Topic 9

Which of the following best describes the process the auditor uses when assessing the risk of material misstatement.

Assess risks of material misstatement, consider control activities meant to mitigate the risks of material misstatement, consider the remaining risk of material misstatement

Which of the following activities is NOT one of the FASB's required revenue recognition activities?

Collect cash from the customer

Generally speaking, which of the following management assertions would an auditor be most concerned about when auditing the series of transactions that make up the Legal Expense account balance at year-end?

Completeness

If the auditor becomes aware that her client's primary goal is to reduce reported sales and income in the current year to avoid paying income taxes, which of the following management assertions would become more important to test?

Completeness

Which of the following assertions focuses on whether or not transactions are recorded in the appropriate accounting period?

Cutoff

Which two characteristics of internal control are evaluated by the auditor when determining whether or not the controls can be relied upon for audit evidence?

Design, Implementation

Which of the following management assertions related to the year-end Cash account balance are auditors most likely to focus on?

Existence

The following control activity was most likely implemented by a client in order to address which of the risks identified below? Control Activity: Use independent market data to monitor fair value of inventory items

Failure to write down obsolete inventory to the lower of cost or market

The term reliance approach refers to an auditor relying on his or her substantive tests of account balances or transactions when determining whether the financial statements are free of material misstatement.

False

If the auditor wants to test a "three-way match" to confirm that cash disubrsements were made for authorized purchases and in the appropriate amounts, the three documents the auditor would match are the Purchase Order, the Receiving Report, and the Packing Slip. TrueFalse

False. A "three-way match" for expenditures would include the Purchase Order, Receiving Report, and Vendor Invoice. The Packing Slip is a document generated by the vendor that accompanies the goods in transit and informs the receiving employees what they should expect to find in the package.

The Expenditure Cycle includes transactions pertaining to acquiring and repaying capital to fund a company's growth and operations. TrueFalse

False. The Expenditure Cycle includes transactions pertaining to purchasing and paying for goods or services needed by the organization. The defintion provided describes the Financing Cycle.

Which account is generally NOT considered a part of the revenue cycle?

Inventory

Which of the following accounts would likely be considered as part of an audit plan of the Expenditure Cycle for a client?

Inventory; Cost of Goods Sold; Prepaid Expenses; Accounts Payable; Cash

Which of the following management assertions would the auditor generally be more concerned about when seeking to obtain evidence regarding sales transactions in the Revenue Cycle?

Occurrence

Which of the following documents in the Expenditure Cycle would be used to document any shortages or damaged items in a delivery from a vendor.

Receiving Report

The auditor is concerned that the client may fail to write off uncollectible account balances. Which control activity would most effectivley address this risk?

The controller receives and reviews the Accounts Receivable Aging Schedule on a bi-weekly basis, noting balances that are more than 90 days old and determines, using notes in the accounting information system, whether a balance should be written off.

Accounts in the Expenditure Cycle have an elevated risk of misstatement due to fraud.

True

For most audit engagements, auditing standards require that the auditor perform a third-party confirmation of Accounts Receivable balances.

True

The Expenditure Cycle consists of transactions involved with the acquisition of goods and materials (i.e., raw materials, inventory, supplies, equipment) or services used in the operation of a business.

True

The Revenue Cycle consists of activities involved in a company's activities designed to generate income by providing goods and services to its customers.

True

The Inventory account is generally considered to be part of the Expenditure Cycle.

True. The Inventory account is generally considered as part of the Expenditure Cycle.