AC 433 Final

At the completion of the audit, the auditors are least likely to know:

Actual control risk

The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the

Bill of lading

McPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins:

Can issue an unqualified opinion without disclosing that she did not observe year-end inventories.

During the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to:

Completeness

Which of the following is not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purposes?

Confirmation

When a CPA decides that the work performed by internal auditors may have an effect on the nature, timing, and extent of the CPA's procedures, the CPA should consider the competence and objectivity of the internal auditors. Relative to objectivity, the CPA should:

Consider the organizational level to which the internal auditors report the results of their work

The organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the:

Cost Accounting Standards Board

Which of the following would be least likely to be considered an objective of internal control?

Detecting management fraud.

Effective internal control in a small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by:

Direct participation by the owner in key record keeping and control activities of the business

Which of the following is not an advantage of establishing an enterprise risk management system within an organization?

Eliminates all risks

To have an adequate basis to issue a management report on internal control under Section 404(a) of the Sarbanes-Oxley Act, management must do all of the following, except:

Establish internal control with no material weakness

Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold?

Establish that the client includes only inventory on hand at year-end in inventory totals

An auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to:

Existence

When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is:

Existence

Tests of controls do not address:

How controls were originated

A primary objective of procedures performed to obtain an understanding of internal control is to provide the auditors with:

Knowledge necessary to determine the nature, timing, and extent of further audit procedures

An entity's ongoing monitoring activities often include:

Management review of weekly performance reports

Which of the following is least likely to be a test of controls?

Observation of confirmations

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory?

Observe merchandise and raw materials during the client's physical inventory taking

The primary objective of a CPA's observation of a client's physical inventory count is to:

Obtain direct knowledge that the inventory exists and has been properly counted

Tests of controls ordinarily are designed to provide evidence of:

Operating effectiveness

The receiving department is least likely to be responsible for the:

Preparation of a shipping document

Controls over financial reporting are often classified as preventative, detective, or corrective. Which of the following is an example of a detective control?

Preparing bank reconciliations

An auditor may compensate for a weakness in internal control by increasing the extent of:

Substantive tests of details

When the auditors are performing a first-time internal control audit in accordance with the Sarbanes-Oxley Act and PCAOB standards, they should:

Test controls for all significant accounts

The preliminary assessments of control risk are often referred to as:

The planned assessed level of control risk

The auditor's analytical procedures will be facilitated if the client:

Uses a standard cost system that produces variance reports

An auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and:

Valuation

An auditor most likely would analyze inventory turnover rates to obtain evidence about

Valuation

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address:

Valuation

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably:

Want the client to schedule the physical inventory count at the end of the year.

Instead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and:

Well-kept records of perpetual inventory are maintained