Quiz 9 Review
200190 With which of the following entities can the auditor inquire for information throughout an audit? Management and internal audit personal Personnel responsible for financial reporting Marketing, sales, and production personnel All of the answer choices are correct.
All of the answer choices are correct.
201721 Which of the following audit procedures, if used, should be combined with other audit procedures when testing the operating effectiveness of controls? Observation Inspection Inquiry Reperformance
Inquiry
200580 The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may: not believe that the bank is obligated to verify confidential information to a third party. sign and return the form without inspecting the accuracy of the client's bank reconciliation. not have access to the client's cutoff bank statement. be unaware of all the financial relationships that the bank has with the client.
be unaware of all the financial relationships that the bank has with the client.
200403 In accordance with the AICPA Audit Guide: Special Considerations in Auditing Financial Instruments. a primary consideration in determining the appropriate classification of investments depends on: the dollar amount of the investments. management's intent in purchasing and holding the investments. the ability of management to negotiate favorable sale terms in relationship to the entity's needs in the area of cash flow. the structure of the entity's investment portfolio and whether the securities are purchased "rights-on" or "ex-rights."
management's intent in purchasing and holding the investments.
200402 AU-C 501, Audit Evidence—Specific Considerations to Selected Items,states that the procedures an auditor performs to obtain evidence about the existence, ownership, and completeness of investments will vary depending on: type of investments involved. auditor's assessment of audit risk. I only II only Both I and II Neither I nor II
Both I and II
200644 An analysis of which of the following accounts would best aid in verifying that all fixed assets have been capitalized? Cash Depreciation expense Property tax expense Repairs and maintenance
Repairs and maintenance
200631 When auditing prepaid insurance, an auditor discovers that the original insurance policy on plant equipment is not available for inspection. The policy's absence most likely indicates the possibility of: an insurance premium due, but not recorded. a deficiency in the coinsurance provision. a lien on the plant equipment. an understatement of insurance expense.
a lien on the plant equipment.
200624 To support financial statement assertions, an auditor develops specific audit objectives. The auditor then designs substantive tests to satisfy or accomplish each objective. Which of the following audit procedures would primarily respond to the audit objective for accounts receivable that accounts receivable are properly described and presented in the financial statements? Analyze the relationship of accounts receivable and sales and compare it with relationships for preceding periods. Review the aged trial balance for significant past due accounts. Review loan agreements for indications of whether accounts receivable have been factored or pledged. Review the accounts receivable trial balance for amounts due from officers and employees.
Review the accounts receivable trial balance for amounts due from officers and employees.
200641 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 Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports Examining unusual relationships between monthly accounts payable balances and recorded cash payments Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date
Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period
201689 Which of the following procedures is performed first for unreturned positive confirmations of accounts receivable? Comparing current sales with budgeted sales Sending second requests for confirmation of accounts receivable Performing subsequent procedures Asking the client to obtain additional correspondence from the customers
Sending second requests for confirmation of accounts receivable
200582 What is the most likely source of the following statement? "Although we have not conducted a comprehensive, detailed search of our records, no other deposit or loan accounts have come to our attention except as noted below." Management representation letter Standard financial institution confirmation request Auditor's communication with the audit committee Auditor's report
Standard financial institution confirmation request
200588 An independent auditor asked a client's internal auditor to assist in preparing a standard financial institution confirmation request for a payroll account that had been closed during the year under audit. After the internal auditor prepared the form, the controller signed it and mailed it to the bank. What was the major flaw in this procedure? The internal auditor did not sign the form. The form was mailed by the controller. The form was prepared by the internal auditor. The account was closed, so the balance was zero.
The form was mailed by the controller.
200574 Under which of the following circumstances would the use of the blank form of confirmations of accounts receivable most likely be preferable to positive confirmations? The recipients are likely to sign the confirmations without devoting proper attention to them. Subsequent cash receipts are unusually difficult to verify. Analytical procedures indicate that few exceptions are expected. The combined assessed level of inherent risk and control risk is low.
The recipients are likely to sign the confirmations without devoting proper attention to them
200579 Which of the following does an auditor usually confirm on one form? Accounts payable and purchase commitments Cash in bank and collateral for loans Inventory on consignment and contingent liabilities Account receivable and accrued interest receivable
Cash in bank and collateral for loans
200625 Which of the following is a substantive test that an auditor most likely would perform to verify the existence and valuation of recorded accounts payable? Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for Receiving the client's mail, unopened, for a reasonable period of time after the year-end to search for unrecorded vendor's invoices Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports Confirming accounts payable balances with known suppliers who have zero balances
Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports
201404 Under which of the following circumstances would using the blank form of confirmation of accounts receivable most likely be preferable to other types of positive confirmations? The auditor's combined assessed level of control risk and inherent risk is low. Prior years' audits indicate a pattern of overstatement of account balances. Recipients are likely to sign other types of positive confirmations without careful investigation. Accounts receivable are immaterial to the entity's financial statements.
Recipients are likely to sign other types of positive confirmations without careful investigation.
200401 In determining whether transactions have been recorded, the direction of the audit testing should be from the: general ledger balances. adjusted trial balance. original source documents. general journal entries.
original source documents.
200627 An auditor most likely would extend substantive tests of payroll when: payroll is extensively audited by the state government. payroll expense is substantially higher than in the prior year. overpayments are discovered in performing tests of details. employees complain to management about too much overtime.
overpayments are discovered in performing tests of details.
200465 An auditor generally tests the segregation of duties related to inventory by: personal inquiry and observation. test counts and cutoff procedures. analytical procedures and invoice recomputation. document inspection and reconciliation.
personal inquiry and observation.
200628 An auditor's program for the examination of long-term debt should include steps that require the: inspection of the accounts payable subsidiary ledger. investigation of credits to the bond interest income account. verification of the existence of the bondholders. examination of any bond trust indenture
examination of any bond trust indenture.
200605 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. tour the client's facilities and then inspect the property ledger and the insurance and tax records. analyze the repair and maintenance account and then tour the client's facilities. tour the client's facilities and then analyze the repair and maintenance account.
inspect the property ledger and the insurance and tax records and then tour the client's facilities.
200595 An auditor is required to confirm accounts receivable if the accounts receivable balances are: older than the prior year. material to the financial statements. smaller than expected. subject to valuation estimates.
material to the financial statements.
200615 An auditor usually obtains evidence of stockholders' equity transactions by reviewing the entity's: minutes of board of directors' meetings. transfer agents' records. canceled stock certificates. treasury stock certificate book.
minutes of board of directors' meetings.
200589 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: amount of dividends paid to related parties. expected proceeds from stock subscriptions receivable. number of shares issued and outstanding. proper authorization of stock rights and warrants.
number of shares issued and outstanding.
200379 In determining the effectiveness of an entity's policies and procedures relating to the existence assertion for payroll transactions, an auditor most likely would inquire about and: identify unusually large purchases that should be investigated further. verify that cash disbursements were for goods actually received. determine that purchases were properly recorded. test whether payments were for goods actually ordered.
observe the segregation of duties concerning personnel responsibilities and payroll disbursement.
201700 Management's responses to inquiries can be corroborated by each of the following, except: visits to the entity's premises and plant facilities. inspection of documents and internal control manuals. preparation of the summary of unadjusted differences. observation of entity activities and operations.
preparation of the summary of unadjusted differences.
200616 In auditing a client's retained earnings account, an auditor should determine whether there are any restrictions on retained earnings that result from loans, agreements, or state law. This procedure is designed to corroborate management's financial statement assertion of: valuation and allocation. existence. presentation and disclosure. rights and obligations.
presentation and disclosure.
200638 An auditor usually determines whether dividend income from publicly held investments is reasonable by computing the amounts that should have been received by referring to: stock ledgers maintained by independent registrars. dividend records on file with the SEC. records produced by investment services. minutes of the investee's board of directors.
records produced by investment services.
200575 To reduce the risks associated with accepting e-mail responses to requests for confirmation of accounts receivable, an auditor most likely would: request that the senders mail the original forms to the auditor. examine subsequent cash receipts for the accounts in question. consider the e-mail responses to the confirmations to be exceptions. mail second requests to the e-mail respondents.
request that the senders mail the original forms to the auditor.
201499 Which of the following statements would an auditor most likely add to the negative form of confirmation of accounts receivable to encourage timely consideration by the recipients? "This is not a request for payment; remittances should not be sent to our auditors in the enclosed envelope." "Report any differences on the enclosed statement directly to our auditors; no reply is necessary if this amount agrees with your records." "If you do not report any differences within 15 days, it will be assumed that this statement is correct." "The following invoices have been selected for confirmation and represent amounts that are overdue."
"If you do not report any differences within 15 days, it will be assumed that this statement is correct."
200622 The information below was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ending December 31, 20X1. Assume that all checks are dated and issued on December 30, 20X1. Disbursement Date Receipt Date Check Bank Accounts per per per per No. from to Books Bank Books Bank 101 National Federal Dec. 30 Jan. 4 Dec. 30 Jan. 3 202 County State Jan. 3 Jan. 2 Dec. 30 Dec. 31 303 Federal American Dec. 31 Jan. 3 Jan. 2 Jan. 2 404 State Republic Jan. 2 Jan. 2 Jan. 2 Dec. 31 Which of the following checks might indicate kiting? 101 and 303 202 and 404 101 and 404 202 and 303
202 and 404
200642 Which of the following cash transfers results in a misstatement of cash on December 31, 20X1? BANK TRANSFER SCHEDULE Disbursement Date Receipt Date Transfers Per Books Per Bank Per Books Per Bank --------- --------- -------- -------- --------- A. 12
31/X1 01/05/X2 12/31/X1 01/04/X2 B. 01/04/X2 01/11/X2 01/04/X2 01/04/X2 C. 12/31/X1 01/04/X2 12/31/X1 12/31/X1 D. 01/04/X2 01/05/X2 12/31/X1 01/04/X2 Transfer A Transfer B Transfer C Transfer D /Transfer D
200573 In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely would be included with the client's confirmation letter? An auditor-prepared letter explaining that a nonresponse may cause an inference that the account balance is correct A client-prepared letter reminding the customer that a nonresponse will cause a second request to be sent An auditor-prepared letter requesting the customer to supply missing and incorrect information directly to the auditor A client-prepared statement of the account showing the details of the customer's account balance
A client-prepared statement of the account showing the details of the customer's account balance
201617 In the audit of a nonissuer, which of the following statements is correct regarding the use of external confirmations to obtain audit evidence? Management's refusal to allow an auditor to perform external confirmation procedures is considered a departure from GAAP sufficient to qualify the opinion. Negative confirmations provide more persuasive audit evidence than positive confirmations. Negative confirmations should be used only if a very high exception rate is expected. A factor for an auditor to consider when designing confirmation requests is the assertion being tested.
A factor for an auditor to consider when designing confirmation requests is the assertion being tested.
200592 During the confirmation of accounts receivable, an auditor receives a confirmation via the client's fax machine. Which of the following actions should an auditor take? Not accept the confirmation and select another customer's balance to confirm Not accept the confirmation and treat it as an exception Accept the confirmation and file it in the working papers Accept the confirmation but verify the source and content by directly contacting the respondent
Accept the confirmation but verify the source and content by directly contacting the respondent
200463 Which of the following controls is not usually performed in the vouchers payable department? Matching the vendor's invoice with the related receiving report Approving vouchers for payment by having an authorized employee sign the vouchers Indicating the asset and expense accounts to be debited Accounting for unused prenumbered purchase orders and receiving reports
Accounting for unused prenumbered purchase orders and receiving reports
200583 What is the most likely source of the following statement? "If this statement is not correct, please write promptly, using the enclosed envelope, and give details of any differences directly to our auditors." Communication with predecessor auditor Standard financial institution confirmation request Audit inquiry letter to legal counsel Accounts receivable confirmation
Accounts receivable confirmation
200599 In performing a count of negotiable securities, an auditor records the details of the count on a security count worksheet. What other information is usually included on this worksheet? An acknowledgment by a client representative that the securities were returned intact An analysis of realized gains and losses from the sale of securities during the year An evaluation of the client's internal control concerning physical access to the securities A description of the client's procedures that prevent the negotiation of securities by just one person
An acknowledgment by a client representative that the securities were returned intact
200442 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 requests for major repairs approved at a higher level than the department initiating the request? Are prenumbered purchase orders used for equipment and periodically accounted for? Are requests for purchases of equipment reviewed for consideration of soliciting competitive bids? Are procedures in place to monitor and properly restrict access to equipment?
Are procedures in place to monitor and properly restrict access to equipment?
200594 A portion of a client's inventory is in public warehouses. Evidence of the existence of this merchandise can most efficiently be acquired through which of the following methods? Observation Confirmation Calculation Inspection
Confirmation
200177 Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? Fictitious transactions may be recorded that cause an understatement of revenues and an overstatement of receivables. Claims received from customers for goods returned may be intentionally recorded in other customer's accounts. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash. The failure to prepare shipping documents may cause an overstatement of inventory balances.
Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash.
200612 An auditor traces the serial numbers on equipment to a nonissuer's subledger. Which of the following management assertions is supported by this test? Valuation and allocation Completeness Rights and obligations Presentation and disclosure
Completeness
200632 To support financial statement assertions, an auditor develops specific audit objectives. The auditor then designs substantive tests to satisfy or accomplish each objective. Which of the following audit procedures would primarily respond to the audit objective for property and equipment that the entity has legal right to property and equipment acquired during the year? Review the provision for depreciation expense and determine that depreciable lives and methods used in the current year are consistent with those used in the prior year Examine deeds and title insurance certificates Determine that property and equipment are adequately insured Physically examine all major property and equipment additions
Examine deeds and title insurance certificates
200464 Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed? Scan the sales journal for sequential and unusual entries. Examine shipping documents for matching sales invoices. Compare the accounts receivable ledger to daily sales summaries. Inspect unused sales invoices for consecutive prenumbering.
Examine shipping documents for matching sales invoices
200606 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? Testing shipping and receiving cutoff procedures Confirming inventories at locations outside the entity's premises Examining an analysis of inventory turnover Tracing inventory observation test counts to perpetual listings
Examining an analysis of inventory turnover
200646 Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated? Examining reported purchase returns that appear too low Examining vendor statements for amounts not reported as purchases Searching for customer-returned goods that were not reported as returns Reviewing bank transfers recorded as cash received from customers
Examining vendor statements for amounts not reported as purchases
200640 In testing plant and equipment balances, an auditor may inspect new additions listed on the analysis of plant and equipment. This procedure is designed to obtain evidence concerning management's assertions of: existence. valuation and allocation. both existence and valuation and allocation. neither existence nor valuation and allocation.
Existence.
200192 When an auditor requests information from marketing, sales, or production personnel, which of the following would the auditor request? Production strategies Compliance with laws and regulations Sales trends Application of accounting policies I only I and II I and III I, II, and IV
I and III
200207 Reports that could be read to support inquiries of management include which of the following? Quarterly management report Interim financial reports Board of directors meeting minutes New-hire training materials prepared by HR I and II III and IV I, II, and III I, II, III, and IV
I, II, and III
200600 In testing plant and equipment balances, an auditor may inspect new additions listed on the analysis of plant and equipment. This procedure is designed to obtain evidence concerning management's assertions of: presentation and disclosure. existence or occurrence. Both I and II I only II only Neither I nor II
II only
200590 Which of the following strategies most likely could improve the response rate of the confirmations of accounts receivable? Restrict the selection of accounts to be confirmed to those customers with large balances Include a list of items or invoices that constitute the customers' account balances Explain to customers that discrepancies will be investigated by an independent third party Ask customers to respond to the confirmation requests directly to the auditor by fax
Include a list of items or invoices that constitute the customers' account balances
200191 When an auditor requests information from the in-house legal counsel, which of the following would the auditor not request? Litigation Receivables schedule Compliance with laws and regulations Knowledge of fraud
Receivables schedule
200572 Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable? Including a list of items or invoices that constitute the account balance Restricting the selection of accounts to be confirmed to those customers with relatively large balances Requesting customers to respond to the confirmation requests directly to the auditor by fax or e-mail Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner
Including a list of items or invoices that constitute the account balance
200584 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? Review the cash receipts journal for the month prior to the year-end Intensify the study of internal control concerning the revenue cycle Increase the assessed level of detection risk for the existence assertion Inspect the shipping records documenting the merchandise and date sold to the debtors
Inspect the shipping records documenting the merchandise and date sold to the debtors
200163 Which of the following characteristics most likely would be indicative of check kiting? High turnover of employees who have access to cash Many large checks that are recorded on Mondays Low average balance compared to high level of deposits Frequent ATM checking account withdrawals
Low average balance compared to high level of deposits
200445 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. Inquire about employees' access to recorded but undeposited cash. Trace the deposits in the cash receipts journal to the cash balance in the general ledger. Compare the cash balance in the general ledger with the bank confirmation request.
Observe the consistency of the employees' use of cash registers and tapes
200649 Which of the following procedures would an auditor most likely complete to test the existence assertion of 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 Obtaining a detailed fixed-asset register and ensuring items are appropriately capitalized Obtaining a listing of current-year additions and verifying that items are recorded in the proper period Obtaining a detailed fixed-asset register and ensuring depreciation methods are applied consistently
Obtaining a listing of all current-year additions, vouching significant additions to original invoices, and determining that they have been placed in service
200653 Which of the following is an engagement attribute for an audit of an entity that processes most of its financial data in electronic form without any paper documentation? Discrete phases of planning, interim, and year-end fieldwork Increased effort to search for evidence of management fraud Performance of audit tests on a continual basis Increased emphasis on the completeness assertion
Performance of audit tests on a continual basis
200647 Which of the following procedures would be most appropriate for testing the completeness assertion as it applies to inventory? Scanning perpetual inventory, production, and purchasing records Examining paid vendor invoices Tracing inventory items from the tag listing back to the physical inventory quantities Performing cutoff procedures for shipping and receiving
Performing cutoff procedures for shipping and receiving
200648 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? Prior years' depreciation expenses were erroneously understated. The current year's depreciation expense was erroneously understated. The estimated remaining useful lives of plant assets were revised upward. Plant assets were retired during the current year.
Plant assets were retired during the current year.
200645 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 most likely was performed to support management's financial statement assertion(s) of: Presentation and disclosure: Yes; Rights and obligations: Yes Presentation and disclosure: Yes; Rights and obligations: No Presentation and disclosure: No; Rights and obligations: Yes Presentation and disclosure: No; Rights and obligations: No
Presentation and disclosure: No; Rights and obligations: Yes
200598 Which of the following procedures most likely would assist an auditor to identify litigation, claims, and assessments? Inspect checks included with the client's cutoff bank statement Obtain a letter of representations from the client's underwriter of securities Apply ratio analysis on the current year's liability accounts Read the file of correspondence from taxing authorities
Read the file of correspondence from taxing authorities
200623 To support financial statement assertions, an auditor develops specific audit objectives. The auditor then designs substantive tests to satisfy or accomplish each objective. Which of the following audit procedures would primarily respond to the audit objective for accounts receivable that accounts receivable are stated at net realizable value? Analyze the relationship of accounts receivable and sales and compare it with relationships for preceding periods. Review the aged trial balance for significant past due accounts. Review loan agreements for indications of whether accounts receivable have been factored or pledged. Review the accounts receivable trial balance for amounts due from officers and employees.
Review the aged trial balance for significant past due accounts.
200581 Which of the following auditing procedures most likely would assist an auditor in identifying related party transactions? Inspecting correspondence with lawyers for evidence of unreported contingent liabilities Vouching accounting records for recurring transactions recorded just after the balance sheet date Reviewing confirmations of loans receivable and payable for indications of guarantees Performing analytical procedures for indications of possible financial difficulties
Reviewing confirmations of loans receivable and payable for indications of guarantees
200382 Which of the following controls would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments? Senior management verifies that securities in the bank safe-deposit box are registered in the entity's name. The internal auditor compares the securities in the bank safe-deposit box with recorded investments. The treasurer vouches the acquisition of securities by comparing brokers' advices with canceled checks. The controller compares the current market prices of recorded investments with the brokers' advices on file.
The internal auditor compares the securities in the bank safe-deposit box with recorded investments.
200619 Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions
Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices
200596 Under which of the following circumstances should an auditor consider confirming the terms of a large complex sale? When the assessed level of control risk over the sale is low When the assessed level of detection risk over the sale is high When the combined assessed level of inherent and control risk over the sale is moderate When the combined assessed level of inherent and control risk over the sale is high
When the combined assessed level of inherent and control risk over the sale is high
200586 When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor most likely would: inspect the allowance account to verify whether the accounts were subsequently written off. increase the assessed level of detection risk for the valuation and completeness assertions. ask the client to contact the customers to request that the confirmations be returned. increase the assessed level of inherent risk for the revenue cycle.
ask the client to contact the customers to request that the confirmations be returned.
200621 If the audit objective of a test of details is to detect overstatements of sales, the auditor should vouch transactions from the: cash receipts journal to the sales journal. sales journal to the cash receipts journal. source documents to the accounting records. accounting records to the source documents.
accounting records to the source documents.
200387 An auditor most likely would perform substantive tests of details on payroll transactions when: cutoff tests indicate a substantial amount of accrued payroll expense. the assessed level of control risk relative to payroll transactions is low. analytical procedures indicate unusual fluctuations in recurring payroll entries. accrued payroll expense consists primarily of unpaid commissions.
analytical procedures indicate unusual fluctuations in recurring payroll entries.
200614 An auditor suspects that certain client employees are ordering merchandise for themselves over the internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: cash disbursements. approved vouchers. receiving reports. vendors' invoices.
cash disbursements.
200618 An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the existence assertion concerning sales transactions, and the auditor has already gathered evidence supporting: opening and closing inventory balances. cash receipts and accounts receivable. shipping and receiving activities. cutoffs of sales and purchases.
cash receipts and accounts receivable.
200593 When an auditor decides to confirm accounts receivable balances rather than individual invoices, it most likely would be beneficial to include with the confirmations: copies of the client's shipping documents that support the account balances. lists of the customers' recent payments that the client has already recorded. client-prepared statements of account that show the details of the account balances. copies of the customers' purchase orders that support the account balances.
client-prepared statements of account that show the details of the account balances.
200389 In auditing long-term bonds payable, an auditor most likely would: perform analytical procedures on the bond premium and discount accounts. examine documentation of assets purchased with bond proceeds for liens. compare interest expense with the bond payable amount for reasonableness. confirm the existence of individual bondholders at year-end.
compare interest expense with the bond payable amount for reasonableness.
200591 In establishing the existence and ownership of long-term investments in the form of publicly traded stock, an auditor most likely would inspect the securities or: correspond with the investee company to verify the number of shares owned. confirm the number of shares owned that are held by an independent custodian. apply analytical procedures to the dividend income and investments accounts. inspect the cash receipts journal for amounts that could represent the sale of securities.
confirm the number of shares owned that are held by an independent custodian.
200629 An auditor's program to examine long-term debt most likely would include steps that require: comparing the carrying amount of the debt to its year-end market value. correlating interest expense recorded for the period with outstanding debt. verifying the existence of the holders of the debt by direct confirmation. inspecting the accounts payable subsidiary ledger for unrecorded long-term debt.
correlating interest expense recorded for the period with outstanding debt.
200578 The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because: many customers merely sign and return the confirmation without verifying its details. recipients usually respond only if they disagree with the information on the request. customers may not be inclined to report understatement errors in their accounts. auditors typically select many accounts with low recorded balances to be confirmed.
customers may not be inclined to report understatement errors in their accounts.
200620 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: identify unusually large purchases that should be investigated further. verify that cash disbursements were for goods actually received. determine that purchases were properly recorded. test whether payments were for goods actually ordered.
determine that purchases were properly recorded.
200643 An auditor's principal objective in analyzing repairs and maintenance expense accounts is to: determine that all obsolete plant and equipment assets were written off before the year-end. verify that all recorded plant and equipment assets actually exist. discover expenditures that were expensed but should have been capitalized. identify plant and equipment assets that cannot be repaired and should be written off.
discover expenditures that were expensed but should have been capitalized.
200444 An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that: payments to employees are computed at authorized rates. employees work the number of hours for which they are paid. segregation of duties exists between the preparation and distribution of the payroll. internal controls relating to unclaimed payroll checks are operating effectively.
employees work the number of hours for which they are paid.
200626 Vouching selected items from the payroll register to employee timecards that have been approved by supervisory personnel provides evidence that: internal controls relating to payroll disbursements were operating effectively. payroll checks were signed by an appropriate officer independent of the payroll preparation process. only bona fide employees worked and their pay was properly computed. employees worked the number of hours for which their pay was computed.
employees worked the number of hours for which their pay was computed.
200206 Audit procedures that center on observation and inspection include all of the following except: inspection of documents, records, and internal control manuals (e.g., an organizational chart). physical observation of the entity's premises and plant facilities (e.g., visiting the warehouse). evaluating whether the financial statements as a whole are presented fairly, in all material respects, in conformity with generally accepted accounting principles. All of the answer choices are audit procedures that center on observation and inspection.
evaluating whether the financial statements as a whole are presented fairly, in all material respects, in conformity with generally accepted accounting principles.
200451 An auditor's tests of controls over the issuance of raw materials to production would most likely include: reconciling raw materials and work-in-process perpetual inventory records to general ledger balances. inquiring of the custodian about the procedures followed when defective materials are received from vendors. observing that raw materials are stored in secure areas and that storeroom security is supervised by a responsible individual. examining material requisitions and re-performing client controls designed to process and record issuances.
examining material requisitions and re-performing client controls designed to process and record issuances.
200587 An auditor decides to use the blank form of accounts receivable confirmation rather than the positive form. The auditor should be aware that the blank form may be less efficient because: subsequent cash receipts need to be verified. statistical sampling may not be used. recipients may sign the forms without proper investigation. more nonresponses are likely to occur.
more nonresponses are likely to occur.
200637 On receiving a client's bank cutoff statement, an auditor most likely would trace: prior-year checks listed in the cutoff statement to the year-end outstanding checklist. deposits in transit listed in the cutoff statement to the year-end bank reconciliation. checks dated after year-end listed in the cutoff statement to the year-end outstanding checklist. deposits recorded in the cash receipts journal after year-end to the cutoff statement.
prior-year checks listed in the cutoff statement to the year-end outstanding checklist.
200630 A client has a large and active investment portfolio that is kept in a bank safe-deposit box. If the auditor is unable to count the securities at the balance sheet date, the auditor most likely will: request the bank to confirm to the auditor the contents of the safe-deposit box at the balance sheet date. examine supporting evidence for transactions occurring during the year. count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance sheet date. request that the client have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.
request that the client have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.
200635 When control risk is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying analytical procedures and: observing the distribution of paychecks. footing and crossfooting the payroll register. inspecting payroll tax returns. reviewing payroll accruals for reasonableness.
reviewing payroll accruals for reasonableness.
200639 Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that: shipments to customers were properly billed. entries in the accounts receivable subsidiary ledger were for sales actually shipped. sales billed to customers were actually shipped. no duplicate shipments to customers were made.
sales billed to customers were actually shipped.
200380 A weakness in internal control over recording retirements of equipment may cause an auditor to: inspect certain items of equipment in the plant and trace those items to the accounting records. review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year. trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used. select certain items of equipment from the accounting records and locate them in the plant.
select certain items of equipment from the accounting records and locate them in the plant.
200452 A weakness in internal control over recording retirements of equipment may cause an auditor to: trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used. select certain items of equipment from the accounting records and locate them in the plant. inspect certain items of equipment in the plant and trace those items to the accounting records. review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.
select certain items of equipment from the accounting records and locate them in the plant.
200602 In testing for unrecorded retirements of equipment, an auditor most likely would: select items of equipment from the accounting records and then locate them during the plant tour. compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment. inspect items of equipment observed during the plant tour and then trace them to the equipment subsidiary ledger. scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.
select items of equipment from the accounting records and then locate them during the plant tour.
200466 Tracing shipping documents to prenumbered sales invoices provides evidence that: no duplicate shipments or billings occurred. shipments to customers were properly invoiced. all goods ordered by customers were shipped. all prenumbered sales invoices were accounted for.
shipments to customers were properly invoiced.
200443 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: supported by a vendor's invoice. stamped "paid" by the check signer. prenumbered and accounted for. approved for authorized purchases.
stamped "paid" by the check signer.
200400 Regardless of the assessed risk of material misstatement, an auditor would perform: tests of controls to determine the effectiveness of internal control policies. analytical procedures to verify the design of internal control procedures. substantive tests to restrict detection risk for significant transaction classes. dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.
substantive tests to restrict detection risk for significant transaction classes.
200780 Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because: a majority of recipients usually lack the willingness to respond objectively. some recipients may report incorrect balances that require extensive follow-up. the auditor cannot infer that all nonrespondents have verified their account information. negative confirmations do not produce audit evidence that is statistically quantifiable.
the auditor cannot infer that all nonrespondents have verified their account information.
200823 In auditing accounts receivable, the negative form of confirmation request most likely would be used when: recipients are likely to return positive confirmation requests without verifying the accuracy of the information. the combined assessed level of inherent and control risk relative to accounts receivable is low. a few accounts receivable are involved, but many errors are expected. the auditor performs a dual-purpose test that assesses control risk and obtains substantive evidence.
the combined assessed level of inherent and control risk relative to accounts receivable is low.
200576 In auditing accounts receivable, the negative form of confirmation request most likely would be used when: identify unusually large purchases that should be investigated further. verify that cash disbursements were for goods actually received. determine that purchases were properly recorded. test whether payments were for goods actually ordered.
the combined assessed level of inherent risk and control risk relative to accounts receivable is low.
200633 In performing tests concerning the granting of stock options, an auditor should: confirm the transaction with the Secretary of State in the state of incorporation. verify the existence of option holders in the entity's payroll records or stock ledgers. determine that sufficient treasury stock is available to cover any new stock issued. trace the authorization for the transaction to a vote of the board of directors.
trace the authorization for the transaction to a vote of the board of directors.
200585 When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be: vendors with whom the entity has previously done business. amounts recorded in the accounts payable subsidiary ledger. payees of checks drawn in the month after the year-end. invoices filed in the entity's open invoice file.
vendors with whom the entity has previously done business.
200577 To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would: examine the shipping documents that provide evidence for the existence assertion. verify the sources and contents of the faxes in telephone calls to the senders. consider the faxes to be nonresponses, and evaluate them as unadjusted differences. inspect the faxes for forgeries or alterations, and consider them to be acceptable if none are noted.
verify the sources and contents of the faxes in telephone calls to the senders.
