Final Audit Exam
Which of the following checks might indicate kitting?
#202 and #404
(confidence level) what was the upper occurrence limit
17%
(sample size chart) the minimum sample size should be
240
in testing a control, an auditor established an upper precision limit of 6%
47
a test of 200 invoices randomly selected by the auditor revealed that 35 had not been approved for payment.. at the 95% confidence level, what precision can be assigned
5.3%
(confidence level) what sample size is needed
56
(confidence level) how reliable will you conclude your sample results to be
95%
In the audit of which of the following types of profit-oriented enterprises is the auditor most likely to place special emphasis on testing the controls over proper classification of payroll transactions?
A manufacturing organization.
Which of the following internal control activities is not usually performed in the vouchers payable department?
Accounting for unused prenumbered purchase orders and receiving reports.
Which of the following controls is most effective in providing reasonable assurance that salary, wage, and benefit expenses are incurred only for work performed?
All time cards and reports are reviewed and approved in writing by immediate line supervisors having no responsibilities for paycheck distribution.
An auditor's analytical procedures indicate a lower than expected return on an equity method investment. This situation most likely could have been caused by
An error in recording amortization of the excess of the investor's cost over the investment's underlying carrying amount.
An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account, as of October 31. By this procedure, the auditor would be most likely to learn of which of the following?
An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period
Which of the following questions is inappropriate on an internal control questionnaire concerning purchase transactions?
Are intact cash receipts deposited daily in the bank?
The auditor's primary objectives in an audit of an investment in securities do not include determining whether the securities are
Authentic.
Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?
CFO
Which of the following control activities is not usually performed with regard to vouchers payable in the accounting department?
Controlling the mailing of the check and remittance advice.
In an audit of other assets, all of the following are done except
Determining that the asset is written off on a periodic basis.
The best audit procedure for determining the existence of open commodity futures contracts at year end is the review of
Direct confirmations with the client's commodity traders.
Which of the following cash transfers results in a misstatement of cash at December 31, Year 1?
Disbursement: recorded in books (1/4/yr 2) paid by bank (1/5/ yr 2) Receipt: recorded sin books (12/31/yr 1) received by bank (1/4/yr 2)
Effective control over the cash payroll function would mandate which of the following?
Each employee should be asked to sign a receipt.
Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?
Human resources
the diagram below depicts the.... as a result of testing controls the auditor
II
When auditing prepaid insurance, an auditor discovers that the original insurance policy on plant equipment is not available for inspection. The policy's absence most likely indicates the possibility of a(n)
Lien on the plant equipment.
Which of the following characteristics is most likely indicative of check kiting?
Low average balance compared with high level of deposits.
Which of the following situations represents an internal control weakness in the payroll department?
Paychecks are distributed by the employees' immediate supervisors.
In manufacturing environments, employees are often required to use time cards and job time tickets. Which is the false statement related to the use of these documents?
Payroll should be prepared from the job time tickets.
Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the client's employees?
Prepare a schedule of accounts payable.
An auditor would most likely verify the interest earned on bond investments by
Recomputing the interest earned on the basis of face amount, interest rate, and period held.
In the audit of which of the following general ledger accounts will tests of controls be particularly appropriate?
Sales
Which of the following procedures is least likely to be performed before the balance sheet date?
Search for unrecorded liabilities.
Organizational independence in the processing of payroll is achieved by functional segregations that are built into the system. Which one of the following functional segregations is not required for internal control purposes?
Segregation of payroll preparation and maintenance of year-to-date records.
Which of the following is not a principal objective of the auditor in the audit of revenues
To verify cash deposited during the year.
to safeguard the assets through effective internal control, accounts receivable that are written off should be transferred to
a separate ledger
(flowchart) symbol a most likely represents
accounts receivable master file
An auditor most likely would perform substantive tests of details on payroll transactions and balances when
analytical procedures indicate unusual fluctuations in recurring payroll entities.
A ban cutoff statement is least likely to detect 11.2.5. A ban cutoff statement is least likely to detect
application of cash receipts from one customer to another customer's account (lapping).
Once a CPA has determined that accounts receivable have increased because of slow collections in a tight money environment, the CPA is likely to
expand tests of collectability
which of the following combinations results in a decrease in sample size in an attribute sample
increase, increase, decrease
in addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. the auditor most likely would give broader consideration to the implications of a deviation if it was
initially concealed by a forged document
for which of the following audit tests would an auditor most likely use attribute sampling?
inspecting employee time cards for proper approval by supervisors
using a reliability level of 99% an unexpected deviation rate of 10% and a sample size of 195, the precision is
more than 5%
In a well-designed internal control system, employees in the same department most likely would approve purchase orders, and also
negotiate terms with vendors.
Matthews Corp. has changed from a system of recording time worked on time clock cards to a computerized payroll system in which employees record time in and out with magnetic cards. The computer system automatically updates all payroll records. Because of this change
part of the audit trail is altered
For the purpose of effective internal control, postdated checks received from customers should be
restrictively endorsed
The most effective audit procedure for determining the collectability of an account receivable is the
review of the subsequent cash collections.
An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to
seek information about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation.
At which point in an ordinary sales transaction of a wholesaling business would a lack of specific authorization be of least concern to the auditor?
selling of goods for cash
to gather audit evidence that uncollected items in marvel company's customers' accounts represented valid trade receivables, the auditor should select a sample of items from the population represented by the
subsidiary customers' accounts ledger
(POS System questions) which of the following controls allowed the fraud to occur?
the accounting for customer food checks by the supervisor
An auditor will ordinarily ascertain whether payroll checks are properly endorsed during the audit of
the payroll register.
Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate internal control over the invoicing function allows goods to be shipped that are not invoiced. The inadequate controls could cause an
understatement of revenues and receivables and an overstatement of inventory
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.
For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve
write offs of customer accounts
A firm has recently converted its purchasing cycle from a manual system to an online computer system. The internal auditor in charge of the first post-implementation audit of the new system has access to a generalized audit software package. One audit objective is to determine whether all material liabilities for trade accounts payable have been recorded. Which of the following is most useful in achieving this objective?
A listing of all purchase transactions processed after the cutoff date.
A corporate balance sheet indicates that one of the corporate assets is a patent. An auditor will most likely obtain evidence regarding the continuing validity and existence of this patent by obtaining a written representation from
A patent attorney.
Which of the following activities performed by a department supervisor most likely would help in the prevention or detection of a payroll fraud?
Approving a summary of hours each employee worked during the pay period.
Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?
Are direct borrowings on notes payable authorized by the board of directors?
Which of the following questions should not appear in an internal control questionnaire relating to cash disbursements?
Are prelistings made of all cash receipts?
Which if the following most likely would give the most assurance concerning the valuation assertion about the accounts receivable?
Assessing the allowance for uncollectible accounts for reasonableness.
A company owns a 30% voting interest in another entity. Assuming the investor did not elect the fair value option, which of the following provides the best form of audit evidence pertaining to the annual measurement of the investment?
Audited financial statements of the investee.
Which of the following human resources department procedures reduces the risk of payroll fraud and represents an appropriate responsibility for the department?
Authorizing the addition or deletion of employees from the payroll.
Which of the following is the greatest drawback of using subsequent collections evidenced only by a deposit slip as an alternative procedure when responses to positive accounts receivable confirmations are not received?
By examining a deposit slip only, the auditor does not know whether the payment is for the receivable at the balance sheet date or a subsequent transaction.
Which of the following items in a communication about control deficiencies in internal control over cash receipts and disbursements is least significant?
Checks are signed by one person.
Which of the following is a standard control over cash disbursements?
Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations.
How should an auditor verify the valuation of marketable securities at the balance sheet date?
Compare the prices of the securities to published closing prices at the balance sheet date.
Analytical procedures may be applied to payroll to detect unusual items. Which of the following is an appropriate analytical procedure for payroll?
Compare the relationship of hours worked to payroll with that of the preceding year
During the audit of a construction contract, it was discovered that the contractor was being paid for each ton of dirt removed. The contract called for payment based on cubic yards removed. Which internal control might have prevented this error
Comparison of invoices with purchase orders or contracts.
Which of the following is not a financial statement assertion about cash
Compensating cash balances are classified as other current assets.
In connection with an audit of the prepaid insurance account, which of the following procedures is usually not performed by the auditor?
Confirm premium rates with an independent insurance broker.
In establishing the existence and ownership of an investment held by a corporation in the form of publicly traded stock, an auditor should inspect the securities or
Confirm the number of shares owned that are held by an independent custodian.
Which of the following statements regarding the audit of negotiable notes receivable in bearer form is not correct?
Confirmation by the debtor is an acceptable alternative to inspection.
The auditor can best verify a client's bond sinking-fund transactions and year-end balance by
Confirmation with the bond trustee.
A company makes a practice of investing excess short-term cash in trading securities that are traded regularly on national exchanges. A reliable test of the valuation of these securities is
Consideration of current market quotations.
An auditor found that employee time cards in one department are not properly approved by the supervisor. Which of the following could result?
Employees might be paid for unworked hours.
Which of the following is the least effective audit procedure regarding the existence assertion for the securities held by the auditee?
Examination of paid checks issued in payment of securities purchased.
A client is holding securities as collateral for an outstanding account receivable. During the course of the audit engagement, the CPA should
Examine the securities and determine their fair value.
Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated?
Examining vendor statements for amounts not reported as purchases.
In verifying the amount of goodwill recorded by a client in the current period, the most convincing evidence an auditor can obtain is by comparing the recorded amounts of assets acquired and liabilities assumed with the
Fair values as evidenced by independent appraisals.
Which of the following might be detected by an auditor's review of the client's sales cutoff?
Inflated sales for the year.
The auditor, in determining whether the client has adopted the appropriate accounting method for an investment in the voting stock of an investee that is not consolidated, should obtain evidence primarily by
Inquiries to the client as to whether the client can exercise significant influence over the investee.
Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?
Inspect the shipping records documenting the merchandise sold to the debtors
When auditing a public warehouse, which of the following is the most important audit procedure with respect to disclosing unrecorded liabilities?
Inspection of receiving and issuing procedures.
During the examination of a cutoff bank statement, an auditor noticed that the majority of checks listed as outstanding at the preceding December 31 had not cleared the bank. Which of the following is not likely explanation of this finding?
Kiting was used to cover a shortage of cash.
Which of the following is an operating control over the staffing function
Making background checks on all new hires.
The client's bookkeeper perpetrated a theft by preparing erroneous W-2 forms. The bookkeeper's FICA withheld was overstated by $2,000 and understated by the same amount. Which of the following is an audit procedure that would detect such a fraud?
Multiplication of the applicable FICA rate by each individual's gross annual taxable earnings.
An internal auditor wishes to determine whether salaried employees in the division being audited are taking more paid vacation time than they have earned. Which of the following audit procedures will be most effective?
Observing which employees were absent because of vacations and tracing those absences through the payroll records to subtractions from accumulated vacation time.
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?
Occurrence
Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if.
Partial payments to vendors are continuously made in the ordinary course of business.
The auditor finds a situation in which one person has the ability to collect receivables, make deposits, issue credit memos, and record receipt of payments. The auditor suspects the individual may be stealing from cash receipts. Which of the following audit procedures will most effective in discovering fraud in this scenario?
Perform a detailed review of debits to customer discounts, sales returns, or other debit accounts, excluding cash posted to the cash receipts journal.
What information would the auditor expect to find in the data dictionary that would assist in a payroll application audit?
Programs that access the data.
Your objective is to determine that nonrecurring purchases, initiated by various user organizations, have been properly authorized. If all purchases are made through the purchasing department, to which of the following documents should you vouch purchases?
Purchase requisitions.
In an audit of a purchasing department, which of the following usually is considered a risk factor?
Purchases are made from parties related to buyers or other company officials.
Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?
Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts.
Which of the following is usually a benefit of using electronic funds transfer for international cash transactions?
Reduction of the frequency of data entry errors.
Under which of the following circumstances would an auditor be most likely to intensify an audit of a $500 imprest petty cash fund?
Reimbursement occurs twice each week.
Deferred charges, such as the costs of direct-response advertising, usually should be
Reported on the balance sheet as a noncurrent asset.
A client has a large and active investment portfolio that is kept in a bank safe-deposit box. If the auditor is unable to count the securities at the balance sheet date, the auditor most likely will
Request the client to have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.
Auditors may need to plan and perform auditing procedures for financial statement assertions about derivatives and hedging activities. Which of the following substantive procedures most clearly tests the completeness assertion about derivatives?
Requesting counterparties to provide information about them, such as whether side agreements have been made.
Each Friday afternoon, payroll checks are distributed by the shift superintendent. The plant is so large, and the turnover is so great that the superintendent does not know many of the workers. Undelivered checks are returned to the payroll clerk, from whom the workers can obtain them at some later time. The payroll clerk routinely continues the payroll record for workers one week after their departure from the firm, ultimately cashes the unclaimed checks, and keeps the money. Which of the following is a control designed to prevent this misappropriation?
Require the CFO's office to prepare checks only on the basis of supporting documentation from both the timekeeper and payroll office.
Which of the following procedures would best detect a liability omission by management?
Review purchase contracts and other legal documents.
Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
An internal control narrative indicates that an approved voucher is required to support 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 vouchers are dated no earlier than the checks.
A CPA is engaged in the annual audit of a calendar year client. The client took a complete physical inventory under the CPA's observation on December 15 and adjusted its inventory account and detailed perpetual inventory records to agree with the physical inventory. The client considers a sale to be made in the period that goods are shipped. Listed below are four items taken from the CPA's sales cutoff test worksheet. Which item does not require an adjusting entry on the client's books?
Shipped (12/10) and recorded as sale (12/19) and credited to inventory (12/12)
Fraudulent use of corporate credit cards will be minimized by which of the following controls?
Subjecting credit card charges to the same expense controls as those used on regular company expense forms.
Using a wide variety of solicitation techniques, a large public charity raises funds for medical research from the general public. In an audit of donations, the internal auditor is least likely to use which of the following audit procedures?
Surprise observation of door-to-door solicitation teams.
Which of the following audit procedures provides the least relevant evidence in determining that payroll payments were made to bona fide employees?
Test the payroll account bank reconciliation by tracing outstanding checks to the payroll register.
The auditor observes the count of marketable securities on December 31. (S)he records the serial number of each security and checks the serial number and number of shares (or principal) against company records. Which error or bad practice has the best chance of being detected by this procedure?
The CFO misappropriated and sold securities on April 4. (S)he speculated successfully with the proceeds and replaced the misappropriated securities on December 29.
Which of the following observations made during the preliminary survey of a local department store's disbursement cycle reflects is a control strength?
The CFO's office prepares checks for suppliers based on vouchers prepared by the accounts payable department.
An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past 5 years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue?
The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sake contracts to determine that revenue was posted in the proper period
A client's program that recorded receiving report information entered directly by the receiving department on vendor shipment receipt included a reasonableness or limit test. Which of the following errors would this test likely detect?
The receiving department clerk entered the quantity of the product received as 0.
Auditors are often concerned with the possibility of overstatement of sales and receivables. However, management may also have reasons for understating these balances. Which of the following would explain understatement of sales and receivables?
To avoid paying taxes.
Unrecorded liabilities are most likely to be found during the review of which of the following documents?
Unpaid bills.
Which of the following internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead?
Use of time tickets to record actual labor worked on production orders.
Which of the following activities most likely would detect whether payroll data were altered during processing?
Using test data to verify the performance of edit routines.
A university does not have a centralized receiving function for departmental purchases of books, supplies, and equipment. Which of the following controls will most effectively prevent payment for goods not received, if performed prior to invoice payment?
Vendor invoices should be approved by a departmental supervisor other than the employee ordering the goods.
Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence and valuation assertions about recorded accounts payable
Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.
If the objective of a test of details is to detect overstatements of sales, the auditor should compare transactions in the
accounting records with the source documents.
An inappropriate audit procedure relative to accounts receivable is to determine that the
accounts are collected by the balance sheet date.
Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance list that is forwarded to the cashier. A copy of the list should be sent to the
accounts receivable bookkepper to update the subsidiary accounts receivable records
A mail-order retailer has just modified its processing programs to charge each customer the appropriate sales tax. The best approach for detecting whether sales taxes are applied correctly is to
add the program code that will sort orders by area, compute taxes in the aggregate, and compare the amount with the sum of individual taxes charged for each area
The internal control objectives of the revenue cycle include all of the following except
appropriate goods are ordered so that sales can be made
Material misstatements due to fraudulent financial reporting often result from an overstatement of revenues (for example, through premature revenue recognition or recording of fictitious revenues) or an understatement of revenues (for example, through improperly shifting revenues to a later period). To address the risk of improper revenue recognition, the auditor most likely should
assume the existence of risks of material misstatement due to fraud relating to revenue recognition.
an auditor planning an attribute sample from a larger number of invoices intends to estimate the actual rate of deviations. which factor below is the most important for the auditor to consider?
audit objective
The purpose of segregating the duties of hiring personnel and distributing payroll checks is to segregate the
authorization of transactions from the custody of related assets.
to determine whether marvel company's internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor should select a sample of transactions from the population represented by the
bill of lading file
An auditor is concerned about the possibility of fraud if
cash receipts, net of the amounts used to pay petty cash-type expenditures, are deposited in the bank daily.
In a payables application, checks are authorized and paid based on matching purchase orders, receiving reports, and vendor invoices. Partial payments are common. An appropriate audit procedure for verifying that a purchase order has not been paid twice is to sort the
checks register file by purchase order, compute total amounts paid by purchase order, compare total amounts paid with purchase order amounts, and investigate any discrepancies between the total amounts paid and purchase order amounts.
An auditor observed that a client mails monthly statements to customers. Subsequently. The auditor reviewed evidence of follow-up on the errors reported by the customers. This test of controls was most likely performed to support management's financial statement assertion(s) of
classification and understandability (no) and rights and obligations (yes)
In auditing payroll when control risk is assessed as low, an auditor most likely will
compare payroll costs with entity standards or budgets.
cash receipts should be deposited on the day of receipt or the following business day. what is the most appropriate audit procedure to determine that cash is promptly deposited?
compare the daily cash receipts totals with the bank deposits
A large university has relatively ineffective internal control. The university's auditor seeks assurance that all tuition revenue has been recorded. The auditor could best obtain the desired assurance by
comparing business office revenue records with registrar's office records of students enrolled.
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
completeness
In auditing accounts payable, an auditor's procedures most likely will focus primarily on the relevant assertion about
completeness.
in testing payroll transactions, an auditor discovers that 4 out of a statistical sample of 100 selected time cards were not signed by the appropriate supervisor. to evaluate the materiality or significance of this control deficiency the auditor should
compute an upper precision limit and compare with the tolerable deviation rate
which of the following employees should report to the chief financial officer
credit manager
A company has computerized sales and cash receipts journals. The computer programs for these journals have been properly debugged. The auditor discovered that the total of the accounts receivable subsidiary accounts differs materially from the accounts receivable control account. This discrepancy could indicate
credit memoranda being improperly recorded.
Confirmation of accounts payable with creditors is most appropriate when
creditor statements are not available, and internal control over accounts payable is unsatisfactory.
When auditing a client's statement of cash flows, an auditor will rely primarily upon
cross-referencing to balances and transactions considered in connection with the audit of the other financial statements.
to gather audit evidence concerning the proper credit approval of sales at the marvel company, the auditor would select a sample of transaction documents from the population represented by the
customer order file
The tick mark (o with a line through it) most likely indicates that the amount was traced to the
deposits in transit of the applicable bank reconciliation.
A large retail enterprise has established a policy that requires the paymaster to deliver all unclaimed payroll checks to the internal audit department at the end of each payroll distribution day. This policy was most likely adopted to
detect any fictitious employee who may have been placed on the payroll.
Employers bond employees who handle cash receipts because fidelity bonds reduce the possibility of employing dishonest individuals and
deter dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts
The primary audit objective regarding the purchasing of materials by the client is to
determine the reliability of financial reporting by the purchasing function.
One payroll audit objective is to determine whether the employees received pay in amounts recorded in the payroll journal. To satisfy this objective, the auditor should
determine whether a proper segregation of duties exists between recording payroll and reconciling the payroll bank account.
. A proof of cash used by an auditor
determines whether any unauthorized disbursements or unrecorded deposits were made for the given time period.
which of the following statements is true concerning statistical sampling in tests of controls?
deviations from specific control activities increase the likelihood of misstatements but do not always cause missstatements
An audit assistant found a purchase order for a regular supplier in the amount of $5,500. The purchase order was dated after receipt of the goods. The purchasing agent had forgotten to issue the purchase order. Also, a disbursement of $450 for materials did not have a receiving report. The assistant wanted to select additional purchase orders for investigation but was unconcerned about the lack of a receiving report. The audit director should
disagree with the assistant because the lack of a receiving report has a greater risk of loss associated with it.
In audit of payroll, an auditor is primarily concerned about
errors or fraud in the amount of payments.
in an audit of a governmental agency you are searching for expenditures that are improperly classified.
estimated deviation rate
On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account bank B to cover to a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this form of kiting by
examining paid checks returned with the bank statement of the next accounting period after year end
which of the following most likely would be the result of ineffective internal control in the revenue cycle
final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme
(POS system questions) which of the following audit procedures would have detected the fraud?
for selected says, reconciling the total of customer food checks to daily bank deposits
which of the following would best protection for a company that wishes to prevent the lapping of trade accounts receivable?
have customers send payments directly to the company's depository bank
Audit procedures applied to purchase transactions at year address the cutoff assertion. An entity should include in its inventory if it
holds legal title to the goods.
An auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing to
identify potential liabilities for unpaid payroll taxes.
(sample size chart) which of the following statements is true
if two deviations were found the population would be acceptable
The principal function of a cash budget is to
implement asset and liability maturity matching.
All of the following are examples of substantive tests to verify the valuation of net accounts receivable except the
inspection of accounts for current versus noncurrent status in the statement of financial position
An auditor is reviewing a corporate client's statement of cash flows. The auditor should except, the cash flows to be classified according to
investing, financing, and operating activities
In verifying debits to perpetual inventory records of a nonmanufacturing firm, the auditor would be most interested in examining the purchase
invoices
A purchasing agent places an order for inventory whenever a requisition is received from the warehouse. The warehouse clerk issues requisitions based on periodic physical counts because no perpetual records are maintained. Numerous duplicate orders have been placed for goods previously ordered but not received. To prevent this excess ordering, the firm should
keep an adequate record of open purchase orders and review it before ordering.
statistical sampling usually may be applied in tests of controls when the client's internal controls
leave an audit trail in the form of documentary evidence in their effectiveness
An auditor learns that collections of account receivable during the last 10 days of December were not recorded. The effect will be to
leave both working capital and the current ratio unchanged at December 31.
An auditor suspects that a client's customer, whose accounts receivable balance represents a material proportion of the client's total receivables, is fictitious. The evidence that provides the strongest proof that the auditor's suspicion is unfounded, given the existence of weaknesses in the client's internal control over accounts receivable, is
location of the customer's name and address in a published industry directory.
In a well-designed internal control system, the same employee may be permitted to
mail signed checks and also cancel supporting documents.
when an office supply company is unable to fill an order completely, it marks out-of-stock items as back ordered on the customer's order and enters these items into a back order file that management...
match the back order file to goods received daily
A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the
meter department records t the billing (sales) register.
what is an auditor's evaluation of a statistical sample for attributes when a test of 50 documents results in 3 deviations if the tolerable rate is 7% the expected population deviation rate is 5% and the allowance for sampling risk is 2%
modify the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate
An auditor who has confirmed accounts receivable may discover that the sales journal was held open past year end if
most of the returned positive confirmation requests indicate that the debtor owes a smaller balance than the amount being confirmed.
an auditor should consider the tolerable rate of deviation when determining the number of check requests to select for a test to obtain assurance that all check requests have been properly authorized. the auditor should also consider
no, yes
An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management's financial statement assertion(s) of
no, yes (existence)
Effective controls relevant to purchasing of raw materials should usually include all of the following except
obtaining third-party written quality and quantity reports prior to payment for the raw materials.
The tick mark (funny looking p) likely indicates that the amount was traced to the
outstanding check list of the applicable bank reconciliation.
A receiving department receives copies of purchase orders for use in identifying and recording inventory receipts. The purchase orders list the name of the vendor and the quantities of the materials ordered. A possible error that this system could allow is
overpayment for partial deliveries.
One objective of an audit of the purchasing function is to determine the cost of late payment of invoices containing trade discounts. The appropriate population from which a sample would be drawn is the file of
paid vendor invoices.
in attribute sampling a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample
population size
when evaluating internal control of an entity that processes sales transactions on the internet, an auditor would be most concerned about the
potential for computer disruptions in recording sales
in evaluating an attribute sample the estimated range that is expected to contain the population characteristic is the
precision
On receiving a client's bank cutoff statement, an auditor most likely will trace
prior-year checks listed in the cutoff statement to the year-end outstanding checklist.
When title to merchandise in transit has passed to the audit client, the auditor engaged in the performance of a purchase cutoff will encounter the greatest difficulty in gaining assurance with respect to the
quality.
sound internal control activities dictate that defective merchandise returned by customers be presented initially to the
receiving clerk
which of the following are not directly involved in the revenue cycle
receiving department clerk
To minimize the risk that agents in the purchasing department will use their positions for personal gain, the organization should
require competitive bidding
Ban teller supervisors might manipulate accounts using their privileged computer access codes. They could withdraw money for their own use and move money among accounts when depositors complain to the bank about errors. The audit procedure most likely to detect this is
reviewing transactions on privileged access codes.
to determine whether marvel company's internal control operated effectively to minimize errors of failure to post invoices to the customers' accounts ledger, the auditor should select a sample of transactions from the population represented by the
sales invoice file
(flowchart) symbol b most likely represents
sales invoices
To conceal defalcations involving receivables, the auditor would expect an experienced bookkeeper to charge which of the following accounts?
sales returns
which of the following credit approval procedures would be the basis for developing a deficiency finding for a wholesaler
salespeople are responsible for evaluating and monitoring the financial condition of prospective and continuing customers
To establish illegal "slush funds," corporations may divert cash received in normal business operations. An auditor would encounter the greatest difficulty in detecting the diversion of proceeds from
scrap sales
which of the following internal control activities most likely would deter lapping of collections from customers?
separation of duties between receiving cash and posting the accounts receivable ledger
in a retail cash sales environment, which of the following controls is often absent?
separation of functions
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
shipping documents to the sales invoices.
To check the accuracy of hours worked, an auditor would ordinarily compare clock cards with
shop job time tickets.
If all other sample size planning factors were exactly the same in attribute sampling, changing the confidence level from 95% to 90% and changing the desired precision from 2% to 5% would result in a revised sample size that would be
smaller
When counting cash on hand, the auditor must exercise control over all cash and other negotiable assets to prevent
substitution
Based on observations made during an audit, the auditor should discuss with management the effectiveness of the company's controls that protect against the purchase of
supplies individually ordered, without considering possible volume discounts.
which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded
the billing department supervisor matches prenumbered shipping documents with entries in the sales journal
The procedure that best discourages the resubmission of vendor invoices after they have been paid is
the cancelation of vouchers by CFO personnel.
Normally, the financial statement assertion about valuation is of minimum concern during the audit cash. However, the auditor's concern about the valuation assertion will most likely increase when
the client has foreign currency accounts.
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk of overreliance too low. the most likely explanation for this situation is that
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
the tolerable deviation rate for a test of controls depends primarily on which of the following
the effect on substantive procedures of the auditors assessment of the risks of material misstatement
Many of the Granada Corporation's convertible bondholders have converted their bonds into stock during the year under audit. The independent auditor should review the Granada Corporation's statement of cash flows and related disclosures to ascertain that they show
the issuance of the stock and reduction in convertible debt.
The standard AICPA from directed to financial institutions requests all of the following except
the principal amount paid on a direct liability
statistical sampling may be used to test the effectiveness of controls. the auditors procedures should result in a statistical conclusion about
the relation of the population deviation rate to the tolerable rate
Effective controls relevant to the efficiency of purchases will result in proper evaluation of the time for ordering merchandise. When making this evaluation, the purchasing company should give primary consideration to
the trade-off between the cost of owning and storing excess merchandise and the risk of loss by not having merchandise on hand.
Operating control of the check-signing machine normally should be the responsibility of the
treasury function.
An auditor plans to examine a sample of 20 purchase orders for proper approvals
treat the missing purchase order as a deviation for the purpose of evaluating the sample
Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?
understanding the sales journal
One of two office clerks in a small company prepares a sales invoice for $4,300; however, the invoice is incorrectly entered by the bookkeeper in the general ledger and the accounts receivable subsidiary ledger as $3,400. The customer subsequently remits $3,400, the amount on the monthly statement. Assuming there are only three employees in the department, the most effective control to prevent this type of error is
using predetermined totals to control posting routines
An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of
valuation
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely is
vendors with whom the entity has previously done business
Effective internal control activities over the payroll function may include
verification of agreement of job time tickets with employee time clock card hours by a timekeeping department employee.
In the accounting system of Apogee Company, the quantities counted by the receiving department and entered at a terminal are transmitted to the computer, which immediately transmits the amounts back to the terminal for display on the terminal screen. This display enables the operator to
verify that the amount was entered accurately.
The primary audit procedure to determine whether accounts payable are measured properly is
vouching accounts payable to supporting documentation.
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?
write-offs of delinquent accounts
Which of the following checks illustrate deposits or transfers in transit at December 31, Year 1?
#101 and #303
A company's sales cutoff is December 31. All goods sold are shipped FOB destination, and the company records sales 3 days after shipment. The following sales were recorded as indicated: Date Shipped: December 28,29,30; January 2,5 Date Recorded: December, December, January, December, and January Selling Prices: $182, 60, 14, 230, 182 Cost: $190, 50, 145, 215, 174 Ignoring tax effects, the net effect for income for the month ended December 31 of any failures to observe a proper cutoff was
$25,000
