Chapters 11-15

Testing a sample of repairs and maintenance items to ensure that they were properly classified as repairs as opposed to property, plant, and equipment tests which of the following assertions for the property, plant, and equipment account?

Completeness

Which assertion for ending inventory is most likely violated if the gross profit percentage is much greater than last year?

Completeness

The auditor gathers evidence about dividends that are declared and paid primarily because of:

Concerns with violations of corporate bylaws or debt covenants

Key segregations of duties in the inventory management process include all of the following except separating:

Cost accounting from review of variance reports.

An entity 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?

Reconciling vendors' monthly statements with subsidiary payable ledger accounts

Possible misstatements related to the occurrence assertion for payroll transactions include all of the following except:

Payments to valid employees at a rate in excess of the authorized amount

For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?

Receiving documents

Key segregations of duties in the human resource management process include all of the following except:

The human resource function should be separate from setting salaries

An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all:

Vendor's invoices

The auditor's program for the examination of long-term debt should include steps that require the:

Verification of the existence of the bondholders

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

Vouching the raw materials' costs to vendors' invoices.

Which of the following is a question that the auditor would expect to find on the production process section of an internal control questionnaire?

Are all releases by storekeepers of raw materials from storage based on approved requisition documents?

An audit program for the examination of the retained earnings account should include a step that requires verification of the:

Authorization for both cash and stock dividends

An auditor most likely would assess control risk at high if the payroll department supervisor is responsible for:

Authorizing payroll rate changes for all employees

Vouching selected items from the payroll register to employee time sheets that have been approved by supervisory personnel provides evidence that:

Employees worked the number of hours for which their pay was computed

The accounts payable department receives the purchase order form to accomplish all of the following except to:

Ensure that the goods had been received by the party requesting the goods

Which of the following is likely the most effective audit procedure for the verification of the legal ownership of real property?

Examination of deeds and title guaranty policies on hand.

Auditors will examine the insurance register primarily to:

Examine policy expiration dates to verify that prepaid insurance is properly stated

Before expressing an opinion concerning the results of operations, the auditor would most likely proceed with the examination of the income statement by:

Examining income statement accounts concurrently with the related balance sheet accounts

The auditor may conclude that depreciation charges are insufficient by noting:

Excessive recurring losses on assets retired

Observing an entity's inventory held on consignment by others tests the assertion of:

Existence

Which of the following departments typically approves purchase requisitions?

Inventory management

All corporate capital stock transactions should ultimately be traced to the:

Minutes of the board of directors

A surprise observation by an auditor of an entity's regular distribution of paychecks is primarily designed to satisfy the auditor that:

Names on the company payroll are those of bona fide employees presently on the job

Which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?

Obsolete inventory

By selecting a sample of additions to property, plant, and equipment and then examining the related vendor invoices, the auditor is testing which of the following assertions for property, plant, and equipment?

Occurrence

Comparing selected items from the payroll register to employee time records that have been approved by supervisory personnel tests which of the following assertions for payroll expense?

Occurrence

In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?

Occurrence

Assertions about classes of transactions and events for the period under audit include:

Occurrence, Completeness, Authorization, Accuracy, Cutoff, Classification

Which of the following accounts is not affected by cash disbursement transactions?

Purchase returns

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?

Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks

In testing for unrecorded retirements of equipment, an auditor most likely would:

Select items of equipment from the accounting records and then attempt to locate them during the plant tour

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is:

Stamped "paid" by the check signer

Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?

There are significant unexplained variances between the standard and actual labor costs

During the year under audit, a company has completed a private placement of a substantial amount of bonds. Which of the following would the auditor use to test the completeness assertion in the auditor's program for the audit of bonds payable?

Tracing the cash received from the issue to the accounting records

In auditing intangible assets, an auditor would determine if the valuation model used by the specialist is appropriate and consistent with GAAP in support of management's financial statement assertion of:

Valuation and allocation

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of:

Valuation or allocation

An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. The purpose of this procedure is to obtain assurance that:

all inventory represented by an inventory tag is listed on the inventory sheets

To achieve effective control over fixed-asset additions, a company should establish activities that require:

authorization and approval of major fixed-asset additions

The purpose of segregating the duties of distributing payroll checks and hiring personnel is to separate the:

authorization of transactions from the custody-related assets

The auditor can best verify an entity's bond sinking fund transactions and year-end balance by:

confirmation with the bond trustee

The existence assertion for accounts payable includes:

determining whether all accounts payable actually are liabilities

The accuracy, valuation, and allocation assertion for prepaid insurance:

is best tested by recomputing the unexpired portion of insurance policies in effect

Overall analysis of income statement accounts may bring to light errors, omissions, and inconsistencies not disclosed in the overall analysis of balance sheet accounts. The income statement analysis can best be accomplished by comparing:

monthly revenue and expense account totals to the corresponding figures of the preceding years

During the course of an audit, a CPA's substantive analytical procedure provides an expected interest expense that is significantly higher than the amount recorded in the entity's accounting records. This observation would most likely lead the auditor to suspect that:

the entity failed to record all interest expense