AUDIT EXAM 3

. A 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: A. Deliveries for which no purchase order was issued. B. Unapproved sales orders. C. Partial deliveries. D. Deliveries of a greater quantity of items than those ordered.

A

A client uses a perpetual inventory system. Would one expect a credit to which of the following accounts at the point of sale? Sales Inventory A. Yes Yes B. Yes No C. No Yes D. No No

A

An auditor may obtain information on the December 31 month-end balance per bank in which of the following? Standard Confirmation Form January 1-10 Cutoff Statement A) Yes Yes B) Yes No C) No Yes D) No No

A

An auditor suspects that certain client employees are ordering merchandise for themselves over the internet without recording the purchase or receipt of the merchandise. When vendor's invoices arrive, one of the employee approves the invoices for payment. After the invoices are paid, the employees destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all Cash disbursements A. Cash Disbursements B. Approved Vouchers C. Receiving Papers D. Venders Invoice

A

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally be able to detect. A. An unrecorded deposit made at the bank at the end of the month. B.A receivable collected that had previously been written off as uncollectible. C. An embezzlement of cash receipts not recorded in the cash receipts journal before they had been deposited into the bank. D. A second payment of an account payable which had already been paid in full two months earlier.

A

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? A. Accounts receivable are overstated at December 31, 20X0. B. Accounts receivable are understated at December 31, 20X0. C. Operating expenses are overstated for the 12 months ended December 31, 20X0. D. Sales returns and allowance are overstated at December 31, 20X0.

A

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? A. The account balances as of year-end will generally be confirmed. B. The auditors will in general use blank rather than positive confirmation requests. C. The auditors will be required to confirm accounts as of an interim date (during the year under audit) and as of year-end. D. Confirmation will not in general be used as the auditor will rely primarily upon support such as vendors' invoices, purchase orders and receiving reports.

A

Which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper? A. Testing the entity's computation of standard overhead rates. B. Obtaining confirmation of inventories pledged under loan agreements. C. Reviewing a cutoff procedure for inventories. D. Tracing test counts to the entity's inventory listing.

A

Which of the following is a likely procedure to test the adequacy of the allowance for doubtful accounts? A. Examine cash receipts received after year-end. B. Confirm receivables. C. Examine dates of purchase orders. D. Foot the receivables lead schedule.

A

Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable? A. The confirmation requests are sent on the client's letterhead. B. The confirmation requests are mailed to customers by the internal auditors. C. The client's mailroom personnel closely monitor and inspect confirmation requests during mailing. D. The return address on the envelope used to send the confirmation request is that of the client.

A

A "bill and hold" scheme is most likely to include: A. Shipment of items to a customer beyond what the customer has ordered. B. Recording as sales items that the company retains as of year-end. C. Billing of items that are held by customers for future revenue production purposes. D. Selling items at substantial discounts near year-end

B

A client uses a periodic inventory system. Would one expect a credit to which of the following accounts at the point of sale? Sales Inventory A. Yes Yes B. Yes No C. No Yes D. No No

B

An auditor may obtain information on the December 31 month-end balance per bank in which of the following? December 31 Bank Statement and/or Schedule of Bank (Cash) Transfers A) Yes Yes B) Yes No C) No Yes D) No No

B

Kiting would least likely be detected by: A. Preparing a schedule of interbank transfers by using the client's records and bank statements around year end. B. Comparing customer remittance advices with recorded disbursements in the cash disbursements journal. C. Analyzing details of large cash deposits around year end. D. Preparing a four-column bank reconciliation for all major cash accounts.

B

To measure how effectively a client employs its assets an auditor calculates inventory turnover by dividing the average inventory into: A. Net sales. B. Cost of goods sold. C. Operating income. D. Gross sales.

B

Which of the following is an auditor least likely to consider a departure from U.S. generally accepted accounting principles? A. Valuing inventory at cost. B. Including in inventory items that are consigned out to vendors but not yet sold. C. Using standard cost as the measure of inventory cost. D. Including in inventory items shipped subsequent to year-end, but for which valid orders did exist at year-end.

B

Which of the following is least likely to be typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests? A. Examine bills of lading. B. Physically examine items sold. C. Examine correspondence. D. Examine subsequent cash receipts.

B

Which of the following is not true relating to the auditors' observation of the client's physical inventory? A. The auditors should evaluate the client's planning of the physical inventory. B. The auditors should make certain that consigned items from suppliers are included in physical inventory totals. C. The auditors should evaluate the adequacy of the client's counting procedures. D. The auditors should take test counts of the client's inventory.

B

Which of the following is not typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests? A. Examine sales invoices. B. Inclusion of the information in the engagement letter. C. Examine correspondence. D. Examine any subsequent cash receipts.

B

Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was notrecorded as outstanding on the year-end bank reconciliation? A. Prepare a bank transfer schedule using the client's cash receipts and cash disbursements journal. B. Receive a cutoff statement directly from the client's bank .C. Prepare a four column bank reconciliation using the year-end bank statement .D.Confirm the year end balance using the standard form to confirm account balance information with financial institutions.

B

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally not be able to detect:

B a second payjment of an a/p which had already been paid in full two months earlier

To test the existence assertion for recorded receivables, an auditor would select a sample from the: A. Sales orders file. B. Customer purchase orders. C. Accounts receivable subsidiary ledger. D. Shipping documents (bills of lading) file.

C

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal control over the revenue cycle? A. Fictitious transactions may be recorded that cause an understatement of revenues and an overstatement of receivables. B. Claims received from customers for goods returned (and unpaid for) may be intentionally recorded in other customers' accounts permitting a misappropriation of cash. C. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash. D. The failure to prepare shipping documents may lead to an understatement of inventory balances.

C

Which of the following statements is not correct? A) Cash is important to the audit process because of its vulnerability to misappropriation, despite the fact that the balance at the balance sheet date may be immaterial. B) Payroll cash account balances kept on an imprest basis are more easily controlled than others not so kept. C) Confirmation of cash should only be performed as of the balance statement date because the auditor expresses an opinion as of that date. D) Reviewing interbank transfers is important to the auditor because of the possibility that the client may be engaged in kiting.

C

Your client performed the physical count of inventory as of November 30, one month prior to year-end. Subsequently, your client closed the sales journal on 12/29/XX, two days before year-end, and reported those two days' credit sales in January of the next year. Assuming the client uses a perpetual inventory system, which of the following is most likely to be overstated relating to the year XX financial statements? A. Sales. B. Cash. C. Inventory. D. Accounts receivable.

C

A client might overstate December 31 accounts receivable balances by dating and recording January transactions in December. Such entries recorded in which journal are most likely to achieve this end? A. Cash receipts. B. Payroll. C. Purchases. D. Sales.

D

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the best evidence on operating effectiveness? A) Select and examine receiving reports and test whether the related canceled checks are dated no earlier than the receiving reports. B) Select and examine receiving reports and test whether the related canceled checks are dated no later than the receiving reports. C) Select and examine canceled checks and test whether the related receiving reports are dated no earlier than the checks. D) Select and examine canceled checks and test whether the related receiving reports are dated no later than the checks.

D

Which of the following is correct concerning "window dressing" for cash? A) A segregation of duties within the cash function effectively eliminates its occurrence. B) It generally involves manipulation of inventory. C) It is illegal, and an audit is designed to provide reasonable assurance of its detection. D) Many forms of it require no action by the auditors.

D

Which of the following would an auditor most likely question included in calculation of the overhead rate for a company that manufactures a product? A. Factory supervisor salary. B. Indirect materials. C. Miscellaneous expense. D. Sales expense.

D

Your client left the cash receipts journal open after year-end for an extra day and 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? A) Sales are understated. B) Accounts receivable are understated. C) Inventory is overstated. D) Net income is overstated.

D