9-18 FINAL

When the debt amount recorded in the subsidiary ledger is reconciled to the general ledger account regularly, the auditor gains assurance of ______. valuation occurrence and authorization completeness disclosure-classification

completeness

When the debt amount recorded in the subsidiary ledger is reconciled to the general ledger account regularly, the auditor gains assurance of ______. valuation occurrence and authorization disclosure-classification completeness

completeness

the auditor's concern with the _______ assertion over AR is whether all AR have been included in the subsidiary ledger and the general ledger account

completeness

the auditor's concern with the _____ assertion over AR is whether all AR have been included in the subsidiary ledger and t he general ledger account

completenss

Select all that apply The auditor's standard unqualified audit report for a public company contains the ______. "Critical Audit Matters" section how long the auditor has served name and signature of firm breakdown of fees billed to the client "Opinion" section

"opinion" section "critical audit matters" section name and signature of firm how long the auditor has served

Select all that apply Which of the following are characteristics of a contingent liability? An unavoidable obligation that will occur sometime in the future. Uncertainty about the amount of loss. An existing condition or set of circumstances. Ultimate resolution when some future event occurs or fails to occur.

An existing condition or set of circumstances. Uncertainty about the amount of loss. Ultimate resolution when some future event occurs or fails to occur.

True or false: Monetary-unit sampling is based on attribute-sampling theory modified to express a rate of occurrence

False

True or false: Proper segregation of duties for purchasing mean that the individual who can requisition goods should receive the goods but not be responsible for invoice processing.

False

Which of the following is a procedure the auditor can use to gain assurance about the completeness assertion for property, plant, and equipment? Obtaining a lead schedule, footing the lead schedule, agreeing individual accounts to the general ledger. Physically examine a sample of assets and trace them into the property, plant, and equipment subsidiary ledger. Select a sample of assets from the property, plant, and equipment subsidiary ledger and vouch them to supporting documents such as vendor invoices.

Physically examine a sample of assets and trace them into the property, plant, and equipment subsidiary ledger.

Which of the following is used to reconcile the cash receipts and disbursements recorded on the entity's books with the cash deposited into and disbursed from the entity's bank account for a specific period of time? Proof of cash Bank confirmation Extended bank reconciliation Kiting test

Proof of cash

if an auditor does not receive responses to positive confirmations _______ the client should be asked to confirm the accounts additional requests can be sent the accounts should be considered misstatements

additional requests can be sent

When the financial statements do not present fairly due to a GAAP departure that materially affects the financial statements overall the auditor will issue a(n) _____ opinion.

adverse

there are two categories of substantive procedures: (1) substantive __________ procedures and (2) tests of ___________ of classes of transactions, account balances and disclosures

analytical, details

Select all that apply The accurate processing of inventory transactions involves ______. removing the actual number of items shipped from inventory authorizing purchases by the purchasing department recording the proper cost to cost of goods sold using a perpetual inventory system applying the correct price to the actual quantity received

applying the correct price to the actual quantity received recording proper cost to cost of goods sold removing the actual number of items shipped from inventory

Failure to record inventory in the proper period can result in misstatements on the ______. income statement only balance sheet only balance sheet and income statement statement of cash flows only

balance sheet and income statement

Control activities that ensure the _______ assertion include accounting for the numerical sequence of shipping documents and sales invoices and matching shipping documents with sales invoices completion occurrence accuracy authorization

completion

if goods are shipped or services are performed and no revenue is recognized, the ____________ assertions has not been met completion authorization occurrence accuracy

completion

Distribution theory allow auditors to quantify sampling risk through the use of

confidence bounds

Distribution theory allows auditors to quantify sampling risk and form a ______. sampling risk boundary confidence interval sampling confidence

confidence interval

audit evidence that is a direct written response from a third party to the auditor, in paper form or by the electronic or other medium is called _______

confirmation

Select all that apply Auditing standards state that the auditor should perform certain procedures when gathering evidence for existence including ______. confirmation of unsettled transactions with the broker-dealer confirmation with the counterparty recomputing current-year interest income using face amount of security, interest rate and time period held examining broker invoices or similar documents reading executed partnership agreements

confirmation of unsettled transactions with the broker-dealer confirmation with the counterparty reading executed partnership agreements

Select all that apply Procedures that might be used by an auditor using a substantive strategy for auditing long-term debt include ______. confirming balances and other relevant information with outside parties determining the status of prior debt agreements understanding and testing internal controls over long-term debt examining minutes to ensure long-term debt was authorized by the Board of Directors examining new debt agreements

confirming balances and other relevant information with outside parties determining the status of prior debt agreements examining new debt agreements

Procedures to ensure that prepared cash disbursements are recorded on a timely basis in the cash disbursements journal and the accounts payable support the ______ assertion. cutoff completeness occurrence classification

cutoff

Procedures to ensure that prepared cash disbursements are recorded on a timely basis in the cash disbursements journal and the accounts payable support the _________ assertion.

cutoff

Reviewing debt activity for a few days before and after year-end is an example of a substantive test of transactions for long-term debt to provide assurance about ____________

cutoff

The auditor can examine a sample of receiving documents for a few days before and after year-end for recording of inventory to test the ______ assertion. accuracy completeness occurrence cutoff

cutoff

The auditor tests the control activities for the _____________ assertion by comparing the date on the receiving report with the date on the voucher

cutoff

With regard to property, plant and equipment, when an auditor examines a sample of vendor invoices from a few days before and after year-end, (s)he is most likely testing ______. rights and obligations existence cutoff completeness

cutoff

comparing the date of a bill of lading with the date on the respective sales invoices and the date the sales invoice was recorded in the sales journal allows the auditor to tests the ______________ control

cutoff

if the entity does not have adequate controls to ensure that revenue transactions are recorded on a timely basis, sales may be recorded in the wrong accounting period. this relates to the _____________ assertion accuracy completeness occurrence cutoff

cutoff

the attempt of the ______ assertion is to determine whether all revenue transactions and related accounts receivable are recorded in the proper period

cutoff

When tests of controls support the planned level of control risk, no modifications are normally necessary to the planned level of ___________ ____________ and the auditor may proceed with the planned substantive procedures

detection risk

the results of the auditor's testing of internal control for the revenue process directly impact __________ risk and therefore the level of ___________ procedures that will be required for the accounts affected by this process

detection, substantive

select all that apply customer sales order may be prepared and forwarded from a salesperson mailed faxed received by telephone received over the internet forwarded from the warehosue

forwarded from a salesperson mailed faxed received by telephone received over the internet

In auditing, the physical representation of the population is known as the __________

frame

Auditors might prepare a proof of cash or test for kiting when _____ activities in the cash accounts is suspected.

fraudulent

If the final analytical procedures indicate material misstatements, exist the auditor should ______. withdraw from the engagement issue a qualified opinion issue a disclaimer of opinion gather additional audit evidence

gather additional audit evidence

If the entity uses IT for monitoring the flow of goods and accumulating costs, the auditor will need to evaluate both the _____________ IT controls and the inventory _______________ controls.

general, application

Entities that engage in recurring borrowing activities should have both _____________ controls established by the board of directors and ______________ controls for borrowing and repayment that may be delegated to an executive.

general, specefic

The auditor has a responsibility to evaluate whether there is substantial doubt about an entity's ability to keep doing business or, in other words, whether or not the entity considered to be a(n) ____ ____

going concern

A shipping document should be prepared anytime _________ a payment is made to the shipping company inventory is received goods are sent to the customer an order is packaged for shipping

goods are sent to a customer

Select all that apply A formal control process to ensure adequate segregation of duties related to property, plant, and equipment is likely when an entity ______. has few capital asset purchases reconciles the subsidiary ledger with the existing capital assets at the end of each period has large capital projects under construction purchases large quantities of machinery

has large capital projects under construction purchases large quantities of machinery

Select all that apply The complex accounting issues often involved in property, plant, and equipment includes issues surrounding ______. lease accounting depreciation self-constructed assets donated assets

lease accounting self constructed assets

A letter of audit inquiry sent to the entity's attorneys is often referred to as a(n) _____ _____

legal letter

When compared to accounts receivable confirmations, accounts payable confirmations are used ______ frequently by auditors. more less equally

less

If the UML is ______ the tolerable misstatement, the evidence supports the conclusion that the account balance is not materially misstated. less than or equal to greater than or equal to equal to

less than or equal to

When no misstatements were found in the logical units tested, then the upper misstatement limit will be ______ the tolerable misstatement used to compute the same size. never equal to always equal to less than or equal to greater than or equal to

less than or equal to

If the likely misstatement is ______ the tolerable misstatement, the auditor may accept the inventory account as ______. greater than; fairly presented less than; not fairly presented less than; fairly presented

less than; fairly presented

The evidence indicates that the property, plant, and equipment accounts are not materially misstated when the ______ misstatement. likely misstatement is less than the tolerable tolerable misstatement is greater than the actual likely misstatement is greater than the tolerable

likely misstatement is less than the tolerable

To evaluate the audit findings, ______ the misstatement is compared to the ________ misstatement allocated to the inventory account.

likely, tolerable

When the auditor determines that the ________ misstatements in the property, plant, and equipment account are less than the __________ misstatement, the evidence indicates the accounts are not materially misstated.

likely, tolerable

When using classical variables sampling techniques, the sampling unit can be a(n) ______. line item customer account individual transaction batch of transactions

line item customer account individual transaction

Account balances sampled by auditors typically have _______ error rates low high zero

low

Select all that apply Inherent risk for notes and bonds would normally be assessed as low to moderate due to ______. third-party amortization schedules third-party statements low volume of transactions complex accounting issues

low volume of transactions third-party amortization third-party statements

When few or no misstatements were found during prior year audits of property, plant, and equipment, the assessed level of inherent risk should be set ______ if the auditor detected misstatements in prior audits. lower than higher than the same as

lower than

When misstatements are quantified based only on the amount of the error that originates in the current year income statement, the ______ method is being used. quantifying iron curtain rollover

rollover

the document used to bill the customer is a sales journal shipping document customer statement sales invoice

sales invoice

the source document typically signals the recognition of revenue is the _________ _________

sales invoice

The mean misstatement per sampling item is calculated by dividing the known audit differences in the sample by the ______. sample size confidence coefficient tolerable misstatement estimated standard deviation of audit differences

sample size

An inability to collect sufficient appropriate evidence is considered a(n): departure from GAAP lack of auditor independence lack of auditor competence scope limitation

scope limitation

The nature and magnitude of the potential effects of the financial statement area that the auditor was unable to examine and its significance to the overall financial statements should be considered in the assessment of a(n) _____ ____

scope limitation

One of the most important controls in any accounting system is proper ___________ of _________

segregation duties

A key control over unauthorized cash disbursements is numerical sequence of checks segregation of duties bank reconciliations

segregation of duties

The potential for theft and fraud in the revenue process makes this particularly important segregation of entries duties of managers segregation of duties

segregation of duties

Select all that apply Haphazard __. selects items that will be representative of the population is permitted for both statistical and nonstatisical sampling allows the auditor to select items judgmentally implies that items are selected in a careless manner

selects items that will be representative of the population allows the auditor to select items judgmentally

select all that apply which of the following statements are correct? AR should only be confirmed at year end except in rare circumstances sending confirmations at the end o the accounting period reduces the chance of timing differences confirmation requests should be made soon after the end of the accounting period to maximize the response rate

sending confirmations at the end o the accounting period reduces the chance of timing differences confirmation requests should be made soon after the end of the accounting period to maximize the response rate

select all that apply when the auditor does not receive a response to the positive confirmations, possible procedures include _________ sending second and third requests verifying sales by examining the sales journal having the client contact the customer to ask for a response examining specific subsequent cash receipts examining shipping documents

sending second and third requests examining specific subsequent cash receipts examining shipping documentation

Select all that apply The new PCAOB reporting standards include ______. separate disclosure of critical audit matters an implicit statement that the auditor is independent a clearer description of management and auditor responsibilities reporting the opinion section last

separate disclosure of critical audit matters a clearer description of management and auditor responsibilities

Select all that apply The PCAOB believes the new auditor's report will ______. enhance communication between management and investors sharpen auditors' sense of professional skepticism in dealing with audit matters improve the quality of financial reporting provide more information and insight to stakeholders

sharpen auditors' sense of professional skepticism in dealing with audit matters improve the quality of financial reporting provide more information and insight to stakeholders

If the auditor is concerned about goods shipped but not billed, the appropriate population to sample is billing statements payments received sales invoices shipping documents

shipping documents

True or false: The standard bank confirmation form is used to confirm information regarding account balances, loans and lines of credit for the entity.

true

True or false: When the auditor is evaluating the effects of detected misstatements in the financial statements, the auditor must consider both quantitative and qualitative aspects of the account and transaction involved.

true

true or false: related-party transaction is a common disclosure for revenue-related accounts

true

true or false: related-party transactions is a common disclosure for revenue-related accounts

true

When an employee tries to cover a cash shortage by transferring money from one bank account to another and recording the transaction improperly on the entity's books, the employee is engaged in ______. kiting lapping skimming proving cash

kiting

If a company uses electronic wire transfers ______. kiting cannot be accomplished due to the immediate recording of the deposit a shortage in cash can be eliminated by recording a credit memo after the wire transfer is recorded kiting is still possible due to a one-day delay in recording cash can be moved from one customer's account to another customer's account to cover a cash shortage

kiting is still possible due to a one-day delay in recording

Select all that apply: Important determinants of sample size for testing account balances are: - prior year error - estimated misstatement - desired confidence level - tolerable misstatement

- desired confidence level - tolerable misstatement - estimated misstatement

The FASB standard relating to going concern issues requires a "look-forward" period of ______. 1 year from the balance sheet date 120 days from the end of field work 45 days from the date of the auditor's report 1 year from the financial statement issuance date

1 year from the financial statement issuance date

FASB ASC Topic 820 provides a hierarchy of levels that distinguish the types of inputs used to value different types of assets and liabilities are their appropriate fair values. A valuation based on directly or indirectly observable market data for similar or comparable assets or liabilities best describes Level ______. 3 2 1

2

An account has a balance of $1.5 million. Individually significant items total $325,000. Tolerable misstatement is $40,000 and expected misstatement is $10,000. Given this information, and a confidence factor is 1.2, the nonstatistical sample size should be

47 [($1,500,000 - $325,000) / ($40,000 - $10,000)] x 1.2

Assume an account has a book value of $45,219 and an audit value of $39,587. If the sampling interval is $36,428, the projected misstatement associated with this account is $

5,632

Assume an account has a book value of $45,219 and an audit value of $39,587. If the sampling interval is $36,428, the projected misstatement associated with this account is $_____

5,632 (45,219 - 39,587)

If the population to be sampled is the $50,000 accounts payable balance that represents amounts due to 14 vendors, there are _________ sampling units in the MUS population

50,000

An auditor calculated the mean misstatement per sampling item to be $3.12. If the total audit difference was $234.00, the sample size was

75

The tainting factor for an account with a book value of $42,750 and an audit value of $38,900 is ______%

9% (42,750 - 38,900 / 42,750)

An auditor calculated the mean misstatement per sampling item to be $2.75 for a sample size of 120 units. If the total population size in sampling units is 3,500 the projected population misstatement is $

9625

Select all that apply The main accounts affected by the auditor's achieved control risk for the purchasing process include ______. accrued expenses accounts receivable cash accounts payable

AP accrued expenses

to test the auditor's concern with AR completeness, the aged trial balance should be reconciled to the AR subsidiary journal cash receipts journal AR general ledger account cash general ledger account

AR general ledger account

The accounts commonly affected by sales transactions are ______. Multiple select question. Bad-debt expense Allowance for uncollectible accounts Sales Trade accounts receivable Sales returns and allowances

Bad-debt expense Allowance for uncollectible accounts Sales Trade accounts receivable

Which of the following is not one of the four columns used on a proof of cash? Balance of cash per general ledger. Reconciliation of cash disbursed through the bank account with the cash disbursement recorded in the cash disbursements journal. Reconciliation of cash deposited in the bank with the cash receipts recorded in the cash receipts journal. Bank reconciliation for the beginning of the period.

Balance of cash per general ledger.

Select all that apply Which of the following are affected if securities are misclassified among held-to-maturity, trading, and available-for-sale? Balance sheet Income statement Statement of cash flows

Balance sheet Income statement

Select all that apply Why are lease transactions considered a complex accounting issue? Difficultly verifying trade-in value. Proper cost accumulation Complexity of the capitalization decisions Subjectivity involved in assessing capitalization criteria

Complexity of the capitalization decisions Subjectivity involved in assessing capitalization criteria

Final analytical procedures provide a "smell test". Which of the following explains the meaning of this phrase? Where should audit effort and attention be focused? Were any errors made by the entity during the period under audit? Do the financial statement amounts make sense? Are internal controls operating effectively?

Do the financial statement amounts make sense?

Which of the following is a substantive test of transactions used to test the occurrence of long-term debt? Test a sample of receipts and payments. Examine copies of new note or bond agreements. Examine the due dates on notes or bonds. Confirm notes or bonds directly with creditors.

Examine copies of new note or bond agreements.

Select all that apply Which of the following are tests of details of account balances for long-term debt? Examine new debt agreements to ensure they were recorded at the proper value. Obtain a standard bank confirmation that requests specific information on notes from banks. Examine copies of new note or bond agreements. Evaluate lease contracts to determine if leases are properly classified as operating or capital.

Examine new debt agreements to ensure they were recorded at the proper value. Obtain a standard bank confirmation that requests specific information on notes from banks

Which of the following is a test of transactions for cash receipts to provide evidence regarding authorization? Examine a sample of remittance advices for proper account classification. For a sample of weeks, foot the cash receipts journal and agree posting to the general ledger. For a sample of days, example the signature on the deposit slip and check endorsements. Trace a sample of remittance advices to the cash receipts journal and, if necessary, to deposit slips.

For a sample of days, example the signature on the deposit slip and check endorsements.

Which of the following is a test of transactions for cash receipts to provide evidence regarding accuracy? For a sample of weeks, foot the cash receipts journal and agree posting to the general ledger. For a sample of days, example the signature on the deposit slip and check endorsements. Examine a sample of remittance advices for proper account classification. Trace a sample of remittance advices to the cash receipts journal and, if necessary, to deposit slips.

For a sample of weeks, foot the cash receipts journal and agree posting to the general ledger.

Select all that apply Which of the following statements are correct? Internal auditors often document and perform tests of controls over petty cash. External auditors seldom perform substantive procedures on the petty cash fund. Because the balance in the petty cash fund is not material there is almost no potential for fraud.

Internal auditors often document and perform tests of controls over petty cash. External auditors seldom perform substantive procedures on the petty cash fund.

Select all that apply Which of the following statements are correct? In most systems the revenue process does not interact with the inventory management process. Many accounting systems integrate purchasing and human resources with revenue. The revenue process is similar for all types of organizations.

Many accounting systems integrate purchasing and human resources with revenue. The revenue process is similar for all types of organizations.

FASB ASC Topic 820 provides a hierarchy of levels that distinguish the types of inputs used to value different types of assets and liabilities are their appropriate fair values. Which of the following best describes Level 3? Valuations are based on directly or indirectly observable market data for similar or comparable assets or liabilities. Valuations are based on quoted prices in active markets for identical assets or liabilities. Valuations are based on management's best judgment and involve management's assumptions.

Valuations are based on management's best judgment and involve management's assumptions.

FASB ASC Topic 820 provides a hierarchy of levels that distinguish the types of inputs used to value different types of assets and liabilities are their appropriate fair values. Which of the following best describes Level 1? Valuations are based on management's best judgment and involve management's assumptions. Valuations are based on quoted prices in active markets for identical assets or liabilities. Valuations are based on directly or indirectly observable market data for similar or comparable assets or liabilities.

Valuations are based on quoted prices in active markets for identical assets or liabilities.

select all that apply important controls regarding the processing of credit memoranda are _________ the entity should use a lockbox system to ensure that cash is deposited on a timely basis a credit for returned goods should be supported by a receiving document indicating that the goods have been returned remittance advices should be reconciled to the cash receipts journal each credit memorandum should be approved by someone other than the individual who initiated it

a credit for returned goods should be supported by a receiving document indicating that the goods have been returned each credit memorandum should be approved by someone other than the individual who initiated it

There is ______ relationship between confidence level and sample size no a direct an indirect

a direct

There is ______ relationship between sample size and expected misstatement a direct a negative no an indirect

a direct

The presence of transactions related to donated assets, nonmonetary exchanges, and self-constructed assets result in ______. a higher inherent risk assessment a lower inherent risk assessment complex accounting issues difficult to audit transactions

a higher inherent risk assessment difficult to audit transactions

Select all that apply Circumstances that likely will result in an audit opinion that departs from an unqualified opinion include ______. a departure from GAAP lack of auditor independence important events that occurred after the balance sheet date. significant related-party transactions that are appropriately disclosed a scope limitation

a scope limitation a departure from GAAP lack of auditor independence

Select all that apply An auditor issues a qualified opinion when there is ______. a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP a GAAP departure that materially affects the financial statements overall such that the statements are not fairly presented a scope limitation a lack of independence insufficient appropriate evidence

a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP a scope limitation

Covering a cash shortage by transferring money between bank accounts and recording the transfer improperly on the books is a practice known as ______

kiting

Substantive analytical procedures are used to examine plausible relationships among ___________ ____________ and accrued expenses.

accounts payable

Select all that apply: MUS is commonly used by auditors to test accounts such as __________ - sales revenue - accounts receivable - interest expense - loans receivable - inventory

accounts receivable loans receivable inventory (investment securities, not listed)

Control activities that ensure that _______ assertion include an authorized price list and proper verification of the information contained on the sales invoice accuracy authorization cutoff occurrence

accuracy

Obtaining a lead schedule and detailed schedules for additions and dispositions, footing the lead schedule, agreeing individual accounts to the general ledger and testing the detailed schedules is done to verify ______. cutoff accuracy completeness rights and obligations

accuracy

The auditor obtains a lead schedule and detailed schedules for additions and dispositions of assets to verify the ______ assertion for property, plant and equipment.

accuracy

The auditor's test of controls for the _____________ assertion involves reperforming the accounts payable clerk's duties on a sample of voucher packets

accuracy

The inventory compilation is footed, and the mathematical extensions of quantity multiplied by price are verified to test the ______ assertion. completeness occurrence accuracy cutoff

accuracy

The potential misstatement related to the ________ assertion is that the payment amount is recorded incorrectly.

accuracy

Once the tests of controls in the revenue process have been completed, the auditor sets the ____________ level of control risk achieved planned expected tolerable

achieved

If an auditor is inspecting securities held by an entity, the auditor should insist that a representative of the entity be present during the physical examination in order to ______. confirm that all securities the entity owns are present and accounted for validate auditor access to the securities confirm that all counterparties have sent the appropriate securities to the entity acknowledge that all securities inspected are returned

acknowledge that all securities inspected are returned

the auditor assess the adequacy of the allowance account by first examining the _____ for amounts that have been outstanding for a long time listing of sales invoices AR subsidiary ledger general ledger aged trial balance

aged trial balance

Much of the substantive audit work in AR is done using the _______ open-order sales invoice report aged trial balance of AR remittance advice report AR subsidiary ledger

aged trial balance of AR

To monitor the collection of receivables and ensure that the details of the accounts receivable subsidiary ledger agree with the general ledger control account, managers use the aged trial balance of AR open-order sales invoices report remittance advise report cash receipts journal

aged trial balance of accounts receivable

The entity should maintain detailed records of long-term debt transactions to ensure ______. proper authorization of the debt occurred proper disclosures are provided for the debt all borrowings and repayments are recorded the debt was correctly recorded at original value

all borrowings and repayments are recorded

The entity should maintain detailed records of long-term debt transactions to ensure ______. the debt was correctly recorded at original value proper authorization of the debt occurred proper disclosures are provided for the debt all borrowings and repayments are recorded

all borrowings and repayments are recorded

Comparing detailed records in the subsidiary ledger with the existing capital assets is done to ensure that ______. all capital assets are recorded the entity has the rights to the capital assets the assets are being properly depreciated all capital assets were authorized

all capital assets are recorded

Controls over the aggregation or disaggregation of transactions are important to properly ______. allocate costs to appropriate classes of inventory calculate the cost of inventory sold during the period value ending finished goods inventory

allocate costs to appropriate classes of inventory

Regarding responsibility for reporting changes in internal controls that might adversely affect financial reporting between the end of the reporting period and the date of the auditor report, auditors are ______. always responsible for reporting these types of changes in internal controls only responsible for reporting changes in internal control relating to events that did not exist at the end of the reporting period only responsible for reporting changes in internal control about material weaknesses that existed at the end of the reporting period never responsible for reporting these types of changes in internal controls

always responsible for reporting these types of changes in internal controls

Which of the following is not a SFAC 5 expense category? Period costs Product costs Systematic expenses Amortized expenses

amortized expenses

The potential misstatement related to the accuracy assertion is that the payment is not properly authorized is not a valid transaction for the entity is not recorded in the correct period amount is recorded incorrectly

amount is recorded incorrectly

Select all that apply Examples of disclosure issues for cash include ______ an accounting policy for defining cash and cash equivalents interbank transfer schedules cash balances restricted by foreign exchange contracts minutes of board of director's meetings letters of credit

an accounting policy for defining cash and cash equivalents letters of credit cash balances restricted by foreign exchange contracts

There is _______ relationship between the risk of incorrect acceptance and sample size a direct no an inverse

an inverse

To consider the overall reasonableness of the financial statement amounts, the auditor performs final _____ _____

analytical procedures

Two particularly important disclosures for accounts payable and accrued expenses are ______ -_____ purchase transactions and _______ _______

related-party, purchase commitments

Substantive tests of transactions ______. may be difficult to distinguish from a test of controls are conduced to test the operation of a control procedure are often conducted at the same time as tests of controls

are often conducted at the same time as tests of controls may be difficult to distinguish from a test of controls

Periodic reconciliation of the property, plant, and equipment subsidiary ledger to the general ledger control accounts is done to ensure that all capital assets ______. are authorized are recorded exist are properly classified

are recorded

select all that apply shipping documents _______ are used to initiate the billing process are prepared when goods are received from vendors can serve a bill of lading are sent to customers

are used to initiate the billing process can serve as a bill of lading are sent to customers

the auditor's decision process of planning and performing tests of controls involves considering the _____________ that can occur if internal control does not operate effectively substantive tests and possible misstatements assertions and the possible misstatements causes and consequences

assertions and the possible misstatements

Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this refers to the ______ _____ in particular.

audit committee

With respect to the audit of internal control over financial reporting, the auditor must communicate all significant deficiencies and material weaknesses in writing to management and the

audit committee

The auditor is determining whether there is enough to support each relevant assertion when evaluating the sufficiency of the ______ ______

audit evidence

Materiality not a factor when considering ______. scope limitations work performed by other auditors departures from GAAP auditor independence

auditor independence

The date of the representation letter is generally the date of the ______. auditor's report issuance of the financial statements balance sheet

auditor's report

it is the responsibility of ______ to ensure that all necessary financial statements disclosures are made both the auditors and management auditors management

auditors

it is the responsibility of _________ ensure that all necessary financial statements disclosures are made both the auditors and management management auditors

auditors

Requiring that cash disbursements are not prepared unless all source documents are included in the voucher packet and approved ensures proper ______. cutoff authorization classification completeness

authorization

Shipping goods to customers with brad credit and making sales at incorrect prices of terms are both possible misstatements due to improper ____________

authorization

The auditor's concern with ______ in the inventory system is that purchase or production activities could occur that may lead to excess levels of certain types of finished goods. authorization occurrence completeness accuracy

authorization

The primary control to prevent misstatements due to improper _____________ is the use of a schedule or table that stipulates the amount that different levels of employees are allowed to purchase.

authorization

Organizations can control requisitioning authorization by ______. having functional areas submit requests to the purchasing department allowing all individuals in the organization to request goods and services authorization dollar limits for different levels of employees

authorization dollar limits for different levels of employees

When the allowance for doubtful accounts is audited, _______________ ______________ expense is also tested.

bad debt

Failure to perform the credit authorization function properly may result in bad-debt losses increased sales sales returns too few customers

bad-debt losses

Select all that apply To audit a payroll or branch bank account the auditor uses a(n) ______. bank reconciliation review of irregular entires to the cash accounts standard bank confirmation cutoff bank statement interbank transfer schedule

bank reconciliation standard bank confirmation cutoff bank statement

A possible misstatement for the accuracy assertion is that purchase transactions may ______. not be recorded be recorded at incorrect amounts be recorded for goods that were not purchased

be recorded at incorrect amounts

When the entity has made a(n) _________ - _________ to- adjustment for inventory before the auditor beings the substantive tests of account balances, the total from the complication for inventory should agree with the general ledger.

book, physical

Accuracy is an important assertion because inventory transactions that are not properly recorded result in misstatements that directly affect ______. inventory only all financial statement accounts both cost of goods sold and inventory cost of goods sold only

both cost of goods sold and inventory

Cash includes checks returned as insufficient funds certifications of deposit savings accounts currency on hand

certificates of deposit savings account currency on hand

Industry factors that may indicate the presence of material misstatements in inventory include ______. turnover of key personnel new control system in warehouse changes in technology intense competition drop in customer demand

changes in technology intense competition drop in customer demand

Substantive analytical procedures ______ be used to provide evidence of specific revenue or expense accounts. should not cannot can

can

Select all that apply Credit memoranda that are used to process sales returns and allowance transactions ______________ can cover up unauthorized shipments of goods may conceal a misappropriation of cash should always be approved to the person who sold the goods may cause the general ledger sales account balances to be incorrect

can cover up unauthorized shipment of goods may conceal a misappropriation of cash

select all that apply the accounts commonly affected by cash receipts transactions are cash cash discounts bad debt expense sales returns & allowances trade AR sales

cash cash discounts trade AR

An auditor's use of substantive analytical procedures for auditing cash can include comparing the ______. cash balance with industry standards. ratio of cash to accounts receivable and comparing with last year's ratio cash balance with budgeted amounts. cash balance with the prior year's balance

cash balance with budgeted amounts. cash balance with the prior year's balance

When using probability-proportional-to-size-sample selection, logical units with a book value larger than the sampling interval are _________ to be selected certain not going unlikely likely

certain

MUS can be used to test the assertion that no material misstatements exist in a(n) account balance _______ only class of transactions or disclosure component of the financial statements or class of transactions only or disclosure component of the financial statements only

class of transactions or disclosure component of the financial statements

An important assertion for a manufacturer, but not for a merchandiser is __________

classification

As part of the testing of the purchasing process, the _______ of a transaction into the correct property, plant, and equipment account is normally examined.

classification

Control activities to ensure that inventory is recorded as raw materials, work in process or finished goods is important for the _________ assertion.

classification

In most manufacturing companies, proper _______ can be achieved by determining which manufacturing processing department has control of the inventory on the date of the physical count

classification

Recording purchases in the correct account is evidence regarding the _________ assertion completeness authorization cutoff classification

classification

Segregating short-term and long-term payables is one of the major issues with respect to presentation and disclosure assertions about ______. completeness occurrence cutoff classification

classification

The auditor's concern with proper _______ is that a cash disbursement may be charged to the wrong general ledger account.

classification

The major issue with proper __________________ of debt is that controls are in place to ensure that the portion of long-term debt due within the next year is recorded as a short-term liability.

classification

The use of a chart of accounts and proper codes for recording revenue transactions should provide adequate assurance for the _______________ assertion

classification

Use of a chart of accounts and independent approval and review of the general ledger accounts charged for acquisition are controls for the __________ assertion

classification

one of the major issues related to ______ of AR is segregating short term and long term receivables

classification

the use of a chart of accounts and proper codes for recording revenue transactions should provide adequate assurance for the ____________ assertion cutoff accuracy classification completeness

classification

Held-to-maturity securities are ______ assets. classified as either current or noncurrent always classified as current always classified as noncurrent always classified as other

classified as either current or noncurrent

Unmodified or unqualified opinions both refer to a(n) ______ audit opinion.

clean

Nonstatistical audit sampling is _______ used in practice rarely never commonly

commonly

Select all that apply The objectives of communication with the audit committee is to ______. communicate an overview of the overall audit strategy and timing establish an understanding of the terms of the audit engagement with the committee communicate the auditor's responsibilities provide information to the audit committee that is relevant to the audit

communicate the auditor's responsibilities communicate an overview of the overall audit strategy and timing establish an understanding of the terms of the audit engagement with the committee

Controls that ensure the _________ assertion is being met for purchases include accounting for the numerical sequence of purchase orders, receiving reports, and vouchers and matching receiving reports with vendor invoices

completeness

If the auditor physically examines a sample of assets and traces them into the property, plant and equipment subsidiary ledger, (s)he has sufficient evidence supporting the _______ assertion.

completeness

Obtaining a listing of accounts payable, footing the listing, and agreeing it to the general ledger control account determines the ______ of accounts payable. completeness occurrence cutoff classification

completeness

Obtaining a listing of accounts payable, footing the listing, and agreeing it to the general ledger control account is done to determine the ___________ of accounts payable

completeness

The control activities for the _______ assertion relate to recording inventory that has been received.

completeness

The major misstatement related to the ___________ assertion is that a cash disbursement is made but not recorded in the entity's records

completeness

The tests related to the observation of the physical inventory count provide assurance that all goods on hand are included in inventory, which is the ______ assertion. accuracy completeness existence cutoff

completeness

Select all that apply If the auditor has evaluated management's plans to mitigate going concern issues and concludes that substantial doubt exists, the auditor will ______. withdraw from the engagement, notify legal counsel, and disclaim an opinion retain all audit documentation for 10 years because there is an increased chance of legal action consider the adequacy of the disclosures about the entity's ability to continue as a going concern include an explanatory paragraph in the audit report

consider the adequacy of the disclosures about the entity's ability to continue as a going concern include an explanatory paragraph in the audit report

to provide evidence in the valuation of the allowance, the auditor looks at the aged trial balance for old items and ______ discusses collection policies with entities that factor AR examines payment patterns of customers by looking at cash receipts during the year considers historical collection to provide evidence of uncollectability for current items nothing else

considers historical collection to provide evidence of uncollectability for current items

to provide evidence on the valuation of the allowance, the auditor looks at the aged trial balance for old items and _______ examines payment patterns of customers by looking at cash receipts during the year nothing else discusses collection policies with entities that factor AR considers historical collection to provide evidence of uncollectability for current items

considers historical collection to provide evidence of uncollectability for current items

If the entity holds inventory on ___________, such inventory should not be included in the physical inventory

consignment

When facts are encountered that may affect the auditor's previously issued report, the auditor should ______. request that management take responsibility for the mistake consult with his or her attorney contact individual users of the financial statements who are relying on the auditor's report withdraw the audit opinion

consult with his or her attorney

Select all that apply When an auditor analyzes the transactions included in certain revenue and expense accounts such as other income, travel and entertainment or charity expense in detail, the accounts generally ______. contain detailed information needed for the tax return relate to the entity's primary business activities are not directly affected by a business process contain sensitive information

contain detailed information needed for the tax return are not directly affected by a business process contain sensitive information

An existing condition or set of circumstances involving uncertainty about a possible loss that will ultimately be resolved when some future event occurs or fails to occur is a(n) ______ ______

contingent liability

Once the controls in the inventory system have been tested, the auditor sets the level of ____________ risk.

control

The auditor analyzes the purchasing process in order to identify controls that ensure material misstatements that are prevented or detected or corrected as they can be relied upon by the auditor to reduce _______________ risk

control

The entity's organizational structure and its methods of assigning authority and responsibility are two factors that are particularly important when the auditor considers the _________ ___________ and the purchasing process

control environment

The auditor should analyze accounts payable misstatements discovered through the application of substantive procedures because these misstatement may provide additional evidence as to the _______________ _______________

control risk

If the results of tests of controls for the inventory system do not support the planned level of control risk, the auditor sets _________ risk higher and ___________ risk lower, leading to increased _____________ procedures

control, detection, substantive

Select all that apply Features that long-term debt may have include that the debt may be ______. convertible into stock callable combined with warrants or options convertible into a sinking fund

convertible into stock combined with warrants or options callable

The primary purpose of a legal letter is to ______. determine if there is substantial doubt about the entity's ability to continue as a going concern corroborate information provided by management about litigation, claims and assessments corroborate legal expense for the period identify a list of attorneys who have been consulted by the entity

corroborate information provided by management about litigation, claims and assessments

the creditworthinesss of a customer should be documented on a ________ _______ form

credit approval

Determine that the customer is able to pay for the goods or services is the role of the __________ ________ function

credit authorization

Any matters arising from the audit of financial statements that are communicated or required to be communicated, to the audit committee, that relate to material financial statement accounts or disclosures and involved especially challenging, subjective, or complex auditor judgment are called ______ ______ matters

critical audit

The PCAOB anticipates that the audit report's new emphasis on _____ or ______ audit matters will enhance auditor communication and thus improve the quality of financial reporting.

critical, key

Controls to ensure that purchase transactions are recorded promptly and in the proper period are controls over ______. cutoff authorization occurrence completeness

cutoff

In gathering evidence on the ____________ assertion for inventory, the auditor attempts to determine whether all sales of finished goods and purchases of raw materials are recorded in the proper period.

cutoff

On most audits, purchase _______ is coordinated with the entity's physical inventory count

cutoff

On most engagements, _____ is tested as part of the audit work in accounts payable and accrued expenses.

cutoff

For practical purposes, the acceptable risk of incorrect acceptance is the same as _____________ risk

detection

True or false: Auditors use the corporate charter and minutes of meetings of the board of directors to ensure the completeness of disclosures for stockholders' equity.

true

All financial statements, including related notes, have been prepared and all significant audit documentation have reviewed and approved by the ______. balance sheet date date of issuance of the financial statements date of the auditor's report subsequent events date

date of the auditor's report

If purchases are recorded through the voucher register or purchases journal, the only entries into the cash disbursements journal are ______ to accounts payable and ______ to cash. credits; credits debits; debits debits; credits credits; debits

debits; credits

When computing a nonstatistical sample size, individually significant items are ______. added to the account balance deducted from the account balance ignored

deducted from the account balance

When preparing a bank reconciliation, NSF checks are ______. deducted from the balance per bank added to the balance per bank deducted from the balance per bank, unadjusted added to the balance per books, unadjusted

deducted from the balance per bank

Issuing costs of debt should be recorded as ______. an intangible asset interest expense deferred charge part of the original cost of the debt

deferred charge

Select all that apply Major reconciling items in bank reconciliation working papers include ______. deposits in transit bank service charges cleared checks outstanding checks

deposits in transit bank service charges outstanding checks

Select all that apply In the CAM section of the audit report, a paragraph or table must ______. name the audit partner who assessed CAM describe how each CAM was addressed in the audit explain how each matter was determined to be a CAM refer to financial statement accounts and disclosures related to the CAM

describe how each CAM was addressed in the audit explain how each matter was determined to be a CAM refer to financial statement accounts and disclosures related to the CAM

Select all that apply When facts are encountered that may affect the auditor's previously issued report, the auditor should ______. determine whether the facts are reliable discuss the matter with those charged with governance determine whether the facts existed at the balance sheet date inquire how management intends to address the issue notify the SEC that the audit report cannot be relied upon

determine whether the facts are reliable discuss the matter with those charged with governance inquire how management intends to address the issue

When projecting the amount of a misstatement in a nonstatistical sample, ___________ ___________ is used when the misstatement is expected to be relatively constant for all items in the population regardless of dollar size.

difference projection

The issues associated with donated assets are considered ______. issues related to misstatements in prior year audits complex accounting issues difficult-to-audit issues

difficult-to-audit issues

Substantive analytical procedures are useful in auditing interest expense because of the ______ relationship between long-term debt and interest expense. inverse contrary indirect direct

direct

If a scope limitation is so significant that the auditor considers the financial statements taken as a whole to be unreliable, the auditor will likely issue a(n) ______ opinion. adverse disclaimer of qualified

disclaimer of

When there is a lack of auditor independence the auditor ______. issues an unqualified opinion with explanation issues an adverse opinion issues a qualified opinion that identifies the specific areas where independence is lacking disclaims an opinion

disclaims an opinion

a common control to ensure proper presentation is the use of a ___________ checklist

disclosure

A common control to ensure inventory disclosures are complete, relevant, and understandable is a(n) ________ _________

disclosure checklist

Cash ______ a predictable relationship with other financial statement accounts. always has does not have generally has

does not have

The assessment of proper valuation of capital stock is considered straightforward when capital stock is issued ______. in exchange for assets for cash in a small stock dividend transaction in a merger transaction

for cash

The auditor should document the achieved level of control risk for the revenue process using quantitative amounts only qualitative terms only either quantitative amounts or qualitative terms both quantitative amounts or qualitative amounts

either quantitative amounts or qualitative terms

Working papers prepared by the audit manager are reviewed by the ______. senior-in-charge audit staff engagement partner entity

engagement partner

select all that apply the major issues related to the classification for AR are _______ ensuring that all cash receipts have been properly recorded in the AR subsidiary ledger ensuring that different types of receivables are properly classified ensuring the correct value of the allowance for uncollectible accounts identifying and reclassifying any material credits contained in AR segregating short term and long term receivables

ensuring that different types of receivables are properly classified identifying and reclassifying any material credits contained in AR segregating short term and long term receivables

The auditor likely to follow a reliance strategy during the audit of long-term debt when the ______. auditor is attempting to maximize efficiency entity has convertible debt or other debt with equity privileges auditor is not required to test internal controls over financial reporting entity engages in frequent financing activities

entity engages in frequent financing activities

select all that apply the auditor must maintain control over the AR confirmations to minimize the possibility of entity interception of the confirmation alteration of the confirmation by the entity lack of customer response to the confirmation

entity interception of the confirmation alteration of the confirmation by the entity

select all that apply the auditor must maintain control over the AR confirmations to minimize the possibility of _______ lack of customer response to the confirmation entity interception of the confirmation alteration of the confirmation by the entity

entity interception of the confirmation alteration of the confirmation by the entity

Select all that apply Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this includes the ______. auditing firm's head office SEC staff auditors entity's board of directors entity's audit committee

entity's board of directors entity's audit committee

A Treasury bill is an example of a cash _____

equivalent

The auditor generally confirms account balance information with ______. the banks and financial institution where the entity maintains general cash accounts only a sample of the banks and financial institutions that maintain an account for the entity every bank and financial institution that maintains an account for the entity the banks and financial institutions where the entity maintains imprest accounts and branch accounts only

every bank and financial institution that maintains an account for the entity

As part of the testing of rights and obligation for property, plant, and equipment, the auditor might ______. examine property deeds or title documents for proof of ownership physically examine a sample of assets and trace them into the property, plant, and equipment subsidiary ledger test the purchasing process to ensure proper cutoff obtain a listing of all major additions and vouch them to supporting documents such as vendors' invoices

examine property deeds or title documents for proof of ownership

Select all that apply: Substantive analytical procedures are useful for ______. identifying obsolete inventory examining the reasonableness of inventory determining the physical inventory on hand identifying problems with overhead costs

examining the reasonableness of inventory identifying problems with overhead costs identifying obsolete inventory

The auditor obtains information regarding ______ by observing inventory items in the entity's warehouse and understanding and testing the entity's count procedures addressing validity, and through the auditor's test counts. completeness existence accuracy cutoff

existence

The auditor's major concern with the ______ assertion is whether the recorded liabilities are valid obligations of the entity. completeness valuation existence cutoff

existence

The observation of the physical inventory is the primary audit step used to verify the _______ assertion

existence

one of the more important assertions regarding AR is _____________ because the auditor wants assurance that his account balance is not overstated through the inclusion of fictious customer accounts or amounts

existence

the major audit procedures for testing the ___________ assertion for AR are confirmation of customers' accounts balances and examination of subsequent cash receipts

existence

Select all that apply The observation of physical inventory provides evidence on the ______ assertions. valuation accuracy cutoff existence

existence accuracy valuation

The larger the ________ misstatement, the larger the sample size must be

expected

Select all that apply: If purchase transactions that do not occur are recorded ______. a liability will be recorded assets may be understated expenses may be overstated an incorrect payment will be made

expenses may be overstated a liability will be recorded an incorrect payment will be made

select all that apply auditing standards allow the auditor to omit confirming AR when external confirmations would be ineffective assessed level of risk for the assertion is low, and the planned substantive procedures address that risk the AR balance is at the same level as prior years the AR balance is immaterial

external confirmations would be ineffective assessed level of risk for the assertions is low, and the planned substantive procedures address that risk the AR balance is immaterial

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date is the FASB ASC Topic 820 definition of

fair value

Select all that apply Indicators that the value decline of an investment may not be temporary include: downgrade of a debt security by a rating agency decline is value is not attributable to specific adverse conditions fair value that is significantly below cost dividends have been reduced or eliminated

fair value that is significantly below cost dividends have been reduced or eliminated downgrade of a debt security by a rating agency

Audit sampling is most often used in substantive testing to test the hypothesis that a financial statement account is ____________ equal to book value totally accurate materially misstated fairly stated

fairly stated

True or false: All valid capital-stock transactions must be approved by the chief executive officer (CEO).

false

True or false: As with attribute sampling, population size does not influence sampling computations when testing monetary account balances.

false

True or false: Because the potential for defalcation is high, external auditors must perform substantive procedures on the petty cash fund.

false

True or false: If an auditor suspects cash was stolen without being recorded in the entity's books, (s)he should perform a proof of cash.

false

True or false: In a going concern evaluation, "substantial doubt" means is it reasonably possible that the entity will be unable to continue for a reasonable period of time.

false

True or false: In most manufacturing companies, proper valuation can be achieved by determining which manufacturing processing department has control of the inventory on the date of the physical count.

false

True or false: Observing that count teams have placed count tags on all inventory items provides evidence regarding the cutoff assertion.

false

True or false: Substantive analytical procedures are rarely used to evaluate the reasonableness of accounts payable and accrued expenses.

false

True or false: The auditor can only obtain assurance about the cutoff assertion for purchases by conducting tests of controls, not substantive tests of transactions.

false

True or false: The auditor's opinions on the financial statements and on the effectiveness of internal control must be presented in two separate reports with the same dates.

false

True or false: The auditor's treatment of subsequent events relating to internal control is similar to the engagement quality review performed at the conclusion of the audit.

false

True or false: When internal controls are deemed to be adequate, the auditor may follow a substantive strategy when auditing inventory.

false

True or false: When there are zero projected misstatements, no allowance for sampling risk must be computed.

false

true or false: auditors normally test the cutoff assertions by the conducting tests of controls only

false

true or false: substantive analytical procedures are inadequate audit tests for examining the fairness of revenue related accounts because such tests fail to provide sufficient evidence, even though they are low cost

false

One disadvantage of classical variables sampling is that the projection of misstatements and related confidence limits may be unreliable if ______ misstatements are detected in the sample. no few many

few

The sufficiency of the audit evidence and the effects of detected misstatements in the financial statements are the primary concerns of the ______ ______ of audit evidence.

final evaluation

Select all that apply In order to be identified as a CAM, a matter must _______. have involved especially challenging, subjective or complex auditor judgment be one that has or will be communicated to the chief executive officer relate to accounts or disclosures that are material to the financial statements

have involved especially challenging, subjective or complex auditor judgment relate to accounts or disclosures that are material to the financial statements

When the results of testing controls do not support the planned level of control risk, detection risk will ___________ have to be set lower not be affected have to be set higher

have to be set lower

If there is a dispute between the auditor and management over when the revenue should be recognized, the auditor should assess the risk of material misstatement as ________ high low moderate

high

The inherent risk for sophisticated instruments that have both debt and equity characteristics is normally ______. moderate low high

high

When the tests of controls do not support the planned level of control risk, the auditor must set a ______ level of control risk and a ______ level of detection risk. higher, lower lower, lower lower, higher higher, higher

higher, lower

The PCAOB presumption is that in most audits the auditor will ______ CAM(s). identify multiple not identify any identify at least one

identify at least one

An auditor is reviewing tax returns and the minutes of the board of directors meetings. The auditor is most likely trying to ______. measure the amount of a note payable ascertain if notes payable should be classified as short-term or long-term identify contingent liabilities determine if title has passed for the purchase of goods

identify contingent liabilities

Select all that apply The major issues related to the presentation and disclosure assertion about accounts payable are ______. segregating short-term and long-term payables identifying and reclassifying any material unpaid expenses ensuring that different types of payables are properly classified segregating current assets from current liabilities identifying and reclassifying any material debits contained in accounts payable

identifying and reclassifying any material debits contained in accounts payable segregating short-term and long-term payables ensuring that different types of payables are properly classified

A proof of cash cannot detect ______. if there was a theft of cash before it was recorded in the entity's books bank transactions that have been omitted from the entity's accounting records if all cash disbursements recorded in the entity's cash disbursements journal have cleared the entity's bank account if all cash receipts in the entity's cash receipts journal were deposited in the entity's bank account

if there was a theft of cash before it was recorded in the entity's books

After obtaining sufficient appropriate evidence though substantive tests, the auditor then evaluates whether management's measures and disclosures are ______. in accordance with GAAP all at Level 1 on the ASC Topic 820 valuation model unbiased

in accordance with GAAP

Select all that apply Pervasive effects on the financial statements are those that ______ of the financial statements. are confined to specific elements, accounts, or items include disclosures fundamental to users' understanding represent or could represent a substantial proportion

include disclosures fundamental to users' understanding represent or could represent a substantial proportion

Because there are significant differences between how revenue and expenses are treated for GAAP financial statements and tax returns, there are significant differences between the current year tax provision and the current year ______. prepaid expenses deferred income taxes deferred revenue income tax liability

income tax liability

The risk that the sample supports the conclusion that the recorded account balance is fairly stated when in fact it is not is the risk of ______________ _____________

incorrect acceptance

An ASB audit report ______. indicates the audit was conducted in accordance with generally accepted auditing standards contains an opinion on the effectiveness of the entity's internal control over financial reporting is titled "Report of Independent Registered Public Accounting Firm"

indicates the audit was conducted in accordance with generally accepted auditing standards

With MUS, a(n) ________ represents the sampling unit financial statement item account balance transaction individual dollar

individual dollar

If the auditor has detected asset misstatements in prior audits, the assessment of _________ risk should be set higher than if few or no misstatements have been found in prior years

inherent

Select all that apply Audit procedures used to test controls in the revenue process include ___________ inspection of documents and records confirmation of receivables balances comparison of rations to prior years walkthroughs reperformance by the auditor of the control activities

inspection of documents and records walkthroughs reperformance by the auditor of the control activities

Select all that apply Inherent risk may increase due to issues regarding recognition of revenue on ___________ installment sales long term service contracts sale of goods for cash sale of goods on credit long term construction contracts lease contracts

installment sales long term service contracts long term construction contracts lease contracts

An error was judged to be material by the auditor even though it did not rise to conventional levels of materiality in quantitative terms. This was likely because the error was ______. due to lack of auditor independence accidental due to carelessness intentional

intentional

When auditing notes receivable, the auditor can test _______________ income

interest

Select all that apply Auditing standards identify four conditions and events which may indicate going concern issues including ______. internal problems other financial difficulties external matters neutral financial trends

internal problems other financial difficulties external matters

If a misstatement accumulates to a material amount over two or more periods, the entire accumulated misstatement must be corrected under the _____ _____ approach.

iron curtain

When misstatements are quantified based on the amount required to correct the misstatement in the balance sheet at period end, regardless of misstatement's year of origination, the _____ _____ approach is being used.

iron curtain

A credit approval form ______. is an example of a source document documents a customer's creditworthiness establishes customer credit limits

is an example of a source document documents a customer's creditworthiness

Select all that apply A credit approval form _________ establishes customer credit limits is an example of a source document documents a customer's creditworthiness

is an example of a source document documents a customer's creditworthiness

Random or systematic sample selection __. is required for statistical sampling and may be used for nonstatistical sampling is required for both statistical and nonstatistical sampling should not be used for nonstatiscal sampling is required for nonstatistical sampling and may be used for statistical sampling

is required for statistical sampling and may be used for nonstatistical sampling

Select all that apply According to ASC Topic 820, fair value ______. is the price that would be received to sell an asset or transfer a liability in an orderly transaction must be measured in accordance with GAAP should always be assigned based on observable orderly transactions at the measurement date

is the price that would be received to sell an asset or transfer a liability in an orderly transaction must be measured in accordance with GAAP

A PCAOB report ______. recommends but does not mandate the disclosure of CAMs is titled "Report of Independent Registered Public Accounting Firm" indicates the audit was conducted in accordance with generally accepted auditing standards

is titled "Report of Independent Registered Public Accounting Firm"

Select all that apply When a scope limitation exists but overall the financial statements present fairly in conformity with GAAP the auditor will ______. issue a qualified opinion use the word "except for" in the report issue an unqualified opinion with explanation explain the impact of the faulty accounting issue an adverse opinion

issue a qualified opinion use the word "except for" in the report

An employee prepares a check on one account before year end but does not record it as a disbursement. The same check is deposited and recorded as a cash receipt in a second account before year end. The employee is engaged in ________

kiting

Select all that apply With respect to the valuation assertion for inventory, the auditor must consider ______. perpetual inventory classification lower-of-cost-or-market costs or standard costs obsolete inventory

lower-of-cost-or-market costs or standard costs obsolete inventory

select all that apply for control of the confirmation process, the auditor should __________ mail the confirmations in envelopes with the public accounting firm as the return address call the customer to be sure that they will respond to the confirmation mail the confirmations outside the entity's facilities send return envelope addressed to the public accounting firm ask the client to reach out to customers who have not responded to the confirmations

mail the confirmations in envelopes with the public accounting firm as the return address mail the confirmations outside the entity's facilities send return envelope addressed to the public accounting firm

select all that apply possible misstatements due to improper authorization of revenue transactions include _________ billing for goods that are not shipped making sales at unauthorized prices or terms performing services for customers who are bad credit risks shipping goods that are not billed

making sales at unauthorized prices or terms performing services for customers who are bad credit risks

If an auditor has evidence that there is an unacceptably high risk that accounts receivable is materially misstated ______. there is a definite indication of a systematic problem with the population a qualified or adverse opinion should always be issued sample size should not be increased management can be asked to adjust the account balance

management can be asked to adjust the account balance

The auditor makes recommendations to the entity based on observations during the audit including suggested improvements in organizational structure and efficiency issues by preparing a(n) ______. audit report legal letter representation letter management letter

management letter

To make recommendations to the entity based on observations during the audit including suggested improvements in organizational structure and efficiency issues, the auditor normally prepares a(n) _____ _____

management letter

Select all that apply Accounting Standards Update Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern requires ______. auditors to first evaluate the entity's ability to continue in existence as a going concern management to first evaluate the entity's ability to continue in existence as a going concern auditors to make an independent assessment to evaluate the adequacy of management's going concerns disclosures managers to make an independent assessment to evaluate the adequacy of the auditor's going concerns disclosures

management to first evaluate the entity's ability to continue in existence as a going concern auditors to make an independent assessment to evaluate the adequacy of management's going concerns disclosures

Small stock dividends are recorded at the ______________ value of the stock and large stock dividends are recorded at the _____________ value of the stock

market, par

An intentional management error can be considered _______ by the auditor regardless of the magnitude of the error.

material

A GAAP departure that is seen as ______ and ______ will generally result in an adverse opinion.

material, pervasive

A GAAP departure that is seen as ______ but not ______ will generally result in an qualified opinion.

material, pervasive

When an auditor uses classical variables sampling techniques, the sampling unit ______ be an individual transaction. must may cannot

may

The observation of inventory ______. must be done by the external auditor only may be done by the internal auditor is not required to be done by an auditor

may be done by the internal auditor

An auditor prepares an estimate of interest expense by multiplying the monthly balance for long-term debt by the average monthly interest rate. If this estimated amount of interest expense is materially lower than the recorded amount, the auditor might conclude that the entity ______. may have failed to record debt fairly stated interest expense failed to record a portion of interest expense

may have failed to record debt

Inventory is often difficult to audit, and its valuation ______. is straightforward depends on auditor knowledge of the industry may result in disagreements with the entity

may result in disagreements with the entity

In classical variables sampling, to project the mean misstatement for the population, the auditor multiplies the ______. mean misstatement per sampling item by the tolerable misstatement mean misstatement per sampling item by the population size confidence coefficient by the population size confidence coefficient by the tolerable misstatement

mean misstatement per sampling item by the population size

Select all that apply Factors particularly important when the auditor considers the control environment and the purchasing process are ______. number of vendors that supply the purchasing process methods of assigning authority and responsibility. whether prices are significantly affected by swings organizational structure

methods of assigning authority and responsibility organizational structure

For an entity with a large investment portfolio, the auditor is likely to follow a(n) ______ strategy in which internal control is formally evaluated and tests of controls are performed.

reliance

Select all that apply When considering important financial statement disclosures for cash, primary documents an auditor might review include ______. loan agreements line-of-credit arrangements sinking fund requirements minutes of board of director's meetings cash balances restricted by foreign exchange contracts

minutes of board of director's meetings line of credit arrangements loan agreements

The intended purpose of substantive tests of transactions is to detect monetary _______ in the inventory account

misstatements

Substantive tests may be difficult to distinguish from a test of controls because the specific audit procedure may both test the operation of a control procedure and ______. management overrides inherent risk in the process monetary misstatement

monetary misstatement

Any misstatements detected during the audit process ______. that exceed the planned level of detection risk are considered material and must be corrected by management must be considered in terms of the materiality of their effects on the financial statements require the auditor to compare the likely misstatement to the aggregated misstatement and reject the account balance that are not corrected require the auditor to issue an adverse opinion

must be considered in terms of the materiality of their effects on the financial statements

Select all that apply The analysis schedule for notes payable, bonds payable, and accrued interest payable contains information regarding ______. name of payee due date collateral debt covenants

name of payee due date collateral

Select all that apply An auditor can gain an understanding of the entity's process for determining fair value measurements and disclosures by considering the ______. nature and extent of documentation supporting management's assumptions markets for the assets or liabilities that are not currently active and require a high degree of estimation accounting and auditing framework associated with fair value measurements extent to which the entity's process relies on a service organization to provide fair value measurements

nature and extent of documentation supporting management's assumptions extent to which the entity's process relies on a service organization to provide fair value measurements

Auditing standards identify four conditions and events which may indicate going concern issues including ______. additional sources of financing are available at above-market rates negative financial trends long-term commitments

negative financial trends

Select all that apply. The date of the auditor's report is ______. no earlier than the date on which the auditor has obtained sufficient appropriate evidence the date before which all subsequent events are considered Type I subsequent events the date on which management must have explicitly taken responsibility for the financial statements the date on which all significant audit documentation must have been reviewed and approved the date after which all subsequent events are considered Type II subsequent events

no earlier than the date on which the auditor has obtained sufficient appropriate evidence the date on which all significant audit documentation must have been reviewed and approved the date on which management must have explicitly taken responsibility for the financial statements

If the auditor follows a substantive strategy when auditing inventory, the auditor places ______ on the control activities in the inventory management process and sets the level of control risk at the ______. no reliance; maximum reliance; maximum no reliance; minimum reliance; minimum

no reliance, maximum

The auditor has evidence that the total number of shares outstanding at the end of the year is correct when the ______. number of shares listed as outstanding on a confirmation from a registrar reconciles to the general ledger capital-stock account entity uses an independent registrar and transfer agent number is shares is validated by checking the board of director minutes individual responsible for maintaining detailed stockholders' records maintains the general ledger control accounts

number of shares listed as outstanding on a confirmation from a registrar reconciles to the general ledger capital-stock account

Changes in technology or a drop in customer demand may result in a material misstatement in inventory due to _____________

obsolescence

If, during the planning, performance or completion of the audit there is substantial doubt about the entity's ability to continue as a going concern, the next step for the auditor is to ______. prepare the explanatory paragraph used in the audit report withdraw from the engagement and disclaim an opinion obtain management's plan to mitigate the going concern problem prepare the footnotes to the financial statements explaining the going concern problems and management's response

obtain management's plan to mitigate the going concern problem

For entities that engage in frequent financing activities, the auditor may follow a(n) __________ strategy

reliance

The auditor generally begins the audit of long-term debt by ______. examining debt agreements to ensure that debt covenants are adequately disclosed obtaining an analysis schedule for note payable, bonds payable, and accrued interest payable confirming each debt instrument with debt holders examining due dates for debt to ensure proper classification between current and long-term liabilities

obtaining an analysis schedule for note payable, bonds payable, and accrued interest payable

Select all that apply Large capital asset transactions generally ______. occur after they meet predetermined rate of return criteria occur after passing through a specific capital-budgeting process take place completely within the purchasing process

occur after they meet predetermined rate of return criteria occur after passing through a specific capital-budgeting process

Auditors are concerned about the ____________ assertion for revenue transactions because clients are more likely to overstate sales than to understate them occurence completeness accuracy authorization

occurrence

Controls to ensure that any transactions involving long-term debt are properly initiated by authorized individuals relate to ______. classification occurrence completeness accuracy

occurrence

The auditor is concerned with a misstatement caused by a cash disbursement being recorded in the entity's records when no payment has actually been made when considering the ____________ assertion

occurrence

With respect to ____________ of inventory, the major control activity for preventing fictitious inventory transactions from being recorded is proper segregation of duties

occurrence

Select all that apply When a substantive strategy is followed to audit long-term debt, the assertions that are of primary concern to the auditor are ______. completeness existence authorization occurrence accuracy

occurrence authorization completeness

The control activities for the ____________ and ___________ assertions of property management are normally part of the purchasing process.

occurrence, authorization

select all that apply possible programmed controls to ensure accuracy of the revenue process include shipping documents are matching to sales invoices only authorized changes are mad to the master file the authorized price list is updated promptly

only authorized changes are made to the master file the authorized price list is updated promptly

If management concludes it is probable that the entity will not be able to meet its obligations within the look-forward period but develops a plan to mitigate the risk, the plan can be considered sufficient to overcome a substantial doubt conclusion ______. as long as management discloses the plan only if it is probable that the plans can be effectively implemented only if the auditor review determines that the plan is feasible as long as the plan is in writing and approved by the board of directors

only if it is probable that the plans can be effectively implemented

for a negative confirmation, a response is required whether the amount is correct or incorrect only if the amount is incorrect only if the amount is correct

only if the amount is incorrect

Under the new PCAOB reporting standards, the _______ section of the report is now presented first.

opinon

Excess levels of finished goods can become obsolete, which can result in ending inventory being ______. overstated understated

overstated

If purchase transactions that do not occur are recorded, assets or expenses will be overstated understated

overstated

If items are recorded as sold in the incorrect period, revenue, cost of goods sold and receivables will be ______ and inventory will be ______ for that period. overstated, understated correctly stated, understated understated, overstated overstated, correctly stated

overstated, understated

An MUS application is designed primarily to test for ______ errors transposition overstatement control system understatement

overstatement

For the occurrence assertion, the auditor is concerned with a misstatement caused by a cash disbursement being recorded in the entity's records when no _____________ has actually occurred sale receipt of goods authorization payment

payment

If the auditor decides to rely on controls to reduce control risk for the authorization assertion, then to verify that this control is operating effectively the auditor must ______. document the controls perform tests of controls review prior year controls perform substantive tests

perform test of controls

An auditor has read the minutes of board of directors meetings, inquired of legal counsel regarding litigation, read the interim financial statements, and made inquiries of management. The auditor is most likely ______. performing audit procedures for subsequent events determining whether to issue a qualified or unqualified opinion determining whether to dual-date the audit report performing the analytical procedures required during the final review stage of the audit

performing audit procedures for subsequent events

Expenses that are recognized when cash is spent or liabilities incurred for goods and services that are used up at that time or shortly thereafter are referred to as ______________ costs

period

Auditing standards use the term _______ to describe the potential effects of a scope limitation or departure from GAAP on the auditor's report.

pervasive

True or false: Auditors explicitly consider auditor subjectivity when determining what matters should be considered CAMs.

true

Select all that apply To test existence of property, plant, and equipment, the auditor ______. physically examines a sample of assets and traces them into the property, plant, and equipment subsidiary ledger obtains a lead schedule, foots the lead schedule, agrees individual accounts to the general ledger physically examines the capital assets obtains a listing of all major additions and vouches them to supporting documents

physically examines the capital assets obtains a listing of all major additions and vouches them to supporting documents

The auditor must define the _________ so that the selected sample is appropriate for the assertion being tested

population

there are two types of confirmations: __________ and ___________

positive, negative

When performed as part of audit planning, ______ can effectively identify whether the inventory and cost of goods sold accounts contain material misstatements. control testing tests of details of account balances tests of details of transactions preliminary analytical procedures

preliminary analytical procedures

Select all that apply The engagement partner generally reviews working papers ______. prepared by staff auditors prepared by the manager related to critical audit areas reviewed by the senior-in-charge

prepared by the manager related to critical audit areas

For entities that have specialized revenue or services that require separation, controls over the aggregation or disaggregation of transactions are paramount for proper presentation completeness accuracy authorization

presentation

Select all that apply Categories of expenses classified in SFAC 5 are ______. prepaid expenses product costs irregular expenses period costs systematic expenses

product costs period costs systematic expenses

IDEA refers to the _______ ______ as the most likely error

projected misstatements

With respect to occurrence of inventory, the major control activity for preventing fictitious inventory transactions from being recorded is ______. purchasing only from approved vendors comparison of goods on hand with amounts shown in inventory records preparation and review of production schedules proper segregation of duties

proper segregation of duties

Select all that apply Possible misstatement due to improper authorization include - purchase of unauthorized goods - return of goods without authorization - purchase of goods from an alternate supplier - purchase of services at unauthorized prices

purchase of unauthorized goods the purchase of services at unauthorized prices

An authorized person in a department requests goods with a ______. purchase order receiving report voucher purchase requisition

purchase requisition

To request goods or services, an authorized individual completes a(n) ______________ _____________

purchase requisition

In the purchasing process, substantive tests of transactions focus mainly on the ______. purchases and cash disbursement transactions presentation and disclosures related to accounts payable transactions detailed amounts that make up the ending balance for accounts payable management assertions regarding internal control over purchases

purchases and cash disbursement transactions

Typically, the control activities for the completeness assertion over inventory are contained within the ______ process. human resource management asset purchasing revenue

purchasing

Many accounting systems integrate the revenue process with the human resources, ___________ and _____________ processes

purchasing, inventory

A material, but not pervasive, scope limitation will normally result in a(n) ______. standard unqualified opinion standard unqualified opinion with an explanatory paragraph disclaimer of opinion qualified opinion

qualified opinion

Select all that apply If the aggregate misstatement is greater than the tolerable misstatement, the auditor choices are to ______. qualify the audit report adjust the accounts to reduce the misstatement perform additional audit procedures resign from the engagement

qualify the audit report adjust the accounts to reduce the misstatement

The auditor should document the achieved level of control risk using either __________ amounts or ________ terms.

quantitative, qualitative

Select all that apply A customer sales order typically contains ______. quantity of items ordered credit approval availability of inventory type of products ordered

quantity of items ordered type of products ordered

Select all that apply A customer sales order typically contains __________ quantity of items ordered credit approval availability of inventory type of products ordered

quantity of items ordered type of products ordered

When an entity has disposed of few assets, an auditor would be most likely to perform additional audit procedures when the: capital budget has been reviewed and amounts spent are in line with amounts budgeted ratio of depreciation expense to the related property, plant, and equipment accounts is less than in prior years ratio of insurance expense to the related property, plant, and equipment accounts is line with prior years

ratio of depreciation expense to the related property, plant, and equipment accounts is less than in prior years

Select all that apply To identify contingent liabilities an auditor might ______. review contracts, loan agreements and leases read the minutes of board of directors meetings review tax returns and IRS reports review accounts and note payable

read the minutes of board of directors meetings review contracts, loan agreements and leases review tax returns and IRS reports

Select all that apply Audit procedures occurring after the balance sheet date that are performed SPECIFICALLY to detect subsequent events include ______. reviewing selected audit documentation related to judgments and evaluating conclusions reached reading any available interim financial statements that are available after year end asking legal counsel about any developments related to litigation, claims and assessments testing proper sales and purchases cutoff

reading any available interim financial statements that are available after year end asking legal counsel about any developments related to litigation, claims and assessments

A typical way to cover cash defalcations is to manipulate the ______. general ledger cash accounts reconciling items in the bank reconciliation deposit slips of cleared deposits accounts receivable subsidiary ledger

reconciling items in the bank reconciliation

The major misstatement related to the completeness assertion is that a cash disbursement is made but not ______. properly classified authorized recorded in the correct period recorded in the entity's records

recorded in the entity's records

Select all that apply For the revenue process, the auditor is concerned about material misstatements related to ___________ cash receipts not being properly authorized recording of revenue when goods have not been shipped recording of revenue when services have not been performed a customer's inability to pay the amount they have been invoiced sales to fictitious customers

recording of revenue when goods have not been shipped recording of revenue when services have not been performed sales to fictitious customers

Purchase transactions for the acquisition of equipment are subject to the controls included in the purchasing process. If those controls are reliable, the auditor may be able to increase the detection risk for the affected financial statement accounts and therefore ______ the number of substantive procedures needed. reduce make no change to increase

reduce

Select all that apply Sending confirmation requests at the end of the accounting period ___________ is required for auditor reliance reduces the chance of timing differences maximizes response rate

reduces the chance of timing differences maximizes response rater

When an auditor is not independent the auditor must disclaim an opinion ______. only if the condition that caused the lack of independence is material only if the factors impacting independence are pervasive regardless of the significance of the condition that caused the lack of independence

regardless of the significance of the condition that caused the lack of independence

Select all that apply The engagement partner generally reviews working papers ______. related to critical audit areas prepared by the manager reviewed by the senior-in-charge prepared by staff auditors

related to critical audit areas prepared by the manager

Select all that apply Disclosures that are particularly important for accounts payable are ______. related-party purchases cash discounts taken purchase commitments interest expense

related-party purchases purchase commitments

Select all that apply Common disclosures for long-term debt include ______. revolving lines of credit names of creditors restrictive debt covenants related-party transactions amount of unissued notes or bonds

related-party transactions restrictive debt covenants revolving lines of credit

Select all that apply: The auditor's standard unqualified audit report for a public company contains the ______. audit report date report title the addressee name of the engagement partner "Basis for Opinion" section

report title the addressee "basis for opinion" section audit report date

Select all that apply Stockholders' equity transactions that will likely result in an outflow of cash include the ______. issuance of stock retirement of stock payment of dividends repurchase of stock

repurchase of stock payment of dividends

The auditor is ______. not required to observe inventory required to observe inventory that is material required to observe all inventory

required to observe inventory that is material

The FASB recently issued an Accounting Standards Update ______. creating a departure from the standard role of auditors which is to evaluate and report on managements' assertions which relieves the auditor of addressing going concern issues requiring an entity's management to evaluate the entity's ability to continue as a going concern

requiring an entity's management to evaluate the entity's ability to continue as a going concern

he FASB recently issued an Accounting Standards Update ______. which relieves the auditor of addressing going concern issues creating a departure from the standard role of auditors which is to evaluate and report on managements' assertions requiring an entity's management to evaluate the entity's ability to continue as a going concern

requiring an entity's management to evaluate the entity's ability to continue as a going concern

The important issue in the ___________ function of the purchasing process is that the request meets the authorization procedures implemented by the entity

requisitioning

Select all that apply Proper segregation of duties for purchasing include ______. requisitioning from invoice processing invoice processing from shipping receiving from invoice processing requisitioning from general ledger cash receipts from general ledger

requisitioning from invoice processing requisitioning from general ledger receiving from invoice processing

The auditor traces net income or loss to the income statement, verifies cash or stock dividends and traces new or changed appropriations to contractual agreements when auditing _________________ ________________

retained earnings

Because the inventory management process interacts with the ______ processes, transactions involving the receipt of goods, shipment of goods, and assignment of labor costs are normally tested as part of those processes. purchasing revenue human resource management asset acquisition

revenue purchasing HRM

Select all that apply Audit procedures likely to identify conditions and events that indicate going concern problems include ______. engagement quality review review of subsequent events inquiry of legal counsel risk assessment

review of subsequent events inquiry of legal counsel risk assessment

A review of the voucher packets for adequate supporting documents relating liabilities to the entity provides sufficient evidence to support the ______ assertion. completeness existence rights and obligations valuation and classification

rights and obligations

As part of the testing of property, plant, and equipment, the auditor examines property deeds or title documents for proof of ownership. The auditor is most likely testing ______. completeness and accuracy rights and obligations existence valuation and allocation

rights and obligations

Because entities seldom have an incentive to record liabilities they are not responsible for, there is little risk related to the assertion of ______. existence completeness valuation and classification rights and obligations

rights and obligations

The auditor must be sure that the inventory on hand belongs to the entity to satisfy the ______ assertion. valuation and allocation rights and obligations accuracy completeness

rights and obligations

The "carryover effects" of uncorrected prior year misstatements are ignored when misstatements are evaluated using the _____ approach

rollover

Select all that apply With respect to the audit of internal control over financial reporting, the auditor communicates in writing to management and the audit committee ______. significant deficiencies material weaknesses control deficiencies that are not significant deficiencies

significant deficiencies material weaknesses

Auditing standards indicate that the sample size for statistical sampling should be _________ that of nonstatistical sampling. less than similar to different than greater than

similar to

A pool of money set aside to repay debt or repurchase a portion of existing bonds every year is called a(n) ____________ ____________

sinking fund

When the audit has been performed in accordance with applicable auditing standards, the auditor has gathered sufficient evidence, and the auditor believes that the financial statements conform to GAAP a(n) _____ _____ financial statement audit report is issued.

standard qualified

When an entity has a departure from GAAP judged to be immaterial by the auditor, the auditor will most likely issue a(n) ______. disclaimer of opinion standard unqualified opinion opinion qualified for a scope limitation opinion qualified for a GAAP departure

standard unqualified opinion

Management's estimate for the allowance for uncollectible accounts and sales returns can be difficult to audit because of the __________ that may be involved in determining proper value variance complexity subjectivity

subjectivity

Transactions that occur after the balance sheet date but before the issuance of the financial statements are called ______ ______

subsequent events

Transactions that occur after the balance sheet date but before the issuance of the financial statements are called ______. subsequent events contingent commitments subsequent commitments contingent events

subsequent events

After obtaining sufficient appropriate evidence though _____ tests, the auditor then evaluates whether management's measures and disclosures are in accordance with GAAP.

substantive

Examining new debt agreements and confirming balances with outside parties are done as part of a(n) _______________ strategy for auditing long-term debt

substantive

Examining new debt agreements and confirming balances with outside parties are done as part of a(n) ________________ strategy for auditing long-term debt.

substantive

For entities that do not require an audit of internal controls over financial reporting, it is more efficient for the auditor to follow a(n) _____ strategy for auditing investment securities at year-end.

substantive

The auditor needs sufficient understanding of the entity's internal control system over debt to be able to anticipate the types of misstatements that may occur when a(n) __________________ strategy is followed to audit long-term debt.

substantive

An overall reasonableness test for interest expense is an example of a(n) ____________ ___________ procedure

substantive analytical

Effectively identifying accounts payable and accrual accounts that are misstated and providing evidence regarding the fairness of recorded accounts can be done using _________ ________ procedures.

substantive analytical

Recomputing current-year interest income using face amount of security, interest rate and time period held is an example of a(n) _______ ______ procedure

substantive analytical

to examine the fairness of revenue related accounts, _____ ______ procedures are useful audit tests because they provide sufficient evidence at low cost

substantive analytical

Comparing current-year interest and dividend income with the reported income for prior years and with the expected return on investment is a ______. substantive analytical procedure test of controls test of details of balances

substantive analytical procedure

Computing the ratio of depreciation expense to the related property, plant, and equipment accounts and comparing to prior years' ratios are examples of ______. tests of details of transactions tests of controls substantive analytical procedures

substantive analytical procedures

Select all that apply The final evaluation of audit evidence from the financial statement audit is primarily concerned with _______. sufficiency of the audit evidence effects of detected misstatements in the financial statements completeness of the audit evidence valuation of the audit evidence

sufficiency of the audit evidence effects of detected misstatements in the financial statements

When an auditor examines the disposition of the reconciling items included on the prior month's reconciliations and the reconciling items included in the current bank reconciliation, the auditor most likely ______. suspects fraud and is performing extended bank reconciliation procedures is testing for bank reconciliation errors has not received a sufficient number of standard bank confirmation forms

suspects fraud and is performing extended bank reconciliation procedures

Select all that apply Substantive audit procedures for Level 2 or Level 3 valuations, such as complicated derivatives, include ______. testing management's assumptions for bias performing sensitivity analysis to determine the effects of changes in the assumptions on the fair value estimate testing whether management's rationale for the method selected is reasonable determining the extent to which the entity's process relies on a service organization to provide fair value measurements

testing management's assumptions for bias performing sensitivity analysis to determine the effects of changes in the assumptions on the fair value estimate testing whether management's rationale for the method selected is reasonable

Select all that apply Extended audit procedures that auditors typically use to detect fraudulent activities in the cash account include ______. tests for kiting extended bank reconciliation procedures proof of cash tracing remittance advices to cash receipts journal standard bank confirmation

tests for kiting extended bank reconciliation procedures proof of cash

When using a reliance strategy, the auditor conducts _________ to ensure that the controls in the revenue process operate effectively documentation tests of controls substantive testing analytical procedures

tests of controls

If the logical unit is equal to or greater than the sampling interval, the projected misstatement is equal to the tainting factor multiplied by the sampling interval the actual misstatement detected in the logical unit 100% of the sampling interval

the actual misstatement detected in the logical unit

If the logical unit is equal to or greater than the sampling interval, the projected misstatement is equal to ______. the tainting factor multiplied by the sampling interval 100% of the sampling interval the actual misstatement detected in the logical unit

the actual misstatement detected in the logical unit

Select all that apply An auditor issues a standard unqualified audit report when ______. the auditor believes the financial statements conform to GAAP in all material respects the auditor has received payment for services rendered in order to issue the audit report sufficient evidence has been gathered by the auditor the audit has been performed in accordance with applicable auditing standards

the audit has been performed in accordance with applicable auditing standards sufficient evidence has been gathered by the auditor the auditor believes the financial statements conform to GAAP in all material respects

The representation letter is addressed to ______. the SEC the auditor legal counsel the PCAOB

the auditor

If the frame and the intended sampling population differ ________ the tolerable misstatement should be decreased monetary unit sampling is not appropriate additional substantive tests are required the auditor might draw an incorrect conclusion

the auditor might draw an incorrect conclusion

Select all that apply Normal sources of information for stockholders' equity disclosures include ______. interviews with senior management contractual agreements board of directors' meeting minutes the corporate charter

the corporate charter board of directors' meeting minutes contractual agreements

Accounts payable confirmations may be used as an important source of evidence if ______. the entity has weak internal control vendor statements are available the auditor is also sending receivable confirmations

the entity has weak internal control

Select all that apply In identifying CAMS, auditors must take into account ______. management's assessment of significant risks of material misstatement the nature and timing of significant unusual transaction transactions degree of auditor judgment related to areas that involved significant management judgment

the nature and timing of significant unusual transaction transactions degree of auditor judgment related to areas that involved significant management judgment

Select all that apply: When the two opinions over internal control and over the financial statements are presented separately, ______. the reports must have the same date each engagement must use the same audit staff and refer to this consistency within the report each report must include an explanatory paragraph referring to the opinion expressed in the other report each report must contain the same type of opinion either unqualified, qualified, or adverse

the reports must have the same date each report must include an explanatory paragraph referring to the opinion expressed in the other report

Which of the following statements are correct? the revenue process is similar for all types of organizations many accounting systems integrate purchasing and HR with revenue in most systems the revenue process does not interact with the inventory management process

the revenue process is similar for all types of organizations many accounting systems integrate purchasing and human resources with revenue

The judgment process followed for setting control risk in the inventory management process is ______ the process used with other processes. different from the same as

the same as

If the logical unit's book value is less than the sampling interval, and it is misstated by less than 100%, the projected misstatement is equal to ______. the actual misstatement detected in the logical unit the tainting factor multiplied by the sampling interval 100% of the sampling interval

the tainting factor multiplied by the sampling interval

Select all that apply Advantages of classical variables sampling (CVS) include ______. the techniques are effective for both overstatements and understatements techniques such as difference estimation work well when little or no misstatement is expected the selection of zero balances does not require special sample design considerations it will normally result in a smaller sample size than MUS when a relatively large number of differences between book and audited values are expected

the techniques are effective for both overstatements and understatements the selection of zero balances does not require special sample design considerations it will normally result in a smaller sample size than MUS when a relatively large number of differences between book and audited values are expected

Select all that apply A valuation specialist is often engaged to help obtain audit evidence when ______. the extent to which the entity relies on a service organization to provide fair value measurements is unknown the markets for the assets or liabilities are not currently active the valuation model used by management is complex a high degree of estimation uncertainty exists

the valuation model used by management is complex the markets for the assets or liabilities are not currently active a high degree of estimation uncertainty exists

The existence of adequate segregation of duties for property management depends on ______. management policies for the processing of property transactions the number of employees in the company the volume and significance of transactions processed

the volume and significance of transactions processed

Select all that apply An auditor may use a disclaimer of opinion when ______. there is a lack of independence there is a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP there is insufficient appropriate evidence to form an opinion the financial statements do not present fairly due to a GAAP departure that materially affects the financial statements overall

there is a lack of independence there is insufficient appropriate evidence to form an opinion

Select all that apply Reasons the audit testing of a payroll or branch account is less extensive than testing for the general account include ______. all cash disbursement have been recorded in the entity's cash disbursements journal these types of accounts generally contain a minimal balance the types of disbursements from the account are homogeneous

these types of accounts generally contain a minimal balance the types of disbursements from the account are homogeneous

Select all that apply When auditing retained earnings, an auditor ______ traces net income or loss to the income statement agrees the beginning balance to prior year's working papers compares payee names and amounts on individual dividend checks with the stock certificate book trace appropriations to the relevant contractual agreements ensures are necessary disclosures are in the footnotes

traces net income or loss to the income statement agree the beginning balance to the prior year's working papers trace appropriations to the relevant contractual agreements ensures are necessary disclosures are in the footnotes

Which of the following is always classified as a current asset? held to maturity securities trading securities treasury stock available for sale securities

trading securities

The reacquisition of a company's own stock is referred to as _______________ stock.

treasury

True or false: Some accounts are difficult to audit because of the lack of reliable evidence

true

Select all that apply An auditor can gain an understanding of the entity's process for determining fair value measurements and disclosures by considering the ______. way that management assigns Level 1, 2 or 3 to the valuation of the asset way management considered the nature of the asset or liability being valued controls related to the review and approval of accounting estimates type of accounts or transactions requiring fair value measurements

type of accounts or transactions requiring fair value measurements way management considered the nature of the asset or liability being valued controls related to the review and approval of accounting estimates

Select all that apply: Engagement and operating characteristics that are important to the assessment of inherent risk for inventory include ______. related party transactions for inventory purchases drop in customer demand for product industry competition difficulty with valuation type of product sold

type of product sold difficulty with valuation related to party transactions for inventory purchases

If the entity fails to record a purchase that has been made, assets or expenses will be ______, and accounts payable will be ______. understated; overstated understated; understated overstated; understated overstated: overstated

understated; understated

Select all that apply A "clean" opinion is also called a(n) ______ opinion. unqualified qualified unmodified modified

unqualified unmodified

An immaterial scope limitation will normally result in a(n) ______. standard unqualified opinion with an explanatory paragraph unqualified opinion qualified opinion disclaimer of opinion

unqualified opinion

Possible reasons for book-to-physical differences in inventory include ______. cutoff errors theft failure to adjust to fair market value unreported spoilage

unreported spoilage cutoff errors theft

substantive analytical procedures are __________ used to examine plausible relationships among related accounts concerned with the presentation and disclosure related to accounts receivable and related accounts only necessary if internal controls are not functioning properly

used to examine plausible relationships among related accounts

The ______ of individual accounts payable is generally not a difficult assertion to test. occurrence cutoff valuation completeness

valuation

The auditor examines vendor invoices and other supported documents used to establish the recorded cost of property, plant and equipment as part of testing the ______ assertion for property, plant and equipment.

valuation

The tests of details of account balances normally provides sufficient evidence as to the proper ______ of accounts payable. cutoff valuation existence classification

valuation

When an entity purchases inventory, _______ of the inventory can normally be accomplished by vouching the costs to vendors' invoices

valuation

the major __________ issue related to AR is concerned with the net realizable value of AR

valuation

When an auditor conducts detailed audit work on the construction-in-process account, including ensuring that interest is properly capitalized, (s)he is most likely testing ______. valuation and allocation rights and obligations existence

valuation and allocation

When the model used by management is complex, the markets for the assets or liabilities are not currently active, or a high degree of estimation uncertainty exists the auditor often engages a(n) ______ ______ to help obtain audit evidence regarding fair value

valuation specialist

Recomputing accrued interest payable is an example of a test of details to provide assurance regarding _____________ and ______________ of long-term debt

valuation, allocation

In order to set the control risk for the inventory management process, the auditor will need a thorough understanding of the process used by the entity to ______. value inventory prepare purchase requisitions handle inventory returns manufacture goods

value inventory

The auditor needs to determine if there has been any changes to the fair value of the investment security because if the investment ______. value is determined to be a temporary impairment, the security is written down and a new carrying value established does not have a fair value that can be readily obtained from market data it should be written down value is determined to be other than temporarily impaired, the security is written down and a new carrying value established

value is determined to be other than temporarily impaired, the security is written down and a new carrying value established

Outside specialists are often consulted to ensure that long-term debt is properly ______. disclosed authorized valued classified

valued

Select all that apply When testing existence, the auditor must ______. ensure than no lease transactions were recorded as assets verify capital assets actually exist verify dispositions were properly authorized and recorded

verify capital assets actually exist verify dispositions were properly authorized and recorded

Select all that apply Testing the classification assertion includes ______. verifying purchases were recorded in the correct account ensuring that no repairs or maintenance costs were capitalized examining each material lease agreement

verifying purchases were recorded in the correct account examining each material lease agreement

Select all that apply The choice of which type of tests of controls is appropriate for a particular assertion will be a function of the ______________ volume of transactions or data nature and timing of substantive audit procedures experience and training that the auditor has nature and complexity of the systems by which the entity processes and controls information nature of the available evidence, including audit evidence in electronic form

volume of transactions or data nature and complexity of the systems by which the entity processes and controls information nature of the available evidence, including audit evidence in electronic form

To verify the existence of liabilities, the auditor can ______. vouch a sample of the items on the accounts payable listing to voucher packets test a sample of purchase requisitions for proper authorization test a sample of vouchers for an authorized purchase order

vouch a sample of the items on the accounts payable listing to voucher packets

When an account contains sensitive information the auditor generally ______ analyze the recorded transactions in detail. will will not

will

There should be a review by an audit team member who is senior to the person in charge of preparing the ____ _____

working papers

When using probability-proportional-to-size sample selection, the probability that a customer with a zero balance will be selected using systematic selection of monetary values is ______. zero low high certain

zero