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An auditor is concerned with completing various phases of the audit after the balance sheet date. This subsequent period extends to the date of the A. Auditor's report. B. Final review of the audit documentation. C. Public issuance of the financial statements. D. Delivery of the auditor's report to the client.

A. Auditor's report.

AU-C 530, Audit Sampling, identifies two general approaches to audit sampling. They are A. Random and nonrandom. B. Statistical and nonstatistical. C. Precision and reliability. D. Risk and nonrisk.

B. Statistical and nonstatistical.

Most companies recognize sales revenue when A) sales are invoiced. B) payment is received from the customer. C) goods are shipped. D) the customer's order is received.

C) goods are shipped.

Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ________ system. A) direct deposit B) funds transfer C) lockbox D) interbank transfer

C) lockbox

Which of the following is a business function related to sales returns and allowances? A) processing customer orders B) writing off uncollectible accounts C) processing and recording credit memos D) granting credit

C) processing and recording credit memos

Which of the following is not a business function within the "Sales" class of transactions? A) processing customer orders B) granting credit C) processing and recording sales returns and allowances D) shipping goods

C) processing and recording sales returns and allowances

Which type of misstatement is always a fraud? A) sales included in the journals for which no shipment was made B) sales to related parties, such as officers and subsidiaries C) shipments made to nonexistent customers and recorded as sales D) sales recorded more than once.

C) shipments made to nonexistent customers and recorded as sales

Which of the following documents provides the most persuasive evidence about the existence of a receivable? A. A credit approval document supported by the customer's audited financial statements. B. A copy of a sales invoice to the customer in the auditee's records. C. A positive confirmation received directly from the customer. D. A customer's purchase order in the auditee's records related to the credit sale.

C. A positive confirmation received directly from the customer.

Once a CPA has determined that accounts receivable have increased because of slow collections in a tight money environment, the CPA is likely to A. Increase the balance in the allowance for bad debts account. B. Review the going concern ramifications. C. Review the credit and collection policy. D. Expand tests of collectibility.

D. Expand tests of collectibility.

For which of the following audit tests would an auditor most likely use attribute sampling? A. Making an independent estimate of the amount of a LIFO inventory. B. Examining invoices in support of the measurement of fixed asset additions. C. Selecting accounts receivable for confirmation of account balances. D. Inspecting employee time cards for proper approval by supervisors.

D. Inspecting employee time cards for proper approval by supervisors.

________ tests are for omitted transactions, while ________ tests are for nonexistent transactions. A) Tracing; vouching B) Vouching; tracing C) Verifying; tracking D) Tracking; verifying

A) Tracing; vouching

Statistical sampling usually may be applied in tests of controls when the client's internal controls A. Depend primarily on appropriate segregation of duties. B. Leave an audit trail in the form of documentary evidence of their effectiveness. C. Are carefully reduced to writing and are included in client accounting manuals. D. Enable the detection of material fraud in the accounting records.

B. Leave an audit trail in the form of documentary evidence of their effectiveness.

An auditor released an audit report that was dual-dated for a subsequently discovered fact occurring after the date of the auditor's report but before issuance of the related financial statements. The auditor's responsibility for events occurring subsequent to the original report date was A. Limited to include only events occurring before the date of the last subsequent event referenced. B. Limited to the specific event referenced. C. Extended to subsequent events occurring through the date of issuance of the related financial statements. D. Extended to include all events occurring since the original report date.

B. Limited to the specific event referenced.

In assessing risks of material misstatement 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? A. Completeness. B. Occurrence. C. Accuracy. D. Classification.

B. Occurrence.

When sales invoices are automatically calculated and posted by a computer, the auditor may be able to reduce substantive tests of transactions for which, if any, assertion? A) accuracy B) existence C) completeness D) none of the above

A) accuracy

As a test of control, the auditor examines sales invoices for supporting documents. The relevant transaction-related audit objective is A) accuracy. B) occurrence. C) classification. D) timing.

A) accuracy.

Which of the following is not a key control for sales and cash receipts? A) active board of directors B) adequate separation of duties C) internal verification procedures D) adequate documents and records

A) active board of directors

Which document or record is used in the write-off of uncollectible accounts classes of transactions? A) general journal B) remittance advice C) sales transaction file D) sales order

A) general journal

Which one the following procedures performed for the billing function provides evidence for the completeness assertion? A) making sure that all shipments have been billed B) making sure that no shipment has been billed more than twice C) making sure that each shipment is billed at the correct amount D) making sure that each shipment is billed to the proper customer

A) making sure that all shipments have been billed

A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales, accounts receivable, or cash, and who has no access to the accounting records. A) prelisting of cash receipts. B) sales invoice. C) packing ticket. D) vendor invoice.

A) prelisting of cash receipts.

The accurate recording of sales transactions concerns all of the following except for A) proper credit authorization. B) shipping the amount of goods ordered. C) accurately billing for the amount of goods shipped. D) accurately recording the amount billed in the accounting records.

A) proper credit authorization.

The document used to indicate to the customer the amount of a sale and payment due date is the A) sales invoice. B) bill of lading. C) purchase order. D) sales order.

A) sales invoice.

A ________ is a document for communicating the description, quantity, and related information for goods ordered by a customer. A) sales order B) customer order C) vendor invoice D) sales invoice

A) sales order

For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents? A) sales order B) sales invoice C) customer order D) remittance advice

A) sales order

Which one of the following statements is true? In deciding on substantive tests of transactions A) some procedures are commonly employed on every audit regardless of the circumstances. B) all procedures are dependent on the adequacy of the controls and the results of the tests of controls. C) results obtained in the prior year's audit will not affect the procedures used this year. D) the materiality of the item will not influence the choice of procedures used.

A) some procedures are commonly employed on every audit regardless of the circumstances.

When dealing with the processing and recording of cash receipts, A) the most important concern is the theft of cash. B) theft can only occur before the receipts are entered into the records. C) cash receipts should be deposited at least monthly. D) the monthly statement is used to prepare the cash receipts journal.

A) the most important concern is the theft of cash.

The auditor's objectives for the sales and cash collections activities when the client is primarily an e-commerce business as compared to a "brick and mortar" business are A) unchanged. B) expanded. C) mitigated. D) decreased.

A) unchanged.

A major customer of an audit client suffers a fire just prior to completion of year-end field work. The audit client believes that this event could have a significant direct effect on the financial statements. The auditor should A. Advise management to disclose the event in notes to the financial statements. B. Disclose the event in the auditor's report. C. Withhold submission of the auditor's report until the extent of the direct effect on the financial statements is known. D. Advise management to adjust the financial statements.

A. Advise management to disclose the event in notes to the financial statements.

In a well-designed internal control system, the same employee may be permitted to A. Mail signed checks and also cancel supporting documents. B. Prepare receiving reports and also approve purchase orders. C. Approve vouchers for payment and also have access to unused purchase orders. D. Mail signed checks and also prepare bank reconciliations.

A. Mail signed checks and also cancel supporting documents.

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the A. Population. B. Attribute of interest. C. Sample. D. Sampling unit.

A. Population.

Which of the following procedures should an auditor ordinarily perform regarding subsequent events? A. Read the latest subsequent interim financial statements. B. Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests. C. Communicate material weaknesses in internal control to the client's audit committee. D. Review the cutoff bank statements for several months after the year end.

A. Read the latest subsequent interim financial statements.

To minimize the risk that agents in the purchasing department will use their positions for personal gain, the organization should A. Require competitive bidding. B. Request internal auditors to confirm selected purchases and accounts payable. C. Specify that all items purchased must pass value-per-unit-of-cost reviews. D. Direct the purchasing department to maintain records on purchase prices paid, with review of such records required every 6 months.

A. Require competitive bidding.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable? A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period. B. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. C. Examining unusual relationships between monthly accounts payable balances and recorded cash payments. D. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.

A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

The probability that an auditor's conclusion based on a sample might be different from the conclusion based on an audit of the entire population is the concept of A. Sampling risk. B. The confidence level. C. Statistical sampling. D. The tolerable rate

A. Sampling risk.

Tracing bills of lading to sales invoices provides evidence that A. Shipments to customers were invoiced. B. Shipments to customers were recorded as sales. C. Recorded sales were shipped. D. Invoiced sales were shipped.

A. Shipments to customers were invoiced.

If all other factors in a sampling plan are held constant, changing the acceptable audit risk from 5% to 3% will cause the sample size to be A. Smaller. B. Larger. C. Unchanged. D. Indeterminate.

A. Smaller.

Unrecorded liabilities are most likely to be found during the review of which of the following documents? A. Unpaid bills. B. Shipping records. C. Bills of lading. D. Unmatched sales invoices.

A. Unpaid bills.

An auditor noted that the accounts receivable department is separate from other accounting activities. Credit is approved by a separate credit department. Control accounts and subsidiary ledgers are balanced monthly. Similarly, accounts are aged monthly. The accounts receivable manager writes off delinquent accounts after 1 year, or sooner if a bankruptcy or other unusual circumstances are involved. Credit memoranda are prenumbered and must correlate with receiving reports. Which of the following areas could be viewed as an internal control deficiency of the above organization? A. Write-offs of delinquent accounts. B. Credit approvals. C. Monthly aging of receivables. D. Handling of credit memos.

A. Write-offs of delinquent accounts.

Which of the following is a correct statement regarding the shipment of goods? A) The shipping document must be in paper form. B) The shipping document is used to update the perpetual inventory records. C) Only one copy of the shipping document is needed. D) All of the above are correct statements.

B) The shipping document is used to update the perpetual inventory records.

To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with A) the original invoices. B) an approved master price list. C) the amounts recorded in the sales journal for that transaction. D) the amounts posted to the customer's account in the accounts receivable master file.

B) an approved master price list.

One type of shipping document is the ________, which is a written contract between the carrier and the seller of the receipt and shipment of goods. A) sales order B) bill of lading C) sales invoice D) customer order

B) bill of lading

The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the A) existence objective. B) completeness objective. C) ownership objective. D) valuation objective.

B) completeness objective.

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected? A) determination of correct delivery address B) credit approval C) matching of shipping document with sales invoice D) receipt of sales order from the customer

B) credit approval

When an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger purposefully enters cash received into the wrong customer's account that employee may be suspected of A) kiting. B) lapping. C) floating. D) shorting.

B) lapping.

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the A) accounts receivable subsidiary ledger. B) monthly statement. C) remittance advice. D) sales invoice.

B) monthly statement.

In many audits of sales transactions substantive tests of transactions can be reduced in determining the completeness objective because A) understatements of assets and income are a greater concern than overstatements. B) overstatements of assets and income are a greater concern than understatements. C) it doesn't matter if income is understated because the savings on income tax offsets the reduced revenue and net income is correct. D) the unrecorded sales cause a reduction of accounts receivable; therefore, the ratios of the two financial statements will not be misleading.

B) overstatements of assets and income are a greater concern than understatements.

When assessing risk control, the auditor must do all of the following except A) assess control risk for each objective by evaluating the controls and deficiencies for each objective. B) perform the detailed test of balances. C) identify the key internal controls and deficiencies. D) associate the key controls and deficiencies with the objectives.

B) perform the detailed test of balances.

The document that accompanies the customer's payment is the A) credit memo. B) remittance advice. C) vendor invoice. D) monthly statement.

B) remittance advice.

Smith Manufacturing Company's accounts receivable clerk has a friend who is also a customer of Smith Manufacturing. The accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned. The most effective procedure for preventing this activity is to A) prenumber and account for all credit memorandums. B) require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved. C) have independent sales and accounts receivable departments. D) mail monthly statements to customers.

B) require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved.

To test for recorded sales for which there were no actual shipments, the auditor vouches from the A) bill of lading to the sales journal. B) sales journal to the shipping documents. C) sales journal to the accounts receivable subsidiary ledger. D) bill of lading to the supporting customer order and sales order.

B) sales journal to the shipping documents.

An effective procedure to test for unfilled shipments is to trace from the A) sales journal to the shipping documents. B) shipping documents to the sales journal. C) sales journal to the accounts receivable ledger. D) sales journal to the general ledger sales account.

B) shipping documents to the sales journal.

Prenumbered documents will only be useful for control purposes if A) a different numerical sequence is used for each company. B) the sequence is accounted for periodically. C) employees are allowed to use documents out of numerical sequence. D) the same numerical sequence is used each accounting period.

B) the sequence is accounted for periodically.

The refusal of a client's legal counsel to provide a representation on the legality of a particular act committed by the client is ordinarily A. Sufficient reason to express a "subject to" opinion. B. Considered to be a scope limitation. C. Insufficient reason to modify the auditor's report because of the legal counsel's obligation of confidentiality. D. Proper grounds to withdraw from the engagement.

B. Considered to be a scope limitation.

The primary reason an auditor requests letters of inquiry be sent to a client's legal counsel is to provide the auditor with A. The probable outcome of asserted claims and pending or threatened litigation. B. Corroboration of the information furnished by management about litigation, claims, and assessments. C. Legal counsel's opinion of the client's historical experiences in recent similar litigation. D. A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.

B. Corroboration of the information furnished by management about litigation, claims, and assessments.

Which of the following statements is true concerning statistical sampling in tests of controls? A. As the population size increases, the sample size should increase proportionately. B. Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements. C. There is an inverse relationship between the expected population deviation rate and the sample size. D. In determining the tolerable deviation rate, an auditor considers detection risk and the sample size.

B. Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements.

When the auditor performs tests of controls, the primary concern is A. Underreliance on substantive procedures. B. Overreliance on controls. C. Underreliance on controls. D. Incorrect acceptance of an account balance.

B. Overreliance on controls.

An auditor who wishes to test the completeness assertion for sales transactions should trace A. Sales journal entries to shipping documents. B. Shipping documents to the sales journal. C. Accounts receivable entries to sales invoices. D. Sales invoices to shipping documents.

B. Shipping documents to the sales journal.

Mailing disbursement checks and remittance advices should be controlled by the employee who A. Matches the receiving reports, purchase orders, and vendors' invoices. B. Signs the checks last. C. Prepares the daily voucher summary. D. Agrees the check register to the daily check summary

B. Signs the checks last.

Operating control of the check-signing machine normally should be the responsibility of the A. General accounting function. B. Treasury function. C. Legal counsel. D. Internal audit function.

B. Treasury function.

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 A. Merchandise received. B. Vendors' invoices. C. Canceled checks. D. Receiving reports.

B. Vendors' invoices.

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail room? A) The cashier prepares the daily deposit. B) The cashier makes the daily deposit at a local bank. C) The cashier posts the receipts to the accounts receivable subsidiary ledger cards. D) The cashier endorses the checks.

C) The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

Before goods are shipped on account, a properly authorized person must A) prepare the sales invoice. B) approve the journal entry. C) approve the customer's credit. D) verify that the unit price is accurate.

C) approve the customer's credit.

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts? A) company personnel B) temporary employees in the town where the lockbox is located C) bank employees D) company controller

C) bank employees

In many audits, no substantive tests of transactions are made for the ________ assertion on the grounds that understatement of sales is not a concern. A) accuracy B) existence C) completeness D) none of the above

C) completeness

When designing audit procedures, tracing of source documents to the customers subsidiary ledger and subsequently to the general ledger is done to satisfy what assertion? A) valuation B) cutoff C) completeness D) classification

C) completeness

A ________ indicates a reduction in the amount due from a customer because of returned goods or an allowance. A) bill of lading B) sales invoice C) credit memo D) monthly statement

C) credit memo

A ________ is a document that indicates a request for merchandise by a customer. A) sales invoice B) vendor invoice C) customer order D) sales order

C) customer order

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables? A. Reconcile receiving reports with related cash payments made just prior to the year end. B. Review the responses of accounts receivable confirmations for indications of disputes with customers. C. Compare cash payments made after the balance sheet date with the accounts payable trial balance. D. Examine a sample of creditor balances to supporting invoices, receiving reports, and purchase orders.

C. Compare cash payments made after the balance sheet date with the accounts payable trial balance.

In auditing accounts payable, an auditor's procedures most likely will focus primarily on the relevant assertion about A. Existence. B. Classification and understandability. C. Completeness. D. Valuation and allocation

C. Completeness.

If the objective of an auditor's test of details is to detect a possible understatement of sales, the auditor most likely would trace transactions from the A. Sales invoices to the shipping documents. B. Cash receipts journal to the sales journal. C. Shipping documents to the sales invoices. D. Sales journal to the cash receipts journal.

C. Shipping documents to the sales invoices.

Dual dating an auditor's report implies that A. The auditor performed all subsequent-events procedures through the latest of the two dates. B. The auditor is assuming no responsibility for events occurring subsequent to the date of the original report. C. The auditor is limiting his or her responsibility for events occurring subsequent to the date of the original report to the specific event referred to. D. The specific event referred to is unaudited.

C. The auditor is limiting his or her responsibility for events occurring subsequent to the date of the original report to the specific event referred to.

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses the risk of overreliance too low. The most likely explanation for this situation is that A. The deviation rates of both the auditor's sample and the population exceed the tolerable rate. B. The deviation rates of both the auditor's sample and the population are less than the tolerable rate. C. The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate. D. The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate.

C. The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.

Which of the following is an accurate statement relating to separation of duties? A) Management should deny cash access to anyone responsible for entering sales and cash receipts transaction information into the computer. B) All disagreements on the monthly statements should be directed to a designated person who has no responsibility for handling cash or recording sales or accounts receivable. C) The credit granting function should be separate from the sales function. D) All of the above are accurate statements.

D) All of the above are accurate statements.

Which one of the following best describes the auditors responsibilities regarding appropriate authorizations in the sales/collections cycle? A) Credit must be authorized before the sale. B) Goods must be shipped after the authorization C) Prices must be authorized. D) All of the above should be of concern to the auditor.

D) All of the above should be of concern to the auditor.

Which of the following is not an important aspect of billing? A) All shipments made have been billed. B) No shipment has been billed more than once. C) Each customer is billed for the proper amount. D) Credit is approved to customers for sales on account.

D) Credit is approved to customers for sales on account.

Which of the following is an account that is not affected by the sales and collection cycle? A) cash B) accounts receivable C) allowance for doubtful accounts D) accounts payable

D) accounts payable

Which accounts are involved in the sales class of transactions? A) accounts receivable and sales returns and allowances B) cash and allowance for uncollectible accounts C) sales allowances and accounts receivable D) accounts receivable and sales

D) accounts receivable and sales

In the accounts receivable master file, the length of time the account has been due can be useful to the client and the auditor in preparing the A) trial balance. B) working trial balance. C) accounts receivable trial balance. D) aged accounts receivable trial balance.

D) aged accounts receivable trial balance.

When assessing planned control risk for sales, A) the key internal controls and deficiencies for sales will be the same for every company. B) the audit objectives for sales will differ from company to company. C) a flowchart is required to help assess control risk for sales. D) assessing control risk for sales is a highly subjective decision.

D) assessing control risk for sales is a highly subjective decision.

The total of the individual account balances in the accounts receivable master file should equal the A) total sales for the period. B) balance of the sales account in the general ledger. C) total sales less the total cash received for the period. D) balance of the accounts receivable account in the general ledger.

D) balance of the accounts receivable account in the general ledger.

What event initiates a transaction in the sales and collection cycle? A) receipt of cash B) delivery of product to a customer C) identification of a new customer D) customer request for goods or services

D) customer request for goods or services

Which of the following is not one of the five classes of transactions included in the sales and collection cycle? A) sales returns and allowances B) write-off of uncollectible accounts C) bad debt expense D) interest income

D) interest income

Except for two key differences, the transaction-related audit objectives are essentially the same for the processing of credit memos as they are for sales. Which of the following are the two key differences? A) risk and emphasis on the completeness objective B) materiality and emphasis on the accuracy objective C) risk and emphasis on the classification objective D) materiality and emphasis on the occurrence objective

D) materiality and emphasis on the occurrence objective

An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the A) sales register to the accounts receivable ledger. B) sales register to the meter department records. C) accounts receivable ledger to the sales register. D) meter department records to the sales register.

D) meter department records to the sales register.

Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales transaction? A) granting of credit B) shipment of goods C) determination of discounts D) selling of goods for cash

D) selling of goods for cash

If the objective of a test of details is to detect overstatements of sales, the auditor should compare transactions in the A. Cash receipts journal with the sales journal. B. Sales journal with the cash receipts journal. C. Source documents with the accounting records. D. Accounting records with the source documents.

D. Accounting records with the source documents.

The appropriate date for the client to specify as the effective date in the audit inquiry to legal counsel is A. The balance-sheet date. B. Seven working days after the request is received by legal counsel. C. The date of the audit inquiry itself. D. As close to the date of the auditor's report as possible.

D. As close to the date of the auditor's report as possible.

In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate? A. Variables. B. Stratified. C. Ratio. D. Attributes.

D. Attributes.

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 A. Occurrence. B. Rights and obligations. C. Valuation and allocation. D. Completeness.

D. Completeness.

If a subsequently discovered fact becomes known to the auditor before the release of the audit report, the auditor should A. Modify the opinion and dual date the audit report. No additional audit procedures are required. B. Date the audit report as of the original date of the auditor's report and caption the note disclosing the subsequent event as being subsequent to the completion of the audit procedures. C. Not modify the audit opinion if the event is properly disclosed and date the audit report as of the original date of the auditor's report. D. Either dual date the audit report or date the audit report as of the time of the completion of the extended audit procedures.

D. Either dual date the audit report or date the audit report as of the time of the completion of the extended audit procedures.

When an auditor uses monetary-unit sampling to examine the total value of invoices, each invoice A. Has an equal probability of being selected. B. Can be represented by no more than one monetary unit. C. Has an unknown probability of being selected. D. Has a probability proportional to its monetary value of being selected.

D. Has a probability proportional to its monetary value of being selected.

Monetary-unit sampling (MUS) is most useful when the auditor A. Is testing the accounts payable balance. B. Cannot cumulatively arrange the population items. C. Expects to find several material misstatements in the sample. D. Is concerned with overstatements.

D. Is concerned with overstatements.

The auditor failed to recognize a deviation included in a sample intended to test controls related to a transaction process. This failure best reflects A. Statistical risk. B. Sampling risk. C. Audit risk. D. Nonsampling risk.

D. Nonsampling risk.

Which of the following controls is most effective in providing assurance that recorded purchases are free of material errors? A. The receiving department compares the quantity ordered on purchase orders with the quantity received on receiving reports. B. Vendors' invoices are compared with purchase orders by an employee who is independent of the receiving department. C. Receiving reports require the signature of the individual who authorized the purchase. D. Purchase orders, receiving reports, and vendors' invoices are independently matched in preparing vouchers.

D. Purchase orders, receiving reports, and vendors' invoices are independently matched in preparing vouchers.

If internal control is properly designed, the same employee may be permitted to A. Receive and deposit checks and also approve write-offs of customer accounts. B. Approve vouchers for payment and also sign checks. C. Reconcile the bank statements and also receive and deposit cash. D. Sign checks and also cancel supporting documents.

D. Sign checks and also cancel supporting documents.

Which of the following would be a consideration in planning an auditor's sample for a test of controls? A. Preliminary judgments about materiality levels. B. The auditor's allowable risk of underreliance. C. The level of detection for the account. D. The auditor's allowable risk of overreliance.

D. The auditor's allowable risk of overreliance.

On January 15, Year 2, before the Mapleview Co. released its financial statements for the year ended December 31, Year 1, it settled a long-standing lawsuit. A material loss resulted and no prior liability had been recorded. How should this loss be disclosed or recognized? A. The loss should be disclosed in notes to the financial statements, but the financial statements themselves need not be adjusted. B. The loss should be disclosed in an explanatory paragraph in the auditor's report. C. No disclosure or recognition is required. D. The financial statements should be adjusted to recognize the loss.

D. The financial statements should be adjusted to recognize the loss.

Statistical sampling may be used to test the effectiveness of controls. The auditor's procedures should result in a statistical conclusion about A. Population characteristics occurring at least once in the population. B. The population value not being misstated by more than a fixed amount. C. Monetary precision exceeding a certain predetermined amount. D. The relation of the population deviation rate to the tolerable rate.

D. The relation of the population deviation rate to the tolerable rate.

In regard to an auditor's primary concern in an audit of liabilities, tracing vendor invoices to the accounts payable ledger is most useful in detecting A. Unsupported entries in the accounts payable ledger. B. Overstatement of purchases. C. Overstatement of accounts payable. D. Understatement of trade payables.

D. Understatement of trade payables.

A CPA is testing sales transactions. What procedure may (s)he use to test for posting of fictitious accounts receivable? A. Tracing a sample of sales invoices to the accounts receivable subsidiary ledger. B. Sending out negative confirmations. C. Tracing a sample of shipping documents and sales invoices to the sales journal. D. Vouching debits in the accounts receivable ledger to sales invoices and shipping documents.

D. Vouching debits in the accounts receivable ledger to sales invoices and shipping documents.