EXAM2-129A

The auditor's primary objective in selecting a sample of items from an audit population is to obtain:

A representative sample

What type of error is the CPA most likely to discover when he/she examines all shipping reports dated in January of 20X1, shipped FOB shipping point, which were recorded in December of 20X0 as credit sales?

Accounts receivable are overstated at December 31. 20X0

Which of the following would diminish the validity of evidence obtained through confirmation of accounts receivable?

All the answers would diminish the validity of confirmation

When performing tests of controls over authorization of cash receipts, which of the following sampling methods would be most appropriate?

Attributes.

On receiving the bank cutoff statement, the auditor should trace:

Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation, to ensure they are included on that list

Which of the following procedures should be performed to verify deposit in transit on bank reconciliation as of 12/31/2019?

Compare to 1/31/2020 bank statement.

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 inventory summary sheets. Which assertion does this procedure relate to most directly?

Completeness

Auditor noticed that last year the client was using a warehouse down the road to hold some inventories. The auditor asked whether the client is still using the outside storage for the current year.

Completeness

Auditors are trying to verify all accounts receivables are being recorded.This is related to which of the following financial statement assertions?

Completeness

The assertion most directly addressed when performing the search for unrecorded liabilities is:

Completeness

Tracing from shipping documents (bills of lading) to entries in the sales journal provides evidence most directly related to which sales assertions?

Completeness

Which of the following procedures should be performed to verify balance per bank on bank reconciliation?

Confirm directly with bank on standard form

In our data analytics project, you are asked to Identify shipments that occurred in 2017 for 2016 sales. Which assertion are you testing in this audit procedure? In the case that multiple assertions apply, choose the best one.

Cutoff

The auditor copies the shipping and receiving logs

Cutoff

In assessing sampling risk, the risk of assessing control risk too high relates to audit.

Efficiency

In assessing sampling risk, the risk of incorrect rejection relate to audit:

Efficiency

Auditors are trying to verify recorded accounts receivable accounts represent valid claims from customers. This is related to which of the following financial statement assertions?

Existence

Sending confirmations for accounts receivable tests which of the primary audit objectives? (Note, although the procedure may test more than one objective, select the answer which relates most to the confirmation of receivables.)

Existence

The auditor cut open the box to check the inside

Existence

You are asked to verify that every sales transaction has a shipping number. What is the management assertion you are testing here?

Existence or occurrence

An invoice of $1,000, dated 12/30/2022 and bearing terms of FOB shipping point, was received and recorded on 1/4/2023. The goods were shipped on 12/30/2022 but were not received until 1/4/2023. Net income in 2022 was overstated.

False

An invoice of $1,000, dated 12/30/2022 and bearing terms of FOB shipping point, was received and recorded on 1/4/2023. The goods were shipped on 12/30/2022 but were not received until 1/4/2023. Net income in 2022 was overstated. Liability as of 12/31/2022 was understated.

False

Auditors should not review the client's planning of the physical inventory.

False

Confirmation of accounts payable is a required auditing procedure.

False

The confirmation of existing accounts payable proves the completeness of recorded accounts payable.

False

When the auditors cannot satisfy themselves as to the accuracy of ending inventory and a material misstatement may exist, they normally may still give an unmodified (unqualified) opinion on the client's income statement.

False

Jones embezzled $10,000 from his company's account in Bank A. At year-end, he hid the shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not recorded the transaction on the books. This is an example of:

Kitting

Suppose that a company receives $150 for payment, but an accounting clerk diverts that to a personal account. To hide the theft, the clerk will apply the cash collected from another customer to offset the receivable from the first customer. This is an example of:

Lapping

Following the Professional Standards, which of the following would likely result in the use of negative accounts receivable confirmations?

Negative confirmations should not be used in any of the cases presented here

Confirmation was returned showing discrepancy. Is the cash balance considered confirmed ?

No

The client's physical count of inventories is lower than the inventory quantities in the perpetual records. This could be the result of a failure to record:

Sales

Which audit procedure might identify a possible cutoff error on sales assuming all sales are credit sales?

Sending accounts receivable confirmation and tracing sale journals to sale invoice or shipping documents

Which of the following types of risk is of critical importance to auditors in performing tests of controls?

The risk of assessing control risk too low.

An invoice of $1,000, dated 12/30/2022 and bearing terms of FOB shipping point, was received and recorded on 1/4/2023. The goods were received on 12/31/2022 and were included in the physical inventory taken that day. Liability as of 12/31/2022 was understated.

True

An invoice of $1,000, dated 12/30/2022 and bearing terms of FOB shipping point, was received and recorded on 1/4/2023. The goods were received on 12/31/2022 and were included in the physical inventory taken that day. Net income in 2022 was overstated.

True

The proper cutoff of inventories is best achieved when receiving reports and purchase invoices surrounding the year-end are examined.

True

Which of the following procedures should be performed to verify outstanding checks?

Use cutoff statement to check for completeness of the outstanding check list from the bank reconciliation.

Auditor asked whether the client has obsolete or slow-moving items

Valuation

Auditors are trying to verify recorded accounts receivable are valued at net realizable values.This is related to which of the following financial statement assertions?

Valuation

The auditors who are engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily to:

Verify reconciling items on the client's bank reconciliation.

Confirmation was returned with the correct balance and a disclaimer. Is the cash balance considered confirmed ?

Yes

Confirmation was returned with the correct balance but noted that the client also borrow a loan from the bank. Is the cash balance considered confirmed

Yes

You are the auditor. Assume Customers of your client are saying they owe a smaller amount than that on the accounts receivable confirmation? This is consistent with:

a cash receipt journal closed prior to year end

By preparing a bank reconciliation at year end, an auditor will generally be able to detect:

an unrecorded check written at the beginning of the month which was cashed during the period covered by the reconciliation.

When auditors receive confirmation reply from the bank, they need to compare the confirmed balance to

bank balance on the bank reconcilation

While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation illustrates the risk of:

incorrect rejection

A sample in which the characteristics of the sample are the same as those of the population is a(n):

representing samples

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement(materiality) is:

risk of incorrect acceptance

Kiting would least likely be detected by:

tracing each day's total deposits from the cash receipts journal to the cash account.