Auditing Quiz Reviews

Which of the following is NOT the characteristics of investment cycle?

Failing to include all unrealized gains or losses from investment in the income statement is one of the most common misstatements related to this cycle. (Some unrealized gains and losses are classified as B/S items Auditors need to understand the purpose of investment assets: Chapter 10 slides p.29)

If all other factors specified in an attributes sampling plan remain constant, decreasing the tolerable misstatement and increasing expected misstatement would have what effect on sample size?

Increase.

For purposes of an audit of financial statements, electronic confirmation of cash balances:

Is acceptable when properly controlled.

Which of the following is not considered one of the five major components of internal control?

Segregation of duties.

When auditing property, plant and equipment, an auditor is typically LEAST concerned about which of the following?

Unauthorized access to assets and employee theft.

When auditors receive the responses to account receivable confirmation requests indicated below, they must take proper actions. Which of the following responses to a confirmation at December 31 would be MOST likely to result in an audit adjustment after auditors investigate further?

"We returned these goods on November 15." (The returned goods are likely to have arrived at the company by year endA/R should have been reversed and not have been outstanding as of year end)

Which of the following is LEAST likely to be typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests? a. Examine bills of lading. b. Physically examine items sold. c. Examine correspondence between the client and the customer to prove existence of sale. d. Examine subsequent cash receipts.

(Auditors need to examine some evidence that can support existence of A/R for that customer or sale related to A/R) b. Physically examine items sold.

Amount used to create a range, set by + or - limits from the sample results, within which the true value of the population characteristic being measured is likely to lie is:

ALLOWANCE for sampling RISK

Which of the following document is the MOST reliable audit evidence auditors can use to verify cash balance per bank?

Bank confirmation sent to and returned by the bank. (External, directly obtained)

Which of the following is NOT a valid reason for an auditor deciding not to send accounts receivable confirmations? (Chapter 11 slides p.19) a. The balance is immaterial. b. Confirmations would be ineffective. c. The client requests alternative procedures be performed instead. d. Audit risk can be reduced to acceptably low level with other procedures.

C. The client request alternative procedures be performed instead

The SEC requires all of the following for revenue to be recognized EXCEPT

Cash is collected.

Which of the following statements is NOT a correct statement about auditing cash?

Cash typically has a larger account balance compared to other asset accounts.

When auditing lower-turnover accounts such as property, plant, and equipment, auditors focus on _______________ in the accounts rather than the balance.

Changes

A marketing practice that suppliers sometimes use to boost sales by inducing customers to buy substantially more inventory that they can promptly sell.

Channel Stuffing

Which of the following audit procedures on the fiscal-year-end bank reconciliation is LEAST likely to involve the cut-off bank statement for a 20-day period following the fiscal year end?

Comparing with the general ledger cash balance.

When auditing account balances of liabilities, auditors are MOST concerned with management's assertion about

Completeness

Counting inventory on the warehouse floor and tracing the count to the inventory listing provides evidence to support management's financial statement assertion of

Completeness.

Which of the following is NOT true about the confirmation of accounts receivable?

Confirmation requests should bear the client's return address. (Auditor's return address)

A bank statement covering a specified number of business days subsequent to the client's balance sheet date (=fiscal year end).

Cutoff bank statement

Which of the following is NOT an appropriate control over inventory? a. Segregation of duties over purchases and custody of inventory. b. Use of pre-numbered requisitions, purchase orders, and receiving reports. c. Appropriate physical controls over inventories. d. Use of periodic inventory system for inventories.

D. Use of periodic inventory system for inventories

Which of the following is a task an auditor should perform when control risk is assessed at the maximum (high) level?

Document the assessment of control risk.

Which procedure is an auditor most likely to use to detect a check outstanding at year- end that was not recorded as outstanding on the year-end bank reconciliation? (Testing completeness of the outstanding check list)

Examine a cutoff statement received directly from the client's bank.

Which of the following audit procedures MOST likely would provide assurance that a company's inventory valuation is proper?

Examining vendors' current price list.

In testing plant and equipment balances, an auditor may select recorded additions to plant and equipment and inspect documents supporting the purchase transactions as well as the actual asset(s) involved. Which management assertion is this procedure most directly related to? Records => Source documents and supporting evidence

Existence

When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is:

Existence

A significant deficiency in internal control:

Is less severe than a material weakness.

Which of the following is NOT a proper control activity related to revenue cycle:

Issuing sales invoices prior to shipment. (This is 'bill and hold transaction' which should not happen)

After obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. The auditor most likely decided that:

It would be efficient to perform tests of controls that would result in a reduction in planned substantive procedures.

Properly designed internal control will permit the same employee to:

Mail signed checks to payees, and also receive and deposit cash. (Both of them are tasks related to 'cash handling process')

The audit working papers often include a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. One of the purposes of the aging trial balance for auditors is to:

Obtain information needed to send account receivable confirmations.

Auditors may choose not to confirm accounts payable because:

Other reliable external evidence to support the balances is likely to be available.

Method of accounting for inventories that updates inventory accounts after each purchase or sale. The accuracy of the inventory records is tested periodically by physical inventory count.

Perpetual Inventory Records

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting?

Prepare a schedule of bank transfers.

Which is the LEAST effective procedure for identifying unrecorded retirements of equipment is to:

Scan the general journal for unusual equipment retirements.

Which of the following types of sampling applications can appropriately be used under generally accepted auditing standards?

Statistical sampling: Yes; Nonstatistical sampling: Yes

A problem for a CPA associated with advanced IT systems is that:

The audit trail is sometimes generated not in printed form but only in machine readable form.

Negative confirmation is less effective than positive confirmation because

The auditor cannot infer whether the respondent agrees with the information on the confirmation or the respondent did not attend to it.

Which of the following is true about the auditors' observation of the client's physical inventory?

The auditors should evaluate if employees comply with instructions. Chapter 13 slides - page 17) - Planning and supervising the physical inventory count is the client's responsibilities. Auditors observe and conduct 'test' counts.

Which of the following is an auditor NOT likely to consider a departure from U.S. generally accepted accounting principles?

The company included in inventory items that are consigned out to vendors (consignees), but not yet sold.

What is the primary drawback with respect to the use of sampling?

The conclusion reached by examining a sample of items may differ from the conclusion that would be reached if the entire population were examined.

As one of the year-end audit procedures, the auditor instructed the client's personnel to prepare a confirmation request for a bank account with zero balance. After the client's treasurer has signed the request, it was mailed by the assistant treasurer of the client company. What is the major flaw in this audit procedure?

The request was mailed by the assistant treasurer. (Should have been mailed by the auditor)

Which of the following is NOT a correct statement about the bank-confirmation fraud of Peregrine Financial Group?

The use of electronic confirmations is likely to increase this type of bank confirmation frauds.

Which of the following MOST likely would be detected by an auditor's review of a client's sales cutoff?

Unrecorded sales at year-end.

Evaluating the adequacy of the allowance for doubtful accounts is related to management's financial statement assertion of

Valuation or allocation

Which of the following is a correct statement describing the situation where the auditors could not be present to observe the taking of inventory in the initial audit of a client? a. Auditors may have to issue a disclaimer of opinion. b. Auditors should not accept an audit engagement knowing they would not be able to observe the physical inventory. c. Auditors are not allowed to use the predecessor audit firm's work. d. Proper alternative procedures are more likely to be available for auditors when the client uses the periodic inventory system.

a. Auditors may have to issue a disclaimer of opinion.

Which of the following is NOT one of the auditors' objectives in auditing depreciation of plant, property, and equipment? a. Establishing the reasonableness of the client's replacement policy. b. Establishing that the methods used are appropriate. c. Establishing that the methods are consistently applied. d. Establishing the reasonableness of depreciation computations.

a. Establishing the reasonableness of the client's replacement policy

Physical inventory observation is NOT used to verify that: a. All inventory listed physically exists at the time. b. The client has used appropriate methods to value inventory listed on the balance sheet. c. All inventory stored in the warehouse is properly recorded. d. Damaged goods and obsolete items have been properly accounted for.

b. The client has used appropriate methods to value inventory listed on the balance sheet

Which of the following is LEAST likely a reason why inventory is a significant account for auditors? a. Management fraud has often involved the fraudulent overstatement of inventories. b. Inventories often represent the largest current asset of a company. c. Inventory is the most liquid asset of a company. d. The valuation of goods on hand and in process often presents complex and difficult issues.

c. Inventory is the most liquid asset of a company.

In determining the adequacy of the allowance for doubtful accounts, the LEAST valuable evidence would be obtained from a. An aging schedule of past due accounts that the auditor has tested. b. Payments received subsequent to balance sheet date. c. The credit ratings for delinquent and unusually large accounts. d. Confirmation responses with no exception.

d. Confirmation responses with no exception