Acc 421 Final Exam

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

Bank employees

Which of the following is not associated with the acquisition and payment cycle

Common stock

Which of the following procedures most likely represents an internal control designed to reduce the risk of errors in the billing process?

Comparing control totals for shipping documents with corresponding totals for sales invoices.

An auditor selected items for test counts while observing a client's physical inventory. The auditor traced the test counts to the client's inventory listing. This procedure likely obtained evidence about which balance-related audit objective for inventory?

Completeness

For cash receipts, the occurrence transaction-related audit objective affects which of the following balance-related audit objective?

Completeness

When designing audit procedures, tracing of source documents to the customers subsidiary ledger and subsequently to the general ledger is done to satisfy what assertion?

Completeness

In connection with the 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.

Auditors are especially concerned with three aspects of internal control for the sales and collection cycle. Which of the following is not one of their major concerns?

Controls over sales discounts

Which one of the following best describes the auditors responsibilities regarding appropriate authorizations in the sales/collections cycle?

Credit must be authorized before the sale, Goods must be shipped after the authorization, prices must be authorized

Which of the following comparisons will be most useful to an auditor in auditing an entity's income and expense accounts?

Current year revenue to budgeted current year revenue

Audit procedures designed to uncover credit sales made after the client's fiscal year end that relate to the current year being audited provide evidence for which of the following audit objective

Cutoff

When positive confirmations are used, auditing standards require alternative procedures for confirmations not returned by the customer. Which of the following would not be considered an alternative procedure?

Send a second confirmation request

The auditor sends out positive accounts receivable confirmations for a client. Assuming a second confirmation is sent out to a major customer who still fails to respond, which action should the auditor take?

Send out a third confirmation request and, if no response, perform alternative procedures.

Which of the following tests would an auditor be least likely to perform during an audit of accounts payable?

Send out accounts payable confirmations

when there are no perpetual inventory files and inventory is material:

a physical inventory should be taken by the client near year end

what needs to be included in a letter of inquiry sent to a client's legal counsel

any pending threatened litigation with which the attorney has had significant involvement, any asserted or unasserted claims or assessments with which the attorney has had significant involvement

Before goods are shipped on account, a properly authorized person must:

approve the customer's credit

A CPA learns that his client has paid a vendor twice for the same shipment, once based upon the original invoice and once based upon the monthly statement. A control procedure that should have prevented this duplicate payment is

attachment of the receiving report to the disbursement report

Because of the importance of tests of controls and substantive tests of transactions for acquisitions and cash disbursements, it is common in this audit area to use:

attributes sampling

Which of the following statements is correct regarding the capital acquisition and payment cycle

audit procedures for notes payable and interest income are often performed simultaneously

Which of the following is not a key control in the acquisition and payment cycle?

authorization of credit

As a result of analytical procedures, the auditor determines that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditor should

consider the possibility of a misstatement in the financial statements.

imprest bank accounts

consist of one bank account for receipts and a separate one for disbursements

A management letter

contains recommendations from the auditor designed to help the client improve the efficiency and effectiveness of its business.

The auditor should control and verify all liquid assets simultaneously to prevent

conversion of assets to conceal a shortage.

When auditing depreciation expense, the two major concerns related to the accuracy audit objective are:

correctness of calculations and consistent application of depreciation policies

A _______ is a document that indicates a request for merchandise by a customer

customer order

What event initiates a transaction in the sales and collection cycle

customer request for goods

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because

customers may not be inclined to report understatement errors in their accounts.

the audit procedure "examine duplicate copies of notes payable to determine whether the notes payable were dated on or before the balance sheet date" is done for which of the following balance-related audit objective

cutoff

which of the following balance-related objectives applies to auditing the general cash account

cutoff

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the:

monthly statement

The Chester Co. shipped merchandise valued at $75,000 (cost to the company) f.o.b destination on Dec 23, year 2 and recorded the sale and relief of inventory on that date. The customer received the merchandise on Dec 31, year 2. The merchandise has a profit margin of 10%. Record the necessary year 2 adjustment if any.

no entry required

Which of the following is not an important control over notes payable

notes payable are issued when the business climate is favorable

An auditor is gathering evidence on the completeness assertion. To do so she performs a test to verify that all goods received by the company have been recorded properly. The document population for this test would consist of all

receiving reports

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all

receiving reports.

The direct receipt of a confirmation from every bank with which the client does business is:

recommended but not required by auditing standards

actual interest expense is significantly higher than the auditor's estimate. This would most likely lead the auditor to conclude that the client has not:

recorded all long-term interest bearing debt in the accounting records

Which of the following internal control objectives is likely to be the most important in the audit of the payroll cycle

recorded transactions represent valid payments

to minimize the opportunity for fraud, unclaimed salary checks should be

redeposited

Analytical procedures are substantive tests and, if the results of the analytical procedures are favorable, the auditor would normally:

reduce the extent of tests of details of balances

In auditing the payroll function of a client, an auditor would least likely

request specific management representations related to payroll.

A type of positive confirmation known as a blank confirmation:

requests the recipient to fill in the amount of the balance

Contingent liability disclosure in the footnotes of the financial statements would normally be made when:

a reasonable estimation of the loss cannot be made, and but the outcome is reasonably possible and the outcome of the accounting event is deemed probable, but a reasonable estimation as to the amount cannot be made by the client or auditor

when there are not numerous transactions involving notes payable during the year, the normal starting point for the audit of notes payable is:

a schedule of notes payable and accrued interest obtained from the client

Which event that occurred after the end of the fiscal year under audit but prior to issuance of the auditor's report would not require disclosure in the financial statements?

a significant decline in the market price of the corporations stock

Which of the following is an account that is not affected by the sales and collection cycle

Accounts Payable

Which of the following is likely to be determined first when performing test of details for accounts receivable

Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger

The accounting system automatically obtains the unit price based on scans of bar codes for merchandise sold. This control is most relevant to which transaction-related objective for sales?

Accuracy

Transactions in the acquisitions and payment cycle include

Acquisitions of goods and services, cash disbursements, purchase returns and allowances and purchase discounts

which type of subsequent event requires consideration by management and evaluation by the auditor

those that have a direct effect on the financial statements and require adjustment and those that have no direct effect on the financial statements but for which disclosure is advisable

This document indicates the time the employee started and stopped working each day and the number of hours the employee worked

time card

which of the following is not an objective of the auditor's examination of notes payable?

to determine whether client's financing arrangements are effective and efficient

In performing tests concerning the granting of stock options, an auditor should

trace the authorization for the transaction to a vote of the board of directors.

which of the following audit procedures would be the most effective in testing for nonexistent employees

trace transactions recorded in the payroll journal to the human resources department to determine employment status

A CPA obtains a January 10 cutoff bank statement for a client directly from the bank. Very few of the outstanding checks listed on the client's December 31 bank reconciliation cleared during the cutoff period. A probable cause for this is that the client

transmitted the checks to the payees after year end.

Deduction authorization form is a form authorizing payroll deductions, including the number of exemptions for withholding income taxes, 401 (k), and other retirement savings plans, U.S. savings bonds, and union dues.

true

Imprest dividend payment account is desirable because it could prevent the payment of a larger amount of dividends than was authorized

true

Sales returns and allowances are often ignored by auditors because they are often immaterial

true

Separation of duties in the sales/collection cycle should mandate that the credit granting function be separate from the sales function

true

The appropriate test of controls for separation of duties are ordinarily restricted to the auditor's observations of activities and discussions with personnel

true

There should generally be correspondence in the clients file establishing the uncollectibility of their account

true

congress included provisions in SOX act directing the SEC to issue rules requiring attorneys serving public companies to report material violations by the company of federal securities laws

true

gain contingencies need not be recorded or disclosed

true

it is ordinarily necessary for independent auditor to be present at the time of the count and, by suitable observation, tests, and inquiries, satisfy himself respecting the effectiveness of the methods of inventory-taking and the measure of reliance which may be placed upon the client's representations about the quantities and physical condition of the inventories.

true

petty cash is verified primarily because of the potential for defalcation and the client's expectation of an audit review even when the amount is immaterial

true

the american bar association amended its attorney-client confidentiality rules to permit attorneys to breach confidentiality if a client is committing a crime or fraud

true

the most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be recorded in the cash receipts journal

true

During an audit of a publicly held company, the auditor should obtain written confirmation regarding debenture transactions from the

trustee.

generally, this many signatures of properly authorized officials are required for loan agreements

two

An attorney is aware of a violation of a patent agreement that could result in a significant loss to the client if it were known. This is an example of a(n):

unasserted claim

a auditor selects a random sampling of tag numbers and identifies the tag with that number attached to the actual inventory. the purpose of this procedure is to

uncover the inclusion of nonexistent items as inventory

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate controls over the invoicing function allow goods to be shipped that are not invoiced. The inadequate controls could cause an

understatement of revenues and receivables and an overstatement of inventory.

after the receipt of attorney's letter with no significant disagreement with the client assessment of contingent liabilities, the attorney resigns. Under this circumstances:

undisclosed unasserted claims may have arisen and the auditor should examine issue

standard cost records are

used to indicate variances between projected material, labor, and overhead costs and the actual costs

_______ expense is rarely analyzed unless analytical procedures indicate high potential for material misstatement

utilities

A document that specifies the details of an acquisition transaction and amount of money owed to the vendor for an acquisition

vendor's invoice

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:

vendors' invoices

You are the in-charge auditor for a company who has been an audit client for several years. Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment.

verification of the beginning balance in the equipment account

A document used by organizations to establish a formal means of recording and controlling acquisitions which usually contains a package of documents about the acquisition is the

voucher

As part of the current audit, the auditor begins performing substantive tests on a client's inventory. To test the valuation, allocation, and accuracy assertion, the auditor should perform all of the following procedures except for

vouching a sample of items from the client's inventory report sheet to the corresponding prenumbered inventory tags.

in auditing debits and credits to retained earnings, OTHER than net income and dividends, the auditors first concern is

whether the transactions should have been included in retained earnings

The primary concern in determining whether retained earnings is correctly disclosed on the balance sheet is

whether there are any restrictions on the payment of dividends

when a company maintains its own records of stock transactions and outstanding stock, internal controls must be adequate to ensure that:

who are actual owners of the stock, the correct amount of dividends is paid to stockholders owning the stock on the dividend record date

Because the failure to record disposals of property, plant, and equipment can significantly affect the financial statements, the search for unrecorded disposals is essential. Which of the following is not a procedure used to verify disposals?

test the valuation of fixed assets recorded in prior periods

When testing the controls for the completeness transaction-related audit objectives:

the audit time for accounts payable can be reduced if the client has effective internal controls and the auditor properly tests those controls

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom

the cashier posts the receipts to the accounts receivable subsidiary ledger cards

In addition to confirming bank balances of your audit client, a bank confirmation would normally contain:

the client's bank loans with due date, interest rate, and collateral requested

The interest expense recorded on the company's books for year 3 is $782,500. The auditor most likely will conclude that:

the company has not included all long term debts on the balance sheet as of Dec 31, year 3

The auditor should ordinarily send confirmation requests to all banks with which the client has conducted any business during the year, regardless of the year-end balance, because

the confirmation form also seeks information about indebtedness to the bank.

If the auditor determines that a subsequent event that affects the current period financial statements occurred after fieldwork was completed but before the audit report was issued, what date(s) may the auditor use on the report?

the date of the subsequent event only or the date on which the last day of fieldwork occurred along with the date of the subsequent event

An inventory turnover analysis is useful to the auditor because it may detect

the existence of obsolete merchandise.

When the client's physical inventory occurs before the last day of the year, it is still necessary to perform an accounts payable cutoff at the time of the count. In addition, the auditor must verify whether all acquisitions taking place between the count and the end of the year were added to:

the physical inventory and accounts payable

Cutoff information for inventory acquisitions should be obtained during

the physical observation of inventory

Prenumbered documents will only be useful for control purposed if:

the sequence is accounted for periodically

it is frequently possible to test the physical inventory prior to the balance sheet date when:

there are accurate perpetual inventory master files

Which of the following is a characteristic of the capital acquisition and repayment cycle

there is a legal relationship between the client entity and the holder of the stock, bond, or similar ownership document. There is a direct relationship between the interest and dividends accounts and debt and equity

the auditors expectation for interest payable as of dec 31 year 3 is:

$160,000

Use the information on long term debt handout: The auditor's expectation with regard to interest expense is

$714,750

Which of the following audit procedures would not likely detect a client's decision to pledge or factor accounts receivable

confirmation of receivables

Which of the following is most reliable for verifying the correct balance of accounts payable?

confirmations

what should the auditor do if the client does not allow inquiry of outside legal counsel

give a disclaimer audit report

Which of the following will likely provide the most assurance concerning the accuracy balance-related objective for accounts receivable?

Vouch amounts in the subsidiary ledger to details on shipping documents.

This IRS form is used to authorize the number of exemptions for withholding income taxes

W4

Most companies recognize sales revenue when:

goods are shipped

______ is a balance-related audit objective that is not applicable to liabilities.

realizable value

Which of the following would be least likely to be included in a standard inquiry to the client's attorney?

A request for the attorney to opine on the correct accounting treatment associated with an outstanding claim or pending lawsuit outcome

Because of its central role in auditing of accounts receivable, which of the following would normally be one of the first items tested?

Aged trial balance

An auditor is performing a preliminary assessment of a large client's internal controls over payroll. The auditor would identify which of the following as an improper segregation of duties related to the payroll functions?

All blank checks and the check signature plate are maintained by human resources.

Methods used to determine if there are legal encumbrances related to fixed assets includes all but which of the following?

All of the following may be used to identify legal encumbrances: reading terms of loan and credit agreements reviewing loan confirmations received from banks having discussion with the client or sending letters to legal counsel

Which of the following is least likely to be a reasonable explanation for an increase in accounts receivable turnover?

Allowance of a new grace period for customer payments

A written purchase order is a contractual document that is:

An offer to buy goods or services

In order to test the valuation assertion related to the client's stockholders' equity transactions, the auditor may complete which of the following substantive procedures?

Analyze the retained earnings account by reviewing the propriety of the direct entries to the retained earnings account, starting with the date of the previous audit.

Which of the following questions is an auditor least likely to include on an internal control questionnaire concerning the initiation and execution of equipment transactions?

Are procedures in place to monitor and properly restrict access to equipment?

Which of the following questions would be best to include in an internal control questionnaire concerning the completeness assertion for purchases?

Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

Shipments occurring in December 2019 did not get recorded until the first few days of January 2020.

As goods leave the shipping dock, the system generates a bill of lading and associated sales invoice, which is automatically recorded in the sales journal.

An auditor is performing substantive tests of transactions for sales. One step is to trace a sample of debit entries from the accounts receivable master file back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step?

Debit entries in the accounts receivable master file are correctly supported by sales invoices.

Which of the following cash transfers results in a misstatement of cash at December 31, 2019?

Disbursements: Recorded in books: 1/4/20 Paid by Bank: 1/5/20 Receipts: Recorded in books: 12/31/19 Received by bank: 1/4/20

The Chester Co. shipped merchandise valued at $45,000 (cost to the company) to a consignee on Dec 24, year 2, and recorded the sale and the relief of inventory on that date. The consignee had not sold the merchandise as of Jan 5, year 3. the merchandise has a profit margin of 10%. Record the necessary year 2 adjustments, if any.

Dr Sales $50,000 Dr inventory $45,000 Cr A/R $50,000 Cr COGS $45,000

Which of the following controls most likely will be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad-debt write-offs?

Employees involved in the credit-granting function are separated from the sales function.

An auditor found that employee time records in one department are not properly approved by the supervisor. Which of the following could result?

Employees might be paid for hours they did not work.

to prevent fraud, management should deny cash access to anyone responsible for

Entering sales transactions and entering cash receipts transactions

An auditor is in the process of performing substantive procedures on a client's stockholders' equity and vouches stock-related transactions recorded during the year to board minutes. Which of the following assertions is the auditor testing with these procedures?

Existence and occurrence

In the audit of notes payable, which balance-related audit objective is generally one of the most important for the auditor to verify?

Existing notes payable are included on the balance sheet as of year end.

The prelisting of cash receipts should be prepared by the individual who has primary responsibility for the recording of cash receipts

False

Which of the following procedures will 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.

Which of the following controls will most likely justify a reduced assessed level of control risk for the existence assertion for equipment?

Internal auditors periodically select equipment items in the fixed assets master file and locate the related equipment on company premises.

Which of the following discovered by the auditor would be a weakness in the client's internal control over its investments?

Investments not held by an independent third-party custodian are kept in the Treasurer's office.

in valuing inventory, the auditor must consider all but which of the following factors

LIFO must be used for work in process inventory

An auditor's preliminary analysis of accounts receivable turnover revealed the following rates over these accounting periods: 2017: 7.3 2018: 6.2 2019: 4.3 Which of the following is the most likely cause of the decrease in accounts receivable turnover?

Liberalization of credit policy

Some companies have customers send payments directly to and address maintained by a bank. This is called a(n) _________ system

Lockbox

Which of the following controls would be most effective in detecting a failure to record cash received from customers paying on their accounts?

Monthly statements are sent to customers and any discrepancies are resolved by someone independent of cash handling and accounting.

In assessing control risk 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

The accounting system will not post a sales transaction to the sales journal without a valid bill of lading number. This control is most relevant to which transaction-related objective for sales?

Occurrence

You have been assigned to the accounts payable transaction cycle as part of your auditing responsibilities. You have decided to vouch a sample of entries in the accounts payable master file to supporting documents. Which assertion is this test of controls most likely to support?

Occurrence

A report generated from the payroll transaction file that typically includes the employee name, date, gross and net payroll amounts, withholding amounts, and account classification or classification for each transaction

Payroll journal or listing

Which of the following internal control procedures most likely would be used to maintain accurate inventory records?

Perpetual inventory records are periodically compared with the current cost of individual inventory items.

A sales invoice for $5,200 was computed correctly but, by mistake, was entered as $2,500 to the sales journal and posted to the accounts receivable master file. The customer remitted only $2,500, the amount on his monthly statement.

Prelistings and predetermined totals are used to control postings.

Which of the following is one of the better auditing techniques to detect kiting?

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

Which of the following controls would most likely detect a kiting scheme?

Preparing a bank transfer schedule

Which of the following is a business function related to sales returns and allowances

Processing and recording credit memos

Which of the following is not a required item to be communicated by the auditor to the audit committee or others charged with governance?

Recommendations for improving the client's business

An auditor is planning the test of details for a client's debt transactions. In order to test the existence and occurrence assertion, the auditor would most likely perform which of the following tests?

Review the board minutes to obtain evidence of new agreements and then follow up by inspecting the new agreements.

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

For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents?

Sales order

An auditor wishes to test the completeness assertion for sales. Which of the following audit tests would most likely accomplish this objective?

Select a sample of shipments occurring during the year and trace each one to inclusion in the sales journal.

An auditor who is auditing accounts receivable would least likely perform which of the following tests?

Select cash disbursements made shortly after year end and examine the supporting documentation such as receiving reports and vendor invoices.

Which one of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales transaction

Selling of goods for cash

the most important balance-related audit objectives in the audit of cash include all but which of the following

realizable value

Which of the following audit procedures will best uncover an understatement of sales and accounts receivable?

Test a sample of sales transactions, selecting the sample from prenumbered shipping documents.

Which of the following controls will most likely justify a reduced assessed level of control risk for the completeness assertion for notes payable?

The accounting staff reviews board of director minutes for any indication of any transactions involving outstanding debt to make sure all borrowings are included in the general ledger.

Which of the following audit procedures would be most relevant when examining the completeness transaction-related audit objective for capital stock?

The auditor examines minutes of the board of directors' meetings to identify any actions involving the issuance of capital stock.

Which of the following statements is correct about an auditor's required communication with those charged with governance?

The auditor is required to inform those charged with governance about significant misstatements discovered by the auditor and subsequently corrected by management.

The Form 10-K filed by management of a public company includes a section on management's discussion and analysis (MD&A) in addition to the annual financial statements. Which of the following best describes the auditor's responsibility for the MD&A information?

The auditor must read the MD&A information to determine whether there is any material inconsistency with the audited financial statements.

Which of the following analytical procedure results might suggest that certain repairs and maintenance expenses have been inappropriately capitalized?

The balance in the repairs and maintenance expense account is noticeably lower than amounts recorded in the past several years.

Which of the following internal controls is least likely to reduce risks related to the occurrence transaction-related audit objective for issuances of stock?

The board of directors must approve the distribution of cash dividends.

An audit firm performs a preliminary review of the client's internal controls over its property, plant, and equipment cycle. Which of the following would represent a weakness in internal control?

The purchasing department generates a special requisition form upon oral or written approval by senior management.

Management of Thurman Corporation included additional supplementary information in documents that include the audited financial statements for the year ended December 31, 2019. Management has asked its audit firm, Wally, CPAs, whether they can report on the supplementary information. Which of the following conditions would preclude Wally, CPAs, from conducting this engagement?

The supplementary information covers the period January 1, 2019, through February 15, 2020.

In auditing a manufacturing entity, which of the following procedures would an auditor most likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified?

Tour the manufacturing plant or production facility

When auditing a client's property, plant, and equipment transactions, which of the following tests of details can be used to support the existence and occurrence assertion?

Vouch a sample of purchases to the vendor invoice and receiving report.

Which audit procedure is most effective in testing credit sales for overstatement?

Vouch a sample of recorded sales from the sales journal to shipping documents.

Which of the following would have the least amount of importance regarding controls over the processing of payroll

a check-signing machine should not be used to replace a manual signature

A document generally received from the vendor which indicates a reduction in the amount owed due to the company granting an allowance is a

a debit memo

while there is no professional requirement to do so on audit engagements, cpas frequently issue a formal "management" letter to clients. The primary purpose of this letter is to provide

a written record of discussions between auditor and client concerning the auditor's observations and suggestions for improvements

to assure proper segregation of duties, who should maintain the perpetual inventory master files?

accounting department personnel

Changing circumstances may require a change in the useful life of an asset. When this occurs, it involves a change in:

accounting estimate rather than a change in accounting principles

The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the

accounts payable master file

a listing of the amount owed to each vendor at a point in time

accounts payable trial balance

With which of the following client personnel would it generally not be appropriate to inquire about commitments or contingent liabilities

accounts receivable clerk

The primary audit objectives to focus on when auditing debt are:

accuracy and completeness

what are the two major balance-related audit objectives in testing payroll liabilities

accuracy and cutoff

The return of a positive confirmation of accounts receivable without an exception attests to the

accuracy of the receivable balance.

A client acquired 25 percent of its outstanding capital stock after year end but prior to the date of the auditor's report. The auditor should

advise management to disclose the acquisition in the notes to the financial statements.

In the accounts receivable subsidiary ledger the length of time the account has been due can be useful to the client and the auditor in preparing the:

aged accounts receivable trial balance

auditing standards does not require the auditor to communicate all management frauds and illegal acts to the audit committee

all are required to be communicated with the audit committee: only if the act is immaterial, only if the act is material, only if the act is highly material

A common audit procedure in the audit of payroll transactions involves tracing selected items from the payroll journal to employee time records that have been approved by supervisory personnel. This procedure is designed to provide evidence in support of the audit proposition that

all employees worked the number of hours for which their pay was computed.

Normally it may be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it would be customary to verify:

all large transactions, all unusual transactions, and a representative sample of typical additions

When a company has treasury stock certificates on hand, a year-end count of the certificates by the auditor is:

always required

which type of audit procedure would normally be sufficient for purposes of auditing prepaid expenses and deferred charges

analytical procedures

the test of details of balances procedure which requires the auditor to perform tests of lower of cost or market, selling price, and obsolescence is an attempt to satisfy the objective of:

realizable value

Which of the following balance related audit objectives is not applicable to owner's equity

realizable value, rights and obligations

which of the following statements is false

balance sheet accounts related to payroll are generally more significant than related transactions

which of the following misstatements will be uncovered by a carefully prepared independent bank reconciliation

bank debit memo that should have been charged to a different customer

A document prepared to initiate shipment of the goods sold by an independent shipper is the:

bill of lading

A document that initiates shipment of goods and indicates the description of the merchandise, the quantity shipped, and the customer name and address is the:

bill of lading

all of the following would be uncovered by a bank reconciliation except for:

billing a customer at a lower price than called for by company policy

responsibility for the issuance of new notes payable would normally be vested in the:

board of directors

When an auditor observes that the recorded interest expense seems to be excessive in relation to the balance in the bonds payable account, the auditor might suspect that

bonds payable are understated.

Failure to capitalize a fixed asset at the correct amount would impact which financial statements until the company disposes of the asset?

both the income statement and the balance sheet

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.

When auditors observe the client counting inventory, they should be careful to do all of the following except:

calculate the unit cost of the inventory items

The record of the issuance and repurchase of capital stock for the life of the corporation is maintained in the

capital stock certificate record

For several years, a client's physical inventory count has been lower than the amount shown on the books at the time of the count. Contributing to the inventory problem could be material weaknesses in internal control that led to failure to record some

cash purchases.

A proof of cash is effective at identifying which of the following misstatements?

checks recorded in the books for an amount different from that on the check

The auditor's starting point for verifying disposals of property, plant, and equipment is the:

client's schedule of recorded disposals

The standard letter of inquiry to the client's legal counsel should be prepared on:

client's stationary and signed by a company official

who has the responsibility for identifying accounting treatment for contingent liabilities

company management

Which of the following is an analytical procedure to determine if there is idle equipment or equipment that was disposed of but not written off

compare gross manufacturing cost divided by some measure of production with previous years

which one of the following analytical procedures would be most useful in alerting the auditor to the possibility of obsolete inventory

compare inventory turnover ratio with previous years

controls which provide a means of ensuring that the physical counts are properly summarized, priced at the same amount as the unit records, correctly extended and totaled, and included in the general ledger at the proper amount are known as:

compilation internal controls

the tests of details of balances procedure which requires the auditor to examine notes paid after year end to determine whether they were liabilities at the balance sheet date is an attempt to satisfy the audit objective of:

completeness

When auditors verify accrued property taxes two audit objectives are especially significant. These are:

completeness and accuracy

Major balance-related audit objectives in notes payable are:

completeness, accuracy, presentation and disclosure

Auditors are especially concerned about the ________ and ________ balance-related audit objectives because of the potential for understatements in the account balance.

completeness, cutoff

In auditing accounts payable, an auditor's procedures most likely will focus primarily on management's assertion of

completeness.

If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count, the auditor should ordinarily:

conduct expanded observation tests of physical inventory

in connection with a review of the prepaid insurance account, which of the following audit procedures would you be least likely to use

confirm premium rates with an independent insurance broker

While auditing a client's purchase transactions, an auditor selects a sample of vouchers and then compares the dates on the vouchers to the dates on which the corresponding transactions were actually recorded in the client's purchase journal. The audit procedure is most likely designed to test the

cutoff assertion.

A partial-period bank statement and the related canceled checks, duplicate deposit slips, and other documents included in bank statements, mailed by the bank directly to the CPA firm's office, is called:

cutoff bank statement

the date of the management representation letter received from the client should coincide with which of the following

date of the auditors report

An example of an event occurring in the period between the end of the year being audited and the date of the auditor's report that normally will not require disclosure in the financial statements or auditor's report is

decreased sales volume resulting from a general business recession.

which of the following misstatements will be uncovered by a carefully prepared independent bank reconciliation

deposits received by the bank on behalf of the company from credit card agencies and other vendors making payments electronically, but not recorded in the clients records

An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to

determine that purchases were properly recorded.

based on the schedule of interbank transfers above, which of the cash transfers indicates an error in cash cutoff at December 31, 2017

disburse date: Per bank: 1/2 Per book: 12/31 Receiving date: Per bank: 1/3 Per book: 1/2

Based on the schedule of interbank transfers above, which of the cash transfers would appear as a deposit in transit on the December 31, 2017 bank reconciliation?

disburse date: Per bank: 1/3 Per book: 12/31 Receiving date: per bank: 1/2 per book: 12/31

Based on the schedule of interbank transfers above, which of the cash transfers would not appear as an outstanding check on the dec 31, 2017 bank statement

disburse date: per bank: 12/31 Per book: 12/30 Receiving date: per bank: 12/31 per book: 12/30

You are auditing Rodgers and Company. You are aware of a potential loss due to non-compliance with environmental regulations. Management has assessed that there is a 40% chance that a $10M payment could result from the non-compliance. The appropriate financial statement treatment is to:

disclose a liability and provide a range of outcomes

audit procedures related to contingent liabilities are initially focused on

disclosure and occurrence

An auditor's principal objective in analyzing repairs and maintenance expense accounts is to

discover expenditures that were expensed but should have been capitalized.

An auditor most likely would introduce test data into a computerized payroll system to test internal controls related to the

discovery of invalid employee I.D. numbers.

Which of the following is not considered a commitment

each of the above is a commitment: agreements to purchase raw material, pension plans, agreements to lease facilities at set prices

Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle

estimated liabilities for warranties

The most important aspect of evaluating the client's method of obtaining a reliable cutoff is to

evaluate the client's control procedures around cutoff

to which attorney should the auditor send inquiry

every attorney that the client has been involved with in the current year, every attorney that the client has been involved with in the last year, every occasional attorney

to determine if notes payable are included in the proper period, the auditor should:

examine duplicate copies of notes to determine whether the notes were dated on or before the balance sheet date

Which of the following audit tests is tested in the sales and collection cycle?

examine shipped goods records and recorded revenue and costs

The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes off customer accounts that have already been collected. The primary control for preventing this fraud is:

examining the uncollectible account authorization form

The auditor may note that annual depreciation expense is too low for a class of assets by noting

excessive recurring losses on assets retired.

which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash

existence

In searching for unrecorded retirements, an auditor selects older fixed assets from the subsidiary ledger and then tries to locate those assets. This procedure primarily relates to management's assertion of

existence.

After a CPA has determined that accounts receivable have increased as a result of slow collections in a "tight money" environment, the CPA will be likely to

expand tests of collectibility.

the reliability of perpetual inventory master files affects the timing and ________ of the auditor's observation of inventory

extent

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account

extraordinary repairs have lengthened the life of an asset

all of the following would be uncovered by a bank reconciliation except for

failure to bill a customer

The least important part of the observation of inventory is determining whether the physical count is being taken in accordance with the client's instruction:

false

any company with stock listed on a securities exchange may engage an independent registrar as a control to make sure stock certificates are issued properly

false

misstatements involving the completeness objective for sales lead to overstatements of assets and income

false

auditing standards requires the auditor to evaluate whether there is substantial doubt about a client's ability to continue as a going concern for at least on year from:

financial statement issuance date

For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order that is

forwarded to the receiving department.

A factory supervisor at Steblecki Corporation discharged an hourly worker but did not notify the human resources department. The supervisor then forged the worker's signature on time cards and work tickets and, when giving out the checks, diverted the payroll checks drawn from the discharged worker to his own use. The most effective procedure for preventing this activity is to

have a paymaster who has no other payroll responsibility distribute the payroll checks.

Which of the following departments is most likely responsible for pay rate changes and changes in deductible amounts for employees

human resources

An auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing to

identify potential liabilities for unpaid payroll taxes.

The auditor needs to be aware that most users of financial statements rely most heavily on the _____ for making decisions

income statement

which of the following is a contingent liability with which an auditor is particularly concerned

income tax disputes, product warranties, notes receivable discounted

The negative form of accounts receivable confirmation request is useful except when

individual account balances are relatively large.

Given the following inventory turnover rates about your audit client, audit concern for 20x2 would be: 20x1: 12 20x2: 10 Industry average: 16

inventory is overvalued on the balance sheet, realizable value, existence of obsolete inventory

inventory is a complex area to audit for all but which of the following reasons

inventory valuation includes few estimates

Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control that provides for

investigations of variances within a formal budgeting system.

An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed. If the acquisition is included in accounts payable and purchases, but excluded from inventory, the result:

is an understatement of net earnings

What typically initiates the acquisitions and payments cycle

issuance of a purchase requisition or request for purchase of goods / services

If a company employs a capital stock registrar and/or transfer agent, the registrar or agent, or both, should be requested to confirm directly to the auditor the number of shares of each class of stock:

issued and outstanding at the balance sheet date

This document indicates the jobs on which an employee worked during a given time period

job time ticket

the process of transferring money from on bank account to another and improperly recording the transaction is referred to as

kiting

When an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger, purposefully enters cash received into the wrong customer's account that the employee may be suspected of:

lapping

Important differences between acquisitions and payments cycle transactions compared to other cycles is (are)

larger number of transactions, significant judgement, wide range of dollar amount

The least time-consuming account to verify by substantive tests of details of balances is

leases

which of the following is not a "cash equivalent"

marketable securities

Auditors are likely to prepare a proof of cash when the client has:

material control weaknesses in cash receipts and cash disbursements

Auditors test the quantity of materials charged to work-in-process by tracing these quantities to

material requisitions

which of the following is not one of the categories of items included in the client letter of representation

materiality

An attorney is responding to an independent auditor as a result of the client's letter of inquiry. The attorney may appropriately limit the response to:

matters to which the attorney has given substantive attention in the form of legal consultation or representation

Auditor tests of the physical controls over raw materials, work in process, and finished goods are performed by:

observation and inquiry

The auditor's internal control objective to determine that "recorded acquisitions are for goods and services received" satisfies the audit objective of:

occurrence

The main difference between job order and process costing systems is that:

one accumulates costs by individual jobs and the other by particular processes

when determining the sample size for the number of items the auditor should count during the physical inventory:

one of the key determinants that must be considered is internal control over the physical count

assume that the client's valuation of an inventory item is $10 per unit for 1,000 units, using FIFO. If the most recent acquisition of inventory was for 600 units at $10 per unit and the immediately preceding acquisition was for 700 units at $9 per unit, the inventory item is in error and it is:

overstated $400 600 *10 = 6,000 400*9=3,600 6,000+3,600 = 9,600 10,000-9,600 = 400

An auditor is comparing the write-off of uncollectible accounts as a percentage of total accounts receivable with previous years. A possible misstatement this procedure could uncover is:

overstatement or understatement of bad debt expense

which of the following would generally not need to be approved by the board of directors?

payment of a dividend

The audit of owner's equity of public and private companies is very different. Which of the following is not one of these differences

payment of dividends (public companies rarely pay dividends)

The capital acquisition and repayment cycle does not include:

payment of taxes

This file is used for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date

payroll master file

Which of the following includes all payroll transactions processed by the accounting system for a given period of time

payroll transaction file

In an effort to satisfy the completeness objective, the auditor could perform which of the following test of details of balance procedures?

perform a four column proof of cash

Records that include such data as the date of employment, personnel investigations, rates of pay, authorized deductions, performance evaluations, and termination of employment

personel records

when reviewing the controls and procedures in the acquisition and payment cycle:

personnel who record the acquisitions should not have access to cash or other assets.

All of the following are effective ways to prevent and/or detect lapping, except for

preparing a bank transfer schedule.

Which of the following is not a function within the inventory and warehousing cycle

process invoices for shipped goods

Which of the following accounts is not included in the acquisitions class of transactions

purchase discounts

After a purchase requisition is approved, a _________ must be initiated to purchase the goods or services

purchase order

The accounts payable department usually has responsibility for approving acquisitions for payment by comparing the details on the

purchase order, receiving report, and vendor's invoice

If the perpetual records show lower quantities of inventory than the physical count, an explanation of the difference might be unrecorded

purchases.

cost accounting controls are those related to the physical inventory and the consequent costs from the point at which:

raw materials are requisitioned until the finished product is sent to storage

An auditor is performing a credit analysis of customers with balances over 60 days due. She is most likely obtaining evidence for which audit related objective?

realizable value

Which balance-related audit objective is not relevant to an audit of prepaid expenses?

realizable value

Which of the following balance-related audit objectives is not applicable to the audit of notes payable

realizable value

Control risk is the risk that a material misstatement in an account will not be prevented or detected on a timely basis by the client's internal controls. The best control to prevent or detect fictitious payroll transactions is to

restrict authorization for hiring, terminating, or changing pay rate or job status to the human resources function.

Which of the following audit procedures are used to test existing capital stock transactions are recorded

review minutes of board of directors, especially near balance sheet date. Confirm with registrar or transfer agent examine client held stock record books

the audit objective that requires the auditor to determine that notes payable on the notes payable schedule are properly classified can be tested by performing the procedure to:

review the notes to determine whether any are with related parties

In addition to making management inquiries, an auditor should perform the following procedures to identify client contingencies with the exception of

reviewing derivative transactions reflected on the quarter-end balance sheet.

The document used to indicate to the customer the amount of a sale and payment due date is the:

sales invoice

To test for recorded sales for which there were no actual shipments, the auditor vouches from the

sales journal to the shipping documents

A _________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped

sales order

Which of the following accounts is not part of the acquisition and payment cycle

sales returns and allowances

Which one of the following is of the least concern to the auditor when designing substantive tests of transactions for the sales/collection cycle

sales to related parties, such as officers and subsidiaries

Investment and property schedules are presented for purposes of additional analysis in a document outside the basic financial statements. The schedules are not required supplementary information. When the auditor is engaged to report on whether the supplementary information is fairly stated in relation to the audited financial statements as a whole, the measurement of materiality is the

same as that used in forming an opinion on the basic financial statements as a whole.

In testing for unrecorded disposals of equipment, an auditor most likely will

select items of equipment from the accounting records and then locate them during the plant tour.

You are performing an audit of Hawk company. In evaluating the accounts payable balance you are concerned with the completeness assertion. Which of the following audit procedures best satisfy your concern?

send confirmations to vendors with large, active, zero balance accounts and a representative sample of all others

The record of the outstanding shares at any given time is maintained in the:

shareholder's capital stock master file

Tracing shipping documents to sales invoices provides evidence that

shipments to customers were properly invoiced.

To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor would most likely select a sample of transactions from the population represented by the

shipping document file.

Mailing disbursement checks and remittance advices should be controlled by the person who

signs the checks last.

When auditing interest-bearing debt, the auditor should ________ verify the related interest expense and interest payable.

simultaneously

Which one of the following statements is true in deciding on substantive tests of transactions

some procedures are commonly employed on every audit regardless of the circumstances

Written management representations obtained by the auditor in connection with a financial statement audit should include a

statement of management's belief that the effects of uncorrected misstatements are not material.

the audit procedures the subsequent events review can be divided into two categories: (1) procedures integrated as part of the verification of year end account balances and (2) those performed specifically for the purpose of discovering subsequent events. which of the following procedures is not in category 2?

subsequent period sales and purchases transactions are examined to determine whether the cutoff is accurate

In addition to proper instructions for the physical count of inventory, which of the following controls must also be in place:

supervision by responsible personnel, independent internal verification of the counts, independent reconciliation of the physical counts with perpetual inventory master files, adequate control over count sheets and tags.

When a contingency is resolved subsequent to the issuance of audited financial statements, which correctly contained disclosure of the contingency in the footnotes based on information available at the date of issuance, the auditor should

take no action regarding the event.