Gleim Auditing and Systems
A CPA auditing an electric utility wishes to determine whether all the customers are being billed. The CPA's best direction of a test is from the A. Meter department records to the billing (sales) register B. Billing (Sales) registrar to the meter department C. Accounts receivable ledger to the billing (sales) registrar D. Billing (sales) registrar to the accounts receivable ledger
A
A CPA is engaged in the annual audit of a calendar year client. The client took a complete physical inventory under the CPA's observation on December 15 and adjusted its inventory account and detailed perpetual inventory records to agree with the physical inventory. The client considers a sale to be made in the period that goods are shipped. Listed below are four items taken from the CPA's sales cutoff test worksheet. Which item does not require an adjusting entry on the client's books? Shipped - Recorded as Sale - Inventory Credit A 12/10 12/19 12/12 B 12/14 12/16 12/16 C 12/31 1/2 12/31 D 1/2 12/31 12/31
A
A client uses a suspense account for unresolved questions whose final accounting has not been determined. If a balance remains in the suspense account at year-end, the auditor would be most concerned about A. Suspense debits that management believes will benefit future operations B. Suspense debits that the auditor verifies will have realizable value to the client C. Suspense credits that management believes should be classified as "current liability" D. Suspense credits that the auditor determines to be customer deposits
A
A company has computerized sales a cash receipts journals. The computer programs fro theses journals have been properly debugged . The auditor discovered that the total of the accounts receivable subsidiary accounts differ materially from the accounts receivable control account. This could indicate A. Credit memoranda being improperly recorded B Lapping of receivables C. Receivables not being properly aged D. Statements being intercepted prior to mailing
A
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? A. One of the cashiers has been covering a personal embezzlement by lapping B. One of the sales clerks has not been preparing charge slips for credit sales to family and friends C. One of the computer control clerks has been removing all sales invoices applicable to his account from the data filed. D. The credit manager has misappropriated remittances from customers whose accounts have been written off
A
An auditor learns that collection of accounts receivable during the last 10 days of December were not recorded. The effect will be to A. Leave both working capital and the current ration unchanged at Dec 31st B. Overstate both working capital and the current ration at Dec 31st C. Overstate working capital with no effect on the current ratio at Dec 31 D. Overstate current ration and no effect on working capital
A
An auditor's audit documentation will least likely show how the A. Client's schedules were prepared B. Engagement was planned C. Understanding of the client's internal control was obtained and the risks of material misstatement were assessed D. Significant issues were resolved
A
Analytical procedures can best be categorized as: A. Substantive procedures B. Tests of controls C. Qualitative tests D. Budget comparisons
A
Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except: A. Tracing transactions through the system to determine whether procedures are bing applied as prescribed B. Comparison of financial data with data for comparable prior periods, anticipated results (e.g. budgets and forecasts), and similar data for the industry which the entity operates C. Study of the relationships of elements of financial data that would be expected to conform to a predictable pattern based upon the entity's experience D. Study of the relationships of financial data with relevant non financial data
A
Bank Teller supervising might manipulate accounts using their privileged computer access codes. they could withdraw money fro their own use and move money amount accounts when depositors complain to the bank about errors. The audit procedure most likely to detect this is A. Reviewing transactions on privileged access codes B. Reviewing transactions for employees accounts C. Verifying proof of records for teller access codes D. testing the accuracy of account posting program
A
Each of the following might, by itself, form a valid basis for an auditor to decide to omit a procedure except for the A. Difficulty and cost involved in testing a particular item B. Assessment of the risks of material misstatement at a low-level C. Inherent risk involved D. Relationship between the cost of obtaining evidence and its usefulness
A
For all audits of financial statements made in accordance with generally accepted auditing standards, the auditor should apply analytical procedures to some extent as 1) Risk Assessment Procedures, 2) Substantive Procedures, 3) In the Review Stage: A. Yes, No, Yes B. No, Yes, No C. No, No, Yes D. Yes, Yes, No
A
If an auditor conducts an audit of financial statements in accordance with applicable auditing standards, which of the following will the auditor most likely detect? A. Misposting of recorded transactions B. Unrecorded transactions C. Forgery D. Collusive fraud
A
In the confirmation of accounts receivable, the auditor would most likely A. Request confirmation of a sample of the inactive accounts B. Seek to obtain positive confirmations for at least 50% of the total dollar amount of the receivables C. Require confirmation of all receivables from agencies of the federal government D. Require that confirmation requests be sent within 1 month of the fiscal year end
A
The negative request form of accounts receivable confirmation may be used when theRisk of Material Misstatement is/Number of Small Balances is/Consideration by the Recipient is A. Low and Many and Likely B. Low and Few and Unlikely C. High and Few and Likely D. High and Many and Likely
A
The objective of performing analytical procedures in planning an audit is to identify the existence of A. Unusual transactions and events B. Illegal acts that went undetected because of internal control weaknesses C. Related party transactions D. Recorded transactions that were not properly authorized
A
The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of A. Transactions B. Authorizations C. Costs D. Cutoffs
A
Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to provide a reasonable basis for an opinion? A. Auditor Judgment B. Materiality C. Audit risk D. Reasonable assurance
A
Which of the following factors has the least influence on an auditor's consideration of the reliability of data for purposes of analytical procedures? A. Whether the data processed in a computer system or in a manual accounting system B. Whether sources within the entity were independent of those who are responsible for the amount being audited C. Whether the data were subjected to audit testing in the current or prior year D. Whether the data were obtained from independent sources outside the entity or from sources within the entity
A
Which of the following is a false statement about the relationship of financial statement assertions and audit procedures? A. The relationship between financial statement assertions and audit procedures should be one-to-one B. Audit procedures should be developed in light of financial statement assertions about the financial statement components C. Selection of tests of financial statement assertions should depend upon the understanding of internal control D. The auditor should resolve any substantial doubt about any of management's relevant financial statement assertions
A
Which of the following is not a principal objective of the auditor in the audit of revenues? A. To verify cash deposited during the year. B. To obtain an understanding of internal control and assess the risks of material misstatement, with particular emphasis on the use of accrual accounting to record revenue. C. To verify that earned revenue has been recorded and recorded revenue has been earned. D. To identify and interpret significant trends and variations in the amounts of various categories of revenue.
A
Which of the following would be least likely to be comparable between similar corporations in the same industry or line of business? A. Earnings per share. B. Return on total assets before interest and taxes. C. Accounts receivable turnover. D. Operating cycle.
A
Which result of an analytical procedure suggests the existence of obsolete merchandise? A. Decrease in the inventory turnover rate B. Decrease in the ratio of gross profit to salesc) Decrease in the ratio of inventory to accounts payabled) Decrease in the ratio of inventory to accounts receivable
A
You have been assigned to audit the maintenance department of an organization. Which of the following is likely to produce the least reliable audit evidence? A. Notes on discussions with mechanics in the maintenance operation B. A schedule comparing actual maintenance expenses with budgeted expenses and those of the prior period and disclosing important differences C. A narrative covering review of user reports on maintenance serviced. D. An analysis of changes in certain maintenance department ratios
A
All of the following are examples of substantive tests to verify the valuation of net accounts receivable except the A. Recomputation of the allowance for bad debts B. Inspection of accounts for current versus noncurrent status in the statement of financial position C. Inspection of the aging schedule and credit records of past due accounts D. Comparison of the allowance for bad debts with past records
B
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? A. The auditor should preform analytical procedures at an interim date and discuss any changes in the level of sales with senior management B. The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that the revenue was posted in the proper period C. The auditor should perform tests of controls at an interim date to obtain audit evidence about the operational effectiveness of internal controls over sales D. The auditor should review period-end compensation to determine if bonuses were paid to meet earning goals.
B
An auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the: A. Availability of data aggregated at a high level B. Auditor's determination about whether audit risk can be sufficiently reduced C. Timing of tests performed after the balance sheet date D. Auditor's familiarity with industry trends
B
Assuming a low assessed risk of material misstatement, which of the following audit procedures would be least likely to be performed? A. Physical inspection of a sample of inventory B. Search for unrecorded cash receipts C. Obtaining a client representation letter D. Confirmation of accounts receivable
B
Auditors are often concerned with the possibility of overstatement of sales and receivables. However, management may also have reasons for understating these balances. Which of the following would explain understatement of sales and receivables? A. To window-dress the financial statements B. To avoid paying taxes C. To meet budgets and forecasts D. All of the answers are correct
B
Auditors may use positive or negative forms of confirmation requests. An auditor most likely will use A. The positive form to confirm all balances regardless of size B. The negative form for small balances C. A combination of the two forms, with the positive form used for trade balances and the negative form for other balances D. The positive form when the assessed risk of material misstatement is acceptably low and the negative form when it is unacceptably high
B
During the examination of a cutoff bank statement an auditor noticed that the majority of checks listed as outstanding at the preceding Dec 31st had not cleared the bank. Which of the following is not a likely explanation of this finding? A. Checks were written prior to year end but were not mailed on a timely basis B. Kiting was used to cover a shortage of cash C. The cash disbursements journal had been held open past year end D. The cutoff bank statement was requested too soon year end
B
For the fiscal year ending December 31 of the previous year and for the current year, Justin Co. has net sales of $1,000,000 and $2,000,000; average gross receivables of $100,000 and $300,000; and an allowance for uncollectible accounts receivable of $30,000 and $50,000, respectively. If the accounts receivable turnover and the ratio of allowance for uncollectible accounts receivable to gross accounts receivable are calculated, which of the following best represents the conclusions to be drawn? A. Accounts receivable turnovers are 10.0 and 6.6 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.16, respectively. Examine allowance for possible overstatement of the allowance B Accounts receivable turnovers are 10.0 and 6.7m and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.17, respectively. Examine allowance for possible understatement of the allowance C. Accounts receivable turnovers are 14.3 and 8.0 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.42 and 0.20, respectively. Examine allowance for possible overstatement of the allowance. D. Accounts receivable turnovers are 14.3 and 8.0 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.42 and 0.20, respectively. Examine allowance for possible understatement of the allowance.
B
In gathering evidence in the performance of substantive procedures, the auditor most likely A. Uses the test month approach B. Relies on persuasive rather than conclusive evidence in the majority of cases C. Considers the client's documentary evidence less reliable than evidence gathered orally by inquiry of management D. Expresses an adverse opinion if (s)he has substantial doubt as to any assertion of material significance
B
Material misstatements due to fraudulent financial reporting often result from an overstatement of revenues (for example, through premature revenue recognition or recording of fictitious revenues) or an understatement of revenues (for example, through improperly shifting revenues to a later period). To address the risk of improper revenue recognition, the auditor most likely should A. Increase the assessment of the risks of material misstatement B. Assume the existence of risks of material misstatement due to fraud relating to revenue recognition C. Focus testing of journal entries on the made during the reporting period rather than at the end of the reporting period D.Focus testing on the actions of the client's staff-level employees
B
Most of the auditor's work in forming an opinion on financial statements consists of A. Understanding internal control B. Obtaining and evaluating audit evidence C. Examining cash transactions D. Comparing recorded accountability with assets
B
The standard AICPA form directed to financial institutions requests all of the following except A. Due date of a direct liability B. The principal amount paid on a direct liability C. The description of collateral for a direct liability D. The interest rate of a direct liability
B
To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would A. Examine the shipping documents that provide evidence for the existence assertion B. Verify the sources and contents of the faxes in telephone calls to the senders C. Consider the faxes to be nonresponses and evaluate them as unadjusted differences D. Inspect the faxes for forgeries or alterations and consider them to be acceptable if none are noted
B
Which of the following cash transfers results in a misstatement of cash at December 21, Year 1? Bank Transfer Schedule Disbursement - Receipt Recorded In Book - Paid by Bank A. 12/31/Yr 1, 1/4/Yr 2 - 12/31/Yr 1, 12/31/Yr 1 B. 1/4/Yr 2, 1/5/Yr 2 - 12/31/Yr 1, 1/4/Yr 2 C. 12/31/Yr 1, 1/5/Yr 2 - 12/31/Yr 1, 1/4/Yr 2 D. 1/4/Yr 2, 1/11/Yr 2 - 1/4/ Yr 2, 1/4/Yr 2
B
Which of the following is the greatest drawback of using subsequent collections evidenced only by a deposit slip as an alternative procedure when a responses to positive accounts receivable confirmations are not received? A. Checking of subsequent collection can never be used as an alternative auditing procedure B. By examining a deposit slip only, the auditor does not know whether the payment is for the receivables at the balance sheet date or a subsequent transaction C. A deposit slip is not received directly by the auditor D. A customer may not have made a payment on a timely basis
B
Which of the following is the most reliable analytical approach to verification of the year-end financial statement balances of a wholesale business? A. Verify depreciation expense by multiplying the depreciable asset balances by one divided by the depreciation rate B. Verify commission expense by multiplying sales revenue by the company's standard commission rate C. Verify interest expense, which includes imputed interest, by multiplying concurrent debt balances by the year-end prevailing interest rate D. Verify FICA tax liability by multiplying total payroll costs by the FICA contribution rate in effect during the year
B
Which of the following presumptions is least likely to relate to the reliability of audit evidence? A. The more effective internal control is, the more assurance it provides about the accounting data and financial statements B. An auditor's opinion is formed within a reasonable time to achieve a balance between benefit and cost C. Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity D. The auditor's direct personal knowledge obtained through observation and inspection is more persuasive than information obtained indirectly
B
Which of the following statements about audit evidence is true? A. To be appropriate, audit evidence should be either persuasive or relevant but need not be both B. The sufficiency and appropriateness of audit evidence is a matter of professional judgment C. The difficulty and expense of obtaining audit evidence about an account balance is a valid basis for omitting the test D. A client's accounting records can be sufficient audit evidence to support the financial statements
B
A large university has relatively ineffective internal control. The university auditor seeks assurance that all tuition revenue has been recorded. The auditor could best obtain the desired assurance by A. Confirming a sample of tuition payments with the students B. Observing tuition payment procedures on a surprise basis C. Comparing business office revenue records with registrar's office revenue records of students enrolled D. Preparing a year end bank reconciliation
C
AU-C 500 describes five generalizations about the reliability of evidence. The situations given below indicate the relative degrees of assurance provided by two types of evidence obtained in different situations. Which describes an exception to one of the generalizations? A. The auditor has obtained greater assurance about the balance of sales at Plant A, where (s)he has made limited test of details because of effective internal control, than at Plant B, where (s)he has made extensive tests of details because of ineffective internal control B. The auditor's computation of interest payable on outstanding bonds provides greater assurance than reliance on the client's calculation C. The report of an auditor's specialist regarding the valuation of a collection of paintings held as an investment provides greater assurance than the auditor's physical observation of the paintings D. The schedule of insurance coverage obtained from the company's insurance agent provides greater assurance than one prepared by the internal audit staff
C
According to professional standards, analytical procedures are least likely to be applied to: A. Test disclosures about reportable operating segments B. Review financial statements or interim financial information C. Compile financial statements D. Assist in forming an overall conclusion
C
An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of October 31. By this procedure the auditor would be most likely to learn of which of the following? A. An October invoice was improperly computed B. An October check from a customer was posted C. An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period D. An account balance is past due and should be written off
C
An inappropriate audit procedure relative to accounts receivable is to determine that the A. Accounts exist and are properly valued B. Accounts represent the complete transaction process C. Accounts are collected by the balance sheet date D. Client has rights in the accounts receivable
C
Analytical procedures are most appropriate when testing which of the following types of transactions? A. Payroll and benefit liabilities B. Acquisitions and disposals of fixed assets C. Operating expense transactions D. Noncurrent debt transactions
C
Analytical procedures performed to assist in forming an overall conclusion suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that: A. Misstatements exist in the relevant account balances B. Internal control activities are not operating effectively C. Additional audit procedures are required D. The communication with the audit committee should be revised
C
Audit documentation that records the procedures used by the auditor to gather evidence should be A. Considered the primary support for the financial statements being audited B. Viewed as the connecting link between the books of account and the financial statements C. Designed to meet the circumstances of the particular engagement D. Destroyed when the audited entity ceases to be a client
C
Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should A. Obtain audit evidence about the operating effectiveness of controls B. Determine that the accounts selected for interim testing are not material to the financial statements taken as a whole C. Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable D. Obtain written representations from management that all financial records and related data will be made available
C
Confirmation of accounts receivable is a generally accepted auditing procedure. The presumption is that an auditor will request confirmation of accounts receivable. Confirmation is necessary when A. Based on prior years' audit experience, response rates will be inadequate B. Based on experience with similar engagements, responses are expected to be unreliable C. The combined assessed level of inherent and control risk is high D. The accounts receivable are immaterial
C
If the objective of an auditor's test of details is to detect a possible understatement of sales the auditor most likely would trace transaction from the A. Sales invoices to the shipping documents B. Cash receipts journal to the sales journal C. Shipping documents to sales invoices D. Sales Journal to cash receipts journal
C
Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because A. A majority of recipients usually lack the willingness to respond objectively B. Some recipients may report incorrect balances that require extensive follow-up C. The auditor cannot infer that all nonrespondents have verified their account information D. Negative confirmations do not produce evidence that is statistically quantifiable
C
Observation is considered a reliable audit procedure but one that is limited in usefulness. However, it is used in a number of different audit situations. Which of the following statements is true regarding observation as an audit technique? A. It is the most effective audit methodology to use in filling out internal control questionnaires B. It is the most persuasive methodology to learn how transactions are really processed during the period under audit C. It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes placed. D. It is the most persuasive audit technique for determining if fraud has occurred
C
The auditor finds a situation in which one person has the ability to collect receivables, make deposits, issue credit memos, and record receipt of payments. The auditor suspects the individual may be stealing from cash receipts. Which of the following audit procedures will most effective in discovering fraud in this scenario? A. Send positive confirmation to random customers B. Send negative confirmation to all outstanding accounts receivables C. Perform a detailed review of debits to customer discounts, sales returns, or other debits, excluding cash posted to the cash receipts journal D. Take a sample of bank deposits and trace the detail in each bank deposit back to the entry in the cash receipts journal
C
The most effective audit procedure for determining the collectability if ab account receivable is the A. Confirmation of the account B. Examination of the related sales invoices C. review of the subsequent cash collections D. Review of authorization of credit sales to the customer and the previous history of collections
C
The objective of analytical procedures performed as risk assessment procedures is to: A. Evaluate the adequacy of evidence gathered in response to unusual balances identified during the audit B. Test individual account balances that depend on accounting estimates C. Enhance the auditor's understanding of the client's business D. Identify material weaknesses in internal control
C
Two assertions for which confirmation of accounts receivable balances provides primary evidence are A. Completeness and valuation B. Valuation and rights and obligations C. Rights and obligations and existence D. Existence and completeness
C
When an auditor obtains an understanding of the entity and its environment, including its internal control, which of the following is the most likely order of performing the steps A through C below? A = Tests of controls B = Preparation of a flowchart documenting the understanding of the client's internal control C = Substantive procedures A. ABC B. ACB C. BAC D. BCA
C
When counting cash on hand the auditor must exercise control over all cash and other negotiable assets to prevent A. Theft B. Irregular endorsement C. Substitution D. Deposits in transit
C
Which of the following characteristics is most likely indicative of check kiting? A. High turnover of employees who have access to cash B. Many large check that are recorded on Mondays C. Low average balance compared with high level of deposits D. Frequent ATM checking account withdrawals
C
Which of the following is not a financial statement assertion about cash? A. Reported cash exists B. The client has rights to the reported cash C. Compensating cash balances are classified as other current assets D. The reported cash balance includes all cash transactions that should have been recorded
C
Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit? A. Turnover of personnel in the accounting department B. Objectivity of audit committee members C. Square footage of selling space D. Management's plans to repurchase stock
C
Which of the following statements is an auditor most likely to add to the negative form of confirmation of accounts receivable to encourage timely consideration by the recipient? A. "This is not a request for payment; remittances should not be sent to our auditors in the enclosed envelope." B. "Report any differences on the enclosed statement directly to our auditors; no reply is necessary if this amount agrees with your records." C. "If you do not report any differences within 15 days, it will be assumed that this statement is correct." D. "The following invoices have been selected for confirmation and represent amounts that are overdue."
C
An auditor observed that a client mails monthly statements to customers. Subsequently. The auditor reviewed evidence of follow-up on the errors reported by the customers. This test of controls was most likely performed to support management's financial statement assertion(s) of Classification and Undstandability - Rights and Obligations
C - No, Yes
A bank cutoff statement is least likely to detect A. Inclusion of a nonexistent deposit in transit on the bank reconciliation B. Omission of checks that were written prior to year end from the outstanding check list on the bank reconciliation C. Dating of check prior to year end that are not issued until after year end D. Application of cash receipts from one customer to another customers account (lapping)
D
A basic premise underlying analytical procedures is that: A. These procedures cannot replace tests of balances and transactions B. Statistical tests of financial information may lead to the discovery of material misstatements in the financial statements C. The study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations D. Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary
D
A company's sales cutoff is December 31. All goods sold are shipped FOB destination, and the company records sales 3 days after shipment. The following sales were recorded as indicated: Date Shipped: December 28,29,30; January 2,5 Month Recorded: December, December, January, December, and January Selling Prices: $182, 60, 14, 230, 182 Cost: $190, 50, 145, 215, 174 Ignoring tax effects, the net effect for income for the month ended December 31 of any failures to observe a proper cutoff was A. $(1,000) B. $15,000 C. $24,000 D. $25,000
D
An auditor is planning an audit engagement for a new client in a business that is unfamiliar to the auditor. Which of the following would be the least useful source of information for the auditor during the preliminary planning stage, when the auditor is trying to obtain a general understanding of audit problems that might be encountered? A. Textbooks and periodicals related to the industry B. AICPA Audit and Accounting Guides. C. Financial statements of other entities in the industry. D. Results of performing substantive procedures.
D
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 A. Occurrence B. Rights and Obligations C. Valuation and allocation D. Completeness
D
An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business with during the year under audit regardless of the year end balance. purpose of this procedure is to A. Provide the data necessary to prepare a proof of cash B. Request that cutoff bank statement and related checks be sent to the auditor C. Detect kiting activities that may otherwise not be discovered D. seek information about other deposit and loan amount that come to the attention of the institution in the process of completing confirmation
D
An auditor suspects that a clients customer whose accounts receivables balance represents a material proportion of the the client's total receivables, is fictitious. The evidence that provides the strongest proof is that the auditor's suspicion is unfounded, given the existence of weaknesses in the client's internal controls over accounts receivable, is A. Receipt of a positive confirmation response B. Subsequent posting of collection of the account balance C. Nonresponse to a negative confirmation D. Location of the customer's name and the address in a published industry directory
D
An auditor who has confirmed accounts receivable may discover that the sales journal was held open past year end if A. positive confirmation requests sent to debtors are not returned B. Negative confirmation requests sent to debtors are not returned C. Most of the returned negative confirmation requests indicate that the debtor owes a larger balance than the amount being confirmed D. Most of the returned positives confirmation requests indicate that the debtor owes a smaller balance than the amount being confirmed
D
During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the "balance owe as of December 31 was paid on January 9, Year 2" The auditor would most likely A. Determine whether any changes in the account occurred between January 1 and January 9, Year 2. B. Determine whether a customary trade discount was taken by the customer C. Reconfirm the zero balance as of January 10, Year 2 D. Verify that the amount was received
D
If the objective of a test of details is to detect overstatements of sales, the auditor should compare transactions in the A. Cash receipts journal with the sales journal B. Sales journal with the cash receipts journal C. Source documents with the accounting records D. Accounting records with the source documents
D
In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely will be included with the client's confirmation letter? A. An auditor-prepared letter explaining that a nonresponse may cause an interference that the account balance is correct B. A client-prepared letter reminding the customer that a nonresponse will cause a second request to be sent C. An auditor-prepared letter requesting the customer to supply missing and incorrect information directly to the client D. A client-prepared statement of account showing the details of the customer's account balance
D
In the audit of which of the following general ledger accounts will tests of controls be particularly appropriate? A. Equipment B. Bonds payable C. Bank charges D. sales
D
Normally the financial statement assertion about valuation is of minimum concern during the audit of cash. However the auditors concern about the valuation assertion will most likely increase when A. Both currency and negotiable securities are on hand B. The client uses a demand deposit account C. The proof of cash cannot be reconciled D. The client has foreign currency accounts
D
Once a CPA has determined that accounts receivable have increased because of slow collection in a tight money environment, the CPA is likely to A. increase the balance in the allowance for bad debts account B. review the going concern ramifications C. Review the credit and collection policy D. Expand tests of collectibility
D
The appropriateness of evidence available to an auditor is least likely to be affected by the A. Relevance of such evidence to the financial statement assertion being investigated B. Relationship of the preparer of such evidence to the entity being audited C. Timeliness of such audit evidenced. D. Sampling method employed by the auditor to obtain a sample of such evidence
D
The most reliable forms of documentary evidence are those documents that are A. Prenumbered B. Internally generated C. Easily duplicated D. Authorized by a responsible official
D
Which of the following is not a principle objective of the auditor in the audit of revenues? A. To verify cash deposited during the year B. To obtain an understanding of internal control and assess the risks of material misstatement with particular emphasis on the use of accrual accounting to record revenue C. To verify that earned revenue has been recorded and recorded revenue has been earned D. To identify and interpret significant trends and variations in the amounts of various categories of revenue
D
Which of the following might be detected by an auditor's review of the client's sales cutoff? A. Excessive goods returned for credit B. Unrecorded sales discounts C. Lapping of year-end accounts receivable D. Inflated sales for the year
D
Which of the following procedure would an auditor most likely perform for year end accounts receivable confirmation when the auditor did not receive replies to second requests? A. Review the cash receipts journals for the month prior to year end B. Intensify the study of internal controls concerning the revenue cycle C. Increase the assessed level of detection risk for the existence assertion D. Inspect the shipping records documenting the merchandise sold to the debtors
D
Which of the following procedures would provide the most reliable audit evidence? A. Inquiries of the client's internal audit staff held in private B. Inspection of prenumbered client purchase orders filed in the vouchers payable department C. Analytical procedures performed by the auditor on the entity's trial balanced. D. Inspection of bank statements obtained directly from the client's financial institution
D
Which of the following statements about analytical procedures is true? A. Analytical procedures may be omitted entirely for some financial statement audits B. Analytical procedures used as risk assessment procedures should not use nonfinancial information C. Analytical procedures usually are effective and efficient for tests of controls D. Analytical procedures alone may provide the appropriate level of assurance for some assertions
D
Which of the following statements about evidence is true? A. Appropriate evidence supporting management's assertions should be conclusive rather than merely persuasive B. Effective internal control contributes little to the reliability of the evidence created within the entity C. The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained D. A client's accounting records cannot be considered sufficient appropriate audit evidence on which to base the auditor's opinion
D
