Audit Exam #3 CH 10-12

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Know what kind of manipulations would result in understatement of receivables

Which of the following manipulations would understate receivables on the financial statements? Closing the sales journal prior to year-end.

Which procedure would be of most assistance to an auditor discovering a large credit sale that has erroneously been recorded twice?

Confirming accounts receivable

To measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into:

Cost of goods sold

The auditors count of the clients cash should be coordinated to coincide with the

Count of investment securities

Which the following is a likely procedure to test the adequacy of the allowance for doubtful accounts?

Examine cash receipts received after year end

Which of the following is not typically considered to be an alternate procedure for handling non replies to accounts receivable confirmation request?

Inclusion of the information on the engagement letter

Which of the following best describes the reason for an auditor's review of the clients cost Accounting system?

To obtain evidence about the valuation of work in process, finished goods, and the cost of goods sold

Which the following manipulations of cash transactions would overstate the cash balance on the financial statements

Understatement of outstanding checks

The confirmation of accounts receivable is most closely associated with

Detection risk

The use of a "blind" purchase order is designed to prevent errors by the:

Receiving Department

Which of the following controls would most likely reduce the risk of diversion of customer receipts by a company's employees?

A bank lock box system

To test the existence assertion for recorded receivables, an auditor would select a sample from the:

Accounts receivable subsidiary Ledger

After the CPS have selected particular accounts evil for confirmation:

All requests for confirmations should be mailed in envelopes bearing the CPA firm's return address and should include return envelope addressed to the CPA firm

By preparing a four-column on bank reconciliation ("proof of cash") at year end, an auditor will generally be able to detect:

An unrecorded deposit made at the bank at the end of the month.

Understand analytical procedures as it relates to AR

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client explanations would satisfy the auditor? The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.

Know a tool you can use to detect lapping

Compare details on bank deposit slip with receipts recorded in accounting records

The auditors use a bank cutoff statement to compare:

Checks dated prior to year end to the outstanding checks listed on the year end bank reconciliation

The auditors obtain audit evidence for accounts receivable by using positive or negative confirmation request. Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful?

Client records include a large number of relatively small balances

The receiving Department compares inventory items received with copies of purchase orders. The purchase orders list the name of the vendor and do not list the quantities of the material ordered. Using the purchase orders, the receiving Department is most likely to detect:

Deliveries for which no purchase order was issued

Know how in manufacturing process to identify slow moving, defective, or obsolete items so not included in inventory

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

Your client left the cash receipts Journal open after year end for an extra day an included January 1 cash receipts in the 12/31/XX totals. All of those cash receipts were due to cash sales. Assuming the client uses a periodic inventory system with a 12/31/XX count of the physical inventory, which of the following is most likely to be true relating to the year XX financial statements?

Net income is overstated

The auditors compare information on cancelled checks with information contained in the cash disbursements Journal. The objective of this test is to determine that:

No discrepancies exist between the data on the checks and the data in the Journal

Tracing recorded sales transactions to the bills of lading provides evidence about the:

Occurrence of sales transactions

Know some tools to help detect kiting

Prepare schedules of bank transfers (interbank transfer schedule) for a few days before and after balance sheet date.

When control risk for the existence assertion is assessed at a high level, which of the following is a likely effect with respect to the auditors confirmation of receivables?

The account balances as of year-end will generally be confirmed

For effective internal control, the billing functions should not be performed by the:

Sales Department

Internal control over marketable securities is enhanced when:

Securities are held under joint control of two or more officials

In October, three months before year end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to miscellaneous revenue. The most effective method for detecting this type of error is:

Send a bank confirmation as of year end

In verifying credits to perpetual inventory records of a non-manufacturing firm, the auditor would most be interested in examining the:

Shipping documents

Which one which one of the following procedures would not be appropriate for auditors in discharging their responsibilities concerning the client's physical inventories?

Supervising the taking of annual physical inventory

Which of the following is true about the auditors observation of the clients physical inventory?

The auditor should evaluate the adequacy of the clients counting procedures

Which statement is correct relating to the count of inventory when a company that specializes in taking such counts ("the company") is involved with counting a client's inventory?

The auditor should not consider the counts by the company, by themselves, sufficient appropriate audit evidence.

Which the following is true about the auditors observation of the clients in physical inventory?

The auditors observation addresses the existence assertion

Know how to test the inventory of an outside location best way Lets say in Guam and not gonna fly to Gaum

The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to: Observe physical counts of the inventory items.

The standard form to confirm account balances with financial institutions includes information on all of the following except

The principle amount paid on a direct liability

In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would most be interested in examining the:

Vendors invoices

Understand rules of FOB as far as inventory and title of transfers

What type of error is the CPA most likely to discover when he/she examines all shipping reports dated in January of 20X1, shipped FOB shipping point, which were recorded in December of 20X0 as credit sales? Accounts receivable are overstated at December 31, 20X0.

Know why you would use an aging of AR

Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts? Aging of accounts receivable.

Know how to test adequacy of allowance for doubtful accounts

Which of the following procedures is least likely to help auditors to assess the adequacy of management's accounting estimate of the allowance for doubtful accounts? Review accounts which have been written off as uncollectible prior to year-end.


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