to a related party for an amount in excess of the going rate
b
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
which of the following would have the least amount of importance 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
which one of the following if of the least concern to the auditor when designing substantive tests of transactions for the sales and collection cycle? a. sales being included in the journal for which no shipment was made b. sales to related parties, such as officers and subsidiaries c. sales recorded more than once d. shipments being made to nonexistent customers and recorded as sales
b
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`
____ expense is rarely analyzed unless analytical procedures indicate high potential for material misstatement. a. repairs and maintenance b. legal c. utilities d. rent and lease
c
a _____ is a document that indicates a request for merchandise by a customer. a. sales invoice b. vendor invoice c. customer order d. sales order
c
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 auditor a. bank confirmation b. bank statement c. cut off bank statement d. none of the above
c
a report generated from the payroll transaction file that typically includes the employee name, date, gross and net payroll amounts, withholding amounts, and account classification or classification for each transaction a. payroll transaction file b. personal records c. payroll journal or listing d. payroll master file
c
all of the following would be uncovered by a bank reconciliation except for a. failure to include a check that has not cleared the bank, even though it has been recorded in the cash disbursements journal b. cash received by the client subsequent to the balance sheet date but recorded as cash receipts in the current year c. billing a customer at a lower price than called for by company policy d. deposits recorded as cash receipts near the end of the year, deposited in the bank in the same month, and included in the bank reconciliation as a deposit in transit e. payments on notes payable debited directly to the bank balance by the bank but not entered into the client's records
c
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 on the balance sheet d. inventory valuation includes few estimates e. diverse inventory items are often difficult for auditors to observe and value
d
______ is a balance related audit objective that is not applicable to liabilities. a. existence b. accuracy c. detail tie in d. realizable value
d
a listing of the amount owed to each vendor at a point in time a. vendor's invoice b. voucher c. accounts payable master file d. accounts payable trial balance e. vendor's statement
d
a proof of cash is effective at identifying which of the following misstatements? a. check written for incorrect amounts b. checks issued to invalid vendors c. fraudulent checks d. checks recorded in the books for an amount different from that on the check
d
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
which of the following is an account that is not affected by the sales and collection cycle? a. cash b. accounts receivable c. allowance for doubtful accounts d. accounts payable
d
which of the following is not a cash equivalent? a. time deposits b. certificates of deposit c. money market funds d. marketable securities
d
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
which of the following is not considered a commitment? a. agreements to purchase raw materials b. pension plans c. agreements to lease facilitates at set prices d. each of the above is a commitment
d
which of the following is not one of the categories of items included in the client letter of representation? a. subsequent events b. completeness of information c. recognition, measurement, and disclosure d. materiality
d
which of the following would generally not need to be approved by the board of directors? a. issuing capital stock b. repurchasing capital stock c. declaration of a dividend d. payment of a dividend
d
which of the following would least concern an auditor regarding the lack of specific authorization to conduct the sales transaction? a. granting of credit b. shipment of goods c. determination of discounts d. selling of goods for cash
d
which type of audit procedure would normally be 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 procedure
d
you are the in charge auditor for a company who has been an audit client for several years. 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 the equipment account
d
you have been assigned to the accounts payable transaction cycle as part of your auditing responsibilities. you have decided to vouch a sample of entries in the accounts payable master file to supporting documents. which assertion is this test of controls most likely to support? a. accuracy b. classification c. completeness d. occurrence
d
audit procedures related to contingent liabilities are initially focused on: a. disclosure b. completeness c. occurrence d. a and b e. a and c
e
contingent liability disclosure in the footnotes in the footnotes of the financial statements would be made when: a. the outcome of the accounting event as a reasonable estimation of the loss can be made b. a reasonable estimation of the loss cannot be made, but the outcome is reasonably possible c. the outcome of the accounting event is deemed probable, but a reasonable estimation as to the amount cannot be made by the client or auditor d. the outcome of the accounting event is deemed probable, and a reasonable estimation as to the amount can be made e. both b and c
e
major balance related audit objectives in notes payable are: a. completeness b. accuracy c. presentation and disclosure d. a and b e. a, b, and c
e
congress included provisions in Sarbanes-Oxley Act directing the SEC to issue rules requiring attorneys serving public companies to report material violations by the company of federal securities laws. a. true b. false
a
the IRS form used to authorize the number of exemptions for withholding income taxes a. W2 b. W3 c. W4 d. 941 e. 940
c
prenumbered documents will only be useful for control purposes if: a. a different numerical sequence is used for each company b. the sequence is accounted for periodically c. employees are allowed to use documents out of numerical sequence d. the same numerical sequence is used each accounting period
b
records that include such data as the date of employment, personnel investigations, rates of pay, authorized deductions, performance evaluations, and termination of employment a. payroll transaction file b. personal records c. payroll journal or listing d. payroll master file
b
the audit of owners equity of public and private companies is very different. which of the following is not one of these differences? a. the number of transactions (private companies have fewer transactions) b. payment of dividends (public companies rarely pay dividends) c. complexity of transactions (public companies generally have more complex transactions) d. type of noncurrent debt (public companies issue more bonds)
b
the audit procedure "examine duplicate copies of notes payable to determine whether the notes payable were dated on or before the balance sheet date" is done for which of the following balance related audit objective? a. completeness b. cutoff c. detail tie in d. existence
b
the auditor needs to be aware that most users of financial statements rely most heavily on the ____ for making decisions. a. balance sheet b. income statement c. statement of cash flows d. statement of stockholders equity
b
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
the date of the management representation letter received from the client should coincide with which of the following? a. date of latest subsequent event disclosed in the notes to the financial statements d. date of the auditor's report c. balance sheet date d. engagement agreement
b
the most important aspect of evaluating the client's method of obtaining a reliable cutoff is to: a. perform extensive detailed testing of cut off b. evaluate the client's control procedures around cut off c. confirm a sample of transactions near period end with customers d. confirm transaction with customers
b
the prelisting of cash receipts should be prepared by the individual who has primary responsibility for the recording of cash receipts. a. true b. false
b
the record of the issuance and repurchase of capital stock for the life of the corporation is maintained in the a. shareholders capital stock master file b. capital stock certificate record c. schedule of stock owners d. corporate directory
b
an auditor is comparing the write-off of uncollectible accounts as a percentage of total accounts receivable with previous years. a possible misstatement this procedure could uncover is: a. overstatement or understatement of sales b. overstatement or understatement of accounts receivable c. overstatement or understatement of bad debt expense d. overstatement or understatement of sales returns and allowances
c
an auditor is gathering on the completeness assertion. to do so she performs a test to verify that all goods received by the company have been recorded properly. the document population for this test would consist of all: a. vendor invoices b. purchase orders c. receiving reports d. cash disbursements for accounts payable
c
assume that the client's valuation of an inventory item is $10 per unit of 1000 units, using 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
audit procedures designed to uncover credit sales made after the client's fiscal year end that relate to the current year being audited provide evidence for which of the following audit objective? a. realizable value b. accuracy c. cut off d. existence
c
auditors are especially concerned with three aspects of internal control for the sales and collection cycle. which of the following is not one of their major concerns? a. controls over cut off b. controls that prevent or detect embezzlements c. controls over sales discounts d. controls related to the allowance for uncollectible accounts
c
because of its central role in auditing of accounts receivable, which of the following would normally be one of the first items tested? a. accounts receivable master file b. customer file c. aged trial balance d. sales register
c
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
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
before goods are shipped on account, a properly authorized person must: a. prepare the sales invoice b. approve the journal entry c. approve the customer's credit d. verify that the unit price is accurate
c
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 know as a. standard cost controls b. pricing internal controls c. compilation internal controls d. count quantity internal controls
c
cost accounting controls are those related to the physical inventory and 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
cut off 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
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 show 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
a document generally received from the vendor which indicates a reduction in the amount owed due to the company granting an allowance is a: a. debit memo b. credit memo c. receiving report d. a contractual adjustment form
a
a document that initiates shipment of goods and indicates the description of the merchandise, the quantity shipped, and customer name and address is the: a. bill of lading b. sales invoice c. picking ticket d. vendor invoice
a
a document that specifies the details of an acquisition transaction and amount of money owed to the vendor for an acquisition. a. vendors invoice b. voucher c. accounts payable master file d. accounts payable trial balance e. vendor's statement
a
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
a type of positive confirmation known as a blank confirmation: a. requests the recipients to fill in the amount of the balance b. is considered less reliable than the regular positive confirmation c. generates as high a response rate as the regular positive confirmation form d. is used when the auditor is confirming several small balances
a
a written purchase order is a contractual document that is: a. an offer to buy goods or services b. not enforceable if it is not in writing c. binding agreement purchaser and vendor d. an acceptance of a vendor's catalog offer to sell
a
actual interest expense is significantly higher than the auditor's estimate. this would most likely lead the auditor to conclude that the client has not a. recorded all long term bearing debt in the accounting records b. recorded all interest expense paid or accrued c. properly accounting for the discount of bonds payable account d. properly recorded interest income
a
after the receipt of attorneys letter with no significant disagreement with the client assessment of contingent liabilities, the attorney resigns. under this circumstances: a. undisclosed unasserted claims may have arisen and the auditor should examine such issue b. undisclosed asserted claims may have arisen and the auditor should examine such issue c. undisclosed commitment may have arisen and the auditor should examine such issue. d. the auditor should not do anything as attorneys from time to time resign.
a
an auditor is performing a credit analysis of customers with balances over 60 days due. she is most likely obtaining evidence for which audit related objective? a. realizable value b. existence c. completeness d. occurrence
a
an inventory acquisition is received late in the afternoon of december 31 after the physical inventory is completed. if the acquisition is inlcuded 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 owners equity
a
analytical procedures are substantive tests and, if the results of the analytical procedures are favorable, the auditor would normally: a. reduce the extent of tests of details of balances b. reduce the extent of tests of controls c. reduce the tests of transactions d. reduce all of the other tests
a
auditors are especially concerned about the ____ and _____ balance related audit objectives because of the potential for understatements in the account balance. a. completeness, cutoff b. completeness, accuracy, c. classification, realizable value d. classification, cut off
a
auditors are likely to prepare a proof of cash when the client has: a. material control weaknesses in cash receipts and cash disbursements b. material control weaknesses in accounts receivable and revenue c. material control weaknesses in accounts payable and inventory d. material control weaknesses in payroll
a
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
deduction authorization form is a form authorizing payroll deductions, including the number of exemptions for withholding income taxes, 401k, and other retirement saving plans, US saving bonds, and union dues. a. true b. false
a
for a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents? a. sales order b. sales invoice c. customer order d. remittance advice
a
imprest dividend payment account is desirable because it could prevent the payment of a larger amount of dividends than was authorized a. true b. false
a
in addition to confirming bank balances of your audit client, a bank confirmation would normally contain: a. the client's bank loans with due date, interest rate, and collateral requested b. the client's credit history as regards to paying back loans c. the client's managements bank account information d. the client's business prospects
a
separation of duties in the sales/collection cycle should mandate that the credit granting function be separate from the sales function a. true b. sales
a
the american bar association amended it attorney-client confidentiality rules to permit attorneys to breach confidentiality if a client is committing a crime or fraud. a. true b. false
a
the chester co. shipped merchandise valued at $45000 (cost to the company) to a consignee on December 24, year 2 and recorded the sale and relief of inventory on that date. the consignee had not sold the merchandise as of January 5, year 3. the merchandise has a profit margin of 10%. record the necessary year 2 adjustment, if any. a. sales debit $50000, inventory debit $45000, AR credit $50000 and COGS credit $45000 b. sales debit $45000, inventory debit $45000, AR credit $45000 and COGS credit $45000 c. sales debit $49500, inventory debit $49500, AR credit $49500 and COGS credit $49500 d. sales debit $49500, inventory debit $45000, AR credit $49500 and COGS credit $45000 e. no entry required
a
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
the document used to indicate to the customer the amount of a sale and payment due date is the: a. sales invoice b. bill of lading c. purchase order d. sales order
a
the most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be recorded in the cash receipts journal: a. true b. false
a
the most important part of the observation of inventory is determining whether the physical count is being taken in accordance with the client's instruction: a. true b. false
a
the primary audit objectives to focus on when auditing debt are a. accuracy and completeness b. accuracy and existence c. completeness and valuation d. accuracy and valuation
a
there should generally be correspondence in the client's file establishing the uncollectibility of their account. a. true b. false
a
this document indicates the time the employees started and stopped working each day and the number of hours the employee. a. time card b. personal records c. job time ticket d. payroll check or paycheck
a
to minimize the opportunity for fraud, unclaimed salary checks should be a. redeposited b. kept in the payroll department c. left with the employees supervisor d. held for the employee in the personnel department
a
what typically initiates the acquisition and payments 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 order
a
when a company has treasury stock certificates on hand, a year end count of the certificates by the auditor is: a. always required b. not required if treasury stock is a deduction from stockholder's equity c. required when the company classifies treasury stock with other assets d. required when the company had treasury stock transactions during the year.
a
when auditors verify accrued property taxes two audit objectives are especially significant: a. completeness and accuracy b. completeness and net realizable value c. detail tie in and completeness d. accuracy and classification
a
which of the following audit procedures would be the most effective in testing for nonexistent employees? a. trace transactions recorded in the payroll journal to the human resources department to determine employment status b. examine canceled checks for proper endorsement c. recalculate net pay d. reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement
a
which of the following balance related audit objectives is not applicable to the audit of notes payable? a. realizable value b. detail tie in c. cut off d. classification
a
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
which one of the following analytical procedures would be most useful in alerting the auditor to the possibility of obsolete inventory? a. compare inventory turnover ratio with previous years' b. compare unit costs of inventory with previous years' c. compare gross margin percentage with previous years' d. compare current year manufacturing costs with previous years'
a
which one of the following best describes the auditors responsibilities regarding appropriate authorizations in the sales/collections cycle? a. b,c, and d should all be of concern to the auditor b. credit must be authorized before the sale c. goods must be shipped after the authorization d. prices must be authorized
a
which one of the following statements is true in deciding on substantive tests of transactions: a. some procedures are commonly employed on every audit regardless of the circumstances b. all procedures are dependent on the adequacy of the controls and the results of the tests of controls c. results obtained in the prior year's audit will not affect the procedures used this year d. the materiality of the item will not influence the choice of procedures
a
the tests of details of balances procedure which requires the auditor to examine notes paid after year end to determine whether they were liabilities at the balance sheet date is an attempt to satisfy the audit objective of a. existence b. completeness c. accuracy d. classification
b
to determine if notes payable are included in the proper period, the auditor should: a. trace the cash received from the issuance to the accounting records b. examine duplicate copies of notes to determine whether the notes were date on or before the balance sheet date c. examine duplicate copies of notes for principal and interest rates d. trace the individual notes payable to the master file
b
to test for recorded sales for which there were no actual shipments, the auditor vouches from the: a. bill of lading to the sales journal b. sales journal to the shipping documents c. sales journal to the accounts receivable subsidiary ledger d. bill of lading to the supporting customer order and sales order
b
when an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger, purposefully enters cash received into the wrong customer's account that employee may be suspected of: a. kiting b. lapping c. floating d. shorting
b
when auditors observe the client counting inventory, they should be careful to do all of the following except: a. inquire about items that are likely to be obsolete and damaged b. calculate the unit cost of the inventory items c. discuss with management the reasons for excluding any material items d. observe the counting of the most significant items
b
when determining the same size for the number of items the auditor should count during the physical inventory: a. it is easy to quantify the number of items based on a formula developed by the aicpa b. one of the key determinants that must be considered is internal control over the physical count c. one of the key determinants that must be considered is the time involved d. generally accepted auditing standards require that at least 80% of the dollar value of the inventory should be included in the sample
b
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
when there are numerous transactions involving notes payable during the year, the normal starting point for the audit of notes payable is: a. a schedule of notes payable and accrued interest prepared by the audit team b. a schedule of notes payable and accrued interest obtained from the client c. a schedule of only those notes with unpaid balances at the end of the year prepared by the client d. the notes payable account in the general ledger
b
which balance related audit objective is not relevant to an audit of prepaid expenses? a. existence b. realizable value c. detail tie in d. completeness e. cut off
b
which of the following audit tests is tested in the sales and collection cycle a. physically observe inventory b. examine shipped goods records and recorded revenue and costs c. check internally transfer assets and costs d. test pricing and compiling inventory e. examine purchase and recording of raw materials, labor, and overhead
b
which of the following departments is most likely responsible for pay rate changes and changes in deductible amounts for employees? a. general accounting b. human resources c. treasury d. controller
b
which of the following 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
which of the following is an analytical procedure to determine if there is idle equipment or equipment that was disposed of but not written off? a. compare depreciation expense divided by gross equipment cost with previous years b. compare gross manufacturing cost divided by some measure of production with previous years c. compare accumulated depreciation divided by gross equipment cost with previous years d. compare annual repairs and maintenance accounts with previous years
b
which of the following is likely to be determined first when performing tests of details for accounts receivable? a. recorded accounts receivable exist b. accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger. c. accounts receivable are owned d. existing accounts receivable are included
b
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 e. separation of asset custody from other functions
b
which of the following is not an important control over notes payable? a. there is proper authorization over the issuance of new notes payable b. notes payable are issued when the business climate is favorable c. adequate controls exist over repayment of interest and principal d. there exist proper documents and records e. periodic independent verification
b
who has the responsibility for identifying accounting treatment for contingent liabilities? a. legal counsel b. company management c. internal auditors d. external auditors e. all of the above
b
you are auditing rogers and company. you are aware of a potential loss due to non compliance with environmental regulations. management has assessed that there is a 40% chance that a $10M payment could result from the non-compliance. The appropriate financial statement treatment is to: a. accrue a $4 million liability b. disclose a liability and provide a range of outcomes c. since there is less than a 50% chance of occurrence, ignore d. since there is greater than a remote chance of occurrence, accrue the $10 million.
b
you are performing an audit of Hawk Company. in evaluating the accounts payable balance you are concerned with the completeness assertion. which of the following audit procedures best satisfy your concern? a. send confirmations to only vendors with large balances b. send confirmations to vendors with large, active, zero balance accounts and a representative sample of all others c. send confirmations to vendors chosen from sample stratified by the dollar balance d. send confirmations to all vendors
b
if a company employs a capital stock registrar and/or transfer agent, the registrar or agent, or both, should be requested to confirm directly to the auditor the number of shares of each class of stock a. surrendered and canceled during the year b. authorized at the balance sheet date c. issued and outstanding at the balance sheet date d. sold at a price above par during the year
c
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
in an effort to satisfy the completeness objective, the auditor could perform which of the following test of details of balances 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
in connection with a review of the prepaid insurance account, which of the following audit procedures would you be least likely to use a. recompute the portion of the premium that expired during the year b. prepare excerpts of the insurance policies for audit working papers c. confirm premium rates with an independent insurance broker d. examine support for premium payments
c
most companies recognize sales revenue when: a. sales are invoiced b. payment is received from the customer c. goods are shipped d. the customer's order is received
c
some companies have customers send payments directly to an address maintained by a bank. this is called a _____ system. a. direct deposit b. funds transfer c. lockbox d. interbank transfer
c
the accounts payable department usually has responsibility for approving acquisitions for payment 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
the audit procedures for the subsequent events review can be divided into two categories: 1) procedures integrated as part of the verification of year-end account balances, and 2) those performed specifically for the purpose of discovering subsequent events. which of the following is not in category 2? a. inquiries of client regarding contingent liabilities. b. obtain a letter of representation written by client. c. subsequent period sales and purchases transactions are examined to determine whether the cutoff is accurate. d. review journals and ledgers of year 2 to determine the existence of any transaction related to year 1. e. examine minutes issued subsequent to the balance sheet date.
c
the auditors 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
the capital acquisition and repayment cycle does not include: a. payment of interest b. payment of dividends c. payment of taxes d. acquisition of capital through interest bearing debt
c
the direct receipt of a confirmation from every bank with which the client does business is: a. required by accounting standards for every audit b. not necessary unless material fraud is suspected c. recommended but not required by auditing standards d. necessary for every audit except when there are an unusually large number of active accounts
c
to prevent fraud, management should deny cash access to anyone responsible for: opening mail from customers, entering sales transactions, entering cash receipts transactions a. yes, yes, yes b. no, no, yes c. no, yes, yes d. yes, no, no
c
when auditing depreciation expense, the two major concerns related to the accuracy audit objectives 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 policies d. cost of the fixed asset and useful lives
c
when auditing interest bearing debt, the auditor should ____ verify the related interest expense and interest payable a. not b. attempt to c. simultaneously d. never
c
when designing audit procedures, tracing of source documents to the customers subsidiary ledger and subsequently to the general ledger is done to satisfy what assertion? a. valuation b. existence c. completeness d. classification
c
when reviewing the controls and procedures in the acquisition and payment cycle: a. companies cannot record the liability for the acquisition until the invoice is received from the vendor b. the purchasing department has the responsibility for verifying for the appropriateness of the acquisition c. personnel who record the acquisitions should not have access to cash or other assets d. the accounts payable department should account for all receiving reports to assure that the occurrence objective is satisfied
c
which event that occurred after the end of the fiscal year under audit but prior to issuance of the auditor's report would not require disclosure in the financial statements? a. sale of a bond or capital stock issue b. loss of plant or inventories as a result of fire or flood c. a significant decline in the market price of the corporation's stock d. a merger or acquisition
c
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
which of the following accounts is not part of the acquisition and payment cycle? a. prepaid expenses b. accounts payable c. sales, returns, and allowances d. property, plant, and equipment
c
which of the following audit procedures would not likely detect a client's decision to pledge or factor accounts receivable? a. a review of the minutes of the board of directors' meetings b. discussions with the client c. confirmation of receivables d. examination of correspondence files
c
which of the following balance related objectives applies to auditing the general cash account? a. rights b. realizable value c. cutoff d. classification
c
which of the following is a characteristic of the capital acquisition and repayment cycle: a. there is a direct legal relationship between the client entity and the holder of the stock, bond, or similar ownership document b. there is a direct relationship between the interest and dividend accounts and debt and equity c. both a and b d. neither a nor b
c
which of the following is most reliable for verifying the correct balance of accounts payable? a. vendor's invoices b. vendors statements c. confirmations d. bills of lading
c
which of the following is not a business function within the "sales" class of transactions? a. processing customer orders b. granting credit c. processing and recording sales returns and allowances d. shipping goods
c
which of the following statements is correct regarding the capital acquisition and payment cycle? a. bonds are frequently issued by companies in small amounts b. a primary emphasis in auditing debt is on existence c. audit procedures for notes payable and interest income are often performed simultaneously d. none of the above
c
which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom? a. the cashier prepares the daily deposit b. the cashier makes the daily deposit at a local bank c. the cashier posts the receipts to the accounts receivable subsidiary ledger d. the cashier endorses the checks
c
which type of subsequent event requires consideration by management and evaluation by the auditor? a. those that have a direct effect on the financial statements and require adjustment. b. those that have no direct effect on the financial statements but for which disclosure is advisable. c. a and b d. neither a nor b
c
while there is no professional requirement to do so on audit engagements, CPAs frequently issue a formal "management" letter to clients. the primary purpose of the letter is to provide: a. evidence indicating whether the auditor is reasonably certain that internal accounting control is operating as prescribed b. a permanent record of the internal accounting control work performed by the auditor during the course of the engagement c. a written record of discussion between auditor and client concerning the auditor's observations and suggestions for improvements d. a summary of the auditors observations that results from the auditor's special study of internal contro
c
who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts? a. company personnel b. temporary employees in the town where the lockbox is located c. bank empoyees d. company controller
c
with which of the following client personnel would it generally not be appropriate to inquire about commitments or contingent liabilities? a. controller b. president c. accounts receivable clerk d. vice president of sales e. both c and d
c
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. having discussions with the client or sending letters to legal counsel d. all of the above may be used to identify legal encumbrances
d
normally it may be unnecessary to examine supporting documentation for each addition to property plant and equipment but it would be 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
the audit objective that requires the auditor to determine that notes payable on the notes payable schedule are properly classified can be tested by performing the procedure to: a. confirm the notes payable b. examine corporate minutes for loan approval c. examine notes, minutes, and bank confirmations for restrictions d. review the notes to determine whether any are with related parties
d
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. realizable value
d
the primary concern in determining whether retained earnings is correctly disclosed on the balance sheet is a. correct calculation of the net income or loss for the year b. correct calculation of dividend payments for the year c. whether prior period adjustments have been made correctly d. whether there are any restrictions on the payment of dividends
d
the record of the outstanding shares at any given time is maintained in the a. corporate directory b. stock certificate books c. schedule of stock owners d. shareholders capital stock master file
d
the reliability of perpetual inventory master files affects the timing and ____ of the auditors observation of inventory a. cut off b. accuracy c. nature d. extent
d
the standard letter of inquiry to the client's legal counsel should be prepared on: a. plain paper (no letterhead) and be unsigned b. lawyer's stationary and signed by the lawyer c. auditor's stationery and signed by an audit partner d. client's stationery and signed by a company official
d
the test of details of balance procedures which requires the auditor to perform tests of lower 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
this document lists the amount owed to each vendor or for each invoice or voucher at a point in time and prepared directly from the accounts payable master file a. vendor's invoice b. voucher c. accounts payable master file d. accounts payable trial balance e. vendor's statement
d
this file is used for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date a. payroll transaction file b. personal records file c. payroll journal file d. payroll master file
d
to assure proper segregation of duties, who should maintain the perpetual inventory master files? a. production personnel b. inventory storeroom personnel c. inventory receiving personnel d. accounting department personnel
d
to which attorney should the auditor send inquiry? a. every attorney that the client has been involved with in the current year. b. every attorney that the client has been involved with in the last year c. every occasional attorneys d. all of the above
d
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 obligation d. accuracy and cut off
d
what event initiates a transaction in the sales and collection cycle? a. receipt of cash b. delivery of product to a customer c. identification of a new customer d. customer request for goods
d
what needs to be included in a letter of inquiry sent to a client's legal counsel? a. any pending threatened litigation with which the attorney has had significant involvement b. any asserted or unasserted claims or assessments with which the attorney has had significant involvement c. the amount of legal fees paid by the client to the attorney d. a and b e. a,b, and c
d
when a company maintains its own records of stock transactions and outstanding stock, internal controls must be adequate to ensure that: a. who are the actual owners of the stock b. the correct amount of dividends is paid to stockholders owning the stock on the dividend record date c. the correct amount of dividends is paid to stockholders owning the stock on the declaration date d. a and b e. a and c
d
when testing the controls for the completeness transaction related audit objectives: a. failure to record the acquisition of goods or services will generally understate net income b. failure to record the acquisition of goods or services has no impact on the balance sheet c. it is generally easy for the auditor to determine whether unrecorded transactions exist d. the audit time for accounts payable can be reduced if the client has effective internal controls and the auditor properly tests those controls
d
which of the following balance related audit objectives is not applicable to owner's equity a. realizable value b. rights and obligations c. cut off d. a and b e. a, b, and c
d
given the following inventory turnover rates about your audit client, audit concern for 2016 would be: 2015: 12, 2016: 10, industry average: 16 a. inventory is overvalued on the balance sheet b. realizable value c. existence of obsolete inventory d. a and c e. all of the above
e
if the auditor determines that a subsequent event that affects the current period financial statements occurred after fieldwork was completed but before the audit report was issued, what dates may the auditor use on the report? a. the date of the original last day of fieldwork only b. the date of the subsequent event only c. the date on which the last day of fieldwork occurred along with the date of the subsequent event. d. either a or b e. either b or c
e
important differences between acquisitions and payments cycle transactions compare to other cycles are a. larger number of transactions b. significant judgement c. wide range of dollar amount d. a and c e. a, b, and c
e
imprest bank accounts: a. are the primary bank account for most organizations where virtually all cash receipts and disbursements flow through this account at some time b. are maintained at local banks by branches of a company c. are funds of cash maintained within the company for small cash acquisitions or to cash employee's checks; the fund's fixed balance is comparatively small and is periodically reimbursed d. are bank accounts to which the exact amount of payroll for the pay period is transferred by check or electronic transfer from the employer's general cash account e. consist of on bank account for receipts and a separate one for reimbursement
e
in addition to proper instructions for the physical count of inventory, which of the following controls must also be in place? a. supervision by responsible personnel b. independent interval verification of the counts c. independent reconciliation of the physical counts with perpetual inventory master fies d. adequate control over count sheets or tags e. all of the above
e
standard cost records are a. procedures used to verify the costs used to value physical inventory b. a continuously updated computerized record of inventory items purchased, used, sold, and on hand for merchandise, raw materials, and finished goods c. controls over physical inventory and the related costs from the point at which raw materials are requisitioned to the point at which the manufactured product is computed and transferred to storage d. procedures used to verify whether physical counts of inventory are correctly summarized, inventory quantities and prices are correctly extended, and extended inventory is correctly footed e. used to indicate variances between projected material, labor, and overhead costs and the actual costs
e
the chester co. shipped merchandise valued at $75000 (cost to the company) f.o.b. destination on December 23, year 2 and recorded the sale and relief of inventory on that date. the customer received the merchandise on December 31, year 2. the merchandise has a profit margin of 10%. record the necessary year 2 adjustment, if any. a. sales debit $75000, inventory debit $75000, AR credit $75000 and COGS credit $75000 b. sales debit $82500, inventory debit $75000, AR credit $82500 and COGS credit $75000 c. sales debit $82500, inventory debit $82500, AR credit $82500 and COGS credit $82500 d. sales debit $83333, inventory debit $75000, AR credit $83333 and COGS credit $75000 e. no entry required
e
transactions in the acquisitions and payment cycle include: a. acquisitions of goods and services b. cash disbursements c. purchase returns and allowances and purchase discounts d. a and b e. a, b, and c
e
which of the following audit procedures are used to test existing capital stock transaction are recorded: a. review minutes of board of directors, especially near balance sheet date b. confirm with registrar or transfer agent c. examine client held stock record books d. a and b e. a, b, and c
e
which of the following is a contingent liability with which an auditor is particularly concerned? a. income tax disputes b. product warranties c. notes receivable discounted d. a and b e. a, b, and c
e