Exam 2 (accounting 431)

Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the

Receiving department.

Which of the following credit approval procedures would be the basis for developing a deficiency finding for a wholesaler?

Salespeople are responsible for evaluating and monitoring the financial condition of prospective and continuing customers.

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.

Which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed?

Two company officials have joint control of marketable securities, which are kept in a bank safe-deposit box.

The internal control objectives of the revenue cycle include all of the following except

Appropriate goods are ordered so that sales can be made

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

Approved purchase order

Which of the following internal control activities is not usually performed in the CFO's department?

Approving vendors' invoices for payment.

In auditing for unrecorded noncurrent bonds payable, an auditor most likely will

Compare interest expense with the bond payable amount for reasonableness.

To obtain assurance that items reflected in a client's perpetual inventory records actually exist, an auditor would most likely trace

Items in the inventory perpetual records to inventory tags and the auditor's test counts.

An entity with a large volume of customer remittances by mail most likely can reduce the risk of employee misappropriation of cash by using

A bank lockbox system

The refusal of a client's legal counsel to provide information requested in an inquiry letter generally is considered

A limitation on the scope of the audit.

In the audit of which of the following types of profit-oriented enterprises is the auditor most likely to place special emphasis on testing the controls over proper classification of payroll transactions?

A manufacturing organization.

Which of the following activities is most likely to prevent the improper disposition of equipment?

A segregation of duties between those authorized to dispose of equipment and those authorized to approve removal work orders.

Which of the following situations most likely could lead to an embezzlement scheme?

Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement.

Which control is most likely to give the greatest assurance that securities held as investments are safeguarded?

Access to securities requires the signatures and presence of two designated officials.

Which of the following internal control activities is not usually performed in the vouchers payable department?

Accounting for unused prenumbered purchase orders and receiving reports.

If the objective of a test of details is to detect overstatements of sales, the auditor should compare transactions in the

Accounting records with the source documents.

A client's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditor's primary concern with respect to liabilities resulting from the procurement system?

Accounts payable are not materially understated.

Which of the following controls is most effective in providing reasonable assurance that salary, wage, and benefit expenses are incurred only for work performed?

All time cards and reports are reviewed and approved in writing by immediate line supervisors having no responsibilities for paycheck distribution.

If the business environment is experiencing a recession, the auditor most likely would focus increased attention on which of the following accounts?

Allowance for doubtful accounts.

An auditor is reviewing a sales cutoff as of March 31. All sales are shipped FOB destination, and the company records sales 3 days after shipment. The auditor notes the following items: If the client records the required adjustments, the net effect on income in thousands of dollars for the period ended March 31 is

An increase of $8.

Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?

Are direct borrowings on notes payable authorized by the board of directors?

Which of the following questions is inappropriate on an internal control questionnaire concerning purchase transactions?

Are intact cash receipts deposited daily in the bank?

Which of the following questions should not appear in an internal control questionnaire relating to cash disbursements?

Are prelistings made of all cash receipts?

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?

An auditor is concerned with completing various phases of the audit after the balance sheet date. This subsequent period extends to the date of the

Auditor's report.

To achieve effective internal control over fixed-asset additions, a company should require

Authorization and approval of major fixed asset additions

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

Authorization for both cash and stock dividends.

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?

Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash.

An auditor most likely would assess the risks of material misstatement as unacceptable if the payroll department supervisor is responsible for

Authorizing payroll rate changes for all employees.

The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may

Be unaware of all the financial relationships that the bank has with the client.

Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?

CFO.

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.

An entity's internal control requires that an approved voucher, a prenumbered purchase order, and a prenumbered receiving report accompany every check request. 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.

Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department?

Canceling supporting documentation after payment.

An auditor should test bank 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

In updating a computerized accounts receivable file, the total used as a batch control to verify the accuracy of posting cash remittances is

Cash deposits plus discounts taken by customers.

To avoid potential errors and fraud, well-designed internal control in the accounts payable area should include a segregation of which of the following functions?

Cash disbursements and vendor invoice verification.

Which of the following sets of information does an auditor usually confirm on one form?

Cash in bank and collateral for loans.

The primary source of information to be reported about litigation, claims, and assessments is the

Client's management.

Cash receipts should be deposited on the day of receipt or the following business day. What is the most appropriate audit procedure to determine that cash is promptly deposited?

Compare the daily cash receipts total with the bank deposits.

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of

Completeness

An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the following management assertions is supported by this test?

Completeness

An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the following management assertions is supported by this test?

Completeness.

In auditing accounts payable, an auditor's procedures most likely will focus primarily on the relevant assertion about

Completeness.

Harvey, CPA, is preparing an audit plan to determine the occurrence of subsequent events that may require adjustment or disclosure essential to a fair presentation of the financial statements in accordance with U.S. GAAP. Which one of the following procedures is least appropriate for this purpose?

Confirm as of the date of the auditor's report accounts receivable that have increased significantly from the year-end date.

Which of the following procedures would an auditor least likely perform before the balance sheet date?

Confirmation of accounts payable.

Which of the following control activities is not usually performed with regard to vouchers payable in the accounting department?

Controlling the mailing of the check and remittance advice.

The primary reason an auditor requests letters of inquiry be sent to a client's legal counsel is to provide the auditor with

Corroboration of the information furnished by management about litigation, claims, and assessments.

Tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of

Cutoff

Tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of

Cutoff.

For effective internal control, the accounts payable department ordinarily should

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

In which of the following situations would it be most important to have employees sign for their pay?

The firm uses a cash payment payroll function.

Which of the following internal control activities most likely would assure that all billed sales are correctly posted to the accounts receivable ledger?

Daily sales summaries are compared with daily postings to the accounts receivable ledger

An auditor suspects that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor most likely would compare the

Dates checks are deposited per bank statements with the dates remittance credits are recorded.

When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the

Debit memo.

A large retail enterprise has established a policy that requires the paymaster to deliver all unclaimed payroll checks to the internal audit department at the end of each payroll distribution day. This policy was most likely adopted to

Detect any fictitious employee who may have been placed on the payroll.

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 audit procedure most likely was to

Determine that purchases were properly recorded.

Smith Corporation has numerous customers. A customer file is kept on disk storage. Each customer record contains the name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow is to

Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.

The auditor may conclude that depreciation charges are insufficient by noting

Excessive recurring losses on assets retired.

An auditor's principal objective in analyzing repairs and maintenance expense accounts is to

Discover expenditures that were expensed but should have been capitalized.

Effective control over the cash payroll function would mandate which of the following?

Each employee should be asked to sign a receipt.

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

Employees involved in the credit-granting function are separated from the sales function.

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

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

Which of the following procedures would an auditor most likely perform to obtain assurance that slow-moving and obsolete items included in inventories are properly identified?

Examining an analysis of inventory turnover.

An auditor's tests of controls over the issuance of raw materials to production would most likely include

Examining materials requisitions and reperforming client controls designed to process and record issuances.

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

Existence.

Once a CPA has determined that accounts receivable have increased because of slow collections in a tight money environment, the CPA is likely to

Expand tests of collectibility

Which of the following most likely would be the result of ineffective internal control in the revenue cycle?

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

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

Human resource.

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

Inflated sales for the year

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

Inflated sales for the year.

Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?

Inquire of management whether new shares have been issued since the year end.

Which of the following procedures will an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Inquiring as to whether any unusual adjustments were made after year end.

Which of the following audit procedures would an auditor most likely perform to test controls relating to management's assertion concerning the completeness of sales transactions?

Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal.

In performing a search for unrecorded retirements of fixed assets, an auditor most likely would

Inspect the property ledger and the insurance and tax records, and then tour the client's facilities.

Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?

Inspect the shipping records documenting the merchandise sold to the debtors.

Which of the following combinations of procedures would an auditor most likely perform to obtain evidence about fixed asset additions?

Inspecting documents and physically examining assets

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic

Inspection of equipment and reconciliation with accounting records.

When auditing a public warehouse, which of the following is the most important audit procedure with respect to disclosing unrecorded liabilities?

Inspection of receiving and issuing procedures.

Internal control over inventories is important for all of the following reasons except

Inventories are the most liquid asset.

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Investigate changes in debt recorded after year end.

Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?

Investigate changes in noncurrent debt ocurring after year end

Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control activity that provides for

Investigation of variances within a formal budgeting system.

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also

Is responsible for mailing the checks

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the

Meter department records to the billing (sales) register.

An auditor should vouch corporate stock issuances and treasury stock transactions to the

Minutes of the board of directors.

An auditor who has confirmed accounts receivable may discover that the sales journal was held open past year end if

Most of the returned positive confirmation requests indicate that the debtor owes a small balance than the amount being confirmed

Which of the following events occurring after the issuance of the financial statements most likely would cause the auditor to make further inquiries about the previously issued financial statements?

New information is discovered concerning undisclosed lease transactions of the audited period.

After releasing the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unless

New information is discovered concerning undisclosed related party transactions of the previously audited period.

Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

New information is discovered concerning undisclosed related-party transactions of the prior year.

After year end but before completion of the audit, a major investment adviser issued a pessimistic report on Investee Co.'s long-term prospects. The market price for its common stock subsequently declined significantly. What is the effect of this event on the year-end statements?

No financial statement disclosure necessary.

When a company's stock record books are maintained by an outside registrar or transfer agent, the auditor should obtain confirmation from the registrar or transfer agent concerning the

Number of shares issued and outstanding.

Which of the following procedures would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?

Observe the consistency of the employees' use of cash registers and tapes.

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 resources responsibilities and payroll disbursement

Which of the following procedures should an auditor perform concerning litigation, claims, and assessments?

Obtain a list from management that discloses all unasserted claims that it considers to be probable of assertion.

Which of the following procedures would an auditor most likely complete to test the existence assertion for property, plant, and equipment?

Obtaining a listing of all current-year additions, vouching significant additions to original invoices, and determining that they have been placed in service.

In assessing risks of material misstatement 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

When performing procedures to test assertions about purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which relevant assertion would this procedure most likely support?

Occurrence.

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn of which of the following?

One of the cashiers has been covering a personal embezzlement by lapping.

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

Overpayments and unauthorized payments.

Which of the following situations represents an internal control weakness in the payroll department?

Paychecks are distributed by the employees' immediate supervisors

Which of the following internal control activities most likely justifies reducing the assessment of the risks of material misstatement for plant and equipment acquisitions?

Periodic physical inspection of plant and equipment by the internal audit staff.

The safeguarding of inventory most likely includes

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

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

Plant assets were retired during the current year.

When confirmation for accounts payable is undertaken, which form of confirmation should be used?

Positive confirmation.

Sound internal control principles dictate that, immediately upon receiving checks from customers by mail, a responsible employee should

Prepare a duplicate listing of checks received.

Immediately upon receipt of cash, a responsible employee should

Prepare a remittance listing.

Your objective is to determine that nonrecurring purchases, initiated by various user organizations, have been properly authorized. If all purchases are made through the purchasing department, to which of the following documents should you vouch purchases?

Purchase requisitions.

Purchase cutoff procedures should be designed to test whether all inventory

Purchased and whose title has passed before year end was recorded.

In an audit of a purchasing department, which of the following usually is considered a risk factor?

Purchases are made from parties related to buyers or other company officials.

For several years a client's physical inventory count has been lower than what was shown on the books at the time of the count, and downward adjustments of the inventory account have been required. Contributing to the inventory problem could be material weaknesses in internal control that led to the failure to record some

Purchases returned to vendors.

In a properly designed internal control system, the same employee most likely would match vendors' invoices with receiving reports and also

Recompute the calculations on vendors' invoices.

The auditor is concerned with establishing that dividends are paid to client corporation shareholders who hold stock as of the

Record date.

An analysis of which of the following accounts would best aid in verifying that all fixed assets have been capitalized?

Repairs and maintenance.

The purpose of tracing a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items

Represented by tags were included on the listing.

When performing an audit, a CPA notes that bad-debt expense is unusually high relative to similar firms in the industry. The CPA should recommend which of the following controls?

Require credit checks on all new customers

An auditor should be aware of subsequent events that provide evidence concerning conditions that did not exist at year end but arose after year end. These events may be important to the auditor because they may

Require disclosure to keep the financial statements from being misleading.

Which of the following best represents a key control for ensuring sales are properly authorized when assessing risks of material misstatement for sales?

Sales orders are sent to the credit department for approval.

While observing a client'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 client's perpetual records. This situation could be the result of the client's failure to record

Sales returns.

Which of the following procedures would best detect a liability omission by management?

Review purchase contracts and other legal documents.

An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year end?

Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year-end.

An audit team has concluded that inventory is highly susceptible to misappropriation and that a potential misstatement would be material to the financial statements. How should the audit team address the audit procedures to the increased risk?

Review the client's control procedures over the safeguarding of inventory and perform a physical inventory count on the last day of the current year

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

Review the minutes for authorization.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

If internal control is properly designed, the same employee may be permitted to

Sign checks and also cancel supporting documents.

Organizational independence in the processing of payroll is achieved by functional segregations that are built into the system. Which one of the following functional segregations is not required for internal control purposes?

Segregation of payroll preparation and maintenance of year-to-date records.

A weakness in internal control over recording retirements of equipment may cause an auditor 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 attempt to locate them during the plant tour.

Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is ineffective. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely

Send positive confirmation requests

When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor most likely would

Send the customer a second confirmation request

During a recent audit of the revenue cycle, a CPA found the client had $1 million in accounts receivable recorded for fictitious customers. Which of the following tests most likely facilitated identification of the fraud?

Sending positive confirmations to all of the client's customers with balances on December 31.

Which of the following internal control activities most likely would deter lapping of collections from customers?

Separation of duties between receiving cash and posting the accounts receivable ledger.

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

Separation of payroll duties is not effective enough to reduce control risk

An auditor is determining whether internal control over the revenue cycle of a wholesaler is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely will select a sample of transactions from the population represented by the

Shipping document file.

Mailing disbursement checks and remittance advices should be controlled by the employee who

Signs the checks last.

A purchasing agent searches the inventory master file for what information relevant to a purchase?

The approved vendor and the economic order quantity.

An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past 5 years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue?

The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period.

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?

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

The accounts receivable turnover ratio increased significantly over a two-year period. This trend could indicate that

The company is more aggressively collecting customer accounts.

Which of the following comparisons would an auditor most likely make in evaluating an entity's costs and expenses?

The current year's payroll expense with the prior year's payroll expense.

What is a possible consequence of an employee's being able to visit the safe-deposit box unaccompanied?

The employee could pledge corporate investments as security for a short-term personal bank loan.

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

The human resources department promptly sends employee termination notices to the payroll supervisor.

During the consideration of a small business client's internal control, 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 after they are recorded.

A client's program that recorded receiving report information entered directly by the receiving department on vendor shipment receipt included a reasonableness or limit test. Which of the following errors would this test likely detect?

The receiving department clerk entered the quantity of the product received as 0.

When scheduling the audit work to be performed on an engagement, the auditor should consider confirming accounts receivable balances at an interim date if

The risk of material misstatement relative to financial statement assertions about receivables is acceptably low.

Which of the following could indicate source document fraud?

The same invoice number appears on different invoices.

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?

The write-off of receivables by personnel who receive cash permits of the misappropriation of cash.

Unrecorded liabilities are most likely to be found during the review of which of the following documents?

Unpaid bills

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.

Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide assurance about management's assertion of

Valuation

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning relevant assertions about

Valuation and allocation.

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support the relevant assertion about

Valuation and allocation.

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning relevant assertions about

Valuation and allocation.

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of

Valuation and allocation.

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of

Valuation.

A university does not have a centralized receiving function for departmental 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?

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

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely is

Vendors with whom the entity has previously done business.

Effective internal control activities over the payroll function may include

Verification of agreement of job time cards with employee clock card hours by a payroll department employee.

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.

The primary audit procedure to determine whether accounts payable are measured properly is

Vouching accounts payable to supporting documentation

Which of the following controls will most likely prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable?

Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence.

For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve

Write-offs of customer accounts.

An auditor noted that the accounts receivable department is separate from other accounting activities. Credit is approved by a separate credit department. Control accounts and subsidiary ledgers are balanced monthly. Similarly, accounts are aged monthly. The accounts receivable manager writes off delinquent accounts after 1 year, or sooner if a bankruptcy or other unusual circumstances are involved. Credit memoranda are prenumbered and must correlate with receiving reports. Which of the following areas could be viewed as an internal control deficiency of the above organization?

Write-offs of delinquent accounts.

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

b Accounts receivable bookkeeper to update the subsidiary accounts receivable records

Which of the following is the most important consideration of an auditor when examining the shareholders' equity section of a client's balance sheet?

b Entries in the capital stock account can be traced to a resolution in the minutes of the board of director's meetings

In manufacturing environments, employees are often required to use time cards and job time tickets. Which is the false statement related to the use of these documents?

b Payroll should be prepared from job time tickets

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

b valuation and allocation

A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows:

c Clerk 3 mails the checks and remittances adter they have been signed

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

c Comparison of daily journal entries with factory labor summary

Which of the following would be the best protection for a company that wishes to prevent the lapping of trade accounts receivable?

c Have cuctomers send payments directly to the company's depository bank

In a purchases-payables computer system, a purchase order is created after which document has been processed?

c Purchase requisition.

An auditor is determining whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely would select a sample of transactions from the population represented by the

c Shipping document file

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is

c Stamped "paid" by the check signer.

Independent internal verification of inventory occurs when employees who

compare records of goods on hand with physical quantities do not maintain the records or have custody of the inventory

The primary reason an auditor requests letters of inquiry be sent to a client's legal counsel is to provide the auditor with

d Corroboration of the information furnished by management about litigation, claims, and assessments

Customers having substantial year-end past due balances fail to reply after second request forms have been mailed directly to them. Which of the following is the most appropriate alternative audit procedure?

d Examine Shipping documents

The purpose of tracing a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items

d Represented by tags were included on the listing

While observing a client'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 client's perpetual records. This situation could be the result of the client's failure to record

d Sales returns

Tracing bills of lading to sales invoices provides evidence that

d Shipments to consumers were invoiced.

Sound internal control activities dictate that defective merchandise returned by customers be presented initially to the

receiving clerk

Which of the following are not directly involved in the revenue cycle?

receiving department clerk.

The most effective audit procedure for determining the collectibility of an account receivable is the

review of the subsequent cash collections.

When a client's company does not maintain its own stock records, the auditor should obtain written confirmation from the transfer agent and registrar concerning

the number of shares issued and outstanding