Audit Final

An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using: -employee fidelity bonds -independently prepared mailroom prelists -daily check summaries -a bank lockbox system

-a bank lockbox system

What mgmt reports, documents , and data files are used by auditors in a cash audit?

-cash receipts journal -cash disbursements journal -bank reconciliations -canceled checks -bank statements

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the: -check register for the last month is reviewed -cutoff bank statement is reconciled -bank confirmation is reviewed -search for unrecorded liabilities is performed

-cutoff bank statement is reconciled

To gather evidence regarding the bank's balance in a bank reconciliation, an auditor would examine all of the following except the: -cutoff bank statement -general ledger -bank confirmation -year end bank statement

-general ledger

The mail which includes payments should be opened by two people. This control is called: -separation of duties -joint custody -anti-collusion -lapping

-joint custody

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

-observation and inquiry

What are some risks for the payroll cycle?

-paying ghost employees (employees that don't exist) -paying terminated employees whose paychecks are then endorsed with forged signatures by supervisor -overpaying for time or production(inaccurate trans, improper valuation) -accounting incorrectly for costs and exp(wrong classification, improper disclosure/presentation) -not ensuring that related taxes and third parties are appropriately paid(ex. isnurance providers)

Your client is in the process of acquiring another company. You have been requested to verify that cash for the company being acquired is properly stated. The audit technique that will yield the most persuasive evidence is: -examination of the company's escrow account -interview with the company's treasurer and cash manager -preparation and review of standard bank confirmation inquiries -analytical computations comparing current cash in the bank with previous accounting periods

-preparation and review of standard bank confirmation inquiries

What are the 4 basic activities in the revenue and collection cycle?

1. receiving and processing customer orders, including credit approval 2.delivering foods and services to customers 3.billing customers and accounting for AR 4. collecting and depositing cash received from customers

Which of the following personnel department procedures reduces the risk of payroll fraud and represents an appropriate responsibility for the department? Distributing paychecks Authorizing overtime hours Authorizing the addition or deletion of employees from the payroll. Collecting and retaining unclaimed paychecks

Authorizing the addition or deletion of employees from the payroll.

Data from which of the following sources is most likely to be unreliable? Data obtained directly from the client with strong internal controls Data obtained from a third-party sent directly to the auditor Data obtain through direct personal observation of the auditor Data obtained directly from the client with weak internal controls

Data obtained directly from the client with weak internal controls

Which of the following is not a key element of the definition of ethics? Reflective choice Moral principles Definitive conclusions Consequences of decisions

Definitive conclusions

personal files

HR, personnel, or labor relations dept keep individual employee files. these contain employment application, background check, notice of hiring, job classification and pay rate, etc. establishes employees existence.

What are the internal control and how can we test the cash disbursements?

IC: checks aren't printed until voucher packets are prepared an employee compares amounts on printed checks with voucher packets prior to submission for signature only authorized signers are permitted to sign checks -TEST: (for a sample of recorded CD from CD journal) inspect supporting documentation for mathematical accuracy, correct classification, proper approval, authorized signature, etc. IC: checks are prenumbered and accounted for Test: scan checks for sequence. look for gaps in sequence/duplicate numbers IC: bank reconciliations are prepared on a timely basis TEST: review bank reconciliations to ensure that they were prepared on timely basis.

CPA Krogstad is the executive in charge of the Omaha office of the audit firm. He is responsible for the practice in all areas of audit, tax, and consulting, but he does not serve as a field audit partner or a reviewer. CPA Ward is the partner in charge of the Dodger, Inc. audit (an SEC filing). The audit firm's independence is impaired if: Krogstad owns Dodger common stock. Krogstad's brother owns 10 shares of Dodger common stock. Ward's sister-in-law is a sales representative with a territory in California. Ward's fellow partner CPA Felix in the Omaha office has a wife who owns Dodger stock through a mutual fund held in her own employer's employee benefit plan.

Krogstad owns Dodger common stock.

Which of the following is not a major control risk in the payroll cycle? Paying fictitious "employees" Overpaying for time or production Losing employees to competitors. Incorrect accounting for costs or expenses

Losing employees to competitors.

What is a existence internal control activity that could be performed for cash? How can we test the internal controls?

The CFO performs a detailed review of bank reconciliation on a monthly basis Reperform the reconciliation. Trace several reconciling items to the appropriate supporting documentation

WCGW with existence of cash?

The cash balance may not really exist in the company's bank account

WCGW with the valuation of cash?

The cash balance that is held in foreign countries may not have been translated properly

What is a Presentation/disclosures internal control activity that could be performed for cash? How can we test the internal controls?

The corporates secretary reviews the cash footnote disclosure on a quarterly basis to ensure that all legal restrictions on the cash balance have bee properly disclosed Reperform the work completed by the corp. secretary to ensure all cash restriction for a sample of cash accounts have been properly disclosed

WCGW with the presentation/disclosures of cash?

There may be restrictions on the cash balance that were not properly disclosed

Which of the following philosophical principles in ethics places emphasis on the consequences of action, rather than on following the rules? Imperative principle. Utilitarianism principle. Generalization principle. Moral principle

Utilitarianism principle.

WCGW with the account revenue with the assertion occurrence? whats an IC for this? whats a test of IC for this? whats a substantive analytical procedure for this? whats a substantive test of detail for this?

WCGR: mgmt may overstate sales by adding fictitious transactions or inflating actual sales IC: invoices supported by customer purchase orders. bill of lading or other shipping docs exist for all invoices, recorded sales in sales rev account file are supported by invoices TEST of IC: Vouch sales in sales detail file to invoices and other shipping docs and customer purch order. PSAP: compare asset and rev balances with recent history to help detect overstatements. sales ratios can be compared to historical data and industry stats for evidence of reasonableness PSTOD: vouch journal entry, sales summary, sales invoice copy, shipping docs, and finally customer purchase order.

WCGW with the account revenue with the assertion completeness? whats an IC for this? whats a test of IC for this? whats a substantive analytical procedure for this? whats a substantive test of detail for this?

WCGW: not all sales recorded IC: invoices, ship docs, and sales orders are prenumbered and the numerical sequence is checked test of ic: scan docs for numerical sequence, observe client checking sequence, and trace shipping doc to recording sales detail file. PSAP: compare current years sales to last year's sales by geographic location PSTOD: select samples of shipping docs, and trace to sales invoice and the sales journal

WCGW with the account revenue with the assertion cutoff? whats an IC for this? whats a test of IC for this? whats a substantive analytical procedure for this? whats a substantive test of detail for this?

WCGW: sales recorded in incorrect period IC:date of shipping doc compared to invoice date test of IC: trae shipping date on ship docs to sales incoice date adn check FOB terms. PSAP: compare prior years sales in same month to current years sales in same month PSTOD: trace ship docs before and after year end to the sales journal to ensure the sale was recorded in proper period.

Perry Pinkney, CPA, is one of the general partners in a partnership, which in turn invested 70 percent of its assets in the common stock of Pinkney's audit client (Darby Corporation). According to the AICPA Code of Professional Conduct, Pinkney is considered to have an indirect financial interest in Darby. a direct financial interest in Darby. no financial interest in Darby. a partial financial interest in Darby.

a direct financial interest in Darby.

when auditing the revenue and collection cycle, auditors normally select balances to confirm from the: sales journal accounts receivable listing general ledger cash receipts listing

accounts receivable listing

negative confirmation

ask for response on balance only if something is wrong. no response-good response

a positive confirmation

ask the customer to respond as to whether the balance is correct or incorrect

The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the HR function from the controllership function administrative controls from the internal accounting controls authorization of transactions from the custody of related assets operational responsibility from the recordkeeping responsibility

authorization of transactions from the custody of related assets

Tracing a sample of time clock cards to payroll registers (journals) is a procedure designed to obtain evidence about the transaction assertion(s) of occurrence only. occurrence and accuracy only. completeness only. accuracy only.

completeness only.

What are some typical source documents for the receiving and processing of customer orders, including credit granting? and the internal controls with it?

customer orders, shipping documents, a nd invoices should be in prenumbered sequence so the system can check the sequence and determine whether any transaction have not been recorded(completeness) or have been duplicated (occurrence) prenumbered docs are an example of an internal control price list master file. contains product units for billing customers. person in charge of this has the power to alter and authorize price changes and customer billings

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because: many customers merely sign and return without verifying its details recipients usually respond only if they disagree with the information on the request customers may not be inclined to report understatement errors in their accounts auditors typically select many accounts with low recorded balances to be confirmed

customers may not be inclined to report understatement errors in their accounts

To be recognized, revenues must also be realized or realizable and: foreseeable collected earned shipped

earned

Confirmations of accounts receivable provide the most evidence for which of the following assertions? existence valuation/allocation rights/obligations completeness

existence

What assertions are there when reviewing AR?

existence completeness valuation

What are the relevant assertions for the significant account: cash ?

existence valuation presentation and disclosures

Which of the following is not important when considering the reliability of client data? the source reliability client controls over data preparation if the auditor's information system has been subjected to reliability testing all of the above are important

if the auditor's information system has been subjected to reliability testing

How can we test the internal controls for cash receipts?

internal control: CR are deposited intact and daily Test: observe opening of the mail and ensure -two employees are opening the mail, checks properly indorsed -a listing of all checks is being prepared and compared to the total of the deposit ticket for the total of checks -the total amount of the deposit listed in the bank statement was recorded in the proper period internal control: deposits are reconciled with totals posted to the AR Test: for a sample of daily postings to the ar subsidiary ledger, trace the amount to the amount of cash subsidiary ledger.

labor cost analysis

internal payroll report of labor costs to the accounting dept. links payroll and accounting to the production cycle

What are some typical source documents for the delivering goods and services to customers? and the internal controls with it?

inventory clerk in charge of releasing goods to shipping department. Proper authorization is important for every step. Employees performing any of the steps( phys custody in warehouse, custody transfer to ship dept., releasing inv) should sign transfer docs so they are held accountable. prevents misappropriating of goods or shipping product to friends without billing them. Source: bill of lading, packing slip

The document that generates recording of a sale is the: customer order shipping order invoice purchase order

invoice

An auditor should normally perform alternative procedures to substantiate the existence of accounts receivable when: no reply to a positive confirmation request is received no reply to a negative confirmation is received collectability of the receivables is in doubt pledging of the receivables is probable

no reply to a positive confirmation request is received

Which aspect of data is not important for data used in Audit Data Analytics (ADA)? reliability relevance completeness none of the above

none of the above

Vouching debits from a sample selection of customers' accounts receivable records to supporting sales invoices is an audit procedure designed to obtain evidence about the assertion of: occurence completeness classification accuracy

occurence

the assertion that auditors will probably emphasize in the revenue and collection cycle is: occurrence completeness accuracy classification

occurrence

What assertions are there when reviewing revenue?

occurrence completeness cutoff

What are system generated reports and data files in the revenue and collection cycle?

pending order and back order master file -sales transactions initiated but not completed, cant be recorded as sales. long standing orders that cant be completed yet. these files will be reviewed for evidence of completeness of recorded sales and ar. customer master file -can be tested for current status, up to date credit info. bad practice to not keep these up to date. controls can be reviewed to ensure properly maintained. price list master file -if this is incorrect, billings are incorrect. This file can be compared to an official price source for accuracy. important to keep in mind that these change year to year, when auditing use active price list for the right time. Sales detail (journal) file -detailed sales entries should correspond with the issuance of invoices to customers and should include the shipping references and dates, should all be in this source. can be scanned using CAAT checking for entries without references, etc. Sales analysis reports -examples are sales classified by product line providing info for the business segment disclosures. Sales classified by sales employees or region can show unusually high or low volume that might bear further investigation if an error or fraud is suspected. analytical proc. can greatly help auditor(trend analysis) AR listing and aging -contains the actual balances and amounts with each individual customer. if a receivable amount can't be connected to a customer it cant be collected. auds must ensure calculation of the aging is accurate to verify customer accounts aren't listed as current if they are past due. also ensure that estimated amount for afbd is proper. cash receipts listing: contains all detailed entries for cash deposits and credits to various accounts. contains population of entries that can result from the bank reconciliation. important because might signal accounting errors or manipulations that occur in the cash receipts listing Customer statements -send these to customers and receive them back to ensure amounts received, not , balances are all correct. helps spot discrepancies. should be sent if ANY activity has occurred even if balance is 0

The auditor maintains control of the mailing and receipt of confirmations by typically performing all of the following except: preparing the confirmation letters mailing the confirmation letters receiving the confirmation letters none of these choices are correct

preparing the confirmation letters

An audit plan of substantive procedures for cash would not include: -request a cutoff bank statement be mailed to the client -request client to prepare bank reconciliations - prepare a schedule of interbank transfers for a period of ten business days before and after year end date - obtain a written client representation concerning compensating balance agreements

request a cutoff bank statement be mailed to the client

The most effective audit procedure for determining the collectability of an account receivable is the: review of the subsequent cash collections examination of the related sales invoices confirmation of the account review of authorization of credit sales to the customer and the previous history of collections

review of the subsequent cash collections

payroll register

special journal that contains a row for each employee with columns for the gross regular pay, gross overtime pay, income tax withheld, ssi and Medicare tax withheld, and net pay.

clearing account

temporary storage places for transactions awaiting final accounting. should have 0 balances after accounting is completed. if there is a balance something hasn't been classified properly

In the audit of cash the auditor obtains a bank cutoff statement primarily to: -identify old outstanding checks that the client may exclude from year end bank reconciliation in order to misappropriate cash -obtain sufficient information to reconcile the clients bank account as of year end - obtain direct confirmation of the client's bank balances as of year end -test the propriety of items appearing on the client's year end bank reconciliation

test the propriety of items appearing on the client's year end bank reconciliation

Revenues are normally considered to have been earned when: all possibility of return has expired the company has substantially accomplished what it must to be entitled to the benefits the cash is collected goods have been shipped

the company has substantially accomplished what it must to be entitled to the benefits

What is a cutoff bank statement sued for/ what info does it consist of?

the cutoff bank statement is considered the source of validating the bank reconciliation items. -received directly by auditors aka external evidence -documents important bank transactions occurring early in the subsequent period. important for testing completeness of outstanding check list.

What is a valuation internal control activity that could be performed for cash? How can we test the internal controls?

the treasurer reviews the cash translation adjustment calculation monthly and independently checks that the appropriate spot rate has been used for each foreign currency Inspect the monthly cash translation adjustment calculation for evidence of the treasurer's review

Which of the following audit procedures is the most effective in testing sales for understatement? analyze the aged trial balance confirm recorded accounts receivable trace a sample of shipping documents to sales invoices recorded in the sales journal vouch a sample of recorded sales from the sales journal to shipping documents

trace a sample of shipping documents to sales invoices recorded in the sales journal

Whats the most relevant assertion for payroll

valuation due to the desire of employees to obtain more money completeness is very low risk, if employees are left off of payroll, they will make it known.

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of: existence valuation/allocation completeness rights and obligations

valuation/allocation

What are some typical source documents for the billing customers and accounting for AR? and the internal controls with it?

when shipping occurs, a SHIPMENT RECORD is filed and a FINAL INVOICE is prepared for the customer. the SALES INVOICE is sent to the customer IMPORTANT: person with power to alter invoices or these transactions SHOUDLNT have any custody or recording responsibilities customer information needs to be protected. these files should be physically protected. internal auditors can perform periodic reviews of the customers balances by sending confirmations to the customers