Audit Simulation Final Exam

Examine your AJE list related to this assignment. How many did your propose that adjust a cash account?

5, where most of these AJEs correct for an overstatement of cash.

For which of the following accounts receivable customer populations would the use of negative confirmations be most appropriate?

A cable company with control risk over the revenue cycle assessed low

When do public companies have to start applying the new revenue standard to annual reporting periods?

After Dec. 15, 2017

When do non-public companies have to start applying the new revenue standard to annual reporting periods?

After Dec. 15, 2018

An initial step when auditing a bank reconciliation prepared and provided by the client is to:

Confirm the balance per books on the reconciliation agrees with the balance per books reported in the trial balance.

Which of the following is not a fundamental internal control the auditor would expect to find in place for a cash processing system?

Electronic payments

Which of the following situations would normally be discovered as part of the test of the bank reconciliations?

Failure to include a deposit in transit on the bank reconciliation

A misstatement of cash identified on the interbank transfer schedule is sufficient to conclude that there is fraud, or kiting.

False

The blockchain depends on bitcoin.

False

The negative form requests the recipient to respond only if he or she agrees with the information stated on the request

False

The objective of the presentation was for students to have more knowledge on how to trade cryptocurrency.

False

The auditor will send a standard bank confirmation to which of the following?

Finanical institutions with which the client has transacted during the year

Bitcoin is an example of a cryptocurrency that used blockchain technology.

True

Differences in the perspectives as to when customers send payments and when clients receive and post payments to customers' balances often causes disagreements during the confirmation process

True

Which account maintains a target balance of $8,000?

payroll cash

Credit approval policies are implemented by the organization primarily to accomplish which of the following objectives?

to ensure the realization of receivables

Which of the following is the most relevant assertion with regards to the audit of cash?

Existance

Which assertion represent the highest risk with respect to the audit of cash?

Existence, Rights, Accuracy, Cutoff

Accounts receivable confirmations address all assertions equally well

False

An analysis of the client's internal control over cash and marketable securities should take place during the performance of the substantive tests on these accounts.

False

An oral or facsimile response to an AR confirmation is sufficient appropriate audit evidence

False

Bank reconciliations and bank confirmations are the same thing.

False

Bank reconciliations should be performed by the individual who makes bank deposits.

False

Blockchain is dependent on Bitcoin and investment in blockchain is largely conditional on cryptocurrency

False

Currently, regulators require Bitcoin exchanges to know the economic substance and end parties behind each transaction.

False

Inter-bank transfer schedules are external documents

False

It is not necessary to track misstatements by aging category in the workpapers because the information is aggregated when the financial statements are reported.

False

Lapping is a form of check fraud, involving taking advantage of the float to make use of non-existent funds in a checking or other bank account, in this way, instead of being used as a negotiable instument, checks are misused as a form of unauthorized credit.

False

Only a minority of financial statement fraud and errors involve revenue recognition issues

False

See workpaper C-5. The client has loans outstanding with Wells Neargo Bank.

False

The Blockchain is a flawless technology and the answer to all problems plaguing accounting and record keeping.

False

The allowance for doubtful accounts is a liability account

False

Which, if any of these workpapers, provided evidence of a misstatement in the trade accounts receivable balance: A. R-14 B. None C. R-13 D. R-15

None of these workpapers suggest a misstatement

With respect to the cash misstatements detected, please take a position.

Option 3 - Although the direction and magnitude of the misstatements are suspicious, you don't have enough evidence to conclude this is fraud and you are not completely convinced these misstatements are completely the result of unintentional errors.

Which, if any of these workpapers, provided evidence of a misstatement in the trade accounts receivable balance: A. R-9 B. None C. R-5 D. R-7

R-9

Unreturned positive confirmations for accounts receivable warrant which of the following actions?

Sending second requests and possibly performing subsequent procedures

See workpaper C-6 and C-4. The interest is ______.

Should not have been added to the cash balance on C-4.

A Blockchain uses a decentralized ledger, where many users have a copy of the same ledger and updates.

True

Blockchain has many application, such as an implication for supply chain, voting and legal record maintenance.

True

Determining the transaction price is the third step to recognizing revenue

True

Effective internal control over the cash account requires that the person responsible for making the bnak deposit does not post the increase to cash in the accounting system.

True

Evidence obtained from third parties provide the auditor with higher-quality audit evidence than is typically available from within the entity

True

Financial institutions and auditing will continue to be distrupted by the blockchain.

True

Professional skepticism is important to maintain when conducting a confirmation process

True

Professor David Yermack suggests Blockchain could potentially eliminate the accounting industry.

True

The auditor will request the confirmation of accounts receivable during an audit unless accounts receivable are immaterial to the financial statements.

True

The demand for Bitcoin will decrease as the government pressure exchanges and participants to know their client/party.

True

The primary purpose of the cutoff statement is to verify the reconciling items on the bank reconciliation.

True

Under the new revenue recognition guidance there will be consistent principles for the recognizing revenue, regardless of industry and/or geography

True

Unreturned negative confirmations do not provide explicit evidence that the intentended third parties received the confirmation requests and verified that the information contained on them is correct.

True

What evidence is utilized by the auditor for analytical procedures in substaining the completeness of the allowance for bad debt estimate?

accounts receivable aging schedule

Out of the following accounts, the blockchain could potentially eliminate audit efforts to verify the accuracy and existence over the longer term.

all of the following accounts

When a customer account is ultimately written off, ____ is debited while account ____ is credited.

allowance for doubtful accounts; accounts receivable

To increase _______, the auditor will tie-out the balance per books and footing the client provided reconciliations before confirming details to the bank confirmation, bank cut-off statements, and check register.

audit efficiency

When performing an analytical procedure, the auditor should determine and document what would be demed a significant difference between the trial balance and his or her expectation before determining the actual difference in order to:

avoid the outcome of the analytical procedure from issuing the auditor's determination of a significant difference

A _______ contains detailed information regarding loans outstanding with a financial institution.

bank confirmation

A _______ provides sufficient appropriate evidence of the balance a client has rights to at a point in time at a financial institution.

bank confirmation

Which document provides information about year-end cash balance and additional information, such as details about loans outstanding (i.e. existence of loans, due dates of loans, interest rates, dates through which interest has been paid, collateral for outstanding loans)?

bank confirmations

Which external document states the activity (i.e. typically 10 to 15 days) after year-end, and is typically shorter than a regular month-end statements?

bank cut-off statements

Which document explains the differences in the year-end balance per books and the year-end balance per the bank statements/bank confirmation>

bank reconciliation

Which of the following would be used by the auditor to address kiting?

bank transfer schedule

Bank confirmations must be completed by the _____, returned directly to the ______.

bank, auditor

To reduce the magnitude of information asymmentry between management and the auditor the auditor should

be critical and skeptical of turnover of management and the board of directors, obtain third party confirmation to corroborate assertions and consider the use of technical experts when needed, and thoroughly understand a client's business

Out of the following accounts, the blockchain could significantly reduce auditor effort over the long term.

cash

Which document tracks the checks and electronic receipts and payments?

check register

All of the following be vouched and traced between the bank reconciliation and cut-off statement except for ______.

cleared checks

In exchange for a fee, typically 1-4% credit card companies such as a Mastercard-Shark provides the following services for each sales transaction

clearing, settlement, authorization

To increase the allowance for doubtful accounts, this account is ____ while the bad debt expense account is ____.

credited, debited

Review your completed workpaper R-1. The adjusted balance per audit for the 60-90 aging portion:

decreased with respect to the balance per general ledger

Review your completed workpaper R-1. The adjusted balance per audit for the total aging portion:

decreased with respect to the balance per general ledger

______ is a(n) _____ and the amount a client predicts will be uncollectible and turn into ______.

doubtful debt, estimate, bad debt

Bitcoin has been linked to illegal transactions such as:

drug trade, human trafficking, political contributions, gun trade

It is sufficient to conclude cash is misstated if an outstanding cash listed on the check register has not cleared the bank cutoff statement.

false

See workpaper C-1. The adjusted balance per audit ____ relative to the balance per the GL.

has decreased

Review your completed workpaper R-1. The adjusted balance per audit for the current aging portion:

increased with respect to the balance per general ledger

A sample of positive confirmations is mailed for material accounts receivable balances. The auditor does not receive a response for many of the confirmations. Which of the following is not an acceptable alternative procedure?

inquiry of management

Which document list transfers between the company's bank accounts (i.e. transfers between CHASED and WELLS NEARGO accounts) around the cut-off period? It indicates the amount of the transfer, the disbursing and receiving bank, when the transaction was recorded on the books for each bank, and when the transaction ultimately cleared the bank.

interbank transfer schedule

Bank reconciliations are ______ documents. Bank confirmations are ______ documents. Bank cut-off statements are ______ documents and the check register is an ______ document.

internal, external, external, internal

Which of the following is not a cash account at Michele's Blankets?

investment cash

Which of the following best describes a fraudulent cash scheme to overstate cash assets at year end by recording deposits in transit in both the account from which the cash is withdrawn and the account to which it is transferred?

kiting of cash

Blockchain makes the double spending problem faced in alternative currency instruments, such as checks,

less of a problem.

It's acceptable to have a client assist with

mailing AR confirmations

The ________ requires management to recognize the expense associated with the current period sales in the period when the sales occur rather than waiting for the period when the account is ultimately deemed uncollectible (i.e. written off)

matching principle

Blockchain has the potential to make the auditor's work and conclusions related to the rights assertion of inventory.

more efficient and effective

Blockchain has the potential to make the auditor's work and conclusions related to the existence assertion of a currency.

more efficient and more effective

Blockchain has the potential to make the auditor's work and conclusions related to the rights assertion of currency

more efficient and more effective

Examine details within the check register. Check #2401

must be reconciled as of the 2018 cutoff.

Which of the following cash accounts is used to deposit cash receipts from customers?

non-payroll cash

Which, if any of these workpapers, provided evidence of a misstatement in the trade accounts receivable balance: A. None B. R-10 C. R-12 D. R-11

none of these workpapers suggest a misstatement

A critical mistake in Theranos made was

not demanding audited financial statements

Confirmation is the process of ____ and ___ a direct communication from a _____ party in response to a request for information about a particular item affecting financial statement assertions.

obtaining; evaluating; third

Michele's Blankets has two sales channels:

oline and at third party retailers

Which of the following cash accounts is an example of an imprest account?

payroll cash

See workpaper C-1. The adjusted balance per audit must agree to the ____ numbers on the WTB.

per audit 2018

See workpaper C-1. The balance per general ledger must agree to the _____ numbers on the WTB.

per books 2018

Another name for physical cash on hand for relatively small expenditures

petty cash

Typical examples of imprest accounts include:

petty cash and payroll

Blockchain has the potential to eliminate the auditor's work and conclusions related to the completeness assertion of liabilities.

rather unlikely

Blockchain has the potential to eliminate the auditor's work and conclusions related to the valuation assertion of accounts receivable

rather unlikely

Positive confirmation provide audit evidence only when responses are ____ from the recepients: ______ do not provide audit evidence about the financial statement assertions being addressed.

received; non-responses

Review workpaper R-12 and the treatement of this balance on workpaper R-16 and R-1. Overall this balance should be

remain in the accounts receivable balance because the cusomter confirmed the entire balance is owed as of year-end

Review your completed workpaper R-1. The adjusted balance per audit for the over 90 days aging portion:

remained unchanged with respect to the balance per general ledger

Which account would fund a working capital cash deficit at Michele's Blankets?

reserve cash

alternative procedures that would provide evidence of the existance of receivables would include which of the following?

review of subsequent collections

Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately?

sales orders have sequential numbering

Which of the following processes are included in the revenue cycle?

shipping products to customers

Examine details within the check register. Check #2392

should not be reconciled

Examine details within the check register. Check #2414

should not be reconciled

What happened to academics, board members, or employees that had a difference of opinion with respects to Theranos' technology?

sometimes fired and/ threatened with legal action

The thrid fieldwork standard (P-I-E) states the auditor must obtain ________ audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.

sufficient appropriate

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons?

the address may be routed to the client for retrieval and fraudulent signing

Negative confirmation requests may be used to reduce audit risk to an acceptable level when

the auditor has no reason to believe the recipients of the requests are unlikely to give them consideration, the combined assessed level of inherent and control risk is low, and a large number of small balances is involved.

Accoutns receivable confirmations usually provide strong evidencee about which of the following?

the existence of receivables

What might explain why cusomters with balances over $5,000 were required to return a positive confirmation instead of a negative confirmation?

these customers represented a higher risk of a material misstatement given their dollar value of balances owed

How many cash accounts does Michele's Blankets maintain>

three, across two institutions along with a petty cash account

It is ______ that Blockchain will eliminate the auditing industry

unlikely

A control that may be implemented to ensure all sales that occur are recorded in the general ledger includes which of the following?

use of prenumbered shipping invoice and sales documents

Changes over time in the price of Bitcoin suggests cryptocurrencies are

volatile currencies