Audit Final MC

As an in-charge auditor, you are reviewing a summary of control weaknesses in cash disbursement procedures. Which one of the following weaknesses, standing alone, should cause you the least concern?

Checks are signed by only one person.

Which of the following sampling methods would be used to estimate a numerical measurement of population, such as the dollar value of an account?

Classical variables sampling.

Which of the following would be an improper technique when using monetary-unit statistical sampling in an audit of accounts receivable?

Combining negative and positive dollar misstatements in the appraisal of a sample

Prior to issuing a report on internal controls over financial reporting, an auditor is required to

Communicate to management, in writing, all control deficiencies identified during the audit and inform the audit committee when such a communication has been made.

Which of the following statements best describes an inherent limitation of the monetary-unit sampling method?

Misstatement rates must be small and the misstatements must be overstatements.

Which of the following misstatements is not related to the completeness assertion for revenue?

Next year's revenue is recorded this year.

Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?

Observe the condition of merchandise and raw materials during the entity's physical inventory count.

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?

Obsolete inventory.

Which of the following is not an element of management's assessment process for the effectiveness of internal control?

Obtaining the auditor's assessment of the internal control effectiveness.

By selecting a sample of additions to property, plant, and equipment and then examining the related vendor invoices, the auditor is testing which of the following assertions for property, plant, and equipment?

Occurrence.

Comparing selected items from the payroll register to employee time records that have been approved by supervisory personnel tests which of the following assertions for payroll expense?

Occurrence.

In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?

Occurrence.

Testing a sample of repairs and maintenance expense items to ensure that they were properly classified as repairs as opposed to property, plant, and equipment tests which of the following assertions for the repairs and maintenance expense account?

Occurrence.

Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that additions to the equipment account are not understated?

Repairs and maintenance expense.

Audit sampling is commonly used for which type of audit evidence?

Reperformance.

Data Corporation has just computerized its billing and accounts receivable record keeping. You want to make maximum use of the new computer in your audit of Data Corporation. Which of the following audit techniques could not be performed through a computer program?

Resolving differences reported by customers on confirmation requests.

During a review of a small business entity's internal control system, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness?

The owner reviews credit memos before they are recorded.

Which of the following audit procedures would be least likely to lead the auditor to find unrecorded fixed asset disposals?

Review of repairs and maintenance expense.

Which of the following could test the assertion of classification for payroll-related liabilities?

Review payroll liabilities for proper reporting as short- or long-term.

The auditor is least likely to learn of retirement of equipment through which of the following?

Reviewing the purchase return and allowance account.

S&H Associates has just performed an audit of Bob's Bikes. S&H was unable to obtain a written representation from management about internal control. Which of the following is true?

S&H should consider this situation a limitation on the scope of the audit.

To obtain an understanding of significant processes and relevant subprocesses, auditors would be least likely to use which of the following techniques?

Scanning.

Which of the following statements is correct concerning statistical sampling in compliance testing?

The population size has little or no effect on determining sample size except for very small populations.

As one of the year-end audit procedures, the auditor instructed the entity's personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the entity's treasurer had signed the request, it was mailed to the bank by the assistant treasurer. What is the major flaw in this audit procedure?

The request was mailed by the assistant treasurer.

Which of the following risks is related to effectiveness of testing?

The risk of incorrect acceptance.

Which of the following risks is related to efficiency of testing?

The risk of incorrect rejection.

Which of the following is not a topic that requires special consideration by management during management's internal control assessment process and by the auditor during the audit of internal control?

The role of the auditor in internal control.

The PCAOB's definition of internal control over financial reporting specifically mentions all of the following control activities except:

The segregation of duties.

When testing a computerized accounting system, which of the following is false regarding the test data approach?

The test data must consist of all possible valid and invalid conditions.

Which one of the following statements is true regarding two random samples, drawn in the same way, from the same population, one of size 30 and one of size 300?

The two samples are expected to have the same sample mean.

Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?

There are significant unexplained variances between standard and actual labor cost.

Based on a 5% risk of assessing control risk too low, how would an auditor interpret a computed upper deviation rate of 7%?

There is a 5% chance that the deviation rate in the population exceeds 7%.

Which of the following is an advantage of generalized computer audit packages?

They can be used for audits of entities that use differing IT equipment and file formats.

Which of the following is true of generalized audit software packages?

They each have their own characteristics that the auditor must carefully consider before using in a given audit situation.

Which of the following activities most likely would detect whether payroll data are accurately processed?

Use test data to verify the accurate performance of payroll processing.

Which of the following is the most important control activity over acquisitions of property, plant, and equipment?

Using a budget to forecast and control acquisitions and retirements.

Recomputing the unexpired portion of insurance policies in effect tests which of the following assertions for prepaid insurance?

Valuation.

Which of the following is not one of the independent auditor's objectives regarding the examination of inventories?

Verifying that all inventory owned by the entity is on hand at the time of the count.

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?

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

Which of the following procedures would normally be performed by the auditor when conducting tests of payroll transactions?

Vouch number of hours worked as shown on payroll to time sheets and time reports signed by the foreman.

Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence of recorded accounts payable?

Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.

In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the entity's name, an auditor most likely gathers evidence in support of management's financial statement assertions regarding

existence, rights and obligations, and completeness.

Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables'

existence.

Once a CPA has determined that accounts receivable has increased because of slow collection in a "tight money" environment, the CPA would be likely to

expand tests regarding the collectability of receivables.

To determine the sample size for a test of controls, an auditor should consider the tolerable deviation rate, the desired confidence level, and the

expected population deviation rate.

A normal audit procedure is to analyze the current year's repairs and maintenance accounts to provide evidence in support of the audit proposition that

expenditures for fixed assets have been capitalized.

Shipping orders are forwarded from the revenue process to

finished goods stores.

If fraud is suspected, auditors may complete all of the following procedures except:

footing the bank reconciliation and the outstanding checks listing.

To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except the:

general ledger.

An auditor would consider internal control over an entity's payroll procedures to be ineffective if the payroll department supervisor is responsible for

having custody over unclaimed paychecks.

An interbank transfer schedule

helps the auditor test for kiting.

An auditor typically sets inherent risk for intangible assets at this level

high.

The tolerable deviation rate for a test of controls is generally

higher than the expected rate of deviations in the related accounting records.

Purchase cutoff activities should be designed to test that merchandise is included in the inventory of the entity company if the company

holds legal title to the merchandise.

When testing automated IT controls, the auditor is most likely to do all of the following except:

increase sample size because the tolerable deviation rate tends to be higher for automated IT controls.

In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was

initially concealed by a forged document.

An auditor generally tests physical security controls over inventory by

inquiry and observation.

For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the

internal auditor

Equipment acquisitions that are misclassified as maintenance expenses most likely would be detected by a control activity that provides for

investigation of variances within a formal budgeting system.

The formula for nonstatistical sampling for tests of account balances provided by the AICPA

is affected by the nature of other substantive procedures used to test the account balance.

In general, revenue is recognized when

it is earned and realized.

An underlying feature of random-based selection of items is that each

item in the accounting population should have an opportunity to be selected.

To gain assurance that all inventory items in an entity's inventory listing schedule are valid, an auditor most likely would trace

items listed in the inventory listing schedule to inventory tags and the count sheets.

In nonstatistical sampling for tests of controls, increasing the desired confidence level results in a

larger sample size.

An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods

provide an objective basis for quantitatively evaluating sample risks.

Budd, the purchasing agent for Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a C.O.D. basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this because of Lake's poor internal control over

purchase orders.

For several years, an entity'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 controls that led to the failure to record some

purchases returned to vendors.

An entity's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record

purchases.

If the perpetual inventory records show lower quantities of inventory than the physical count, an explanation of the difference might be unrecorded

purchases.

In the confirmation of accounts receivable, the auditor would most likely

randomly select a representative sample of accounts for confirmation.

When control risk is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying substantive analytical procedures and

recalculating payroll accruals.

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the

receiving report and the purchase order.

The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with

receiving reports.

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all

receiving reports.

A product cost is

recognized in the period during which related revenue is recognized.

A debit memo

reduces the amount of accounts payable due to a vendor.

An entity has a large and active investment portfolio that is kept in a bank safe-deposit box. If the auditor is unable to examine and count the securities at the balance sheet date but will examine and count the securities shortly thereafter, the auditor most likely will

request that the entity have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.

To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would

examine the audited financial statements of the investee company.

Before expressing an opinion concerning the results of operations, the auditor would most likely proceed with the examination of the income statement by

examining income statement accounts concurrently with the related balance sheet accounts.

The auditor may conclude that depreciation charges are insufficient by noting

excessive recurring losses on assets retired.

The auditor is most likely to seek information from the plant manager with respect to the

existence of obsolete machinery.

In testing plant and equipment balances, an auditor may inspect new additions listed on the analysis of plant and equipment. This procedure is designed to obtain evidence concerning management's assertion(s) about

existence or occurrence.

Assertions about account balances at the period end include

existence, rights and obligations, and completeness.

An entity maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably

request that the entity schedule the physical inventory count at the end of the year.

During its fiscal year, a company issued, at a discount, a substantial amount of bonds. When performing audit work in connection with the bond issue, the independent auditor should

review the board of directors' minutes for authorization.

When reviewing bank confirmations for any liens on receivables, the auditor is testing____ assertion.

rights and obligations

Examining brokers' advices for a sample of securities purchased during the year is a test for the assertion of

rights and obligations.

The audit of year-end physical inventories should include steps to verify that the entity'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

sale in the current period.

The auditor is most likely to verify accrued commissions payable in conjunction with the

sales cutoff review.

While observing an entity's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the entity's perpetual records. This situation could be the result of the entity's failure to record

sales returns.

An entity'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

sales.

An auditor who uses statistical sampling for attributes in testing internal controls is most likely to reduce the planned reliance on a prescribed control when the

sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

Monetary-unit sampling is said to eliminate the need to stratify the sample because

sample items are selected in proportion to their dollar amount.

An auditor ordinarily should send a standard confirmation request to all banks with which the entity has done business during the year under audit, regardless of the year-end balance, because this procedure

seeks information about indebtedness to the bank.

Due to a weakness observed in internal control over recording retirements of equipment, the auditor may decide to

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

In testing for unrecorded retirements of equipment, an auditor most likely would

select items of equipment from the accounting records and then locate them during the plant tour.

Substantive procedures to examine the occurrence assertion for accounts payable include

selecting a sample of vouchers and agreeing them to authorized purchase orders.

Substantive procedures to examine the completeness assertion for accounts payable include

selecting a sample of vouchers and tracing them to the purchases journal.

An important primary purpose of the auditor's review of the entity's procurement system should be to determine the effectiveness of the activities to protect against

unauthorized persons issuing purchase orders.

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control activities could cause an

understatement of revenues and receivables and an overstatement of inventory.

An auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory, including presentation and disclosure, and

valuation and allocation.

Determining that proper amounts of depreciation are expensed provides assurance about management's assertions of presentation and disclosure and

valuation and allocation.

In auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of management's financial statement assertion of

valuation and allocation.

Testing depreciation calculations for a sample of property, plant, and equipment tests the assertion of

valuation and allocation.

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of

valuation.

An auditor performs a test to determine whether all merchandise was received for which the entity was billed. The population for this test consists of all

vendors' invoices.

An examination of the balance in the accounts payable account is ordinarily not designed to

verify that accounts payable were properly authorized.

When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably

want the entity to schedule the physical inventory count at the end of the year.

An aged trial balance of accounts receivable is normally used by the auditor to

evaluate the provision for bad debts.

Which of the following statements would an auditor most likely add to the negative form of confirmations of accounts receivable to encourage timely consideration by the recipient?

"If you do not report any differences within 15 days, it will be assumed that this statement is correct."

In a monetary-unit sample with a sampling interval of $5,000, an auditor discovers that a selected account receivable with a recorded amount of $10,000 has an audit amount of $8,000. If this were the only error discovered by the auditor, the projected misstatement for this sample would be

$2,000

In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected misstatement of this sample was

$6,000

For monetary-unit sampling, a sampling interval of 400 means that

every 400th dollar in the account will be included in the sample.

Auditors will examine the insurance register primarily to

examine policy expiration dates to verify that prepaid insurance is properly stated.

If completeness is a concern for accounts payable, auditors will send accounts payable confirmations to

primarily vendors with small or zero accounts payable balances.

Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?

Misapplication of LIFO.

Which of the following is the best argument against the use of negative accounts receivable confirmations?

The inference drawn from receiving no reply may not be correct.

An accounts receivable account balance is $500,000 and the auditor determines a sample size of 30 would provide adequate assurance. The auditor plans to use a monetary-unit sampling plan with systematic sample selection. The auditor notices that there are six customer accounts of at least $15,000 and would like the systematic selection technique to select all items that are at least $15,000, even if that means the sample size is slightly larger than 30. To achieve the auditor's objectives, the sampling interval should be

15,000

For a large population of cash disbursement transactions, Smith, CPA is testing controls by using attribute sampling techniques. Anticipating an expected deviation rate of 3 percent, Smith found from a table that the required sample size is 400 with a tolerable deviation rate of 5 percent and a desired confidence level of 95 percent. If Smith anticipated an expected deviation rate of only 2 percent but wanted to maintain the same tolerable deviation rate and confidence level, the sample size would be closest to

200.

Which of the following most likely would give the most assurance concerning the valuation assertion for accounts receivable?

Assessing the allowance for uncollectible accounts for reasonableness.

Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees?

A bank lockbox system.

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely would be included with the entity's confirmation letter?

A client-prepared statement of account showing the details of the customer's account balance.

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?

A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances.

What is channel stuffing?

A company induces distributors to buy substantially more inventory than they can promptly resell.

In the weekly computer run to prepare payroll checks, a check was printed for an employee who had been terminated the previous week. Which of the following controls, if properly utilized, would have been most effective in preventing the error or ensuring its prompt detection?

A control total for hours worked, prepared from time sheets collected by the Timekeeping Department.

The person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk. This is an example of

A deficiency in operation.

Which of the following describes a permanent difference?

A fundamental difference in what constitutes revenue or expense for GAAP and tax purposes.

Which of the following constitutes a control weakness related to factory equipment?

A policy requiring all purchases of factory equipment to be made by the department in need of the equipment.

Which of the following best illustrates the concept of sampling risk?

A randomly chosen sample may not be representative of the population as a whole (regarding the characteristic being tested).

Section 404 of the Sarbanes-Oxley Act includes which of the following?

A requirement that management of a publicly traded company accepts responsibility for establishing and maintaining adequate internal controls.

A deficiency that implies that there is a reasonable possibility of misstatement in the financial statements that is significant but not material is

A significant deficiency.

In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?

A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.

Public reporting on the effectiveness of internal control over financial reporting, as required by the Sarbanes-Oxley Act, includes

A statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting.

Which of the following describes a temporary difference?

A timing difference between the recognition of revenue or expense under GAAP and tax purposes.

Which of the following procedures most likely would give the greatest assurance that securities held as investments are safeguarded?

Access to securities requires the presence of two designated officials.

Tracing costs used to price inventory to vendors' invoices test which of the following assertions?

Accuracy.

Which of the following policies constitutes a control weakness related to the acquisition of factory equipment?

Acquisitions are to be made through and approved by the department in need of the equipment.

AAA & Associates recently finished auditing LinktheEarth Corporation's internal control over financial reporting. AAA found a number of material weaknesses in the entity's internal control. LinktheEarth's management remediated all of the weaknesses that AAA found. However, the auditors did not have sufficient time to retest the controls. What report should AAA issue with regards to internal control over financial reporting at year-end?

Adverse report.

Examples of entity-level controls include

All of these are examples of entity-level controls.

In determining the extent to which the auditor may use the work of others in the audit of ICFR, the auditor should do all of the following except:

All of these are required.

If the ratio of repairs and maintenance expense to property, plant, and equipment is higher than expected, which of the following is a plausible explanation?

An addition to a building was charged to repairs and maintenance expense.

Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities?

An independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possession of the securities.

Which of the following audit procedures is least likely to detect an unrecorded liability?

Analysis and recomputation of depreciation expense.

Two months before year-end, the bookkeeper erroneously recorded the receipt of a long-term bank loan by a debit to cash and a credit to sales. Which of the following is the most effective procedure for detecting this type of error?

Analysis of bank confirmation information.

Which of the following audit procedures would provide the least reliable evidence that the entity has legal title to inventories?

Analytical review of inventory balances compared to purchasing and sales activities.

For which of the following internal controls would an auditor be least likely to perform tests of internal controls closer to the "as of" date?

At the end of each day at Federal Bank, the total cash in the vault is reconciled with daily registers of deposits and withdrawals.

Which of the following is a question that the auditor would expect to find on the production process section of an internal control questionnaire?

Are all releases by storekeepers of raw materials from storage based on approved requisition documents?

Which of the following questions would an auditor least likely include on an internal control questionnaire concerning the initiation and execution of equipment transactions?

Are procedures in place to monitor and properly restrict access to equipment?

Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases?

Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

Which of the following would provide the best form of evidential matter pertaining to the annual valuation of a long-term investment in which the entity owns a 45 percent voting interest?

Audited financial statements of the investee company.

Examining a sample of cancelled checks for an authorized signature tests which of the following assertions for cash?

Authorization.

To achieve good internal control, which department should perform the activities of matching shipping documents with sales orders and preparing daily sales summaries?

Billing.

Which of the following could test the occurrence assertion for payroll-related liabilities?

Compare items in accrued payroll taxes to the supporting payroll tax return.

Jones was engaged to examine the financial statements of Virginia Corporation for the year ended June 30. Having completed an examination of the investment securities, which of the following is the best method of verifying the accuracy of recorded dividend income?

Comparing recorded dividends with a standard financial reporting service's record of dividends.

Which of the following internal control activities could best prevent direct labor from being charged to manufacturing overhead?

Comparison of daily journal entries with the factory labor summary.

If payables turnover has increased significantly since the prior year, this is an indication that which of the following assertions for accounts payable might be violated?

Completeness.

Testing a sample of repairs and maintenance items to ensure that they were properly classified as repairs as opposed to property, plant, and equipment tests which of the following assertions for the property, plant, and equipment account?

Completeness.

Tracing a sample of remittance advices to entries in the cash receipts journal tests which of the following assertions for cash?

Completeness.

Which assertion for ending inventory is most likely violated if the gross profit percentage is much greater than last year?

Completeness.

According to the COSO definition of safeguarding of assets

Controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements.

Which of the following transactions is an auditor most likely to examine when auditing the retained earnings account?

Correcting an error in depreciation in a prior year.

The physical count of inventory of a retailer was higher than shown in its perpetual records. Which of the following could explain the difference?

Credit memos for several items returned by customers had not been prepared.

Tracing a sample of time sheets before and after period end to the weekly payroll report and tracing the weekly payroll report to the general ledger to verify that payroll transactions are recorded in the proper period would provide evidence primarily for which assertion?

Cutoff.

Which of the following is an effective internal control used to prove that production department employees are properly validating payroll timecards at a time-recording station?

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

Which of the following factors does an auditor generally need to consider in planning a particular audit sample for a test of controls?

Desired confidence level.

Which of the following procedures would be most important in the audit of an investment valued at fair value?

Develop an independent estimate of the fair value measurement.

Which of the following statements is correct concerning statistical sampling in tests of controls?

Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate.

An auditor is performing substantive procedures of pricing and extension of perpetual inventory balances consisting of a large number of items. Past experience indicates numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate?

Difference projection

Which of the following statements included in management's assessment of the effectiveness of internal control over financial reporting would be considered acceptable for issuing an unqualified opinion?

Disclosure of material weaknesses corrected during the period.

Management documentation should include all of the following except:

Documentation regarding the auditor's evaluation of internal controls.

Which of the following control activities may prevent the failure to bill customers for some shipments?

Each shipment should be supported by a prenumbered sales invoice that is accounted for.

Which of the following is not a primary objective of internal control as established by COSO?

Effective purchasing systems.

Which of the following is the most important consideration of an auditor when examining the stockholders' equity section of an entity's balance sheet?

Entries in the capital stock account can be traced to a resolution in the minutes of the board of directors' meetings.

Which of the following best describes the independent auditor's approach to obtaining satisfaction concerning depreciation expense in the income statement?

Establishing the reasonableness of useful lives and depreciation methods for depreciable assets and recomputing the depreciation expense.

In testing the payroll of a large company, the auditor wants to establish that the individuals included in a sample actually were employees of the company during the period under review. What will be the best source to determine this?

Examination of Human Resource Department records.

Which of the following is likely the most effective audit procedure for the verification of the legal ownership of real property?

Examination of deeds and title guaranty policies on hand.

Which of the following could test the assertion of cutoff for payroll-related liabilities?

Examine payroll tax returns to determine that the expense was recorded in the proper period.

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Examine shipping documents for matching sales invoices.

Comparing amounts selected from the payroll account analysis for payroll accruals to supporting documentation would provide evidence primarily for which assertion?

Existence.

Which of the following most likely would be the result of ineffective internal control policies and procedures in the revenue process?

Final authorization of credit memos by personnel in the Sales Department could permit an employee defalcation scheme.

Which of the following is least likely to represent a material weakness in internal control for Flynt Corporation?

Flynt Corporation's computer systems were not working properly for two days; consequently, employees needed to do all reconciliations manually.

An auditor performing an audit of internal control over financial reporting would be required to

Form an opinion on the effectiveness of internal control.

The controller of Excello Manufacturing, Inc., wants to use ratio analysis to identify the possible existence of idle equipment or the possibility that equipment has been disposed of without having been written off. Which of the following ratios would best accomplish this objective?

Gross manufacturing equipment cost/units produced.

Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?

Human resource.

The five step process in the audit of ICFR includes

Identify controls to test using a top-down, risk-based approach.

The auditor is least likely to use generalized audit software to

Identify material weaknesses in the entity's IT controls.

Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?

Including a monthly statement of the customer's account with the confirmation.

Which of the following most likely would be an advantage in using classical variables sampling rather than monetary-unit sampling?

Inclusion of zero and negative balances generally does not require special design considerations.

The primary purpose of a generalized computer audit program is to allow the auditor to

Independently process electronic data processing records.

Audit sampling is not used for which type of audit evidence?

Inquiry.

For which of the following audit tests would an auditor most likely use attributes sampling?

Inspecting employee time cards for proper approval by supervisors.

Which of the following departments typically approves purchase requisitions?

Inventory management.

Which of the following audit procedures would an auditor be least likely to perform using a generalized computer audit program?

Investigating inventory balances for possible damaged goods.

An "integrated audit"

Is comprised of audits of internal control over financial reporting and of financial statements.

The advantages of generalized audit software include all of the following except:

It involves auditing while the data are being processed (real-time).

Which of the following best describes the distinguishing feature of statistical sampling?

It provides a means for measuring mathematically the degree of uncertainty that results from examining only part of a population.

Harvey Jones, CPA, uses statistical sampling to test control procedures. What is a benefit of using statistical sampling?

It provides a means of mathematically measuring the sampling risk that result from examining only a part of the data.

Some firms that dispose of only a small part of their total output by consignment shipments fail to make any distinction between consignment shipments and regular sales. Which of the following would suggest that goods have been shipped on consignment?

Large debits to accounts receivable followed by small periodic credits.

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?

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

A modification of the standard report is required for all of the following conditions except:

Management has concluded that internal controls are not effective.

Which of the following might be detected by an auditor's review of the entity's sales cutoff?

Overstated sales for the year.

If the ratio of insurance expense to related property, plant, and equipment is higher than expected, which of the following is a plausible explanation?

PP&E insurance expense includes some expenses related to product liability insurance.

Which of the following is the best evidence of real estate ownership at the balance sheet date?

Paid real estate tax bills.

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records?

Periodic independent comparison of records with goods on hands.

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts?

Plant assets were retired during the year.

In attributes sampling, a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample?

Population size.

In connection with the examination of financial statements by an independent auditor, management suggests that members of the internal audit staff be utilized to minimize audit costs. Which of the following tasks could most appropriately be delegated to the internal audit staff?

Preparation of schedules for negative accounts receivable responses.

Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the entity's employees?

Prepare a schedule of accounts payable.

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting between intercompany banks?

Prepare a schedule of bank transfers.

In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except:

Present an oral assessment of the effectiveness of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year.

An auditor will use the IT test data method in order to gain certain assurances with respect to the

Procedures contained within the program.

Which of the following audit procedures is the most appropriate when internal control over cash is weak or when an entity requests an investigation of cash transactions?

Proof of cash.

Which of the following is not an issue related to the valuation of accounts receivable?

Proper cutoff.

Which of the following accounts is not affected by cash disbursement transactions?

Purchase returns.

Section 404 of the Sarbanes-Oxley Act requires the auditor to provide which of the following?

Reasonable assurance on both the financial statements and internal control.

For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?

Receiving documents.

Of the following, which is the most efficient audit procedure for verification of interest earned on bond investments?

Recomputing interest earned using the interest rate and bond amount.

An entity erroneously recorded a large purchase twice. Which of the following internal controls would be most likely to detect this error in a timely and efficient manner?

Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

Which of the following best describes the occurrence assertion for inventory?

Recorded inventory transactions actually happened.

Which of the following internal control objectives is likely to be a larger concern in the audit of the payroll cycle?

Recorded payroll transactions are valid.

Under which of the following circumstances would an auditor be most likely to intensify an examination of a $1,000 petty cash fund maintained on an imprest basis?

Reimbursement of the fund from the general cash account occurs twice or more each week.

Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that additions to property, plant, and equipment are not understated?

Repairs and maintenance expense.

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?

Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.

At which point in an ordinary sales transaction of a wholesaling business would a lack of specific authorization be of least concern to the auditor?

Selling of goods for cash.

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?

Several fully depreciated assets were retired during the year.

Management's written representations concerning internal control are

Signed by the CEO and CFO.

A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?

Smaller measure of tolerable misstatements

ACL is an example of

Software that allows auditors to retrieve and evaluate data from entity systems.

Which of the following is true regarding management's documentation of internal controls?

Some documentation should focus on controls designed to detect fraud.

Which one of the following procedures would not be appropriate for an auditor in discharging his or her responsibilities concerning the entity's physical inventories?

Supervising the annual physical inventory count.

Which of the following test(s) of details of transactions can be used as a dual-purpose test in conjunction with tests of controls?

Test a sample of purchase requisitions for proper authorization.

When an auditor tests a computerized accounting system, which of the following is true of the test data approach?

Test data are processed by the entity's computer programs under the auditor's control.

Which of the following is required of an auditor who is testing the fair value of options in share-based compensation?

Testing the inputs used in the valuation model.

Which of the following is a control activity that most likely could help prevent employee payroll fraud?

The Human Resource department promptly sends employee termination notices to the payroll supervisor.

Which of the following is false?

The absence of misstatements in financial statements is considered convincing evidence that existing controls are effective.

In statistical sampling, setting the appropriate confidence level and desired sample precision are decisions made by the auditor that will affect sample size for a substantive procedure. Which of the following should not be a factor in the choice of desired precision?

The audit resources available for execution of the sampling plan.

Which of the following control activities would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

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

For an attributes sampling plan, the tolerable deviation rate is 4%, the computed upper deviation rate is 7%, the sample deviation rate is 3%, and the risk of assessing control risk too low is 5%. Which of the following is true?

The auditor is likely to increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate.

An "integrated audit" as stated in Section 404 of the Sarbanes-Oxley Act means

The auditor must conduct two audits, one on the effectiveness of internal control and one on the financial statements, in an integrated way.

Which of the following is not true?

The auditor should not communicate with management until the audit of internal control over financial reporting is finished.

Which of the following concerning the auditor's report on internal control over financial reporting is correct?

The auditor's report contains an opinion on the effectiveness of internal control over financial reporting based on the auditor's independent work.

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

Which of the following situations has the best chance of being detected when a CPA compares revenues and expenses reported for the year being audited (current year) with the prior year and investigates all changes exceeding a fixed percentage?

The company changed its capitalization policy for small tools in the current year.

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

The credit manager's opinion.

According to the PCAOB, who is responsible for the reliability of the internal controls over financial reporting process of an entity?

The entity's CEO and/or CFO.

Which of the following is not one of the auditor's primary objectives in an examination of marketable securities?

To determine whether securities are authentic.

Which of the following is the best reason why an auditor should consider observing an entity's distribution of regular payroll checks?

To ensure that names on the company payroll are those of bona fide employees presently on the job.

The main goal of auditing internal control is

To evaluate the effectiveness of controls over all relevant financial statement disclosures in the financial statements.

In which of the following cases would the auditor be most likely to conclude that all of the items in an account under consideration should be examined rather than tested on a sample basis?

Tolerable deviation is small and expected deviation is high.

For attributes sampling, of the three factors that enter into sample size determination, which two factors can the auditor adjust to reflect the importance of the control?

Tolerable deviation rate and confidence level.

Effective internal control over the payroll function would include which of the following?

Total time spent on jobs should be compared with total time indicated on timeclock punch cards.

Which of the following is a test of controls for the transaction assertion of completeness for revenue?

Trace shipping documents to sales invoices and the sales journal.

During the year under audit, a company has completed a private placement of a substantial amount of bonds. Which of the following is the most important step in the auditor's program for the audit of bonds payable?

Tracing the cash received from the issue to the accounting records.

In the context of an audit of internal controls, the auditor must document all of the following except:

Transcripts of the auditor's discussion with management concerning the points at which misstatements could occur.

Operating control over the check signature plate normally should be the responsibility of the

Treasurer.

Which of the following is not a misstatement related to the occurrence assertion for inventory?

Unauthorized production activity.

Which of the following internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead?

Use of time tickets to record actual labor worked on production orders.

An auditor vouched data for a sample of employees in a payroll register to approved clock card/time sheet data to provide assurance that

employees worked the number of hours for which they are paid.

The accounting department reports that the balance of accounts receivable is $210,000. You are willing to accept that balance if audit sampling suggests it is within $15,000 of the actual balance. Using a classical variables sampling plan, you compute a 95% confidence interval of $208,000 to $225,000. You would therefore

accept the $210,000 balance because the confidence interval is within the materiality limits.

If the objective of a test of details is to detect the overstatement of sales, the auditor should trace transactions from the

accounting records to the shipping documents.

Upon receipt of customers' checks in the mailroom, a responsible employee should prepare a listing of remittances that is forwarded to the cashier. A copy of the listing should be sent to the

accounts receivable bookkeeper to update the subsidiary accounts receivable records.

The auditor should insist that a representative of the entity be present during the physical examination of securities in order to

acknowledge the receipt of securities returned.

In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the

adequacy of replacement funds.

In an IT payroll system environment, an auditor would be least likely to use test data to test controls related to

agreement of hours per clock cards with hours on time sheets.

An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the physical inventory sheets. The purpose of this procedure is to obtain assurance that

all inventory represented by an inventory tag is listed on the inventory sheets.

For monetary-unit sampling, the number of items tested is

always less than or equal to sample size.

A company has additional temporary funds to invest. The Board of Directors decided to purchase marketable securities and assigned the future purchase and sale decisions to a responsible financial executive. The best person(s) to make periodic reviews of the investment activity authorized by that executive should be

an investment committee of the Board of Directors.

In verifying the amount of goodwill recorded by an entity, the most convincing evidence that an auditor can obtain is by comparing the recorded value of assets acquired with the

appraised value as evidenced by independent appraisals.

The authority to accept incoming goods in receiving should be based on a(an)

approved purchase order.

Jones, CPA, believes the industry-wide deviation rate of client billing errors is 3% and has established a tolerable deviation rate of 5%. In the review of client invoices, Jones should use

attributes sampling.

To achieve effective control over fixed asset additions, a company should establish activities that require

authorization and approval of major fixed asset additions.

An audit program for the examination of the retained earnings account should include a step that requires verification of the

authorization for both cash and stock dividends.

The purpose of segregating the duties of distributing payroll checks and hiring personnel is to separate the

authorization of transactions from the custody of related assets.

The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the

authorization of transactions from the custody of related assets.

A control which ensures that long-term borrowing is properly initiated by appropriate individuals addresses the control assertion of

authorization.

An auditor most likely would assess control risk at high if the payroll department supervisor is responsible for

authorizing payroll rate changes for all employees.

A primary purpose of the proof of cash is to

ensure that all cash receipts recorded in the cash receipts journal were deposited in the bank account.

During an audit, Wicks learns that the entity was granted a 3-month waiver of the repayment of principal on the installment loan with Blank Bank without an extension of the maturity date, which is one year in the future. With respect to this loan, the audit program used by Wicks is least likely to include a verification of the

balloon payment.

Where no independent stock transfer agents are employed and the corporation issues its own stocks and maintains stock records, canceled stock certificates should

be defaced to prevent reissuance and attached to their corresponding stubs.

Accounts payable confirmations are used to test

both the existence and completeness audit assertions.

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the

cutoff bank statement is reconciled.

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of

cutoff.

The accounts payable department receives the purchase order form to accomplish all of the following except to:

ensure that the goods had been received by the party requesting the goods.

Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to

evaluate the allowance for doubtful accounts.

If the size of the sample to be used in a particular test of controls has not been determined by utilizing statistical concepts, but the sample has been chosen in accordance with random selection procedures

depending on the size of the sample chosen, the auditor may actually achieve desired precision.

An entity's internal control requires that for every check request there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all

canceled checks.

An auditor should trace interbank transfers for the last part of the audit period and first part of the subsequent period to detect whether

cash balances were overstated because of kiting.

When searching for unrecorded liabilities at year-end, the population identified for sampling would be

cash disbursements recorded in the period subsequent to year-end.

An auditor most likely would limit substantive tests of sales transactions when control risk is assessed as low for the existence or occurrence assertions concerning sales transactions and the auditor has already gathered evidence supporting

cash receipts and accounts receivable.

The cash disbursements journal is also called the

check register.

All of the following can assist the auditor in testing the existence assertion for investment securities except:

comparing fair value to cost.

In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of

completeness

An auditor testing long-term investments would ordinarily use substantive analytical procedures as the primary audit evidence to support the reasonableness of the

completeness of recorded investment income.

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess the assertion of

completeness.

Reviewing interest expense to examine payments to debt holders not listed on the debt analysis schedule is a procedure that can be used to test the audit assertion of

completeness.

The auditor gathers evidence about dividends that are declared and paid primarily because of

concerns with violations of corporate bylaws or debt covenants.

Precision is a statistical measure of the maximum projected difference between the sample estimate and the true but unknown population total and is directly related to

confidence level

When an auditor is unable to inspect and count an entity's investment securities until after the balance sheet date, the bank where the securities are held in a safe-deposit box should be notified on or before the balance sheet date that it will be asked to

confirm that there has been no access to the box between the balance sheet date and the security-count date.

In establishing the existence and ownership of a long-term investment in stock of a publicly traded company, an auditor should inspect the securities or

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

In order to efficiently establish the correctness of the accounts payable cutoff, an auditor will be most likely to

coordinate cutoff tests with physical inventory observation.

The primary purpose of sending a standard confirmation request to financial institutions with which the entity has done business during the year is to

corroborate information regarding deposit and loan balances.

Key segregations of duties in the inventory management process include all of the following except separating:

cost accounting from review of variance reports.

When an auditor tests an entity's cost accounting system, the auditor's tests are primarily designed to determine that

costs have been properly assigned to work in process, finished goods, and cost of goods sold.

All of the following are incorporated into valuation models except:

current tax rates.

An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive procedure most likely was to

determine that purchases were properly recorded.

An auditor usually tests the reasonableness of dividend income from investments in stock of public companies by computing the amounts that should have been received by referring to

dividend record books produced by investment advisory services.

The likelihood of assessing control risk too high is the risk that the sample selected to test controls

does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment.

The risk of incorrect acceptance relates to the

effectiveness of the audit.

A control is deemed to be more important than thought at the time that attributes sampling parameters were set. The auditor is most likely to respond by

decreasing the tolerable deviation rate.

Vouching selected items from the payroll register to employee time sheets that have been approved by supervisory personnel provides evidence that

employees worked the number of hours for which their pay was computed.

When outside firms of non-accountants specializing in physical inventory counts are used to count, list, price, and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the auditor will ordinarily

make or observe some physical counts of the inventory, recompute certain inventory calculations, and test certain inventory transactions.

Monetary-unit sampling should not be used if

many items in the account are expected to have errors.

Auditors who prefer statistical to nonstatistical sampling believe that the principal advantage of statistical sampling flows from its unique ability to

mathematically measure uncertainty.

When performing a test of controls with respect to control over cash receipts, an auditor may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling is that the items in the population

may occur in a systematic pattern, thus destroying the sample randomness.

Statistical sampling provides a technique for

measuring the sufficiency of evidential matter.

An auditor usually obtains evidence of stockholders' equity transactions by reviewing the entity's

minutes of the board of directors' meetings.

All corporate capital stock transactions should ultimately be traced to the

minutes of the board of directors.

As a result of tests of controls, an auditor incorrectly assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was

more than the deviation rate in the auditor's sample.

As a result of tests of controls, an auditor over relied on internal control and decreased substantive testing. This overreliance occurred because the true deviation rate in the population was

more than the deviation rate in the auditor's sample.

A surprise observation by an auditor of an entity's regular distribution of paychecks is primarily designed to satisfy the auditor that

names on the company payroll are those of bona fide employees presently on the job.

An auditor wishes to perform tests of controls on an entity's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the procedures by

observation and inquiry.

In determining the effectiveness of an entity's policies and procedures relating to the existence or occurrence assertion for payroll transactions, an auditor most likely would inquire about and

observe the segregation of duties concerning human resource responsibilities and payroll disbursement.

Auditors are most likely to ensure that no production activity is scheduled prior to

observing physical inventory.

In testing plant and equipment balances, an auditor examines new additions listed on an analysis of plant and equipment. This procedure most likely obtains evidence concerning management's assertion of

occurrence.

An imprest cash account is

one that contains a stipulated amount of money and is used for limited purposes.

An auditor most likely would extend substantive tests of payroll when

overpayments are discovered in performing tests of details.

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control activities could cause an

overstatement of revenues and receivables and an understatement of inventory.

Transactions processed through the payroll process include all of the following except:

payments to independent contractors for services rendered.

Possible misstatements related to the occurrence assertion for payroll transactions include all of the following except:

payments to valid employees at a rate in excess of the authorized amount.

Effective internal control over unclaimed payroll checks that are kept by the Treasury Department would include Accounting Department procedures that require

periodic accounting for the actual checks representing unclaimed wages.

The safeguarding of inventory most likely includes

periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count.

When examining payroll transactions, an auditor is primarily concerned with the possibility of

posting of gross payroll amounts to incorrect salary expense accounts.

When evaluating internal control of an entity that processes revenue transactions on the Internet, an auditor would be most concerned about the

potential for computer disruptions in recording sales.

Failure to record inventory in the proper period can affect all of the following accounts except:

prepaid Expenses.

Immediately upon receipt of cash, a responsible employee should

prepare a listing of remittances.

Smith is engaged in the audit of a cable TV firm that services a rural community. All receivable balances are small, customers are billed monthly, and internal control is effective. To determine the existence of the accounts receivable balances at the balance sheet date, Smith would most likely

send negative confirmation requests.

A voucher

serves as the basis for recording a vendor's invoice in the purchases journal.

If the expected deviation rate exceeds the tolerable deviation rate, the auditor is most likely to

set control risk at the maximum without sampling.

The mailing of disbursement checks and remittance advices should be controlled by the employee who

signed the checks last.

When there is a large number of negotiable securities in multiple locations, careful planning of the physical inspection and count of the securities by the auditor is necessary to guard against

substitution of securities already counted at one location for other securities that should be on hand at a different location but are not.

Complex accounting issues for property, plant, and equipment include all of the following except

testing goodwill for impairment.

When there are numerous property and equipment transactions during the year, an auditor planning to set control risk at low usually plans to obtain an understanding of internal control and to perform

tests of controls and limited tests of current year property and equipment transactions.

The auditor should ordinarily mail confirmation requests to all banks with which the entity has conducted any business during the year, regardless of the year-end balance, since

the confirmation form also seeks information about indebtedness to the bank.

The term precision relates to

the difference between expected and tolerable deviation rate.

An auditor compares revenues and expenses reported for the year being audited (current year) with those of the prior year and investigates all changes exceeding 10%. By this procedure, the auditor would be most likely to learn that

the entity changed its capitalization policy for small tools in the current year.

If recorded interest expense is higher than the auditor's expectation calculated using recorded debt, all of the following are potential explanations except that_2016_QC_CS-70672

the entity used the face interest rate to calculate interest expense on a bond issued at a discount.

An inventory turnover analysis is useful to the auditor because it may detect

the existence of obsolete merchandise.

Key segregations of duties in the human resource management process include all of the following except:

the human resource function should be separate from setting salaries.

In connection with the examination of bonds payable, an auditor would expect to find in a bond agreement

the issue date and maturity date of the bond.

In an interview with the plant manager regarding operations, the auditor is most likely to obtain evidence that raises concerns regarding

the need to write-off equipment that has become obsolete.

A substantive strategy is typically used to audit stockholders' equity because

the number of transactions is small.

The assurance factor for nonstatistical sampling is based on

the risk of misstatement in the account and the level of desired assurance.

An auditor has taken a large sample from an audit population that is skewed in the sense that it contains a large number of small dollar balances. The auditor can conclude

the sampling distribution is normal; therefore the confidence coefficient value can be used to evaluate the sample results.

The computed upper deviation rate is

the sum of the sample deviation rate and an appropriate allowance for sampling risk.

The element of the audit planning process most likely to be agreed upon with the entity before implementation of the audit strategy is the determination of the

timing of inventory observation procedures to be performed.

In determining the sample size for a test of controls, an auditor should consider the expected deviation rate, desired confidence level, and the

tolerable deviation rate.

In performing tests concerning the granting of stock options, an auditor should

trace the authorization for the transaction to a vote of the board of directors.

A substantive test of transactions to test the completeness assertion includes

tracing a sample of time sheets to the payroll register.

A company holds bearer bonds as a short-term investment. Responsibility for custody of these bonds and submission of coupons for collections of periodic interest probably should be delegated to the

treasurer.

An auditor plans to examine a sample of 20 checks for countersignatures as prescribed by the entity's internal control procedures. One of the checks in the chosen sample of 20 cannot be found. The auditor should consider the reasons for this limitation and

treat the missing check as a deviation for the purpose of evaluating the sample.

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the

trust company has no direct contact with the entity employees responsible for maintaining investment accounting records.

During an examination of a public company, the auditor should obtain written confirmation regarding bond transactions from the

trustee.

During the current year being audited, Hitech, Inc. changed from a conventional payroll punch clock to a computerized payroll time system. Factory employees now record time in and out with magnetic cards and the IT system automatically updates all payroll records. Because of this change

without paper clock cards, part of the audit trail has been altered.