Auditing Exam 3 Review

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the A. Receiving report and the purchase order. B. Receiving report and the voucher. C. Vendor's packing slip and the purchase order. D. Vendor's packing slip and the voucher.

A. Receiving report and the purchase order.

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

A. Request the senders to mail the original forms to the auditor or the auditor may follow up with a telephone call to verify the response.

Substantive procedures to examine the occurrence assertion for accounts payable include A. Selecting a sample of vouchers and agreeing them to authorized purchase orders. B. Selecting a sample of vouchers and tracing them to the purchases journal. C. Comparing dates on vouchers to dates in the purchases journal. D. Recomputing the mathematical accuracy of a sample of vendor invoices.

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

Unrecorded liabilities are most likely to be found during the review of which of the following documents? A. Unpaid bills. B. Shipping records. C. Bills of lading. D. Unmatched sales invoices.

A. Unpaid bills.

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about A. Valuation and allocation. B. Completeness. C. Existence. D. Rights and obligations.

A. Valuation and allocation.

In a well-designed internal control system, the same employee may be permitted to A.Mail signed checks and also cancel supporting documents. B.Prepare receiving reports and also approve purchase orders. C.Approve vouchers for payment and also have access to unused purchase orders D.Mail signed checks and also prepare bank reconciliations

A.Mail signed checks and also cancel supporting documents.

On receiving a client's cutoff statement, an auditor most likely will trace A.Prior-year checks listed in the cutoff statement to the year-end checklist B.Deposits in transit listed in the cutoff statement to the year-end bank reconciliation C.Checks dated after year end listed in the cutoff statement to the year-end outstanding checklist D.Deposits recorded in the cash receipts journal after year end to the cutoff statement

A.Prior-year checks listed in the cutoff statement to the year-end checklist

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the A. Check register for the last month is reviewed. B. Cutoff bank statement is reconciled. C. Bank confirmation is reviewed. D. Search for unrecorded liabilities is performed.

B. Cutoff bank statement is reconciled.

In general, revenue is recognized when A. Goods are shipped. B. It is earned and realized. C. It is recorded in the sales journal. D. It is received in cash.

B. It is earned and realized.

Auditors are most likely to ensure that no production activity is scheduled prior to A. Determining standard costs. B. Observing physical inventory. C. Completing the book to physical adjustment. D. Determining the amount of consigned inventory.

B. Observing physical inventory.

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? A. Completeness. B. Occurrence. C. Accuracy. D. Classification.

B. Occurrence.

An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily to A. Verify the cash balance reported on the bank confirmation inquiry form. B. Verify reconciling items on the entity's bank reconciliation. C. Detect lapping. D. Detect kiting.

B. Verify reconciling items on the entity's bank reconciliation.

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 A. Internal auditor to investigate the listing for unusual transactions. B. Treasurer to compare the listing with the monthly bank statement. C. Accounts receivable bookkeeper to update the subsidiary accounts receivable records. D. Entity's bank to compare the listing with the cashier's deposit slip.

C. Accounts receivable bookkeeper to update the subsidiary accounts receivable records.

The least crucial element of internal control over cash is A. Separation of cash record-keeping from custody of cash. B. Preparation of the monthly bank reconciliation. C. Batch processing of checks. D. Separation of cash receipts from cash disbursements.

C. Batch processing of checks.

The accounts payable department receives the purchase order form to accomplish all of the following except to: A. Compare invoice price to purchase order price. B. Ensure that the purchase had been properly authorized. C. Ensure that the goods had been received by the party requesting the goods. D. Compare quantity ordered to quantity purchased.

C. Ensure that the goods had been received by the party requesting the goods.

Which of the following misstatements is not related to the completeness assertion for revenue? A. Goods are shipped, but revenue is not recorded. B. This year's revenue is recorded next year. C. Next year's revenue is recorded this year. D. Revenue is not recognized for services that have been performed.

C. Next year's revenue is recorded this year.

Which of the following control activities would most likely be used to maintain accurate perpetual inventory records? A. Independent storeroom count of goods received. B. Periodic independent reconciliation of control and subsidiary records. C. Periodic independent comparison of records with goods on hands. D. Independent matching of purchase orders, receiving reports, and vendors' invoices.

C. Periodic independent comparison of records with goods on hands.

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 A. Sales. B. Sales discounts. C. Purchases. D. Purchase returns.

C. Purchases.

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 A. Sale in the subsequent period. B. Purchase in the current period. C. Sale in the current period. D. Purchase return in the subsequent period.

C. Sale in the current period.

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 A. Understatement of revenues, receivables, and inventory. B. Overstatement of revenues and receivables and an understatement of inventory. C. Understatement of revenues and receivables and an overstatement of inventory. D. Overstatement of revenues, receivables, and inventory.

C. Understatement of revenues and receivables and an overstatement of inventory.

Which of the following would be the best protection for a company that wishes to prevent the lapping of trade receivable? A.Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. B.Segregate duties so that no employee has access to both checks from customers and currency from daily cash receipts. C.Have customers send payments directly to the company's depository bank. D.Request that customers' payment checks be made payable to the company and addressed to the CFO.

C.Have customers send payments directly to the company's depository bank.

The most effective audit procedure for determining the collectibility of an accounts receivable is the A.Confirmation of the account B.Examination of the related sales invoice(s). C.Review of the subsequent cash collections. D.Review of the authorization of credit sales to the customer and the previous history of collections.

C.Review of the subsequent cash collections.

A university does not have a centralized receiving function for department purchases of books, supplies and equipment. Which of the following controls will most effectively prevent payment for goods not received, if performed prior to invoice payment? A.Vendor invoices should be matched with department purchase orders B.Names and addresses on vendor invoices should be compared to a list of department authorized vendors. C.Vendor invoices should be approved by a departmental supervisor other than the employee ordering the goods. D.Invoices over a specified amount should be approved by the vice president of finance.

C.Vendor invoices should be approved by a departmental supervisor other than the employee ordering the goods.

An auditor will usually trace the details of the test counts made during the observation of the physical inventory count to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are A. Owned by the entity. B. Not obsolete. C. Physically present at the time of the preparation of the final inventory schedule. D. Included in the final inventory schedule.

D. Included in the final inventory schedule.

An auditor compares information on canceled checks with information contained in the cash disbursements journal. The objective of this test is to determine that A. Recorded cash disbursement transactions are properly authorized. B. Proper cash purchase discounts have been recorded. C. Cash disbursements are for goods and services actually received. D. No discrepancies exist between the data on the checks and the data in the journal.

D. No discrepancies exist between the data on the checks and the data in the journal.

The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town bank. How would the auditor discover this manipulation? A. Confirming all December 31 bank balances. B. Counting the cash working fund at the close of business on December 31. C. Preparing independent bank reconciliations as of December 31. D. Preparing and detail testing a bank transfer schedule.

D. Preparing and detail testing a bank transfer schedule.

Tracing bills of lading to sales invoices provides evidence that A. Shipments to customers were properly authorized. B. Recorded sales were shipped. C. Billed sales were shipped. D. Shipments to customers were billed.

D. Shipments to customers were billed.

Which of the following controls most likely would help ensure that all credit sales transactions of the entity are recorded? A.The billing department supervisor sends copies of approved sales orders to authorized credit limits and current customer account balances. B.The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly C.The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences they report D.The billing department supervisor matches prenumbered shipping documents with entries in the sales journal

D.The billing department supervisor matches prenumbered shipping documents with entries in the sales journal