Audit Midterm - 11

If the objective of a test of details is to detect overstatements of sales, the auditor should compare transactions in the

Accounting records to source documents : overstatement normally occurs when there is no supporting documentation

The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may

Be unaware of all the financial relationships that the bank has with the client.

Which of the following sets of information does an auditor usually confirm on one form?

Cash in bank and collateral for loans.

An auditor most likely would limit substantive audit tests of sales transactions when the risks of material misstatement are assessed as low for the existence and occurrence assertions concerning sales transactions and the auditor has already gathered evidence supporting

Cash receipts & A/R

A large university has relatively ineffective internal control. The university's auditor seeks assurance that all tuition revenue has been recorded. The auditor could best obtain the desired assurance by

Comparing business office revenue records with registrar's office records of students enrolled.

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of

Completeness

Which of the following comparisons would be most useful to an auditor in evaluating the results of an entity's operations?

Current-year revenue to budgeted current-year revenue.

Customers having substantial year-end past due balances fail to reply after second request forms have been mailed directly to them. Which of the following is the most appropriate alternative audit procedure?

Examine shipping documents

On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account bank B to cover a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this form of kiting by

Examining paid checks returned with the bank statement of the next accounting period after year end.

An auditor is reviewing a sales cutoff as of March 31. All sales are shipped FOB destination, and the company records sales 3 days after shipment. The auditor notes the following items: (Amounts in Thousands) Date Month Selling Shipped Recorded Price Cost March 28 March $192 $200 March 29 March 44 40 March 30 April 77 81 April 2 March 208 220 April 5 April 92 84 If the client records the required adjustments, the net effect on income in thousands of dollars for the period ended March 31 is

Increase of $8,000

In confirming a client's accounts receivable in prior years, an auditor discovered many differences between recorded account balances and confirmation replies. These differences were resolved and were not misstatements. In defining the sampling unit for the current year's audit, the auditor most likely would choose

Individual invoices

Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?

Inspect the shipping records documenting the merchandise sold to the debtors.

Which of the following audit procedures would be most appropriate to test the valuation of the collateral of a delinquent loan receivable?

Obtaining a current value appraisal of the collateral.

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn of which of the following?

One of the cashiers has been covering a personal embezzlement by lapping.

In the confirmation of accounts receivable, the auditor would most likely

Request confirmation of a sample of the inactive accounts.

An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year end?

Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year end.

An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to

Seek information about other deposit and loans amounts that come to the attention

An auditor discovered that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This may indicate that

There was an improper cutoff of sales at the end of the year.

A company issued bonds for cash during the year under audit. To ascertain that this transaction was properly recorded, the auditor's best course of action is to

Trace the cash received from the issuance to the accounting records.

During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on January 9, Year 2." The auditor would most likely

Verify the amount was received

To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would

Verify the sources and contents of the faxes in telephone calls to the senders.