Audit Final

Equipment considered idle on a permanent basis should not be classified as plant and equipment. True or False

True

The PCAOB emphasizes the importance of controls, such as establishing antifraud programs. True or False

True

Type 2 subsequent events come into existence _____ the balance sheet date.

After

The standard form to confirm cash accounts also requests the financial institution to confirm any __________ to the bank.

Balance Owed

It is difficult to audit ______without the consideration of the property account.

Depreciation

Capital stock

Owners' equity

As a general rule, inventories are carried at the lower of __________.

Cost or Market

The auditor's responsibility relating to a GAAS audit is for __________ on the financial statements.

Expressing an opinion

Stock registrar

Large company stock issuance and maintenance

Many subsequent events may involve the settling of ________.

Litigation

Must I document all my test counts in the working papers?

No

Treasury stock

Not outstanding

Financial statements that _______ the results almost never lead to legal action by financial statement users.

Understate

Authorization of which of the following is least likely to be found during a review of the minutes of the board of directors? a. Dividends. b. New debt issuance. c. New bank accounts. d. Write-off of trade accounts receivable.

d. Write-off of trade accounts receivable.

Even though the auditors are unable to obtain evidence regarding the fairness of beginning inventories, they may still issue an unmodified opinion on the client's __________ .

Balance Sheet

Type 1 subsequent events involve events that existed _____ the balance sheet date.

Before

Efficient planning of the evaluation of internal control requires ____________ the financial statement audit.

Coordination with

The audit of inventories may help in the auditor determination of ________.

Cost of Goods Sold

Trust indenture

Formal agreement between bondholders and issuer

Am I correct that our observation of the counting of the inventory primarily addresses the existence of inventory, and not the completeness of the count?

No

At the completion of the count, should I leave Jilco Inc. personnel with a copy of all my inventory test counts to help assure inventory accuracy?

No

Do I need to count all items in the inventory?

No

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 Option A Option B Option C Option D

Option A

A company should maintain a __________ for plant and equipment, consisting of a separate record for each unit of property.

Subsidiary Ledger

A major control procedure related to plant and equipment is a budget for acquisitions and disposition. True or False

True

To test the client's cutoff of inventories, the auditors will make a record of the serial number of the final receiving and shipping documents used prior to the taking of the physical inventory. True or False

True

In the auditors' first examination of a new client that has changed auditors, the beginning balances of property, plant, and equipment accounts may be substantiated by referring to the predecessor auditors' __________.

Working Papers

Board of directors

Approve stock issuance

The CPA's opinion on the ______of the financial statements may be changed by subsequent events.

Fairness

Section 404 of the Sarbanes-Oxley Act of 2002 includes internal control reporting requirements for both management and auditors. True or False

True

Auditors should use a ______ approach to assess controls.

Top-down

An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance for uncollectible accounts. True or False

True

The plant and equipment budget is designed to control __________ of property items.

acquisitions and retirements

Before goods are shipped on open account, the sale should be approved by the ___________.

Credit Department

Future purchase commitments should be disclosed in the notes to the financial statements. True or False

True

A test of the completeness of recorded sales involves tracing a sample of ___________ to recorded sales.

Shipping Documents

A change that the auditor agrees with from one generally accepted accounting principle to another generally accepted accounting principle that has a pervasive effect on net income usually results in an audit report with unmodified opinion and an emphasis-of-matter paragraph. True or False

True

Analytical procedures are used by auditors to gain evidence about the adequacy of the allowance for uncollectible accounts. True or False

True

Audit reports should be dated as the date on which sufficient appropriate audit evidence has been collected. True or False

True

CPAs use positive accounts receivable confirmation requests more frequently than negative accounts receivable confirmation requests. True or False

True

The audit of which of the following balance sheet accounts does not normally result in verification of an income statement account? a. Cash. b. Accounts receivable. c. Property, plant, and equipment. d. Intangible assets.

a. Cash.

Which of the following is the best audit procedure for the detection of lapping? a. Comparison of postings of cash receipts to accounts with the details of cash deposits. b. Confirmation of the cash balance. c. Reconciliation of the cash account balances. d. Preparing a proof of cash.

a. Comparison of postings of cash receipts to accounts with the details of cash deposits.

An auditor obtains evidence of stockholders' equity transactions for a publicly traded company by reviewing the entity's: a. Minutes of board of directors meetings. b. Registrar's record of interbank transfers. c. Canceled stock certificates. d. Treasury stock certificate book.

a. Minutes of board of directors meetings.

Which of the following procedures is not a procedure that is completed near the end of the engagement? a. Review cash transactions. b. Review to identify subsequent events. c. Obtain the lawyer's letter. d. Obtain the letter of representations.

a. Review cash transactions.

A registrar/transfer agent system relating to capital stock is most likely used by: a. A small, nonpublic company. b. A large, publicly traded company. c. All companies must use this type of system. d. No companies use this system anymore.

b. A large, publicly traded company.

Which of the following best describes the auditors' approach to the audit of the ending balance of property, plant, and equipment for a continuing nonpublic client? a. Direct audit of the ending balance. b. Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts. c. Audit of changes in the accounts since inception of the company. d. Audit of selected purchases and retirements for the last few years.

b. Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts.

An auditor wishes to perform tests of controls on a client's cash disbursements relating to accounts payable. 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.

Auditors may choose not to confirm accounts payable because: a. Confirmation obtains evidence identical to that obtained by cutoff tests. b. Other reliable external evidence to support the balances is likely to be available. c. A reading of the corporate minutes reveals that confirmation is unnecessary. d. The balances due will have changed between the year-end and the date of confirmation.

b. Other reliable external evidence to support the balances is likely to be available.

Which of the following is least likely to be used as 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. Physically examine items sold.

An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the following is most likely? a. The estimated remaining useful lives of equipment were increased. b. Plant assets were retired during the year. c. The prior year's depreciation expense was erroneously understated. d. Overhead allocations were revised at year-end.

b. Plant assets were retired during the year.

Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded 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. Receive a cutoff statement directly from the client's bank.

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. Accounts receivable subsidiary ledger.

After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to: a. Increase current dividend distributions. b. Reduce existing lines of credit. c. Increase ownership equity. d. Purchase assets formerly leased.

c. Increase ownership equity.

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs: a. Tests of controls and extensive tests of property and equipment balances at the end of the year. b. Analytical procedures for current year property and equipment transactions. c. Tests of controls and limited tests of current year property and equipment transactions. d. Analytical procedures for property and equipment balances at the end of the year

c. Tests of controls and limited tests of current year property and equipment transactions.

Auditors should perform audit procedures relating to subsequent events? a. Through year-end. b. Through issuance of the audit report. c. Through the date of the audit report. d. For a reasonable period after year-end.

c. Through the date of the audit report.

Financial investments should be registered in the name of the ____________.

company

When the auditors obtain an understanding of internal control for the financing cycle, documentation will frequently include a written description as well as a(n): a. List of audit objectives. b. Decision table. c. Summary of tests of controls. d. Internal control questionnaire.

d. Internal control questionnaire.

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. Net income is overstated.

The statement that best expresses the auditor's responsibility with respect to events occurring between the balance sheet date and the end of the audit is that: a. The auditor has no responsibility for events occurring in the subsequent period unless these events affect transactions recorded on or before the balance sheet date. b. The auditor's responsibility is to determine that a proper cutoff has been made and that transactions recorded on or before the balance sheet date actually occurred. c. The auditor is fully responsible for events occurring in the subsequent period and should extend all detailed procedures through the last day of field work. d. The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period.

d. The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period.

Checks in payment of a company's payables should be prepared by one person and _______________ by another.

signed

Type 1 subsequent events require ______ of the financial statements.

Adjustment

The auditors issue a qualified opinion or a(n) __________ opinion, if they consider the disclosure in the client's financial statements to be inadequate.

Adverse

A public company's financial statements should be prepared following standards of the Public Company Accounting Oversight Board. True or False

False

Dividends should be authorized by the stockholders of the corporation. True or False

False

The Miscellaneous Revenue account should only be analyzed if it is material in amount. True or False

False

The department approving a sales transaction should be the billing department. True or False

False

All nonpublic company audit reports that are qualified should contain a(n) __________ explaining the details of the qualification.

basis for modification paragraph (or basis for qualified opinion paragraph)

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. Machine hours. d. Selling expense.

d. Selling expense.

Which must the auditor communicate to management? Column (1)Known Material Weaknesses Column (2) Known Significant Deficiencies A. Yes Yes B. Yes No C. No Yes D. No No Option A Option B Option C Option D

Option A

Is it correct that, because Jilco Inc. manufactures a product, direct labor and overhead ordinarily become a part of inventory costs?

Yes

A material weakness that exists at year-end will result in what type of audit report on internal control? a. Adverse. b. Qualified. c. Unqualified. d. Unqualified with explanatory language.

a. Adverse.

The framework most likely to be used by the client in its internal control assessment is the: a. COSO internal control framework. b. COSO enterprise risk management framework. c. FASB 37 internal control definitional framework. d. AICPA internal control analysis manager

a. COSO internal control framework.

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. Trace the balances from accounts receivable ledger to the billing statements. c. Examine correspondence. d. Examine any subsequent cash receipts.

b. Trace the balances from accounts receivable ledger to the billing statements.

If the auditors have examined the prior year's financial statements presented for comparative purposes, they should __________ their opinion for any new information.

Update

A decreasing rate of inventory turnover suggests the possibility of inventory __________.

Obsolescence

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. Deliveries for which no purchase order was issued.

Which of the following is not a procedure normally performed while completing the audit of a public company? a. Obtain a lawyer's letter. b. Obtain a representations letter. c. Perform an overall review using analytical procedures. d. Update internal control questionnaire.

d. Update internal control questionnaire.

Type 1 subsequent events require the financial statements to be _______ if needed.

Adjusted

Evidence as to the design of internal control and its operating effectiveness should be considered ____________ the date specified in the assessment.

As of

Auditors consider the ______ expense when determining the correct allowance for doubtful accounts.

Bad Debt

A ___________ is a shipping document that is prepared for goods shipped by a common carrier.

Bill of Lading

The ___________ should account for the serially numbered shipping documents to ensure that an invoice is prepared for all shipments.

Billing Department

Audit reports issued under GAAS ordinarily are signed with the name of the __________.

CPA Firms

Receivables written off are often turned over to a ___________.

Collection Agency

The best evidence of collectibility of accounts receivable is examination of subsequent ___________ of the accounts.

Collections

The auditors observe the inventory taking primarily to obtain evidence of the __________ assertion and to a certain extent the client's rights to the inventories.

Existence

Auditors have a responsibility to report on all FASB-required supplementary information for publicly-traded companies. True or False

False

Confirmation of accounts payable is a required generally accepted auditing procedure. True or False

False

Dual-dating of an audit report extends the auditors' liability for disclosure through the later date for all areas of the financial statements. True or False

False

The intangible asset known as __________ arises in accounting for a business combination, and should be amortized as its value becomes impaired over the years.

Goodwill

Amortization relates to ______assets like depreciation relates to property and equipment.

Intangible

Collection of accounts receivable through the mail should be initially listed by personnel in the ___________.

Mail Room

Responsibility for the preparation and fair presentation of the financial statements rests with the __________.

Management

Subsequent events need to be disclosed in the financial statements; otherwise, the financial statements would be_______.

Misleading

A December 30 acquisition of a new plant asset was recorded after year-end rather than prior to year-end. Such an error does not usually result in a significant misstatement of __________.

Net Income

Serially numbered ____________ should be prepared and sent to vendors when goods are ordered.

Purchase Orders

Tracing __________ for several days before and after year-end to recorded purchases is designed to test the proper cutoff of purchase transactions.

Receiving Documents

The details of the auditors' __________ made during the observation of the physical inventory should be recorded in their working papers to later check the accuracy of the final inventory listing.

Test Counts

Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees? a. A bank lockbox system. b. Approval of all disbursements by an individual independent of cash receipts. Incorrect c. Monthly bank cutoff statements. d. Pre-numbered remittance advices.

a. A bank lockbox system.

Which of the following is not explicitly included in an audit report for a nonpublic company? a. A statement that the auditor believes that the audit provides a reasonable basis for expressing negative assurance. b. A statement that the auditor's responsibility is to express an opinion on the financial statements. c. A statement that the financial statements are the responsibility of management. d. A title with the word "independent."

a. A statement that the auditor believes that the audit provides a reasonable basis for expressing negative assurance.

An auditor identified a material weakness in internal control in December. The client was informed and the client corrected the material weakness shortly after year-end (December 31); the auditor agrees that the correction eliminated the material weakness as of January 31. The appropriate audit report on internal control under PCAOB standards on reporting on internal control is: a. Adverse. b. Unqualified. c. Unqualified with explanatory language relating to the material weakness. d. Qualified.

a. Adverse.

An auditor identified a significant deficiency in internal control in December. The client was informed and the client corrected the significant deficiency shortly before year-end (December 31); the auditor agrees that the correction eliminated the significant deficiency as of December 31. The appropriate audit report on internal control under a PCAOB Standard No. 5 audit of internal control is: a. Adverse. b. Unqualified. c. Unqualified with explanatory language relating to the significant deficiency. d. Qualified.

b. Unqualified.

Which of the following best describes the auditors' typical observation of plant and equipment? a. The auditors observe a physical inventory of plant and equipment annually. b. The auditors observe all additions to plant and equipment made during the year. c. The auditors observe all major plant and equipment items in the clients' accounts each year. d. The auditors observe major additions to plant and equipment made during the year.

d. The auditors observe major additions to plant and equipment made during the year.

Subsequent events that provide additional evidence as to conditions that existed at the balance sheet date may result in adjusting journal entries. True or False

True

The "as of date" for internal control reporting is ordinarily the last day of the fiscal year. True or False

True

The receiving department should accept only goods for which there is an approved purchase order on hand. True or False

True

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. Yes Yes

When financial statements contain a material departure from generally accepted accounting principles, the auditors qualify their opinion, or they issue a(n) __________ opinion depending on the materiality of the departure.

Adverse

A scope restriction is least likely to result in a(an): Qualified opinion. Disclaimer of opinion. Adverse opinion. Standard unmodified opinion.

Adverse opinion.

An ___________ of customers' accounts receivable should be prepared at regular intervals for use by the credit department in carrying out its collection program

Aged Trial Balance

If a response to a negative confirmation request is not received, the auditors ordinarily ___________.

Assume the Balance is correct

The ______ committee is especially important as it exercises oversight responsibility over the financial statements.

Audit

To provide assurance that the accounting department is notified of property retirements, a system of serially numbered __________ should be used by the company.

Retirement Work Orders

A dollar minimum ordinarily should be established to be used by accounting personnel for distinguishing between capital and __________ expenditures.

Revenue

If not adjusted, a situation in which the total of uncorrected misstatements in the financial statements exceeds a material amount is likely to lead to an audit report modification. True or False

True

A company may not actually own property recorded as an asset; instead the company may have rights to the asset under the terms of a __________.

Capital Lease

Management's evaluation process of internal control ____________ with the management report on internal control--the first step of the audit process.

Concludes

Inventories stored in public warehouses should be __________ with the custodians.

Confirmed

If a scope limitation is so severe that a qualified opinion is inappropriate, the auditors should issue a(n) __________.

Disclaimer of Opinion

Verification of dividend revenue can be achieved by independent computation using ___________ published by investment advisory services.

Dividend Records

Type 1 subsequent events come into existence due to new ______becoming available.

Evidence

Possession of a deed is not proof of present __________ of property.

Ownership

For a continuing client, the auditors will often find that a large amount of audit time is required for capital stock due to the dollar amount recorded in the accounts. True or False

False

For effective internal control over accounts payable, the purchasing department should approve invoices for payment. True or False

False

Internal control over payroll is enhanced when the personnel department distributes payroll checks. True or False

False

Observation of inventories is a required audit procedure under all circumstances. True or False

False

The auditors are required to confirm bond holdings directly with the bondholders. True or False

False

The auditors should determine that the issuance of bonds was approved by the company's stockholders. True or False

False

The primary objective of the auditors' examination of accounts payable is to determine whether payments are made on a timely basis. True or False

False

The primary purpose of internal control over plant and equipment is to safeguard the assets from theft. True or False

False

When evaluating the results of audit tests, materiality depends solely upon the dollar amount of the item. True or False

False

Shortly after year-end, Allen Corporation was informed of the bankruptcy of Quest. Allen Corporation showed a receivable of $20,000 (a material amount) due from Quest as of year-end—none of which seems recoverable. The receivable had been questionable for some time as Quest had been experiencing financial difficulties for the past several years. Yet, Quest's bankruptcy did not occur until after Allen Corporation's year-end. Under these circumstances: Column 1 The financial statements should be adjusted Column 2 The event requires financial statement disclosure, but no adjustment Column 3 The auditor's report should be modified for a lack of consistency A. Yes No No B. Yes No Yes C. No Yes Yes D. No Yes No Option A Option B Option C Option D

Option A

Assume that the auditors are concerned about disbursement transactions that have been recorded for improper amounts. Which procedure(s) would possibly identify these transactions? Trace from Vouch from source journal to documents source to journals documents A. No No B. No Yes C. Yes No D. Yes Yes

Option D

To help ensure that the physical inventory is taken accurately and completely, early in the audit the auditors should participate in the __________ of the count of physical inventory.

Planning

A ___________ confirmation request asks the debtor to respond in all cases.

Positive

The auditors' review of purchase invoices is generally performed in connection with tests of the __________ of the inventories.

Pricing

Type 2 subsequent events occur after the balance sheet date but ____ the completion of fieldwork.

Prior to

Good evidence of ownership of property often is found by examining current __________ bills.

Property Tax

Loans by a company to its officers, directors, major stockholders, or affiliates require particular attention because these ___________ are not the results of arm's length bargaining by independent parties.

Related Party Receivables

The auditors' principal objective in analyzing __________ expense accounts is to discover property items that should have been capitalized.

Repairs and Maintenance

If financial statements contain a pervasively material departure from generally accepted accounting principles, the auditors usually should issue an adverse opinion. True or False

True

If financial statements of a public company fail to disclose a material fact, the auditors may disclose the information in an additional paragraph added to the report and, depending upon materiality, issue either a qualified opinion or adverse opinion on the statements. True or False

True

Confirmation of accounts receivable by direct communication with the debtor tests the existence of accounts receivable. True or False

True

Evidence of continued ownership of property is obtained by vouching payments for property taxes. True or False

True

For good internal control over purchase transactions, purchases should be documented by a purchase requisition by the department needing the goods. True or False

True

When a nonpublic client elects to change accounting principles from one acceptable principle to another acceptable principle and the auditors agree the change is desirable, they should issue a report with a(n) __________ opinion.

Unmodified

A(n) __________ opinion is an opinion that the financial statements of a public company fairly present financial position, results of operations, and cash flows, in conformity with generally accepted accounting principles.

Unqualified

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 second payment of an account payable which had already been paid in full two months earlier. c. An embezzlement of cash receipts not recorded in the cash receipts journal before they had been deposited into the bank. d. A receivable collected that had previously been written off as uncollectible.

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

Which of the following is not one of the auditors' objectives in auditing depreciation? a. Establishing the reasonableness of the client's replacement policy. b. Establishing that the methods used are appropriate. c. Establishing that the methods are consistently applied. d. Establishing the reasonableness of depreciation computations.

a. Establishing the reasonableness of the client's replacement policy.

Which of the following procedures is least likely in the audit of capital stock? a. Examine all outstanding stock certificates for completeness. b. Account for the proceeds from stock issues. c. Reconcile shares outstanding with the general ledger. d. Evaluate compliance with stock option plans.

a. Examine all outstanding stock certificates for completeness.

Which of the following types of matters do not generally require disclosure in the financial statements? a. General risk contingencies. b. Commitments. c. Loss contingencies. d. Liabilities to related parties.

a. General risk contingencies.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable? a. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies 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 the related payable applies to the prior period.

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

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of: a. Purchase orders. b. Canceled checks. c. Receiving reports. d. Approved vouchers.

b. Canceled checks.

The auditors use a bank cutoff statement to compare: a. Deposits in transit on the year-end cash general ledger account to deposits in the cash receipts journal. b. Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation. c. Deposits listed on the cutoff statement to disbursements in the cash disbursements journal. d. Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank statement.

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

Which of the following is not a primary objective in the audit of interest-bearing debt? a. Establish the completeness of recorded interest-bearing debt. b. Establish the legality of outstanding debt. c. Determine that debt is properly valued. d. Determine that the presentation and disclosure of interest-bearing debt is appropriate.

b. Establish the legality of outstanding debt.

Which is least likely to be a question asked of employee personnel during a walk-through? a. Have you ever been asked to override the process? b. Have you assessed the operating effectiveness of the system? c. What do you do when you find an error? d. What are you looking for to determine if there is an error?

b. Have you assessed the operating effectiveness of the system?

CPA Firm A has performed most of the audit of Consolidated Company's financial statements and qualifies as the group auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume full responsibility for Firm B's work. Which of the following statements is correct? a. Such assumption of responsibility violates the profession's standards. b. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements. c. In such circumstances, when appropriate requirements have been met, Firm A should issue an unmodified opinion on the financial statements but should make appropriate reference to Firm B in the audit report. d. CPA firm A should normally qualify its audit report on the basis of the scope limitation involved when another CPA firm is involved.

b. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements.

When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should: a. Issue an unmodified opinion, but disclose elsewhere in the report this departure from a customary procedure. b. Issue an unmodified opinion with no reference to this omission. c. Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables. d. Issue an adverse opinion.

b. Issue an unmodified opinion with no reference to this omission.

Anderson embezzled $20,000 from her company's account in Bank X. At year-end, she hid the shortage by making a deposit on December 31 in Bank X, drawn on Bank Y. She has not recorded the transaction on the books. This is an example of: a. Lapping. b. Kiting. c. Effective cash management. d. Related party transactions.

b. Kiting.

When a client declines to disclose essential information in the financial statements or notes, the auditor of the financial statements should: Multiple Choice a. Provide the information in the audit report, if practicable, and qualify the opinion because of a limitation on the scope of the audit. b. Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP. c. Issue a disclaimer of opinion because the client has interfered with the auditor's function of assessing the adequacy of disclosure. d. Issue an unmodified opinion, but inform the reader by including the omitted information in the audit report.

b. Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP.

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 supervise the taking of the inventory. 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. The auditors should supervise the taking of the inventory.

An auditor identified a material weakness in internal control in August. The client was informed and the client corrected the material weakness prior to year-end (December 31); the auditor agrees that the correction eliminated the material weakness prior to year-end. The appropriate audit report on internal control under PCAOB standards on reporting on internal control is: a. Adverse. b. Unqualified. c. Disclaimer. d. Qualified.

b. Unqualified.

An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily in order to: a. Verify the cash balance reported on the bank confirmation inquiry form. b. Verify reconciling items on the client's bank reconciliation. c. Detect lapping. d. Detect kiting.

b. Verify reconciling items on the client's bank reconciliation.

Which of the following accounting changes requires an emphasis-of-matter paragraph regarding consistency in a nonpublic company auditors' report? a. A change in the estimated useful lives of a class of fixed assets. b. A write-off of a patent because future benefits do not appear to exist. c. A change from the straight-line method of depreciation to an accelerated method for a class of fixed assets. d. A change in calculating bad debt expense from one percent to two percent of credit sales.

c. A change from the straight-line method of depreciation to an accelerated method for a class of fixed assets.

Which of the following best describes a voucher prepared under good internal control? a. A document prepared by Stores that indicates amount to be purchased. b. A document prepared by Receiving that indicates the quantity received and approves payment. c. A document prepared by Accounts Payable authorizing a cash disbursement. d. A document received by Purchasing, from a supplier, indicating quantity of goods purchased and amount due.

c. A document prepared by Accounts Payable authorizing a cash disbursement.

An example of an internal control weakness is to assign the payroll department the responsibility for: a. Preparing the payroll expense distribution. b. Preparing the payroll checks. c. Authorizing increases in pay. d. Preparing journal entries for payroll expense.

c. Authorizing increases in pay.

When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited? a. Accounts Receivable. b. Accrued liabilities. c. Cash. d. Cost of goods sold.

c. Cash.

In auditing long-term debt, an auditor would be most likely to: a. Perform analytical procedures on the bond prenumbered discount accounts. b. Examine documentation of assets purchased with bond proceeds for liens. c. Evaluate whether debt provisions have been met. d. Confirm the existence of individual long-term debt holders at year-end.

c. Evaluate whether debt provisions have been met.

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. Inventory.

When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should: a. Issue an unmodified opinion with a basis for modification paragraph. b. Withdraw from the engagement. c. Issue an "except for" qualification or an adverse opinion. d. Issue an "except for" qualification or a disclaimer of opinion.

c. Issue an "except for" qualification or an adverse opinion.

Analytical procedures are required as a part of the: a. Detailed tests of balances. b. Internal control assessment. c. Procedures performed near the end of the audit. d. Substantive testing.

c. Procedures performed near the end of the audit.

In auditing the balance sheet, most revenue and expense accounts are also audited. Which accounts are most likely to be audited when auditing Accounts Receivable? a. Sales and Cost of Goods Sold. b. Interest and Bad Debt Expense. c. Sales and Bad Debt Expense. d. Interest and Cost of Goods Sold.

c. Sales and Bad Debt Expense.

Which of the following is true about the auditors' observation of the client's physical inventory? a. The count must be made at year-end. b. The auditors should supervise the client's personnel. c. The auditors' observation addresses the existence assertion. d. The auditors should justify any omission of the observation in the audit report.

c. The auditors' observation addresses the existence assertion.

Which of the following is least likely to be an accurate statement concerning characteristics of an audit? a. An analysis of inventory turnover can indicate possible obsolescence of inventory. b. Characteristics of the double entry bookkeeping system make it possible to test for overstated sales when tests of accounts receivable are being performed. c. The direction of tests for understatement errors is generally directed from the recorded entry to source documents. d. Use of a perpetual rather than a periodic inventory system is likely to affect the nature of cutoff errors made at year-end.

c. The direction of tests for understatement errors is generally directed from the recorded entry to source documents.

Which of the following would be least likely to address control over the initiation and execution of equipment transactions? a. Requests for major repairs are approved by a higher level than the department initiating the request. b. Prenumbered purchase orders are used for equipment and periodically accounted for. c. Requests for purchases of equipment are reviewed for consideration of soliciting competitive bids. d. Procedures exist to restrict access to equipment.

d. Procedures exist to restrict access to equipment.

When an auditor of a nonpublic company has concluded there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time beyond the date the financial statements will be released (1/26/X2), the auditor's responsibility includes: a. Preparing prospective financial information to verify whether management's plans can be effectively implemented. b. Projecting conditions and events from one year prior to this year's date (12/31/X0) to 12/31/X1. c. Issuing an adverse or negative assurance opinion, depending upon materiality, due to the possible effects on the financial statements. d. Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern.

d. Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern.

Material loss contingencies should be recorded in the financial statements if available information indicates it is probable that a loss had been sustained prior to the balance sheet date and the amount of such loss can be reasonably estimated. For a public company these considerations will affect the audit report as follows: a. If a loss meets these criteria, the auditor may issue an unqualified opinion but is required to point out the contingency in an explanatory paragraph of the report. b. If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but is required to point out the contingency in an explanatory paragraph of the report. c. If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but should consider adding an explanatory paragraph as a means of emphasizing the disclosure. d. If a loss is probable but the amount cannot be reasonably estimated and is disclosed in the notes to the financial statements, the auditor may issue an unqualified opinion.

d. If a loss is probable but the amount cannot be reasonably estimated and is disclosed in the notes to the financial statements, the auditor may issue an unqualified opinion.

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. Select and examine canceled checks and test whether the related receiving reports are dated no later than the checks.