Audit Final

Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts? a. A property, plant, and equipment cutoff error near year-end has a more significant effect on net income. b. Relatively few transactions occur in property, plant, and equipment during the year. c. The assets involved with property, plant, and equipment ordinarily have relatively longer lives. d. Property, plant, and equipment accounts typically have a higher dollar value.

a. A property, plant, and equipment cutoff error near year-end has a more significant effect on net income.

Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? a. Accumulated depreciation. b. Cost of goods sold. c. Purchase returns and allowances. d. Purchase discounts.

a. Accumulated depreciation.

The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: a. Bill of lading. b. Job time shipping. c. Production order. d. Production schedule.

a. Bill of lading.

McPherson Corporation does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins: a. Can issue an unqualified opinion without disclosing that she did not observe year-end inventories. b. Should comment in the scope paragraph as to her inability to observe year-end inventories, but can nevertheless issue an unqualified opinion. c. Is required, if the inventories are material, to disclaim an opinion on the financial statements taken as a whole. d. Should, if the inventories are material, qualify her opinion.

a. Can issue an unqualified opinion without disclosing that she did not observe year-end inventories.

When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments? a. Capitalization. b. Financing. c. Investing. d. Operations.

a. Capitalization.

Ordinarily, the most significant assertion relating to accounts payable is: a. Completeness. b. Existence. c. Presentation. d. Valuation.

a. Completeness.

In an audit, the valuation of year-end accounts payable is most likely addressed by: a. Confirmation. b. Examination of cash disbursements immediately prior to year-end. c. Examination of cash disbursements immediately subsequent to year-end. d. Analytical procedures applied to vouchers payable at year-end.

a. Confirmation.

The organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the: a. Cost Accounting Standards Board. b. Financial Accounting Standards Board. c. Public Company Accounting Oversight Board. d. Securities and Exchange Commission.

a. Cost Accounting Standards Board.

An audit of the balance in the accounts payable account is ordinarily not designed to: a. Detect accounts payable that are substantially past due. b. Verify that accounts payable were properly authorized. c. Ascertain the reasonableness of recorded liabilities. d. Determine that all existing liabilities at the balance sheet date have been recorded.

a. Detect accounts payable that are substantially past due.

Which of the following should be included as a part of inventory costs of a manufacturing company? a. Direct Labor: Yes, Raw Materials: Yes, Factory Overhead: Yes b. Direct Labor: Yes, Raw Materials: No, Factory Overhead: No c. Direct Labor: No, Raw Materials: Yes, Factory Overhead: No d. Direct Labor: No, Raw Materials: No, Factory Overhead: No

a. Direct Labor: Yes, Raw Materials: Yes, Factory Overhead: Yes

When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: a. Existence. b. Completeness. c. Clarity. d. Presentation.

a. Existence.

The audit of intangible assets typically involves 1) Vouching the Cost of Assets: Yes, Testing Allocation Methods: Yes 2) Vouching the Cost of Assets: Yes, Testing Allocation Methods: No 3) Vouching the Cost of Assets: No, Testing Allocation Methods: Yes 4) Vouching the Cost of Assets: No, Testing Allocation Methods: No Multiple Choice a. Option (1) b. Option (2) c. Option (3) d. Option (4)

a. Option (1)

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the: a. Receiving report and the purchase order. b. Receiving report and the voucher. c. Vendor's packing slip and the purchase order. d. Vendor's packing slip and the voucher.

a. Receiving report and the purchase order.

The auditor's analytical procedures will be facilitated if the client: a. Uses a standard cost system that produces variance reports. b. Segregates obsolete inventory before the physical inventory count. c. Corrects material weaknesses in internal control before the beginning of the audit. d. Reduces inventory balances to the lower of cost or market.

a. Uses a standard cost system that produces variance reports.

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: a. Want the client to schedule the physical inventory count at the end of the year. b. Insist that the client perform physical counts of inventory items several times during the year. c. Increase the extent of tests for unrecorded liabilities at the end of the year. d. Have to disclaim an opinion on the income statement for that year.

a. Want the client to schedule the physical inventory count at the end of the year.

Instead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and: a. Well-kept records of perpetual inventory are maintained. b. Inventory is slow-moving. c. Computer error reports are generated for missing prenumbered inventory tickets. d. Obsolete inventory items are segregated and excluded.

a. Well-kept records of perpetual inventory are maintained.

Which of the following is an internal control weakness related to factory equipment? a. Checks issued in payment of purchases of equipment are not signed by the controller. b. All purchases of factory equipment are required to be made by the department in need of the equipment. c. Factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expired. d. Proceeds from sales of fully depreciated equipment are credited to other income.

b. All purchases of factory equipment are required to be made by the department in need of the equipment.

Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next: a. Notify the board of directors that the auditor's report must no longer be associated with the financial statements. b. Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. c. Request that management disclose the effects of the newly discovered information by adding a footnote to subsequently issued financial statements. d. Issue revised pro forma financial statements taking into consideration the newly discovered information.

b. Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.

In performing a test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test? a. Completeness. b. Existence. c. Valuation. d. Rights.

b. Existence.

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

b. Inspection of equipment and reconciliation with accounting records.

A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n): a. Analytical process. b. Loss contingency. c. Probable loss. d. Unasserted claim.

b. Loss contingency.

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? a. Compare the physical quantities of slow-moving items with corresponding quantities in the prior year. b. Observe merchandise and raw materials during the client's physical inventory taking. c. Review the management's inventory representations letter for accuracy. d. Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.

b. Observe merchandise and raw materials during the client's physical inventory taking.

The primary objective of a CPA's observation of a client's physical inventory count is to: a. Discover whether a client has counted a particular inventory item or group of items. b. Obtain direct knowledge that the inventory exists and has been properly counted. c. Provide an appraisal of the quality of the merchandise on hand on the day of the physical count. d. Allow the auditor to supervise the conduct of the count in order to obtain assurance that inventory quantities are reasonably accurate.

b. Obtain direct knowledge that the inventory exists and has been properly counted.

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

b. Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

Which of the following procedures is least likely to be completed before the balance sheet date? a. Confirmation of receivables. b. Search for unrecorded liabilities. c. Observation of inventory. d. Review of internal accounting control over cash disbursements.

b. Search for unrecorded liabilities.

When confirming accounts payable, the approach is most likely to be one of: a. Selecting the accounts with the largest balances at year-end, plus a sample of other accounts. b. Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts. c. Selecting a random sample of accounts payable at year-end. d. Confirming all accounts.

b. Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts.

Which of the following is most likely to be considered a Type 1 subsequent event? a. A business combination completed after year-end, but for which negotiations began prior to year-end. b. A strike subsequent to year-end due to employee complaints about working conditions that originated two years ago. c. Customer checks deposited prior to year-end but determined to be uncollectible after year-end. d. Introduction of a new line of products after year-end for which major research had been completed prior to year-end.

c. Customer checks deposited prior to year-end but determined to be uncollectible after year-end.

The search for unrecorded liabilities for a public company includes procedures usually performed through the: a. Day the audit report is issued. b. End of the client's year. c. Date of the auditors' report. d. Date the report is filed with the SEC.

c. Date of the auditors' report.

Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? a. Determine that the valuation of inventories and cost of goods sold is arrived at by appropriate methods. b. Determine the existence of inventories and the occurrence of transactions affecting cost of goods sold. c. Establish that the client includes only inventory on hand at year-end in inventory totals. d. Establish the completeness of inventories.

c. Establish that the client includes only inventory on hand at year-end in inventory totals.

The auditors are most likely to seek information from the plant manager with respect to the: a. Adequacy of the provision for uncollectible accounts. b. Appropriateness of physical inventory observation procedures. c. Existence of obsolete machinery. d. Deferral of procurement of certain necessary insurance coverage.

c. Existence of obsolete machinery.

An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated: a. December 31, 20X8. b. January 17, 20X9. c. February 10, 20X9. d. February 16, 20X9.

c. February 10, 20X9.

To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the: a. Authorized members of the audit committee. b. Accounting department. c. Individual who signs the checks. d. Chief executive officer.

c. Individual who signs the checks.

Which of the following is the best way for the auditors to determine that every name on a company's payroll is that of a bona fide employee presently on the job? a. Examine human resources records for accuracy and completeness. b. Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. c. Make a surprise observation of the company's regular distribution of paychecks on a test basis. d. Visit the working areas and verify that employees exist by examining their badge or identification numbers.

c. Make a surprise observation of the company's regular distribution of paychecks on a test basis.

The receiving department is least likely to be responsible for the: a. Determination of quantities of goods received. b. Detection of damaged or defective merchandise. c. Preparation of a shipping document. d. Transmittal of goods received to the store's department.

c. Preparation of a shipping document.

An effective procedure for identifying unrecorded retirements of equipment is to: a. Foot related property records. b. Recalculate depreciation on the related equipment. c. Select items of equipment in the accounting records and then locate them in the plant. d. Select items of equipment and then locate them in the accounting records.

c. Select items of equipment in the accounting records and then locate them in the plant.

Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements? a. A business combination. b. Early retirement of bonds payable. c. Settlement of litigation. d. Plant closure due to a strike.

c. Settlement of litigation.

Which of the following is not an overall test of the annual provision for depreciation expense? a. Compare rates used in the current year with those used in prior years. b. Test computation of depreciation provisions for a representative number of units. c. Test deductions from accumulated depreciation for assets purchased during the year. d. Perform analytical procedures.

c. Test deductions from accumulated depreciation for assets purchased during the year.

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on: a. All transactions resulting in the ending balance. b. Tests of controls over disposals. c. Transactions that occurred during the year. d. Performing analytical procedures on beginning balances of the accounts.

c. Transactions that occurred during the year.

To assure accountability for fixed-asset retirements, management should implement an internal control that includes: a. Continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets. b. Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired. c. Utilization of serially numbered retirement work orders. d. Periodic observation of plant assets by the internal auditors.

c. Utilization of serially numbered retirement work orders.

As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should: a. Express an opinion that is qualified due to the inability of the client company to continue as a going concern. b. Evaluate management's performance in causing this decline. c. Require note disclosure. d. Consider the possibility of a misstatement in the financial statements.

d. Consider the possibility of a misstatement in the financial statements

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? a. Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable. b. Examine unusual relationships between monthly accounts payable balances and recorded purchases. c. Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded. d. Examine selected cash disbursements in the period subsequent to year-end.

d. Examine selected cash disbursements in the period subsequent to year-end.

The auditors may conclude that depreciation charges are insufficient by noting: a. Insured values greatly in excess of book values. b. Large amounts of fully depreciated assets. c. Continuous trade-ins of relatively new assets. d. Excessive recurring losses on assets retired.

d. Excessive recurring losses on assets retired.

Which of the following procedures is most likely to be included near completion of an audit? a. Obtaining an understanding of internal control. b. Confirmation of receivables. c. Observation of inventory. d. Performing analytical procedures.

d. Performing analytical procedures.

Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated? a. Depreciation. b. Accounts Payable. c. Cash. d. Repairs.

d. Repairs.

The least likely approach in auditing management's estimate relating to an accrued liability is to: a. Independently develop an estimate of the amount to compare to management's estimate. b. Review and test management's process of developing the estimate. c. Review subsequent events or transactions bearing on the estimate. d. Send confirmations relating to the estimate.

d. Send confirmations relating to the estimate.

Which of the following is least likely to be considered a substantive procedure relating to payroll? a. Investigate fluctuations in salaries, wages, and commissions. b. Test computations of compensation under profit sharing for bonus plans. c. Test commission earnings. d. Test whether employee time reports are approved by supervisors.

d. Test whether employee time reports are approved by supervisors.

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: a. This is a duplication of cutoff tests. b. Accounts payable balances at the balance sheet date may not be paid before the audit is completed. c. Correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment. d. There is likely to be other reliable external evidence available to support the balances.

d. There is likely to be other reliable external evidence available to support the balances.