AC 432 Final
B. Cutoff Bank Statement
A DOCUMENT THAT SHOWS DEPOSITS AND WITHDRAWALS FOR 10-15 DAYS AFTER THE END OF THE CLIENT'S FISCAL YEAR, WHICH CAN BE USED FOR BOTH VOUCHING AND TRACING A. Bank Reconciliation B. Cutoff Bank Statement C. A/R Aging Schedule D. Customer Confirmations
C. A/R Aging Schedule
A DOCUMENT THAT SHOWS DETAILS OF THE CLIENT'S ACCOUNTS RECEIVABLE, INCLUDING AMOUNTS OWED BY EACH CUSTOMER AND THE LENGTH OF TIME THESE AMOUNTS HAVE BEEN OUTSTANDING A. Bank Reconciliation B. Cutoff Bank Statement C. A/R Aging Schedule D. Customer Confirmations
D. Send out positive confirmations on a large sample of these customers.
A client has a separate sales group for its largest "preferred" customers, a select group of customers who normally make purchases in excess of $250,000 and often have accounts receivable balances in excess of $1 million. Which of the following audit procedures would the auditor most likely perform? A. Prepare a schedule of purchases and payments for these customers. B. Send out negative confirmations on a large sample of these customers. C. Inquire of the sales manager regarding the accounts receivable terms. D. Send out positive confirmations on a large sample of these customers.
Search for unrecorded liabilities
AN AUDIT PROCEDURE THAT TESTS COMPLETENESS OF A/P BY EXAMINING UNPROCESSED DOCUMENTS
A. A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2015.
Ambrose is auditing the financial statements of Mays (dated December 31, 2014). The date of the auditor's report is February 17, 2015, and the audit report release date is February 20, 2015. For which of the following matters would Ambrose have the least responsibility? A. A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2015. B. The obsolescence of inventory held on December 31, 2014, that was identified on January 20, 2015. C. A merger that was announced by Mays and known by Ambrose on February 12, 2015. D. A customer's deteriorating financial condition that was identified on February 19, 2015.
D. Obtain copies of all price lists in use during the year and vouch the prices to sales invoices.
An auditor noted that client sales increased 10 percent for the year. At the same time, Cost of Goods Sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. Based on this information, the auditor interviewed the sales manager, who stated that the increase in sales without a corresponding increase in cost of goods sold was due to a price increase enacted by the company during the year. How would the auditor test the sales manager's representation? A. Send confirmations asking customers about unit prices paid for product. B. Perform additional inquiries with sales personnel. C. Vouch vender invoices to payments made after year-end. D. Obtain copies of all price lists in use during the year and vouch the prices to sales invoices.
C. Fictitious sales.
An auditor noted that client sales increased 10 percent for the year. At the same time, Cost of Goods Sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. Based on this information, the auditor is most likely concerned about A. Improper sales cutoff. B. Unrecorded costs. C. Fictitious sales. D. Improper credit approvals.
C. determine that purchases were properly recorded.
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal. The purpose of this substantive audit procedure most likely was to A. identify usually large purchases that should be investigated further. B. verify that cash disbursements were for goods actually received. C. determine that purchases were properly recorded. D. test whether payments were for goods actually ordered
C. obtaining responses to an attorney letter.
An important method used by auditors to learn of material contingencies is A. examining documents in the client's possession concerning contingencies. B. inquiring and discussing them with management. C. obtaining responses to an attorney letter. D. confirming accounts receivable with the client's customers.
True
An objective for an audit is to obtain evidence related to management's financial statement assertions. True False
B. cutoff bank statement is reconciled.
An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the A. check register for the last month is reviewed. B. cutoff bank statement is reconciled. C. bank confirmation is reviewed. D. search for unrecorded liabilities is performed.
C. The audit report release date.
Auditors have a responsibility related to management's disclosure of new information related to subsequent events until A. The date of the financial statements. B. The date of the auditor's report. C. The audit report release date. D. The following year's date of the financial statements.
C. audit report release date.
Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the A. date of the financial statements. B. date of the auditors' report. C. audit report release date. D. subsequent year's date of the financial statements.
True
Auditors should inspect the "unmatched receiving report" file to determine whether the liability for the receipt of goods has been recorded. True False
False
Auditors' "search for unrecorded liabilities" should emphasize the large balances, especially for regular vendors. True False
D. a complete voucher package.
Cash disbursements are authorized by A. purchase orders. B. invoices. C. receiving reports. D. a complete voucher package.
C. existence of the balances confirmed.
Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide the strongest evidence concerning the A. collectability of the balances confirmed. B. ownership of the balances confirmed. C. existence of the balances confirmed. D. internal control over balances confirmed.
C. completeness.
Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of A. valuation or allocation. B. existence or occurrence. C. completeness. D. rights and obligations.
False
For proper documentation, every document that is provided by the audit manager and by the audit client, including all emails, must be indexed and filed as an audit working paper. True False
D. All of these are correct.
Fraud risk factors are events or conditions that indicate which of the following: A. An opportunity to carry out a fraud. B. An incentive or pressure to perpetrate fraud. C. An attitude or rationalization that justifies a fraudulent action. D. All of these are correct.
D. Customer Confirmations
IT IS AN EXTERNAL THIRD-PARTY DOCUMENT THAT PROVIDES EVIDENCE OF A/R EXISTENCE A. Bank Reconciliation B. Cutoff Bank Statement C. A/R Aging Schedule D. Customer Confirmations
A. Bank Reconciliation
IT IS BOTH A CONTROL ACTIVITY AND A PIECE OF AUDIT EVIDENCE, AND THE MAIN DOCUMENT FOR AUDITING CASH A. Bank Reconciliation B. Cutoff Bank Statement C. A/R Aging Schedule D. Customer Confirmations
False
If control risk is assessed very low, the substantive audit procedures on account balances must be expanded. True False
C. overstatement of profit in the current year and understatement in future years.
Improperly capitalizing an expense item results in A. understatement of profit in the current year and overstatement in future years. B. understatement of profit in the current year and in future years. C. overstatement of profit in the current year and understatement in future years. D. overstatement of profit in the current year and in future years.
False
In ACL Software, if you extract a small amount of data and experiment with it, you will harm the data. True False
C. Existence assertion.
In the audit of accounts receivable, the most important emphasis should be on the A. Completeness assertion. B. Presentation and disclosure assertion. C. Existence assertion. D.Rights and obligations assertion.
D. test the propriety of items appearing on the client's year-end bank reconciliation.
In the audit of cash the auditor obtains a bank cutoff statement primarily to A. identify old outstanding checks that the client may exclude from the year-end bank reconciliation in order to misappropriate cash. B. obtain sufficient information to reconcile the client's bank account as of year-end. C. obtain direct confirmation of the client's bank balances as of year-end. D. test the propriety of items appearing on the client's year-end bank reconciliation.
B. Processing customer orders, granting credit, delivering goods, and billing customers.
In the revenue and collection cycle, the order of the activities in the cycle is best illustrated by A. Credit granting, billing customers, delivering goods, cash receipts. B. Processing customer orders, granting credit, delivering goods, and billing customers. C. Delivering goods, billing customer, credit granting, collection activities. D. Customer ordering, delivering goods, credit granting, billing customers.
True
Inquiries of management usually do not provide very convincing evidence about the existence and rights assertions. True False
True
Interim testing is ordinarily done prior to the date of the financial statements. True False
False
It is not necessary to send confirmations on accounts that a company represents as closed during the year to get the bank to confirm zero balances. True False
True
It is ultimately the client's responsibility for adjusting the financial statements for matters identified during the audit. True False
C. Because the event occurred after the date of the auditors' report, Navarre has no responsibility for the event.
Navarre, CPA has just issued his report on Big Blue's financial statements. Following the audit report release date, he learned of an event that occurred after the date of the auditors' report. What is Navarre's most appropriate response? A. Withdraw his report on Big Blue's financial statements and reissue the report following his substantive procedures. B. Perform the appropriate substantive procedures related to the event and dual date the audit report. C. Because the event occurred after the date of the auditors' report, Navarre has no responsibility for the event. D. Inform users who are currently known to be relying on the financial statements of the nature of the event.
C. the auditor cannot infer that all nonrespondents have verified their account information.
Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because A. a majority of recipients usually lacks the willingness to respond objectively. B. some recipients may report incorrect balances that require extensive follow up. C. the auditor cannot infer that all nonrespondents have verified their account information. D. negative confirmations do not produce evidential matter that is statistically quantifiable.
b. Review the provision for depreciation expense and determine whether depreciable lives and methods used in the current year are consistent with those used in the prior year.
Net property and equipment are properly valued at the balance-sheet date. a. Trace opening balances in the summary schedules to the prior-year audit documentation. b. Review the provision for depreciation expense and determine whether depreciable lives and methods used in the current year are consistent with those used in the prior year. c. Determine whether the responsibility for maintaining the property and equipment records is separated from the responsibility for custody of property and equipment. d. Examine deeds and title insurance certificates. e. Perform cutoff tests to verify that property and equipment additions are recorded in the proper period. f. Determine whether property and equipment are adequately insured. g. Physically examine all major property and equipment additions.
True
Normally, liabilities should be recorded on the date the goods are received and accepted. True False
OPPORTUNITY
ONE OF THE CORNERS OF THE FRAUD TRIANGLE, IT REPRESENTS CONDITIONS THAT MAKE IT POSSIBLE FOR EMPLOYEES TO STEAL
True
One purpose of obtaining written representations is for management to acknowledge their responsibility for the fairness of the financial statements. True False
D. bank reconciliation, cutoff bank statement, bank confirmation.
Place the following documents in the most appropriate sequence in the cash section of the audit working paper file: A. bank confirmation, bank reconciliation, cutoff bank statement. B. cutoff bank statement, bank reconciliation, bank confirmation. C. bank confirmation, cutoff bank statement, bank reconciliation. D. bank reconciliation, cutoff bank statement, bank confirmation.
g. Physically examine all major property and equipment additions.
Recorded property and equipment represent assets that actually exist at the balance-sheet date. a. Trace opening balances in the summary schedules to the prior-year audit documentation. b. Review the provision for depreciation expense and determine whether depreciable lives and methods used in the current year are consistent with those used in the prior year. c. Determine whether the responsibility for maintaining the property and equipment records is separated from the responsibility for custody of property and equipment. d. Examine deeds and title insurance certificates. e. Perform cutoff tests to verify that property and equipment additions are recorded in the proper period. f. Determine whether property and equipment are adequately insured. g. Physically examine all major property and equipment additions.
B. Completeness
Scan a sample of vouchers for missing numbers A. Accuracy B. Completeness C. Occurence D. Classification
C. Occurence
Select a sample of open accounts payable and vouch to supporting documents of purchase A. Accuracy B. Completeness C. Occurence D. Classification
B. Completeness
Select a sample of receiving reports and trace to inventory record posting of additions A. Accuracy B. Completeness C. Occurence D. Classification
True
Subsequent events may provide additional information about a condition that existed at the date of the financial statements. True False
Allowance for doubtful accounts and bad debt expense
THESE ARE THE TWO FINANCIAL STATEMENT ACCOUNTS RELATED TO THE VALUATION OF A/R
A. Accuracy
Test a sample of cash disbursement voucher documents for accurate mathematics. A. Accuracy B. Completeness C. Occurence D. Classification
True
The accountants who record cash receipts and credits to customer accounts should not handle the cash. True False
True
The accounts payable department reconciles the vendor invoice, purchase order, and receiving report prior to approving the payment to the vendor. True False
True
The aging information for accounts receivable is typically used in connection with assessing the allowance for doubtful accounts. True False
True
The basic acquisition and expenditure activities are: (1) purchasing goods and services. (2) receiving the goods or services. (3) recording the asset or expense and related liability. (4) paying the vendors. True False
True
The company's bank reconciliation is a critical means by which an auditor completes audit procedures over the cash balance in the financial statements. True False
True
The emphasis is on the completeness assertion because financial statement users tend to be more concerned about understated expenses and liabilities than overstated. True False
False
The emphasis is on the existence assertion because financial statement users tend to be more concerned about understated expenses and liabilities. True False
d. Examine deeds and title insurance certificates.
The entity has legal right to property and equipment acquired during the year. a. Trace opening balances in the summary schedules to the prior-year audit documentation. b. Review the provision for depreciation expense and determine whether depreciable lives and methods used in the current year are consistent with those used in the prior year. c. Determine whether the responsibility for maintaining the property and equipment records is separated from the responsibility for custody of property and equipment. d. Examine deeds and title insurance certificates. e. Perform cutoff tests to verify that property and equipment additions are recorded in the proper period. f. Determine whether property and equipment are adequately insured. g. Physically examine all major property and equipment additions.
True
The existence of "miscellaneous" revenue or expense accounts may signal the practice of earnings management. True False
B. high.
The inherent risk that accounts payable may be omitted or otherwise understated typically is A. low. B. high. C. indeterminate. D. moderate.
True
The letter should be signed by the chief executive officer and chief financial officer or others with equivalent positions in the entity. True False
True
The revenues and accounts receivable financial statement cycle was the most inherently risky section of the audit that we performed in the Apollo Shoes audit case. True False
B. general ledger.
To gather evidence regarding the bank's balance in a bank reconciliation, an auditor would examine all of the following except the A. cutoff bank statement. B. general ledger. C. bank confirmation. D. year-end bank statement.
B. general ledger.
To gather evidence regarding the bank's balance in a bank reconciliation, an auditor would examine all of the following except the A.cutoff bank statement. B. general ledger. C. bank confirmation. D. year-end bank statement.
A. Accuracy
Trace a sample of voucher debits to general and subsidiary ledger accounts A. Accuracy B. Completeness C. Occurence D. Classification
D. Classification
Trace debits arising from accounts payable transactions for proper account. A. Accuracy B. Completeness C. Occurence D. Classification
C. Occurence
Vouch a sample of receiving reports to related purchase orders A. Accuracy B. Completeness C. Occurence D. Classification
B. To impress upon management its primary responsibility for the financial statements
What is the primary purpose of obtaining written representations? A. To provide auditors with substantive evidence of important assertions B. To impress upon management its primary responsibility for the financial statements C. To allow auditors to communicate important internal control deficiencies to management D. To allow auditors to communicate important suggestions for improvement to management
B. lead schedule
What is the title of the first document of each financial statement section in an audit working paper file? A. general ledger B. lead schedule C. trial balance D. reconciliation schedule
B. do nothing for immaterial balances.
When an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following except A. send a second request. B. do nothing for immaterial balances. C. examine shipping documents. D. examine client correspondence files.
B. examine evidence supporting additions during the year.
When auditing PP&E, the auditor's approach is generally to A. examine evidence supporting the amounts in the ending balance. B. examine evidence supporting additions during the year. C. follow a reliance strategy, testing internal controls and analytical procedures. D. concentrate on finding unrecorded assets.
C. Accounts receivable listing.
When auditing the revenue and collection cycle, auditors normally select balances to confirm from the A. Sales journal. B. Cash receipts listing. C. Accounts receivable listing. D. General ledger.
A. tick marks.
When documenting audit procedures in working papers, auditors write symbols and notes to communicate the work they performed and their conclusions. These symbols are called: A. tick marks. B. foot notes. C. audit notes. D. none of the above.
C. vendor's shipping document and the purchase order.
When goods are received, the receiving clerk should match the goods with the A. purchase order and the requisition form. B. vendor's invoice and the receiving report. C. vendor's shipping document and the purchase order. D. receiving report and the vendor's shipping document.
C. accounts payable
Which of the following financial statement sections does not emphasize audit procedures that produce evidence of management's financial statement assertions of existence/occurrence? A. accounts receivable B. cash C. accounts payable D. property, plant and equipment
D. To ensure that the overall scope of the audit was appropriate
Which of the following is not a purpose of the review of audit documentation by a supervisor during fieldwork? A. To ensure that all appropriate steps in the audit plan were performed B. To ensure that referencing among audit documentation is clear C. To ensure that the explanations included in the audit documentation are understandable D. To ensure that the overall scope of the audit was appropriate
C. Examine a sample of cash disbursements in the period subsequent to year-end.
Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? A. Examine a sample of invoices a few days prior to and subsequent to the year-end to ascertain whether they have been properly recorded. B. Examine confirmation requests returned by creditors whose accounts are on a subsidiary trial balance of accounts payable. C. Examine a sample of cash disbursements in the period subsequent to year-end. D. Examine unusual relationships between monthly accounts payable and recorded purchases.
D. Management's opinion as to the effectiveness of its internal control over financial reporting
Which of the following items would appear in written representations in the audit of a public entity but not a nonpublic entity? A. Statements related to management's responsibility for the entity's financial statements B. Statements related to management's responsibility for designing internal control to prevent and detect fraud C. An indication that all subsequent events have been disclosed to the auditors D. Management's opinion as to the effectiveness of its internal control over financial reporting
C. Inflating sales for the year.
Which of the following might be detected by auditors' cutoff review and examination of sales journal entries for several days prior to the balance sheet date? A. Misappropriating merchandise. B. Kiting bank balances. C. Inflating sales for the year. D. Lapping year-end accounts receivable.
D. Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.
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 year-end. B. Contrast the ratio of accounts payable to purchases with the prior year's ratio. C. Vouch a sample of creditor balances to supporting invoices, receiving reports, and purchase orders. D. Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.
E. All of these statements are correct.
Which of the following statements is correct with respect to the elements of the "fraud triangle"? A. Motive is a cause that pressures people into action. B. Opportunity refers to a situation that allows someone with motive to carry out fraud. C. A lack of integrity describes a person who does not stick to the social or organizational ethical code. D. Fraud is most common when these three factors exist together. E. All of these statements are correct.
A. Compare the latest available interim financial statements with the financial statements being audited.
Which of the following substantive procedures should auditors ordinarily perform regarding subsequent events? A. Compare the latest available interim financial statements with the financial statements being audited. B. Communicate material weaknesses in internal control to the client's audit committee. C. Review the cutoff bank statements for several months after the date of the financial statements. D. Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests.
B. Net carrying book values in the accounts are reflected at current market values.
Which of the following would not typically be a specific relevant assertion about fixed asset accounts? A. Fixed assets in the accounts exist and are in productive use. B. Net carrying book values in the accounts are reflected at current market values. C. Depreciation has been calculated properly using accepted methods and reasonable estimates of useful life and other factors. D. Fixed assets are properly classified in the balance sheet under appropriate descriptive captions.
B. The financial statements are the responsibility of the client's management.
Why is it the client's decision to record adjustments to the financial statements? A. Having auditors adjust the financial statements would impair independence with respect to the client. B. The financial statements are the responsibility of the client's management. C. Auditors often do not have sufficient client-specific expertise to record adjustments to the financial statements. D. The client will ultimately suffer any losses related to misstated financial statements.
C. These accounts may represent attempts of earnings management.
Why should auditors be particularly concerned with "miscellaneous," "other," and "clearing" accounts classified as revenues or expenses? A. These accounts are likely to relate to going-concern matters. B. These accounts are often more difficult to audit using normal substantive procedures. C. These accounts may represent attempts of earnings management. D. These accounts are likely to require the assistance of a specialist.
False
You should verify your data in ACL (using the Verify command) after you analyze your data. True False