ACCT 430 Final

The auditors may expect a proper debit to goodwill due to: Purchase of a trademark. Establishment of an extraordinarily profitable product. A business combination. Capitalization of human resources.

A business combination.

Which of the following best describes the independent auditors' approach to obtaining satisfaction concerning depreciation expense in the income statement? Verify the mathematical accuracy of the amounts charged to income as a result of depreciation expense. Determine the method for computing depreciation expense and ascertain that is in accordance with generally accepted accounting principles. Reconcile the amount of depreciation expense to those amounts credited to accumulated depreciation accounts. Establish the basis for depreciable assets and verify the depreciation expense.

Establish the basis for depreciable assets and verify the depreciation expense.

Which of the following is not one of the auditors' objectives in auditing depreciation? Establishing the reasonableness of the client's replacement policy. Establishing that the methods used are appropriate. Establishing that the methods are consistently applied. Establishing the reasonableness of depreciation computations.

Establishing the reasonableness of the client's replacement policy.

Which of the following is a customary audit procedure for the verification of the legal ownership of real property? Examination of correspondence with the corporate counsel concerning acquisition matters. Examination of ownership documents registered and on file at a public hall of records. Examination of corporate minutes and resolutions concerning the approval to acquire property, plant, and equipment. Examination of deeds and title guaranty policies on hand.

Examination of deeds and title guaranty policies on hand.

Which of the following is the best evidence of continuous ownership of property? Examination of the deed. Examination of the client's property tax bills. Examination of the title policy. Examination of canceled check in payment for the property.

Examination of the client's property tax bills.

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed? Scan the sales journal for sequential and unusual entries. Examine shipping documents for matching sales invoices. Compare the accounts receivable ledger to daily sales summaries. Inspect unused sales invoices for consecutive prenumbering.

Examine shipping documents for matching sales invoices.

In violation of company policy, Miller Company erroneously capitalized the cost of painting its warehouse. The auditors examining Miller's financial statements would most likely detect this when: Discussing capitalization policies with Miller's controller. Examining maintenance expense accounts. Observing, during the physical inventory observation, that the warehouse had been painted. Examining the construction work orders supporting items capitalized during the year.

Examining the construction work orders supporting items capitalized during the year.

A plant manager would be most likely to provide information on which of the following? Adequacy of the provision for uncollectible accounts. Appropriateness of physical inventory valuation techniques. Existence of obsolete production equipment. Deferral of certain purchases of office supplies.

Existence of obsolete production equipment.

The audit procedure of analyzing the repairs and maintenance accounts is primarily designed to provide evidence in support of the audit proposition that all Expenditures for fixed assets have been recorded in the proper period. Capital expenditures have been properly authorized. Noncapitalizable expenditures have been properly expensed. Expenditures for fixed assets have been capitalized.

Expenditures for fixed assets have been capitalized.

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers? To document every test count. For subsequent comparison with the completed inventory listing. To document compliance with generally accepted accounting principles. For use in subsequent audits.

For subsequent comparison with the completed inventory listing.

Purchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client company, if the company: Has paid for the merchandise. Has physical possession of the merchandise. Holds legal title to the merchandise. Holds the shipping documents for the merchandise issued in the company's name.

Holds legal title to the merchandise.

Which of the following is least likely to be performed efficiently using data analytics? Identification of purchases recorded more than once. Identification of overvalued inventory items based on sales of those items. Identification of defective inventory items. Identification of slow-moving inventory items.

Identification of defective inventory items.

The auditors plan to use data analytics to audit purchases. Which of the following is least likely to be performed efficiently using data analytics? Identification of unusually large purchases. Identification of purchases from vendors that are not authorized. Identification of purchases of non-standard items. Identification of purchases of goods from related parties that the auditors had not been informed of and were not aware of the relationship.

Identification of purchases of goods from related parties that the auditors had not been informed of and were not aware of the relationship.

The auditors may use data analytics to help test repairs and maintenance expense for overstatement by: Vouching large repair and maintenance expenditures. Identifying expenditures with characteristics that indicate they are capital expenditures. Identifying capital expenditures that should have been expensed. Identifying expenditures for repairs and maintenance that were not performed.

Identifying expenditures with characteristics that indicate they are capital expenditures.

Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for: Investigation of variances within a formal budgeting system. Review and approval of the monthly depreciation entry by the plant supervisor. Segregation of duties of employees in the accounts payable department. Examination by the internal auditors of vendor invoices and canceled checks for property acquisitions.

Investigation of variances within a formal budgeting system.

Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for: Investigation of variances within a formal budgeting system. Review and approval of the monthly depreciation entry by the plant supervisor. Segregation of duties of employees in the accounts payable department. Examination by the internal auditors of vendor invoices and canceled checks for property acquisitions.

Investigation of variances within a formal budgeting system.

A continuing audit client's property, plant, and equipment and accounts receivable accounts have approximately the same year-end balance. In this circumstance, when compared to property, plant and equipment, one would normally expect the audit of accounts receivable to require: More audit time. Less audit time. Approximately the same amount of audit time. Similar confirmation procedures.

More audit time.

Which of the following would be least likely to address control over the initiation and execution of equipment transactions? Requests for major repairs are approved by a higher level than the department initiating the request. Prenumbered purchase orders are used for equipment and periodically accounted for. Requests for purchases of equipment are reviewed for consideration of soliciting competitive bids. Procedures exist to restrict access to equipment.

Procedures exist to restrict access to equipment.

An auditor would be least likely to use confirmations in connection with the examination of Inventories. Long-term debt. Property, plant, and equipment. Stockholders' equity.

Property, plant, and equipment.

For which of the following accounts is it most likely that most of the audit work can be performed in advance of the balance sheet date? Accounts receivable. Cash. Current marketable securities. Property, plant, and equipment.

Property, plant, and equipment.

When comparing an initial audit with a subsequent year audit for a particular client, the scope of audit procedures for which of the following accounts would be expected to decrease the most? Accounts receivable. Cash. Marketable securities. Property, plant, and equipment.

Property, plant, and equipment.

To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the: Terms of the open purchase orders. Purchase cutoff procedures. Contractual commitments made by the purchasing department. Purchase invoices received on or around year-end.

Purchase cutoff procedures.

A client's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record: Sales. Sales discounts. Purchases. Purchase returns.

Purchases.

Which of the following is an effective control that encourages receiving department personnel to count and inspect all merchandise received? Quantities ordered are excluded from the receiving department copy of the purchase order. Vouchers are prepared by accounts payable department personnel only after they match item counts on the receiving report with the purchase order. Receiving department personnel are expected to match and reconcile the receiving report with the purchase order. Internal auditors periodically examine, on a surprise basis, the receiving department copies of receiving reports.

Quantities ordered are excluded from the receiving department copy of the purchase order.

The use of a "blind" purchase order is designed to prevent errors by the: Purchase department. Receiving department. Stores department. Accounting department.

Receiving department.

The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with: Purchase requisitions. Receiving reports. Purchase orders. Vendor payments.

Receiving reports.

The most likely technique for the current year audit of goodwill which was acquired three years ago by a continuing audit client: Confirmation. Observation. Recomputation. Inquiry.

Recomputation.

A client recorded a payable for a large purchase twice. Which of the following controls would be most likely to detect this error in a timely and efficient manner? Footing the purchases journal. Reconciling vendors' monthly statements with subsidiary payable ledger accounts. Tracing totals from the purchases journal to the ledger accounts. Sending written quarterly confirmations to all vendors.

Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

A "bill and hold" scheme is most likely to include: Shipment of items to a customer beyond what the customer has ordered. Recording as sales items that the company retains as of year-end. Billing of items that are held by customers for future revenue production purposes. Selling items at substantial discounts near year-end.

Recording as sales items that the company retains as of year-end.

Which of the following is the best control procedure to prevent the payment of an invoice twice? Review of supporting documentation by the person signing the check. Requiring dual signatures on checks. Use of a check protector. Reconciliation of vendor statements to accounts payable.

Review of supporting documentation by the person signing the check.

The auditors are least likely to learn of retirements of equipment through which of the following? Review of the purchase returns and allowances account. Review of depreciation. Analysis of the debits to the accumulated depreciation account. Review of insurance policy riders.

Review of the purchase returns and allowances account.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable? Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. Examining unusual relationships between monthly accounts payable balances and recorded cash payments. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.

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

Tracing copies of computer-generated sales invoices to copies of the corresponding computer-generated shipping documents provides evidence that: Shipments to customers were properly billed. Entries in the accounts receivable subsidiary ledger were for sales actually shipped. Sales billed to customers were actually shipped. No duplicate shipments to customers were made.

Sales billed to customers were actually shipped.

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

Sales.

When there are numerous property and equipment transactions during the year, an auditor planning to assess the risk of material misstatement at a low risk level must perform. Tests of controls and extensive tests of property and equipment balances at the end of the year. Extensive tests of current year property and equipment transactions. Tests of controls and limited tests of current year property and equipment transactions. Analytical procedures for property and equipment balances at the end of the year.

Tests of controls and limited tests of current year property and equipment transactions.

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs: Tests of controls and extensive tests of property and equipment balances at the end of the year. Analytical procedures for current year property and equipment transactions. Tests of controls and limited tests of current year property and equipment transactions. Analytical procedures for property and equipment balances at the end of the year.

Tests of controls and limited tests of current year property and equipment transactions.

The auditors believe there is a significant risk of obsolescence of inventories for a particular client. Which of the following procedures would be least likely to detect obsolescence? Performing analytical procedures. Using data analytics. Vouching purchases of inventory. Inquiries of production personnel.

Vouching purchases of inventory.

Which of the following is not a test primarily used to test property, plant and equipment accounts for overstatement? Investigation of reductions in insurance coverage. Review of property tax bills. Examination of retirement work orders prepared during the year. Vouching retirements of plant and equipment.

Vouching retirements of plant and equipment.

An auditor wishes to perform tests of controls on a client's cash disbursements relating to accounts payable. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by: Confirmation and observation. Observation and inquiry. Analytical procedures and confirmation. Inquiry and analytical procedures.

Observation and inquiry.

The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to: Observe physical counts of the inventory items. Trace the total on the inventory listing to the general ledger inventory account. Obtain a confirmation from the client indicating inventory ownership. Analytically compare the current-year inventory balance to the prior-year balance.

Observe physical counts of the inventory items.

The confirmation of accounts payable is most closely associated with: Assertion risk. Detection risk. Inherent risk. Relative risk.

Detection risk.

A client uses a perpetual inventory system. Would one expect a credit to which of the following accounts at the point of sale? Sales Inventory A. Yes Yes B. Yes No C. No Yes D. No No

A

Which of the following best describes a voucher prepared under good internal control? A document prepared by Stores that indicates amount to be purchased. A document prepared by Receiving that indicates the quantity received and approves payment. A document prepared by Accounts Payable authorizing a cash disbursement. A document received by Purchasing, from a supplier, indicating quantity of goods purchased and amount due.

A document prepared by Accounts Payable authorizing a cash disbursement.

Which of the following best describes the specific accounts payable that are selected for confirmation? Accounts with large balances. Accounts with zero balances. Accounts with a large amount of activity regardless of their balance. Accounts for which vendor statements are available.

Accounts with a large amount of activity regardless of their balance.

From the auditor's point of view, inventory counts are more acceptable prior to the year-end when: Internal control is weak. Accurate perpetual inventory records are maintained. Inventory is slow-moving. Significant amounts of inventory are held on a consignment basis.

Accurate perpetual inventory records are maintained.

Which of the following policies is an internal control weakness related to the acquisition of factory equipment? Acquisitions are made through and approved by the department in need of the equipment. Advance executive approvals are required for equipment acquisitions. Variances between authorized equipment expenditures and actual costs are to be immediately reported to management. Depreciation policies are reviewed only once a year.

Acquisitions are made through and approved by the department in need of the equipment.

In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the: Extent of the control risk. Extent of property abandoned during the year. Adequacy of replacement funds. Reasonableness of the depreciation.

Adequacy of replacement funds.

Which of the following best describes the auditors' approach to the audit of the ending balance of property, plant, and equipment for a continuing nonpublic client? Direct audit of the ending balance. Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts. Audit of changes in the accounts since inception of the company. Audit of selected purchases and retirements for the last few years.

Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts.

In testing for unrecorded retirements of equipment, an auditor might: Analyze miscellaneous revenue. Compare depreciation expense with the prior year's depreciation expense. Trace equipment items observed during the plant tour to the equipment subsidiary ledger. Scan the general journal for unusual equipment retirements.

Analyze miscellaneous revenue.

Which of the following is used to obtain evidence that the client's equipment accounts are not understated? Analyzing repairs and maintenance expense accounts. Vouching purchases of plant and equipment. Recomputing depreciation expense. Analyzing the miscellaneous revenue account.

Analyzing repairs and maintenance expense accounts.

A client uses a periodic inventory system. Would one expect a credit to which of the following accounts at the point of sale? Sales Inventory A. Yes Yes B. Yes No C. No Yes D. No No

B

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic Increase in insurance coverage. Inspection of equipment and reconciliation with accounting records. Verification of liens, pledges, and collateralizations. Accounting for work orders.

Inspection of equipment and reconciliation with accounting records.

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of: Purchase orders. Canceled checks. Receiving reports. Approved vouchers.

Canceled checks.

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: Cash disbursements. Approved vouchers. Receiving reports. Vendors' invoices.

Cash disbursements.

When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited? Accounts Receivable. Accrued liabilities. Cash. Cost of goods sold.

Cash.

To measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into: Net sales. Cost of goods sold. Operating income. Gross sales.

Cost of goods sold.

Assume that the auditors are concerned about disbursement transactions that have been recorded for improper amounts. Which procedure(s) would possibly identify these transactions? Item Trace from source documents to journals Vouch from journal to source documents A. No No B. No Yes C. Yes No D. Yes Yes

D

Which of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse? Confirmation. Obtaining reports on internal control at the warehouse. Observation. Communicate with the regulatory agency about the legitimacy of the public warehouse.

Communicate with the regulatory agency about the legitimacy of the public warehouse.

An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly? Completeness. Existence. Legality. Valuation.

Completeness.

The assertion most directly addressed when performing the search for unrecorded liabilities is: Completeness. Existence. Presentation. Rights.

Completeness.

A receiving department compares inventory items received with copies of purchase orders. The purchase orders list the name of the vendor and do not list the quantities of the material ordered. Using the purchase orders, the receiving department is most likely to detect: Deliveries for which no purchase order was issued. Unapproved sales orders. Partial deliveries. Deliveries of a greater quantity of items than those ordered.

Deliveries for which no purchase order was issued.

Which of the following is not a part of the auditors' responsibility regarding a client's count of its inventory? Evaluate condition of inventory. Determine which counts they will make and which counts the client will make. Observe compliance with management's instructions for the count. Make some test counts.

Determine which counts they will make and which counts the client will make.

Which of the following is an example of an accrued liability? Accounts payable. Notes payable. Prepaid insurance. Interest payable.

Interest payable.

The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are: Owned by the client. Not obsolete. Physically present at the time of the preparation of the final inventory schedule. Included in the final inventory schedule.

Included in the final inventory schedule.

Which of the following is an auditor least likely to consider a departure from U.S. generally accepted accounting principles? Valuing inventory at cost. Including in inventory items that are consigned out to vendors, but not yet sold. Using standard cost as the measure of inventory cost. Including in inventory items shipped subsequent to year-end, but for which valid orders did exist at year-end.

Including in inventory items that are consigned out to vendors, but not yet sold.

Which of the following most likely would be an internal control procedure designed to detect errors and fraud concerning the custody of inventory? Periodic reconciliation of work in process with job cost sheets. Segregation of functions between general accounting and cost accounting. Independent comparisons of finished goods records with counts of goods on hand. Approval of inventory journal entries by the storekeeper.

Independent comparisons of finished goods records with counts of goods on hand.

Purchase cutoff procedures should be designed to test whether all inventory: Owned by the company was recorded. On the year-end balance sheet was carried at lower-of-cost-or-market. On the year-end balance sheet was paid for by the company. Owned by the company is in the possession of the company.

Owned by the company was recorded.

An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the following is most likely? The estimated remaining useful lives of equipment were increased. Plant assets were retired during the year. The prior year's depreciation expense was erroneously understated. Overhead allocations were revised at year-end.

Plant assets were retired during the year.

With properly designed internal control, the same employee should not be permitted to: Sign checks and cancel supporting documents. Receive merchandise and prepare a receiving report. Prepare disbursement vouchers and sign checks. Initiate a request to order merchandise and approve merchandise received.

Prepare disbursement vouchers and sign checks.

For which of the following ledger accounts would the auditor be most likely to analyze the details to identify understatements of equipment acquisitions? Service Revenue. Sales. Repairs and maintenance expense. Sales salaries expense.

Repairs and maintenance expense.

Which of the following accounts should be reviewed by the auditor to gain reasonable assurance that additions to property, plant, and equipment are not understated? Depreciation. Accounts payable. Cash. Repairs and maintenance.

Repairs and maintenance.

When performing an audit of the property, plant, and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles? Repairs have been capitalized to equipment to keep it in normal working order. Interest has been capitalized for self-constructed assets. Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statements. The cost of freight-in on an acquisition has been capitalized.

Repairs have been capitalized to equipment to keep it in normal working order.

After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items: Included in the listing have been counted. Represented by inventory tags are included in the listing. Included in the listing are represented by inventory tags. Represented by inventory tags are bonafide.

Represented by inventory tags are included in the listing.

he form typically used to confirm accounts payable: Does not require a response from the vendor. Confirms the balance recorded by the client at year-end. Requires the vendor to indicate the amount of the payable. Is the same as the form used to confirm accounts receivable.

Requires the vendor to indicate the amount of the payable.

Which of the following is not a control that should be established for purchases of equipment? Establishing a budget for capital acquisitions. Requiring that the department that ordered the equipment is the same that requested the equipment. Requiring that the receiving department receive the equipment. Establishing an accounting policy regarding the minimum dollar amount of purchase that will be considered for capitalization.

Requiring that the department that ordered the equipment is the same that requested the equipment.

An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all: Merchandise received. Vendor's invoices. Canceled checks. Receiving reports.

Vendor's invoices.

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the receiving reports. Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving reports. Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the checks. Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.

Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.

Which of the following would an auditor most likely question included in calculation of the overhead rate for a company that manufactures a product? Factory supervisor salary. Indirect materials. Machine hours. Selling expense.

Selling expense.

In verifying credits to perpetual inventory records of a nonmanufacturing firm, the auditor would be most interested in examining the: Shipping documents. Receiving reports. Purchase orders. Vendors' invoices.

Shipping documents.

Which one of the following procedures would not be appropriate for the auditors in discharging their responsibilities concerning the client's physical inventories? Confirmation of goods in the hands of public warehouses. Supervising the taking of the annual physical inventory. Carrying out physical inventory procedures at an interim date. Obtaining written representation from the client as to the existence, quality, and dollar amount of the inventory.

Supervising the taking of the annual physical inventory.

Which of the following best describes the auditors' approach to the audit of accrued liabilities? Test computations. Confirmation. Observation. A low planned assessed level of control risk.

Test computations.

Which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper? Testing the entity's computation of standard overhead rates. Obtaining confirmation of inventories pledged under loan agreements. Reviewing a cutoff procedure for inventories. Tracing test counts to the entity's inventory listing.

Testing the entity's computation of standard overhead rates.

In verifying debits to perpetual inventory records of a nonmanufacturing firm, the auditor would be most interested in examining the: Purchases journal. Purchase requisitions. Purchase orders. Vendors' invoices.

Vendors' invoices.

Which statement is correct relating to the count of inventory when a company that specializes in taking such counts ("the company") is involved with counting a client's inventory? The auditor should consider the company a specialist, and follow the procedures outlined for addressing an auditor's specialist. The auditor should not consider the counts by the company, by themselves, sufficient appropriate audit evidence. The auditor must observe all inventory counts taken by the company. The auditor should observe a letter of representations form the company.

The auditor should not consider the counts by the company, by themselves, sufficient appropriate audit evidence.

Which of the following best describes the auditors' typical observation of plant and equipment? The auditors observe a physical inventory of plant and equipment annually. The auditors observe all additions to plant and equipment made during the year. The auditors observe all major plant and equipment items in the clients' accounts each year. The auditors observe major additions to plant and equipment made during the year.

The auditors observe major additions to plant and equipment made during the year.

Which of the following is true about the auditors' observation of the client's physical inventory? The auditors should plan the physical inventory. The auditors should segregate damaged and obsolete goods. The auditors should evaluate the condition of the inventory. The auditors should supervise the client's personnel.

The auditors should evaluate the condition of the inventory.

Which of the following best describes the auditors' response to a client's use of statistical sampling techniques to estimate the inventory? The auditors should satisfy themselves as to the statistical validity of the technique, and the reasonableness of the allowance for sampling risk and sampling error used. The auditors should qualify their opinion, because the client must perform a complete count of the inventory. The auditors should increase the extent of their test counts to compensate for the use of a statistical technique. The auditors should withdraw from the engagement.

The auditors should satisfy themselves as to the statistical validity of the technique, and the reasonableness of the allowance for sampling risk and sampling error used.

Which of the following is not true relating to the auditors' observation of the client's physical inventory? The auditors should evaluate the client's planning of the physical inventory. The auditors should supervise the taking of the inventory. The auditors should evaluate the adequacy of the client's counting procedures. The auditors should take test counts of the client's inventory.

The auditors should supervise the taking of the inventory.

Which of the following is true about the auditors' observation of the client's physical inventory? The count must be made at year-end. The auditors should supervise the client's personnel. The auditors' observation addresses the existence assertion. The auditors should justify any omission of the observation in the audit report.

The auditors' observation addresses the existence assertion.

Effective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has: The ability to prepare payment vouchers based on the information on a vendor's invoice. The responsibility of reviewing purchase orders issued by user departments. The authority to make purchases of requisitioned materials and services. A direct reporting responsibility to controller of the organization.

The authority to make purchases of requisitioned materials and services.

Which of the following is least likely to be an accurate statement concerning characteristics of an audit? An analysis of inventory turnover can indicate possible obsolescence of inventory. Characteristics of the double entry bookkeeping system make it possible to test for overstated sales when tests of accounts receivable are being performed. The direction of tests for understatement errors is generally directed from the recorded entry to source documents. Use of a perpetual rather than a periodic inventory system is likely to affect the nature of cutoff errors made at year-end.

The direction of tests for understatement errors is generally directed from the recorded entry to source documents.

Which of the following is not a reason for the special significance attached by the auditors to the verification of inventories? The determination of inventory valuation directly affects net income. The existence of inventories is inherently difficult to substantiate. Special valuation problems often exist for inventories. Inventories are often the largest current asset of an enterprise.

The existence of inventories is inherently difficult to substantiate.

An inventory turnover analysis is useful to the auditor because it may detect: Inadequacies in inventory pricing. Methods of avoiding cyclical holding cost. The optimum automatic reorder points. The existence of obsolete merchandise.

The existence of obsolete merchandise.

To assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor's invoice to: The purchase requisition. The receiving report. The purchase order. The voucher.

The purchase order.

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items? Supplies of relatively little value are expensed when purchased. The cycle basis is used for physical counts. The storekeeper is responsible for maintenance of perpetual inventory records. Perpetual inventory records are maintained only for items of significant value.

The storekeeper is responsible for maintenance of perpetual inventory records.

Which statement is correct with respect to accounts payable confirmations? The negative form is used in most circumstances. Accounts with new suppliers are always confirmed. They are a required auditing procedure. They are more frequently used in situations in which some vendors don't send monthly statements.

They are more frequently used in situations in which some vendors don't send monthly statements.

Which of the following is not one of the independent auditor's objectives regarding the examination of inventories? Verifying that inventory counted is owned by the client. Verifying that the client has used proper inventory pricing. Ascertaining the physical quantities of inventory on hand. Verifying that all inventory owned by the client is on hand at the time of the count.

Verifying that all inventory owned by the client is on hand at the time of the count.

Which of the following best describes the reason for the auditors' review of the client's cost accounting system? To obtain evidence regarding the quantities of good described as work in process. To obtain evidence about the valuation of work in process, finished goods, and cost of goods sold. To obtain evidence about the profit margin on specific jobs. To obtain evidence about compliance with Cost Accounting Standards.

To obtain evidence about the valuation of work in process, finished goods, and cost of goods sold.

In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified? Examine inventory items for dust or rust during observation. Trace tag counts to final inventory listing. Compare inventory balances to anticipated sales volume. Review inventory experience and trends.

Trace tag counts to final inventory listing.

Which of the following is the most important control procedure over acquisitions of property, plant, and equipment? Establishing a written company policy distinguishing between capital and revenue expenditures. Using a budget to forecast and control acquisitions and retirements. Analyzing monthly variances between authorized expenditures and actual costs. Requiring acquisitions to be made by user departments.

Using a budget to forecast and control acquisitions and retirements.