Final Audit 2 Practice Questions

Confirmations of accounts receivable provide evidence primarily about which two assertions? a. Completeness and valuation/Accuracy. b. Valuation and rights and obligations. c. Existence and Valuation/Accuracy. d. Existence and Presentation/Disclosure.

1) C- Existence and Valuation/Accuracy.

1. The purchasing or procurement process involves selecting customers, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities. A. True B. False

1. ANSWER: B- FALSE- The purchasing or procurement process involves selecting vendors, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities.

Which of the following procedures is most likely to be performed before the balance-sheet date by a competent auditor seeking the most effective evidence (HINT: Think about the difference between Effective and efficient)? A) Observation of inventory B) Review of internal control over cash disbursements C) Search for unrecorded liabilities

10) Answer: B) Review of internal control over cash disbursements

10. Inventory/Accounts payable should be recorded when the goods are shipped by the vendor (leave the warehouse of the Vendor) if the terms are FOB destination. A. True B. False

10. ANSWER. B- False- Inventory/Accounts payable should be recorded when the good are received by the company at their own warehouse facility if the terms are FOB destination

11. If a company receives goods but waits to record the transaction until a vendor's invoice is received, _______. A. purchases will be overstated and accounts payable will be understated B. purchases and accounts payable will be understated C. purchases and accounts payable will be overstated D. purchases will be understated and accounts payable will be overstated

11. ANSWER: B- purchases and accounts payable will be understated.

One major concern when auditing PP&E is the expensing vs _____________ of costs related to maintenance/additions.

11. ANSWER: Capitalizing.

A request by an authorized employee to purchase is made on the a. Credit memo. b. sales order. c. purchase requisition form. d. acquisition transaction file.

12)C. Purchase Requisition Form

12. The Four Key assertions relating to accounts payable account balances are _______. A. existence, rights and obligations, truthfulness, valuation and allocation B. presentability, rights and obligations, completeness, valuation and allocation C. existence, rights and obligations, going concern, valuation and allocation D. existence, rights and obligations, completeness, valuation and allocation

12. ANSWER- D- existence, rights and obligations, completeness, valuation and allocation

When auditing accounts payable, auditors are usually especially concerned about the a. Presentation & Disclosure and completeness objectives. b. Completeness and cutoff objectives. c. Existence and cutoff objectives. d. Existence and accuracy objectives.

13) B. Completeness and cutoff objectives.

13. If a company is growing, it is common to expect purchases, inventory, and _______. A. accounts payable to grow at approximately the same rates B. accounts receivable to grow at approximately the same rates C. accounts receivable to grow at different rates D. accounts payable to grow at different rates

13. ANSWER- A- accounts payable to grow at approximately the same rates

An important control in the accounts payable and EDP departments is to require that those personnel who record acquisitions do not have access to a. vendors' price lists. b. the accounts payable master file. c. lists of vendors' names and addresses. d. cash, marketable securities, and other assets.

14) D. Cash, marketable securities, and other assets.

14. A primary purchase of Credit Check control in the Revenue/Receivable cycle is to: A. Reduce the risk of buying bad quality inventory. B. Reduce the risk of giving too little sales to a customer. C. Reduce the risk of giving credit to customers who might not pay the company back resulting in bad-debt expense. D. Reduce the risk of duplicate purchases of inventory items.

14. ANSWER- C. Reduce the risk of giving credit to customers who might not pay the company back resulting in bad-debt expense.

The auditor's internal control objective to determine that "recorded acquisitions (Purchase of Inventory) are for goods actually received" satisfies the audit objective of a. Accuracy/valuation. b. Existence/occurrence. c. Presentation & Disclosure. d. Completeness.

15) B. Existence/occurrence.

15. What is a benefit of using Credit memos for a company as a control? __________________________________________________________________________

15. ANSWER- Credit Memo's Reduce the risk that management could record fraudulent revenue in December and cancel is out in January/February of the following year (Management Fraud). They also reduce the risk of employee who receives the cash stealing customer payments for account receivables and booking a credit to accounts receivable to hide the theft (Employee Fraud/ misappropriation of assets) if the employee has performs both activities.

The tests of details of balances procedure which requires the auditor to physically examine assets satisfies the audit objective of a. cutoff. b. existence. c. classification. d. completeness.

16) B. Existence.

16. If an Accts Receivable Confirmation is not received the auditor can do which of the following: A. Send out a second or third confirmation request B. Review Receipts of Cash after year end (January/February of the following year) to see if the customer paid the Accts Receivable off. C. Reviewing the original shipping documents (bill of Lading), Customer Invoice, and customer sales order to verify if it was a real sale/receivable. D. All of the above.

16. ANSWER- D. All of the above.

17. For the fiscal year ending December 31, previous year and the current year, Johnny Boy Co. had the following changes in account growth (see table below). Which of the following best represents the conclusions drawn? ACCOUNT: Current Year: Prior Year: 2 years ago: Revenue 3.9% 3.0% 2.7% Accounts receivable growth 2.8% 2.0% 1.8% A. Revenue is growing too quickly and could be overstated. B. Accounts Receivable is growing faster than revenue and could indicate a possible understatement of allowance for bad debt expense. C. Inventory could be overstated. D. Revenue and Accounts receivable growth are moving in line with each other and do not indicate anything particularly unusual at this data point. E. COGS could be understated

17. ANSWER- D. Revenue and Accounts receivable growth are moving in line with each other and do not indicate anything particularly unusual at this data point.

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the PCAOB assertion of: A) completeness. B) existence. C) presentation. D) valuation. E) rights and obligations.

17. D) valuation.

For a given audit risk, what is the effect on substantive tests of determining that RMM is low (Inherent risk is low & Control risk is low)? a. DR decreases b. Timing increases c. Materiality decreases d. Less rigorous procedure may be employed. (EX:Test invoices, send negative confirmation, perform inquiries rather than observation or sending positive confirmations)

18) D- Less rigorous procedure may be employed. (EX:Test invoices, send negative confirmation, perform inquiries rather than observation or sending positive confirmations).

18. If a company does not have a control to compare Invoices sent to customers with Bill of Lading (shipping Documents), there is a risk of: A. Potentially overstatement of Revenue- Due to fake invoices for sales without any goods actually shipped. B. Potential understatement of Revenue- Due to fake invoices for sales without any goods actually shipped. C. Potential overstatement of Revenue- Due to customers that might not be able to pay the company back due to inappropriate issuance of credit. D. Potential understatement of Revenue- Due to customers that might not be able to pay the company back due to inappropriate issuance of credit.

18. ANSWER- A. Potentially overstatement of Revenue- Due to fake invoices for sales without any goods actually shipped.

When using the audit risk model, which is true about control risk [AR] and inherent risk [IR]? a. They vary inversely. b. They have no relationship. c. They vary directly. d. They depend on the risk of material misstatement.

19) B- No Relationship.

19. Revenue cycle- When Goods/Items are returned by customers they should send the goods to the companies accounts receivable department directly. A. True B. False

19. ANSWER- B. False- the goods should be sent to the Warehouse/Receiving Department.

You are finalizing your approach to auditing accounts receivable and the partner on the engagement e-mailed you the following questions. True or False i. The confirmation requests are required on every audit? ii. It's OK for the client to mail the confirmation on our behalf? iii. Blank confirmation are more efficient than negative confirmation (i.e. blank confirmations will get a higher response rate). iv. Account Receivables confirmation must be sent no- matter what on every audit?

2)i. B, ii. B, iii. B, iv. B

2. The auditor is studying a ratio of accounts payable turnover in days. If the ratio went from 45 days to 60 days this indicates a potential risk of unrecorded liabilities. (T/F) (Think back to what this ratio means when the number of days increase or decrease, is the auditor taking longer or less time to pay back its liabilities/accounts payable.) A. True B. False

2. ANSWER: B. False- the ratio/# of days going up means the company is recording more liabilities/AP and taking longer to pay them. OPPOSITE- If the ratio went down that could be indicative of an auditor hiding liabilities/ AP.

20. If the company defers recording revenue to January of the following year, what would be the result to revenue/receivables: A. Both sales nor accounts receivable would be overstated in the current year. B. Both sales and accounts receivable would be understated in the current year. C. Accounts receivable would be overstated, but not sales, in the current year. D. Sales would be understated, not accounts receivable, in the current year.

20. ANSWER- B. Both sales and accounts receivable would be understated.

If a customer pays its receivable in full but a client fails to record cash received from the customer, which of the following account balance assertions related to accounts receivable is misstated? A. Existence. B. Rights and obligations. C. Valuation at net realizable value. D. Completeness.

20.ANSWER: A Existence.

An auditor usually traces the details of the test counts made during the observation of physical inventory counts to a final inventory compilation. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are a. Owned by the client. (Rights/Obligation) b. Not obsolete. (Valuation/Accuracy) c. Physically present at the time of the preparation of the final inventory schedule. (Existence/Occurrence) d. Included in the final inventory schedule. (Completeness)

21) D.Included in the final inventory schedule. (Completeness)

21. If control risk was low with respect to inventory, the auditor would most likely: A. Test controls during the year and focus on client scheduling the physical inventory count at an interim date (June, September, etc.) B. Not test controls, and focus on client scheduling the physical inventory count at the end of the year. C. Perform only Analytical procedures, and not test of controls, or physical inventory count. D. None of the above.

21. ANSWER- A. Test controls during the year and focus on client scheduling the physical inventory count at an interim date (June, September, etc.)

When auditing inventories, an auditor would least likely verify or spend the least amount of effort testing (Think of which Assertions are the most important to test) that: a. All inventory owned by the client is on hand at the time of the count or accounted for as FOB shipping point / FOB Destination. b. The client has used proper inventory pricing. c. The financial statement presentation of inventories is appropriate. d. Damaged goods and obsolete items have been properly accounted for. e. The risk company is under-reporting inventory.

22) E. The Risk the company is under-reporting inventory.

22. In auditing long-term bonds payable, an auditor most likely would A. Confirm the existence of individual bondholders at year end. B. Compare interest expense with the bond payable amount for reasonableness. C. Perform analytical procedures on the bond premium and discount accounts. D. Examine documentation of assets purchased with bond proceeds for liens.

22. ANSWER- B- Compare interest expense with the bond payable amount for reasonableness.

An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about a. Existence. b. Rights and obligations. c. Completeness. d. Valuation.

23) A. Existence

23. Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting? A. Prepare year-end bank reconciliation. B. Review subsequent bank statements and canceled checks received directly from the bank. C. Review authenticated deposit slips. D. Prepare a schedule of bank transfers from the client's books.

23. ANSWER- D- Prepare a schedule of bank transfers from the client's books.

The purpose of tracing a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items a. Represented by tags were included on the listing. b. Included on the listing were properly counted. c. Represented by tags were reduced to the lower of cost or market. d. Included in the listing were properly valued.

24) A. Represented by tags were included on the listing.

Confirmation of individual accounts receivable balances directly with debtors (customer) will, of itself, normally provide the strongest evidence concerning the a. Completeness of Accounts Receivable. b. Ownership of the balances confirmed. c. Existence of the balances confirmed. d. Internal control over balances confirmed.

25) C. Existence of the balances confirmed.

25. In the audit of inventory, selecting inventory items from a perpetual master file, going to the locations, and obtaining test counts is intended to produce evidence for which audit assertion? A. Completeness. B. Rights and obligations. C. Valuation and allocation. D. Existence.

25. ANSWER- D- Existence.

Tests designed to detect valid sales that occurred before the end of the year but have been recorded in the subsequent year would provide assurance about management's assertion of a. Presentation and disclosure. b. Completeness /Cutoff. c. Rights and obligations. d. Existence.

26) B. Completeness/Cutoff

26. Which of the following would represent the best evidence for testing the net realizable value of inventory? A. Vouch inventory prices to vendor invoices at an interim date. B. Vouch inventory prices to the perpetual inventory. C. Investigate all prices that have decreased by more than 5% during the year. D. Investigate sales prices on the sale of inventory made after year-end.

26. ANSWER- D- Investigate sales prices on the sale of inventory made after year-end.

Which of the following procedures would provide the most reliable audit evidence? a. Inquiries of the client's internal audit staff. b. Inspection of prenumbered client purchase orders filed in the vouchers payable department. c. Inspection of vendor sales invoices received from client personnel. d. Inspection of bank statements obtained directly from the client's financial institution (the Bank).

27) D. Inspection of bank statements obtained directly from the client's financial institution (the Bank).

27. A Typical Audit Strategy for Testing Accounts like PP&E and Common stock is: __________________________________.

27. Rollforward approach involves use of a combination of agreeing beginning balances to prior year working papers and then testing transactions during the year.

Which of the following combinations would provide the auditor the most reliable evidence? Source of Evidence Effectiveness of Internal Control a. Internal More effective b. Internal Less effective c. External More effective d. External Less effective

28) C. External & More effective

28. While authorizing bonds and capital stock issuance, the board of directors usually authorizes financing transactions based on the entity's strategic plans and investing activities. A. True B. False

28. ANSWER- A- True

29. The most important control over the existence, completeness, and valuation of cash balances _______. (Pick the best control from the choices below.) A. is written representation by senior management with respect to the accuracy of the cash balance B. is to defer cash collection for as long as possible C. is immediate collection of cash by companies D. is an independent bank reconciliation

29. ANSWER- D- is an independent bank reconciliation

PCAOB AS 2310, The Confirmation Process and AU-C 505 state there is a presumption that the auditor will request the confirmation of receivables during an audit unless there are special conditions. Which of the following are among these conditions? a. The use of confirmations would be ineffective as an audit procedure. (i.e. Low response rate) b. The auditor's assessed level of risk of material misstatement at the relevant assertion level is high. c. No other planned substantive procedures address the assessed risk. d. Accounts receivable are immaterial to the financial statements.

29. ANSWER: A, D

You are finalizing your approach to auditing revenue & accounts receivable and an intern on the engagement e-mailed you the following questions. True (A) or False (B) i. When obtaining evidence about accounts receivable, auditors should primarily focus on testing the Presentation & Disclosure assertions. ii. When obtaining evidence about revenue, one of the assertion the auditors should primarily focus on testing is the Cutoff assertion. iii. Alternative procedures for accounts receivable confirmations means testing when a confirmation is not received back and can include looking at subsequent cash payment after 12/31 by customers, looking at bill of lading, invoices, purchase order, or approved sales orders. iv. Tracing tests the completeness assertion. v. Vouching tests the existence/occurrence assertion.

3)i) B.False ii) A.True iii) A. True iv) A. True v) A. True

3. The transaction flow in a typical purchases process for a client purchasing goods includes approving purchases, shipping goods, recording purchases and recording accounts payable. A. True B. False

3. ANSWER: B. False- The transaction flow in a typical purchases process for a client purchasing goods includes approving purchases, receiving goods, recording purchases and recording accounts payable.

Which of the following help the fraudster sometimes solve the problem of having to continue the process of lapping? a. Accounting for a payment as coming from two different customers b. Covering the shortage from a customer with funds from another customer c. Writing off part of a customer's balance through a journal entry d. Falsifying a sale adjustment to reduce the receivable

30.ANSWER: C, D

The purchasing process normally includes all of the following transactions: a. purchases on account, purchase returns, and cash disbursements. b. purchases on account, purchase returns, and cash receipts. c. purchases of inventory, plant and equipment, and depreciation. d. purchases, inventory transactions, and cash receipts.

31. ANSWER: A. purchases on account, purchase returns, and cash disbursements.

Which of the following IT application control procedures would be most effective in assuring that recorded purchases are accurately recorded for transactions that actually occurred? a. Vendor invoice information is compared with purchase order information. b. The software application compares the quantity ordered from purchase order information with the quantity received from the receiving department. c. Receiving reports require the signature of the individual who authorized the purchase. d. The software application matches voucher information with information supporting purchase orders, receiving reports, and vendor invoices.

32. ANSWER: D. The software application matches voucher information with information supporting purchase orders, receiving reports, and vendor invoices.

Which of the following controls would most likely prevent a vendor's invoice from being paid twice? a. The software application compares the daily total in the cash disbursements journal with the total vouchers submitted for payment. b. An independent bank reconciliation is prepared. c. The software application compares information on the check with information on the receiving report. d. The software application has a field that identifies a vendor's invoice has been paid and the voucher number cannot be reused.

33. ANSWER D. The software application has a field that identifies a vendor's invoice has been paid and the voucher number cannot be reused.

Procurement fraud risks include _______. a. phantom vendors b. fictitious invoices c. kickbacks and bid rigging d. All of these answer choices are correct

34. ANSWER: D. All of these answer choices are correct

An auditor decided to confirm accounts payable to accomplish a low level of detection risk for the completeness assertion. Which of the following is the most reasonable sampling plan? (Remember for accounts payable the auditor is trying to find payables the company might be trying to hide.) a. Confirm accounts payable with an emphasis on all vendors including zero and small balances. b. Confirm accounts payable with an emphasis on the largest account payables. c. Confirm accounts payable with an emphasis on new vendors, irrespective of the size of the account balance. d. Confirm accounts payable using probability-proportionate to-size sampling.

35. ANSWER: A. Confirm accounts payable with an emphasis on all vendors including zero and small balances.- This will help the auditor most in catching payables the company might have been trying to hide, or forgotten to record.

Procurement fraud risks include _______. a. phantom vendors b. fictitious invoices c. kickbacks and bid rigging d. All of these answer choices are correct

36. ANSWER: D. All of these answer choices are correct

Goods in transit shipped FOB (free-on-board) destination should _______. a. remain in the inventory of the buyer and be included from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department. b. remain in the inventory of the seller and be included from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department. c. remain in the inventory of the buyer and be excluded from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department. d. remain in the inventory of the seller and be excluded from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department.

37. ANSWER: D. remain in the inventory of the seller and be excluded from the purchaser's inventory and accounts payable until arrival at the purchasing entity's receiving department.

The search for unrecorded liabilities consists of procedures designed specifically to detect _______. a. significant unrecorded obligations from inventory at the balance sheet date (or as of an interim date) b. significant unrecorded obligations from sale transaction at the balance sheet date (or as of an interim date) c. significant unrecorded obligations from PP&E at the income statement date (or as of an interim date) d. significant recorded obligations from Equity Transactions at the balance sheet date (or as of an interim date) e. insignificant unrecorded obligations due to LT debt at the balance sheet date (or as of an interim date)

38. ANSWER: A- This is correct because the auditor cares about (i)"Significant" transactions, (ii)"unrecorded obligations," and (iii) Transactions that create liabilities such as: purchase of "Inventory," "PP&E," and Issuance of LT Debt. The only choice that meets all three criteria is A.

4. A Cash Disbursements Journal is a daily report showing checks written or electric funds transferred to vendors and amounts paid. A. True B. False

4. ANSWER: A. True

i. Confirmation of Cash and Accounts receivable probably best tests which assertion? A) Presentation/Disclosure. B) Completeness/Cutoff. C) Rights/Obligations. D) Existence/Occurrence. E) Accuracy/Valuation. ii. Testing whether the allowance of doubtful accounts was adequate tests which assertion? A) Presentation/Disclosure. B) Completeness/Cutoff. C) Rights/Obligations. D) Existence/Occurrence. E) Accuracy/Valuation.

4. i. D. Existence/Occurrence. ii. E. Accuracy/Valuation.

When auditing LT debt and Equity one key audit procedure usually involves reviewing the ______________ minutes for authorization.

45. ANSWER: Board of Director

Which of the following procedures may be useful to the auditor in determining whether all retirements of PP&E have been recorded? (Several choices may be correct.) a. Investigating the disposition of facilities associated with discontinued product lines and operations. b. Analyzing the miscellaneous revenue accounts for proceeds from sales of plant assets. c. Making inquiry of company investors about retirements. d. Reviewing insurance policies for termination or reductions of coverage.

46. ANSWER: A, B, D

Cash and cash equivalents typically include _______. a. cash in the bank. b. imprest accounts, such as a payroll account. c. cash equivalents, such as money market funds. d. All of these answer choices are correct.

47. ANSWER: D. All of these answer choices are correct.

The most important control over the existence, completeness, and valuation of cash balances _______. a. is immediate collection of cash by companies b. is an independent bank reconciliation c. is written representation by senior management with respect to the accuracy of the cash balance d. is to defer cash collection for as long as possible

48. ANSWER: B. is an independent bank reconciliation

An important rights and obligations issue for inventory _______. a. deals with the valuation of inventory on the income statement b. deals with inventory that has been sold in the normal course of business c. involves consignment inventory d. deals with senior managements potential ownership of inventory

49.ANSWER: C. involves consignment inventory

5. A voucher is an external document indicating the vendor, the amount due, and payment terms for the purchases received. A. True B. False

5. ANSWER: B. False- A voucher is an INTERNAL document indicating the vendor, the amount due, and payment terms for the purchases received. It is used to authorize recording and paying a liability.

The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations. When looking at the ending balance for the fixed asset account the auditor examined all work orders, purchased materials, labor cost reports, and applied overhead that were capitalized as part of the equipment costs. Which of the following is assertion most closely related to the auditor's testing? A) Existence. B) Completeness. C) Rights and obligations. D) Accuracy/Valuation.

5. D) Accuracy/Valuation.

The assertions pertaining to inventory typically tested by the auditor are _______. a.cutoff, existence, disclosure b. completeness, valuation, cutoff c. rights and obligations, disclosure, going concern d. existence, valuation, and rights & obligations

50.ANSWER: D. existence, valuation, and rights & obligations

If ending inventory is understated, _______. a. accounts receivable balances will be overstated b. cost of goods sold will be overstated c. accounts payable balance will be understated d. cost of goods sold will also be understated

51. ANSWER: B. cost of goods sold will be overstated

When auditing balance sheet accounts (inventory, Accounts Receivable, PP&E, etc.) that are assets the auditor is concerned more about _______statement of the amount.

52. ANSWER: overstatement

Which of the following audit procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories? A) Trace test counts noted during the physical count of inventory to the summarization of quantities. B) Inspect agreements for evidence of inventory held on consignment. C) Select the last few shipping advices used before the physical count and determine whether the shipments were recorded as sales. D) Inspect the open purchase order file for significant commitments to consider for disclosure.

6) B) Inspect agreements for evidence of inventory held on consignment.

6. A Purchase Return Authorization is a form showing the description, quantity, and other data pertaining to the goods the vendor has authorized the purchaser to return. A. True B. False

6. ANSWER: A. True

An auditor most likely would inspect additions to the audit client's Property, Plant, and Equipment account to obtain evidence concerning management's assertions about: A) existence or occurrence. B) rights and obligations. C) presentation and disclosure. D) valuation or allocation.

7) A) existence or occurrence.

7. The purchase cutoff test involves determining that purchase transactions occurring near the balance sheet date are recorded in the proper period. A. True B. False

7. ANSWER: A. True

Which of the following is a substantive test that an auditor most likely would perform to verify the existence and valuation of recorded accounts payable? A) Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for. B) Receiving the client's unopened mail for a reasonable period of time after year-end to search for unrecorded vendor's invoices. C) Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports. D) Confirming accounts payable balances with known vendors and suppliers who have zero balances at year-end.

8) C) Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.

8. An entity's purchasing process consists of _______. A. repurchasing shares of stock from shareholders B. activities related to the acquisition of, and payment for, goods and services C. activities related to the selling of, and payment received for, goods and services D. refinancing loans and notes payable with a bank

8. ANSWER- B- Activities related to the acquisition of, and payment for, goods and services

Letters can be re-used Column A ___________i. Cash ___________ii. Accounts Receivable ___________iii. Liabilities ___________iv. Expenses ___________v. Revenue Column B A. Existence or occurrence & Valuation or accuracy B. Rights and obligations & Presentation and disclosure C. Completeness / Cutoff & Valuation or accuracy D. Existence or occurrence & Completeness / Cutoff

9) Answer: i. A- Existence or occurrence & Valuation or accuracy ii. A- Existence or occurrence & Valuation or accuracy iii. C- Completeness / Cutoff & Valuation or accuracy iv. C- Completeness / Cutoff & Valuation or accuracy v. D.- Existence or occurrence & Completeness / Cutoff

9. Revenue should be recorded once the cash payment from the customer is received. A. True B. False

9. ANSWER. B- False- Revenue should be recorded when the performance obligation is satisfied, ex: good are shipped, service is provided.

24. Which of the following cash transfers results in a misstatement of cash at December 31, 2022? Bank Account Sending Cash Bank Account Receiving Cash Cash Disbursement per Books Cash Paid by the Bank Cash Receipt per Books Cash Received by the Bank A. 1/4/23 1/4/23 12/31/22 12/31/22 B. 12/31/22 1/5/23 12/31/22 1/4/23 C. 12/31/22 1/4/23 12/31/22 1/5/23 D. 1/3/23 1/5/23 1/4/23 1/4/23

Bank Account Sending Cash Bank Account Receiving Cash Cash Disbursement per Books Cash Paid by the Bank Cash Receipt per Books Cash Received by the Bank A. 1/4/23 1/4/23 12/31/22 12/31/22 The above wire indicated that the 2nd Bank account receiving cash booked the cash as received as of December 31, 2022, but the money was not removed from the 1st bank account sending the cash until January, 2023. This could result in an overstatement of cash by one account showing additional cash and the second bank account not showing the reduction until after year-end.

In the audit of inventory, selecting inventory items from a perpetual master file, going to the locations, and obtaining test counts is intended to produce evidence for which audit assertion? a. Rights and obligations. b. Completeness. c. Existence. d. Valuation and allocation.

c. Existence.

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting when auditing Cash? a. Prepare year-end bank reconciliation. b. Review subsequent bank statements and canceled checks received directly from the bank. c. Prepare a schedule of bank transfers from the client's books. d. Review authenticated deposit slips.

c. Prepare a schedule of bank transfers from the client's books.

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting? a. Prepare year-end bank reconciliation. b. Review subsequent bank statements and canceled checks received directly from the bank. c. Prepare a schedule of bank transfers from the client's books. d. Review authenticated deposit slips.

c. Prepare a schedule of bank transfers from the client's books.

A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is low, an auditor would probably: a. request the client to schedule the physical inventory count at the end of the year. b. insist that the client perform physical counts of inventory items several times during the year. c. observe the client's inventory count at an interim date. d. increase the extent of tests of controls over inventory.

c. observe the client's inventory count at an interim date.

The primary objective of a CPA's observation of a client's physical inventory count is to: a. provide an appraisal of the quality of the merchandise on hand on the day of the physical count. b. allow the auditor to supervise the conduct of the count to obtain assurance that inventory quantities are reasonably accurate. c. obtain direct knowledge that the inventory exists and has been properly counted. d. discover whether a client has counted a particular inventory item or group of items.

c. obtain direct knowledge that the inventory exists and has been properly counted.

When auditing a fixed asset account such as land, buildings, and equipment, the auditor will normally: a. vouch the book value of fixed assets to underlying purchase documents. b. trace transactions from receiving documents to recording of the purchase. c. use a combination of of agreeing beginning balances to prior year working papers and then testing acquisition and disposal transactions during the year. d. place the greatest emphasis on tests of balances at year-end.

c. use a combination of of agreeing beginning balances to prior year working papers and then testing acquisition and disposal transactions during the year.