ACTG 135: Quiz #2

Explain the process of sampling -- that is, what are the steps you take when performing a sample test of an account or transaction class.

1. Determine the objective of sampling 2. Define the characteristic of interest 3. Define the population 4. Determine the sample size 5. Select the sample items 6. Measure the sample items 7. Evaluate the sample results

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion (PCAOB assertion) of A. Valuation or allocation B. Rights and obligations C. Existence or occurrence D. Presentation and disclosure

A. Valuation or allocation

Subsequent events occur between the ___ and the ___. A. Balance sheet date; audit report release date B. Audit completion date; report date C. Balance sheet date; report date D. Report date; beginning of subsequent year's audit

A. Balance sheet date; audit report release date

Inspecting sales invoices for missing numbers in the sequence would be a procedure intended to satisfy what control assertion? A. Completeness B. Accuracy C. Occurence D. Classification

A. Completeness

Which of the following internal control procedures most likely would assure that all billed sales are correctly posted to the accounts receivable ledger? A. Daily sales summaries are compared to daily postings to the accounts receivable ledger B. Each sales invoice is supported by prenumbered shipping document C. The accounts receivable ledger is reconciled daily to the control account in the general ledger D. Each shipment on credit is supported by a prenumbered sales invoice

A. Daily sales summaries are compared to daily postings to the accounts receivable ledger

In an audit of contingent liabilities, which of the following procedures would be least effective? A. Examining customer confirmation replies B. Reviewing a bank confirmation letter C. Examining invoices for professional services D. Reading the minutes of the board of directors meetings

A. Examining customer confirmation replies

Confirmations of accounts receivable provide the most evidence for which of the following assertions? A. Existence B. Valuation or Allocation C. Rights and Obligations D. Completeness

A. Existence

Vouches should be stamped PAID to A. Prevent duplicate payment B. Generate a new purchase order C. Indicate posting in the voucher register D. Facilitate preparation of the bank reconciliation

A. Prevent duplicate payment

The most effective audit procedure for determining the collectivity of an account receivable is the A. Review of the subsequent cash collections B. Examination of the related sales invoice(s) C. Confirmation of the account D. Review of authorization of credit sales to the customer and the previous history of collections

A. Review of the subsequent cash collections

Which of the following audit procedures is best for identifying unrecorded accounts payable? A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether related payables apply to the prior period B. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports C. Examining unusual relationships between monthly accounts payable balances and recorded cash payments D. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date

A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether related payables apply to the prior period

A client's physical count of inventories was higher than the inventory quantities shown in the perpetual records. This situation could be the result of the failure to record A. Sales B. Sales discounts C. Purchases D. Purchase discounts

C. Purchases

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be A. Vendors with whom the entity has previously done business B. Amounts recorded in the accounts payable subsidiary ledger C. Payees of checks drawn in the month after the year-end D. Invoices filed in the entity's open invoice file

A. Vendors with whom the entity has previously done business

What is the general order in which the following steps in attribute sampling are performed? 1 = Define the population 2 = Determine the objective of sampling 3 = Determine the sample size 4 = Select the sample A. 1, 2, 3, 4 B. 2, 1, 3, 4 C. 1, 2, 4, 3 D. 2, 1, 4, 3

B. 2, 1, 3, 4

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

B. Examine evidence supporting additions during the year

What is an auditor's evaluation of a statistical sample for attributes when a test of 100 documents results in 4 deviations if the tolerable deviation rate is 5%, the expected deviation rate is 3%, and the allowance for sampling risk is 2%? A. Accept the sample results as support for planned reliance on the control because the tolerable deviation rate less then allowance for sampling risk equals the expected deviation rate B. Modify planned reliance on the control because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate C. Modify planned reliance on the control because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected deviation rate D. Accept the sample results as support for planned reliance on the control because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate

B. Modify planned reliance on the control because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate

An auditor wishes to perform tests of controls on a client's purchasing procedures. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by A. Confirmation and observation B. Observation and inquiry C. Analytical procedures and confirmation D. Inquiry and analytical procedures

B. Observation and inquiry

Under DUS sampling, the sampling interval is determined by dividing the ___ by the ___. A. Sample size; population size B. Population size; sample size C. Tolerable error; population size D. Population size; tolerable error

B. Population size; sample size

When the auditor concludes that a control is functioning properly when, in fact, it is not, the auditor has committed the: A. Risk of assessing control risk too high B. Risk of assessing control risk too low C. Risk of incorrect acceptance D. Risk of incorrect rejection

B. Risk of assessing control risk too low

Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements? A. Set the tolerable error at a lower level than originally planned B. Stratify the cash disbursements population so that the unusually large disbursements are selected C. Increase the sample size to reduce the effect of the unusually large disbursements D. Continue to draw new samples until all the unusually large disbursements appear in the sample

B. Stratify the cash disbursements population so that the unusually large disbursements are selected

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to supports management's financial statement assertions of A. Existence B. Valuation or allocation C. Completeness D. Rights and obligations

B. Valuation or allocation

Which of the following situations indicates a potential material weakness in internal control over acquisition and expenditure? A. Purchase orders are not prepared for services acquired directly under authorization of department heads B. Voucher packages are authorized and checks are signed by the same person C. Unacceptable goods are not scheduled on receiving reports D. The same person signed checks and stamps vouchers "paid."

B. Voucher packages are authorized and checks are signed by the same person

Failure to record a liability generally results in A. An understatement of profit B. An understatement of current ratio C. An overstatement of profit D. An overstatement of assets

C. An overstatement of profit

Auditors have a responsibility to evaluate whether financial statements properly reflect all subsequent events through the: A. Balance sheet date B. Audit completion date C. Audit report release date D. Subsequent year's balance sheet date

C. Audit report release date

Cutoff tests designed to detect purchase 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 occurence C. Completeness D. Rights and obligation

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 occurence C. Completeness D. Rights and obligations

C. Completeness

An auditor selected an inventory item on the warehouse floor, test counted it, and traced the count to the final inventory compilation. The auditor most likely was testing the following assertion: A. Existence assertion B. Valuation assertion C. Completeness assertion D. Rights and obligations assertion

C. Completeness assertion

Counting different parts of inventory at different times of the year is called. A. LIFO inventory B. Inventory cut-off C. Cycle counting D. Just-in-time inventory

C. Cycle counting

How does dollar unit sampling (DUS) ensure that larger dollar components are selected for examination? A. DUS sampling requires the auditor to identify all items having a balance greater than materiality prior to beginning the sample selection process B. DUS sampling requires the auditor to stratify the sample into larger and smaller dollar components prior to beginning the sample selection process C. DUS sampling define the sampling unit as an individual dollar within an account balance or class of transactions D. DUS sampling selects components having larger balances in the prior audit

C. DUS sampling define the sampling unit as an individual dollar within an account balance or class of transactions

To be recognized, revenues must also be realized or realizable and A. Foreseeable B. Collected C. Earned D. Shipped

C. Earned

Inventory count tags are controlled A. To prevent counting errors B. To test cut-off C. To prevent subsequent additions of goods to the inventory D. For all the above reasons

C. To prevent subsequent additions of goods to the inventory

Which of the following audit procedures is the most effecting in testing sales for understatement? A. Analyze the aged trial balance of recorded accounts receivable B. Confirm recorded accounts receivable C. Trace a sample of shipping documents to sales invoices recorded in the sales journal D. Vouch a sample of recorded sales from the sales journal to shipping documents

C. Trace a sample of shipping documents to sales invoices recorded in the sales journal

Which of the following most likely would be detected by an auditor's review of a client's sales cutoff? A. Shipments lacking sales invoices and shipping documents B. Excessive write-offs of accounts receivable C. Unrecorded sales at year end D. Lapping of year-end accounts receivable

C. Unrecorded sales at year end

Which of the following most likely would be detected by an auditor's review of a client's sales cutoff? A. Shipments lacking sales invoices and shipping documents B. Excessive write-offs of accounts receivables C. Unrecorded sales at year end D. Lapping of year-end accounts receivable

C. Unrecorded sales at year end

In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified? A. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers B. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances C. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers D. A small number of accounts may be in dispute and the accounts receivable balances arises from sales to many customers with small balances

D. A small number of accounts may be in dispute and the accounts receivable balances arises from sales to many customers with small balances

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

D. Compare cash payments occurring after the balance sheet date with the accounts payable trial balance

Incorrect rejection occurs when the auditor concludes that the account balance is ___ when in fact it is ___. A. Material; immaterial B. Immaterial; material C. Fairly state; misstated D. Misstated; fairly stated

D. Misstated; fairly stated

An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when the: A. Sample rate of deviation plus the allowance for sampling risk equals the tolerable deviation rate B. Sample rate of deviation is less than the expected rate of deviation used in planning the sample C. Tolerable rate less the allowance for sampling risk exceeds the sample rate of deviation D. Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable deviation rate

D. Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable deviation rate