Auditing Final Study Set
A CPA examines a sample of copies of December and January sales invoices for the initials of the person who verified the quantitative data. This is an example of a: A. Test of a control B. Substantive test C. Cutoff test D. Statistical test
A
A client has changed the salvage values of a number of its fixed assets. The auditors believe that the salvage values are realistic. The appropriate report on the financial statements is: A. Standard unmodified B. Unmodified with explanatory language as to consistency C. Qualified for consistency D. Disclaimer
A
A four column bank reconciliation ("proof of cash") will generally assist an auditor in detecting: A) An unrecorded (on the books) deposit made at the beginning of the month; the amount was withdrawn late in the month, again with no book entry. B) A second payment of a liability that had already been paid in full. C) A check written and recorded on the books for $2,000, not $200 the amount of the actual liability. D) An embezzlement of a portion of the company's petty cash.
A
A primary objective of procedures performed to obtain an understanding of internal control is to provide the auditors with: A. Knowledge necessary to determine the nature, timing, and extent of further audit procedures B. Audit evidence to use in reducing detection risk C. A basis for modifying tests of controls D. An evaluation of the consistency of application of management policies
A
After documenting the client's prescribed internal control, the auditors will often perform a walk-through of each transaction cycle. An objective of a walk-through is to: A. Verify that the controls have been implemented (placed in operation) B. Replace test of controls C. Evaluate the major strengths and weaknesses in the client's internal control
A
After documenting the client's prescribed internal control, the auditors will often perform a walk-through of each transaction cycle. An objective of a walk-through is to: A. Verify that the controls have been implemented (placed in operation) B. Replace tests of controls C. Evaluate the major strengths and weaknesses in the client's internal control D. Identify weaknesses to be communicated to management in the management letter
A
An auditor should perform alternative procedures to substantiate the existence of accounts receivable when: A. No reply to a positive confirmation request is received B. No reply to a negative confirmation request is received C. Collectibility of the receivables is in doubt D. Pledging of the receivables is probable
A
Auditors must communicate internal control "significant deficiencies" to: A. The audit committee B. The shareholders C. The SEC D. The Federal Trade Commission
A
CPA Firm A qualifies as the group auditor. However, since Firm A did not have the resources, it hired CPA Firm B to audit a subsidiary of the client located in Bolivia. If Firm A is willing to take responsibility for the work of Firm B, which type of audit report is Firm A most likely to issue? A) Unmodified—standard report B) Unmodified with emphasis of a matter paragraph C) Qualified with a basis for modification paragraph D) Disclaimer of opinion
A
Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date. Cooper would most likely: A. Send positive confirmation requests B. Send negative confirmation requests C. Examine evidence of subsequent cash receipts D. Inspect the internal records, such as copies of the tax invoices that were mailed to the residents
A
Hall Company had large amounts of funds to invest on a temporary basis. The board of directors decided to purchase securities and derivatives and assigned the future purchase and sales decisions to a responsible financial executive. The best person or persons to make periodic reviews of the investment activity would be: A. An investment committee of the board of directors B. The chief operating office C. The corporate controller D. The treasurer
A
Identify the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable: A. Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence B. Write-offs must be approved by the accounts receivable department C. Write-offs must be authorized by the shipping department D. Write-offs must be supported by an aging schedule showing that only receivables overdue by several months have been written off
A
If a company's financial statements violate GAAP for an immaterial item which is expected to become material in the future, then the audit opinion the company will likely receive is: A) Unmodified—standard report. B) Unmodified with an emphasis of matter paragraph. C) Qualified. D) Adverse.
A
In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component auditor is: (1) Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. (2) Not in accordance with generally accepted auditing standards. (3) A qualification that lessens the collective responsibility of both CPA firms. (4) An example of a dual opinion requiring the signatures of both auditors.
A
In performing an audit, a client was found to have changed the estimated useful life of its assets. The auditors believe that the change in useful lives is realistic. The appropriate report is: A) Unmodified—standard report. B) Unmodified with an emphasis of matter paragraph. C) Qualified. D) Disclaimer.
A
In your review of ABC Company's financials, you note that receivables have increased approximately 200% from the previous year, while cash has declined. Further investigation reveals that 70% of ABC's receivables were booked within 7 days of the end of the quarter. If financial statement fraud is involved, which type is most likely? A. Fictitious revenues B. Timing differences C. Improper asset valuations D. Improper disclosures
A
Management estimates the company's allowance for doubtful accounts as $200,000, and the auditors develop an estimate that suggests that the amount should be between $230,000 and $250,000. The known misstatement in this situation is: A. $0 B. $30,000 C. $40,000 D. $50,000
A
Reconciliation of the bank account should not be performed by an individual who also: A. Processes cash disbursements B. Has custody of securities C. Prepares the cash budget D. Reviews inventory reports
A
Tests of controls are least likely to include: A) Inquiries of appropriate client vendors. B) Reperformance of a control. C) Observation of the application of an accounting procedure. D) Inspection of documents.
A
Tests of controls are used to test whether controls are: A) Operating effectively. B) Implemented (placed in operation). C) Properly accumulated into balance sheet totals. D) Properly documented by the client.
A
The Parmalat fraud case involved: A. A fraudulent cash confirmation B. Kiting of funds between banks in India and banks in Pakistan C. A bank reconciliation performed by the client that systemically understand cash D. Major unrecorded disbursements for equipment
A
The aggregated misstatement in the financial statements is made up of: Known Misstatements Projected Misstatements Other Misstatements (1) Yes Yes Yes (2) Yes Yes No (3) No Yes No (4) No Yes Yes
A
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
The auditors should confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low A. And accounts receivables are immaterial, or the use of confirmations would be ineffective B. And accounts receivable are composed of large accounts C. And the effectiveness of confirmations is absolutely determined D. Or accounts receivables are from extremely reputable customers
A
The auditors suspect that a client's cashier is misappropriation cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the: A. Details of bank deposit slips with details of credits to customer accounts B. Daily cash summaries with the sums of the cash receipts journal entries C. Individual bank deposit slips with the details of the monthly bank statements D. Dates uncollectible accounts are authorized to be written off with the dates with the write-offs are actually recorded
A
The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in: (1) An emphasis-of-matter paragraph to the auditors' report. (2) A footnote to the financial statements. (3) The body of the financial statements. (4) The "summary of significant accounting policies" section of the financial statements.
A
The best control to prevent lapping is: A) Separation of recordkeeping for receivables from custody of cash. B) Separation of authorization of sales transactions from recordkeeping for accounts receivable. C) Timely reconciliation of the bank account by an individual not involved in recordkeeping for receivables. D) Comparison of the total per the daily bank deposit ticket with the total recorded in the cash receipts journal by an individual otherwise independent of the cash receipts function.
A
To determine that all sales have been recorded, the auditors would select a sample of transactions from the: A. Shipping documents file B. Sales journal C. Accounts receivables subsidiary ledger D. Remittance advices
A
To have an adequate bases to issue a management report on internal control under Section 404(a) of the Sarbanes-Oxley Act, management must do all of the following, except: A. Establish internal control with no material weakness B. Accept responsibility for the effectiveness of internal control C. Evaluate the effectiveness of internal control using suitable control criteria D. Support the evaluation with sufficient evidence
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 a CPA decides that the work performed by internal auditors may have an effect on the nature, timing, and extent of the CPA's procedures, the CPA should consider the competence and objectivity of the internal auditors. Relative to objectivity, the CPA should: A. Consider the organizational level to which the internal auditors report the results of their work B. Review the internal auditors' work C. Consider the qualifications of the internal audit staff D. Review the training program in effect for the internal staff audit
A
When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments? (1) Capitalization. (2) Financing. (3) Investing. (4) Operations.
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 is aimed at determining whether every name on the company payroll is an employee actually on the job? A. A surprise observation of a paycheck distribution B. A test of payroll extensions C. Analytical comparisons of budgeted to actual payroll expense D. Comparison of payee names of canceled payroll checks with the payroll register
A
Which of the following circumstances generally results in the issuance of a report that includes an opinion that is other than unmodified? A. The auditor is unable to obtain sufficient appropriate audit evidence. B. The group auditors for the engagement are relying on the work of component auditors. C. The financial statements are affected by a change in accounting principle due to a new FASB pronouncement. D. The auditors have decided to emphasize the fact that the company has engaged in material amounts of related party transactions.
A
Which of the following controls wold most likely reduce the risk of diversion of customer receipts by a client's employees? A. A bank lockbox system B. Prenumbered remittance advices C. Monthly bank reconciliations D. Daily deposit of cash receipts
A
Which of the following describes the function of a fidelity bond? A) An insurance policy that covers theft by a bonded employee. B) A short term investment that is secured by a bank. C) It is a procedure to separate the duties of employees. D) A contract between parents and their children to remain celibate.
A
Which of the following in not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purpose? A. Checklist B. Confirmation C. Flowchart D. Questionnaire
A
Which of the following is a likely procedure to test the adequacy of the allowance for doubtful accounts? A. Examine cash receipts B. Confirm receivables C. Examine dates of purchase orders D. Foot the receivables lead schedule
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. Food the receivables lead schedule
A
Which of the following is a proper alternative audit procedure for nonresponses to positive accounts receivable confirmation requests? A) Examination of subsequent cash receipts in payment of the receivable. B) Mailing negative confirmation requests to nonrespondents. C) Expansion of the sample by the number of nonrespondents. D) Reduction of accounts receivable by the amount of the nonresponses.
A
Which of the following is most likely to indicate fraud? A) Several overpayments are made for goods received from a supplier. B) The year end cash balance does not include cash in transit to the company at year-end. C) A check received after year end was inadvertently recorded as if received before year-end. D) A documented loan to an officer of the company
A
Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements? A. Understatement of outstanding checks B. Overstatement of outstanding checks C. Understatement of deposits in transit D. Overstatement of bank service charges
A
Which of the following must the auditor communicate to the audit committee? A. Significant deficiencies and material weaknesses B. Only significant deficiencies C. Only material weaknesses D. Neither significant deficiencies nor material weaknesses
A
Which of the following must the auditor communicate to the audit committee? A. Significant deficiencies and material weaknesses. B. Only significant deficiencies. C. Only material weaknesses. D. Neither significant deficiencies nor material weaknesses.
A
Which of the following ordinarily involves the addition of an emphasis-of-matter paragraph to an audit report? (1) A consistency modification. (2) An adverse opinion. (3) A qualified opinion. (4) Part of the audit has been performed by component auditors.
A
Which of the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet? A. Observe the consistency of the employees' use of cash registers and tapes B. Inquire about employees' access to recorded but undeposited cash C. Trace deposits in the cash receipts journal to the cash balance in the general ledger D. Compare the cash balance in the general ledger with the bank confirmation request
A
Which of the following would be least likely to diminish the validity of evidence obtained from confirmation of accounts receivable? A) The confirmation requests are sent on the client's letterhead. B) The confirmation requests are mailed to clients by the internal auditors. C) The mailing addresses on the confirmation requests are verified by the client's mailroom personnel. D) The return address on the envelopes used to send the confirmation requests is the exact office address that the CPAs work in at the client's premises.
A
Which of the following would be most likely to be an appropriate addressee for an audit report? A. The shareholders of the corporation whose financial statements were examined. B. A third party who requested that a copy of the audit report be sent to her. C. The president of the corporation whose financial statements were examined. D. The chief financial officer.
A
Which statement is correct concerning a disclaimer of opinion and an adverse opinion? A) A disclaimer of opinion indicates that the auditor has not been able to gather enough evidence to render an opinion on the financial statements, while an adverse opinion indicates that the financial statements are materially misstated. B) A disclaimer of opinion indicates that the financial statements are materially misstated, while an adverse opinion indicates that the auditor has not been able to gather enough evidence to render an opinion on the financial statements. C) The opinions are generally equivalent, except an adverse opinion includes a going concern paragraph. D) Adverse opinions indicate that the financial statements are materially misstated, while a disclaimer indicates that the financial statements are "so wrong" that no opinion can be given.
A
A change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions? Qualified / Unmodified with Emphasis-of-Matter (1) Yes Yes (2) Yes No (3) No Yes (4) No No
B
A company oil tanker recently spilled a large amount of oil in a pristine fishing area. No lawsuits have yet been filed. What is the audit issue? A) Account payable B) Unasserted claim C) Valuation of oil & gas holdings D) General risk contingency
B
A departure from GAAP with a material effect on the financial statements is most likely to result in a(n): A) Disclaimer of opinion. B) Qualified opinion. C) Standard unmodified opinion. D) Unmodified opinion with an emphasis of matter paragraph.
B
A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n): (1) Analytical process. (2) Loss contingency. (3) Probable loss. (4) Unasserted claim.
B
A primary use by the auditor of a bank cutoff statement is to compare: A) Bank service charges on the cutoff statement 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 reconciliation.
B
A refusal by a lawyer to furnish information related to litigation included in the letter of inquiry is likely to result in: A. Confirmation of related lawsuits with the claimants B. Qualification of the audit report C. An assessment that loss of the litigation is probable D. An adverse opinion
B
Addition of an "emphasis of matter" paragraph to what remains an unmodified opinion is least likely for which of the following situations? A) Related party transactions B) Scope limitation C) A large subsequent event D) An uncertainty
B
After considering the client's internal control the auditors have concluded that it is well designed and is functioning as anticipated. Under these circumstances the auditors would most likely: A. Cease to perform further substantive procedures B. Reduce substantive procedures in areas where the internal control was found to be effective C. Increase the extent of anticipated analytical procedures D. Perform all tests of controls of the extent outlined in the preplanned audit program
B
After considering the client's internal control the auditors have concluded that it is well designed and is functioning as anticipated. Under these circumstances the auditors would most likely: A. Cease to perform further substantive procedures B. Reduce substantive procedures in areas where the internal control was found to be effective C. Increase the extent of anticipated analytical procedures D. Perform all tests of controls to all the extent outlined in the preplanned audit program
B
An audit report for a public client indicates that the audit was performed in accordance with: LO 17-2 (1) Generally accepted auditing standards (United States). (2) Standards of the Public Company Accounting Oversight Board (United States). (3) Generally accepted accounting principles (United States). (4) Generally accepted accounting principles (Public Company Accounting Oversight Board).
B
An emphasis-of-matter paragraph ordinarily: A. Relates to a report with a modified opinion. B. Follows the opinion paragraph. C. May either precede or follow the opinion paragraph. D. Is only included in an audit report with an adverse opinion.
B
Control risk is most likely to be assessed at a level below the maximum when? A) No tests of controls have been performed. B) Tests of controls have been performed. C) Externally generated evidence supports management's contentions relating to internal control. D) The results of the consideration of internal control suggest that controls are not operating effectively.
B
Effective internal control in a small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by: A. Employment of temporary personnel to aid in the separation of duties B. Direct participation by the owner in key record keeping and control activities of the business C. Engaging a CPA to perform monthly write-up work D. Delegation of full, clear-cut responsibility for a separate major transaction cycle to each employee
B
If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows: A. The auditors may still issue an unmodified opinion. B. The auditors should issue a qualified report for the departure from generally accepted accounting principles. C. The auditors should issue a qualified report indicating a scope limitation in that no statement of cash flows is presented. D. The auditors should disclaim an opinion on the overall financial statements.
B
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. Select the most effective method for detecting this type of error. A. Foot the cash receipts journal for October B. Send a bank confirmation as of year-end C. Prepare a bank reconciliation as of year-end D. Prepare a bank transfer schedule as of year-end
B
In the consideration of internal control, the operating effectiveness of controls is tested by: A. Flowcharts verification B. Tests of controls C. Substantive procedures D. Decision tables
B
In which of the following conditions is an unmodified audit opinion least likely? A) The auditor believes that the client is unlikely to remain a going concern. B) The auditor believes that inventory is valued following a method that is not considered GAAP. C) The audit was conducted with no circumstance imposed scope limitations. D) GAAP were not consistently applied from year to year.
B
Internal control is primarily established within a company to do which of the following? A) Prevent fraud. B) Provide reasonable assurance that the company's objectives will be achieved. C) Catch all errors that may occur in the company. D) Aid in the effective auditing of the company.
B
Jones embezzled $50,000 from his company's account in Bank A. At year-end he hid the shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He 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
Management estimates the company's allowance for doubtful accounts as $100,000, and the auditors develop an estimate that suggests that the amount should be between $115,000 and $125,000. The likely misstatement in this situation is: A) $0. B) $15,000. C) $20,000. D) $25,000.
B
Management estimates the company's allowance for doubtful accounts as $200,000, and the auditors develop an estimate that suggests that the amount should be between $230,000 and $250,000. The likely misstatement in this situation is: A. $0 B. $30,000 C. $40,000 D. $50,000
B
On financial statement audits, it is required that the auditors obtain an understanding of internal control, including: A. Its operating effectiveness B. Whether it has been implemented (placed in operation) C. Performing tests of controls for all material controls D. Its ability to provide reasonable assurance
B
On financial statement audits, it is required that the auditors obtain an understanding of internal control, including: A. Its operating effectiveness B. Whether it has been implementer (placed in operation) C. Performing tests of controls for all material controls D. Its ability to provide reasonable assurance
B
On receiving the bank cutoff statement, the auditor should trace: A. Deposits in transit on the year-end bank reconciliation 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 deposits in the cash receipts journal D. Checks dated subsequent to year end to the outstanding checks listed on the year-end bank reconciliation
B
Specific misstatement in one of a client's 2,000 accounts receivable is referred to as a(n): A. Extrapolation difference B. Known misstatement C. Likely misstatement D. Projected misstatement
B
Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next: (1) Notify the board of directors that the auditor's report must no longer be associated with the financial statements. (2) Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. (3) Request that management disclose the effects of the newly discovered information by adding a footnote to subsequently issued financial statements. (4) Issue revised pro forma financial statements taking into consideration the newly discovered information.
B
The Sarbanes-Oxley Act of 2002 requires that the audit committee: A. Annually reassess control risk using information from the CPA firm B. Be directly responsible for the appointment, compensation and oversight of the work of the CPA firm C> Require that the company's CPA firm rotate the partner in charge of the audit D. Review the level of management compensation
B
The Sarbanes-Oxley Act of 2002 requires that the audit committee: A. Annually releases control risk using information from the CPA firm B. Be directly responsible for the appointment, compensation and oversight of the work of the CPA firm C. Require that the company's CPA firm rotate the partner in charge of the audit D. Review the level of management compensation
B
The auditors' report should be dated as of the date the: (1) Report is delivered to the client. (2) Auditors have accumulated sufficient evidence. (3) Fiscal period under audit ends. (4) Peer review of the working papers is completed.
B
The best way to verify the amounts of dividend revenue received during the year is: A. Recomputation B. Verification by reference to dividend record books C. Confirmation with dividend-paying companies D. Examination of cash disbursement records
B
The confirmation of accounts receivable is most closely associated with A. Business Risk B. Detection Risk C. Inherent Risk D. Relative Rish
B
The individual looking for guidance on revenue recognition is most likely to appropriately review: A. APB 99 B. SAB 104 C. ASR 44 D. B1 Documents
B
The most practical and effective audit procedure for detecting lapping is: A) Preparing an interbank transfer schedule. B) Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank. C) Tracing recorded cash receipts to postings in customers' ledger cards. D) Preparing a proof of cash.
B
To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is: A. Supported by a vendor's invoice B. Stamped "paid" by the check signer C. Prenumbered and accounted for D. Approved for authorized purchases
B
Tracing copies of sales invoices to shipping documents will provide evidence that all: A. Shipments to customers were recorded as receivables B. Billed sales were shipped C. Debits to the subsidiary accounts receivable ledger are for sales shipped D. Shipments to customers were billed
B
Well-designed internal control that is functioning effectively is most likely to detect a fraud arising from: A. The fraudulent action of several employees. B. The fraudulent action of an individual employee. C. Informal deviations from the official organization chart. D. Management fraud.
B
What of the following is the risk that is of most concern to auditors when auditing cash? A) Detective risk B) Inherent risk C) Adjunct risk D) Nonsampling risk
B
When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern, the auditor most likely would express a qualified opinion if A. The effects of the adverse financial conditions are likely to be negative. B. Information about the entity's ability to continue as a going concern is not disclosed in the financial statements. C. Management has no plans to reduce or delay future expenditures. D. Negative trends and recurring operating losses appear to be irreversible.
B
Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices? A. Existence of occurrence B. Completeness C. Rights and obligations D. Presentation and disclosure
B
Which of the following is a "registration statement" that is filed with the SEC by a company planning to issue securities to the public? A. Form 8-K. B. Form S-1. C. Form 10-Q. D. Form 10-K.
B
Which of the following is considered a control environment factor by the COSO definition of internal control? A) Control objectives B) Integrity and ethical values C) Reasonable assurance D) Risk assessment
B
Which of the following is most likely to be considered an inherent limitation of a client's internal control? A) Complexity of the information system. B) Human errors. C) Management's interest in a profitable enterprise. D) An ineffective audit committee.
B
Which of the following is not among the criteria that ordinarily exist for revenue to be recognized? A. Collectibility is reasonably assured B. Delivery has occurred or is scheduled to occur in the near future C. Persuasive evidence of an arrangement exists D. The seller's rice to the buyer is fixed or determinable
B
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? A) Investigate confirmation exceptions for indication of amounts in dispute. B) Review amounts of accounts which have been written off as uncollectible prior to year-end. C) Investigate credit ratings for large accounts receivable. D) Discuss with the credit manager the current status of doubtful accounts.
B
Which of the following subsequent events might require an adjustment to the client's financial statements? A. A business combination with another company. B. Loss on the sale of a closely-held investment. C. Loss of plant and equipment due to a fire. D. Retirement of bonds payable at a loss.
B
Which of the following would be least likely to be considered an objective of internal control? A. Checking the accuracy and reliability of accounting data B. Detecting management fraud C. Encouraging adherence to managerial policies D. Safeguarding assets
B
Which procedure would be of most assistance to an auditor discovering a large credit sale that has erroneously been recorded twice? A. Footing the sales journal B. Confirming accounts receivable C. Tracing the total sales in the sales journal to the general ledger D. Observation of the physical inventory count at year-end
B
You were surprised to note that approximately 95% of returned positive accounts receivable confirmation requests indicated that the customers thought that they owed a larger balance than the amount that had been printed by your client on the confirmation. This might be explained by the fact that: A. The cash receipts journal was closed before year-end. B. The cash receipts journal was held open after year-end. C. There are many unrecorded liabilities. D. The sales journal was held open after year-end.
B
A local gas station has one clerk that accepts cash payments for gas and rings them up on the cash register. Which of the following would be the best control to provide assurance that the cashier isn't keeping some of the cash? A) Count all cash before and after the shift and compare it to cash register totals. B) Require that each customer be given a receipt of their purchase. C) Compare cash register totals to a total that is automatically generated by each gas pump. D) Require that each employees have a separate cash drawer that only they use.
C
A manufacturer's employees are paid once a month, on the 3rd of the following month. What audit issue pertaining to labor costs exists at year end? A) Rights B) Existence C) Completeness D) Presentation
C
A material departure from generally accepted accounting principles will result in auditor consideration of: (1) Whether to issue an adverse opinion rather than a disclaimer of opinion. (2) Whether to issue a disclaimer of opinion rather than a qualified opinion. (3) Whether to issue an adverse opinion rather than a qualified opinion. (4) Nothing, because none of these opinions is applicable to this type of exception.
C
After obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. The auditor most likely decided that: A. Additional evidence to support a reduction in the assessed level of control risk is not available B. An increase in the assessed level of control risk is justified for certain financial statement assertions C. It would be efficient to performs test of controls that would result in a reduction in planned substantive procedures D. There were many internal control deficiencies that would allow misstatements to enter the accounting system
C
After obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. The auditor most likely decided that: A. Additional evidence to support a reduction in the assessed level of control risk is not available. B. An increase in the assessed level of control risk is justified for certain financial statement assertions. C. It would be efficient to perform tests of controls that would result in a reduction in planned substantive procedures. D. There were many internal control deficiencies that would allow misstatements to enter the accounting system.
C
An audit may compensate for a weakness in internal control by increasing the extent of: A. Test of controls B. Detection risk C. Substantive test of details D. Inherent risk
C
An audit report for a public client indicates that the financial statements were prepared in conformity with: (1) Generally accepted auditing standards (United States). (2) Standards of the Public Company Accounting Oversight Board (United States). (3) Generally accepted accounting principles (United States). (4) Generally accepted accounting principles (Public Company Accounting Oversight Board).
C
An audit report is ordinarily dated on the date: A) Of the client's year-end. B) Risk assessment procedures are completed. C) The auditors have obtained sufficient appropriate audit evidence. D) The audit report is issued.
C
An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated: (1) December 31, 20X8. (2) January 17, 20X9. (3) February 10, 20X9. (4) February 16, 20X9.
C
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 entires for payroll expense
C
Analytical procedures are required as a part of the: A. Detailed tests of balances B. Internal control assessment C. Procedures near the end of the audit D. Substantive testing
C
As one of the year-end audit procedures, the auditor instructed the client's personnel to prepare a confirmation request for a bank account that had been closed during the year. After the client's treasurer has signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure? A. The confirmation request was signed by the treasurer B. Sending the request was meaningless because the account was closed before the year-end C. The request was mailed by the assistant treasurer D. The CPA did not sign the confirmation request before it was mailed
C
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
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
Billy Jo is responsible for custody of the finished goods in the warehouse. If his company wishes to maintain strong internal control, which of the following responsibilities are incompatible with his primary job? A) He is also responsible for the company's fixed asset control ledger. B) He is responsible for receiving of goods into the warehouse. C) He is responsible for the accounting records for all receipts and shipments of goods from the warehouse. D) He is responsible for issuing goods for shipment.
C
Controls over financial reporting are often classified as preventative, detective, or corrective. Which of the following is an example of a detective control? A. Segregation of duties over cash disbursements B. Requiring approval of purchase transactions C. Preparing bank reconciliations D. Maintaining backup copies of key transactions
C
If group auditors make no reference to component auditors whose work they have relied on as a part of the basis for their report, the group auditors: A. Are not required to investigate the professional reputation of the component auditors. B. Are issuing an inappropriate report. C. Are assuming responsibility for the work of the component auditors. D. Are issuing a qualified opinion.
C
In assessing the objectivity of a client's internal auditor, the CPA would be most likely to consider the internal auditor's: A. Education levels B. Experience C. Organization status within the company D. Training and supervisory skills
C
In assessing the objectivity of a client's internal auditor, the CPA would be most likely to consider the internal auditor's: A. Education levels. B. Experience. C. Organizational status within the company. D. Training and supervisory skills.
C
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
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
In evaluating whether there is a sufficiently low probability of material misstatement in the financial statements, the auditors accumulate: A) Likely misstatements in the financial statements. B) Known misstatements in the financial statements. C) Known, projected and other estimated misstatements in the financial statements. D) Known, projected and potential misstatements in the financial statements.
C
In evaluating whether there is a sufficiently low probability of material misstatement in the financial statements, the auditors accumulate: A. Likely misstatements in the financial statements. B. Known misstatements in the financial statements. C.Known, projected, and other estimated misstatements in the financial statements. D. Known, projected, and potential misstatements in the financial statements.
C
In which circumstance would an auditor be most likely to express an adverse opinion? A) The chief executive officer refuses the auditor access to minutes of the board of directors' meetings. B) Tests of controls show that the client's internal control is so poor that it cannot be relied upon. C) The financial statements are not in conformity with the FASB standards regarding the capitalization of leases. D) Information comes to the auditor's attention that raises a question about the client's ability to continue as a going concern.
C
Providing reasonable assurance with respect to which of the following is not required under the internal control provisions of the Foreign Corrupt Practices Act? A) Management is responsibility for knowledge and authorization of transactions. B) Transactions are recorded to maintain accountability for assets. C) Access to assets is limited to members of management. D) Transactions are recorded to permit the preparation of reliable financial statements
C
The accounting functions and the cash receipts functions should be handled by which department(s)? A) Both functions should be under the control of the company Treasurer B) Both functions should be under the control of the company Controller C) The Controller should have control of accounting functions and the Treasurer should have control of cash receipt functions. D) The Treasurer should have control of accounting functions and the Controller should have control of cash receipt functions.
C
The auditor's count of the client's cash should be coordinated to coincide with the: A. Consideration of the internal controls with respect to cash B. Close of business on the balance sheet date C. Count of investment securities D. Count of inventories
C
The auditors who become aware of an internal control significant deficiency are required to communicate this to the: A. Client's legal counsel B. Compensation committee C. Audit committee D. Internal auditors
C
The auditors who physically examine securities should insist that a client representation be present in order to: A. Detect fraudulent securities B. Lend authority to the auditors' directives C. Acknowledge the receipt of securities returned D. Coordinate the return of securities to the proper locations
C
The results of the consideration of internal control are least likely to affect the auditors' decisions pertaining to: A) The use of analytical procedures. B) The assessment of control risk. C) The assessment of inherent risk. D) Detailed tests of ending balance.
C
The search for unrecorded liabilities for a public company includes procedures usually performed through the: (1) Day the audit report is issued. (2) End of the client's year. (3) Date of the auditors' report. (4) Date the report is filed with the SEC.
C
The term "except for" in an audit report is: A. Used in an adverse opinion B. No longer considered appropriate C. Used in a qualified opinion D. Used for an unmodified opinion with an emphasis-of-matter paragraph is added
C
To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most likely should report to the: A. Financial vice-president B. Corporate controller C. Audit committee D. Corporate stockholders
C
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
To test the existence assertion for recorded receivables, the auditors would select a sample from the: A. Sales orders file B. Customer purchase orders C. Accounts receivables subsidiary ledger D. Shipping documents (bills of lading) file
C
Tracing copies of shipping documents to sales invoices will provide evidence that all: A) Billed sales were shipped. B) Debits to the subsidiary accounts receivable ledger are for sales shipped. C) Shipments to customers were billed. D) Accounts receivable are recorded.
C
What audit procedure is not ordinarily used to examine selling, general and administrative expenses? A) Analytical procedures B) Use of budgets to identify unexpected differences C) Confirmations to advertising agencies confirming payments D) Detailed tests of balances
C
What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated? Qualified Adverse (1) Yes Yes (2) Yes No (3) No Yes (4) No No
C
When a company has a probable and material loss contingency, and the company has accrued the loss in the financial statements, the appropriate audit opinion is ordinarily which of the following? A) Adverse opinion B) Qualified opinion C) Standard unmodified opinion D) Unmodified opinion with an emphasis of matter paragraph
C
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
When scheduling audit work, the auditors are most likely to confirm accounts receivable balances at an interim date if: A) Negative confirmations are being used. B) Internal control is weak. C) Internal control is strong. D) There is a simultaneous examination of cash and accounts payable.
C
When the auditors are performing a first-time internal control audit in accordance with the Sarbanes-Oxley Act and PCAOB standards, they should: A. Modify their report for any significant deficiencies identified B. use a "bottom-up" approach to identify controls to test C. Test controls for all significant accounts D. Perform a separate assessment of controls over operations
C
When the matter is properly disclosed in the financial statements, the likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit opinions? Qualified /Unmodified with Emphasis-of-Matter (1) Yes Yes (2) Yes No (3) No Yes (4) No No
C
Which of the following accounting changes requires an emphasis-of-matter paragraph regarding consistency in the 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 in two percent of credit sales
C
Which of the following conditions is most likely to result in auditor consideration of issuing a going concern modification? A) A decrease in profitability as compared to the previous year B) A loss contingency related to a lawsuit C) Default on a loan agreement D) A material related party transaction
C
Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements? (1) A business combination. (2) Early retirement of bonds payable. (3) Settlement of litigation. (4) Plant closure due to a strike.
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 is confirmed on the standard form used for cash balances at financial institution? A) Factored accounts receivable B) Loss contingencies C) Loans payable D) Safe deposit boxes controlled by the entity
C
Which of the following is least likely to result in inclusion of an emphasis-of-matter paragraph in an audit report? (1) The company is a component of a larger business enterprise. (2) An unusually important significant event. (3) A decision not to confirm accounts receivable. (4) A risk or uncertainty.
C
Which of the following is least likely when an auditor performs an integrated audit of a public company's financial statements? A) Issuing an audit report on internal control over financial reporting. B) Issuing an audit report on the financial statements. C) Omitting tests of controls for several major accounts. D) Performing tests of internal control design effectiveness.
C
Which of the following is most likely to be considered a Type 1 subsequent event? (1) A business combination completed after year-end, but for which negotiations began prior to year-end. (2) A strike subsequent to year-end due to employee complaints about working conditions which originated two years ago. (3) Customer checks deposited prior to year-end, but determined to be uncollectible after year-end. (4) Introduction of a new line of products after year-end for which major research had been completed prior to year-end.
C
Which of the following is not a control over cash disbursements? A. Disbursements should be made by check. B. A check protecting machine should be used. C. Documents supporting the payment of a disbursement should be canceled by the person preparing the check to prevent reuse. D. Voided checks should be defaced and filed with paid checks.
C
Which of the following is not a procedure to discover unasserted claims or contingent liabilities? A) Review of Board of Director minutes B) Sending a letter of inquiry to a client's attorney C) Substantive testing of company prepaid assets D) Searching newspapers and other periodicals for stories on the client and its industry
C
Which of the following is not an advantage of establishing an enterprise risk management system within an organization? A. Reduces operational surprises B. Provides integrated responses to multiple risks C. Eliminates all risks D. Identifies opportunities
C
Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting? A. Review composition of authenticated deposit slips B. Review subsequent bank statements and canceled check received directly from the banks C. Prepare a schedule of bank transfers D. Prepare year-end bank reconciliations
C
Which of the following is one of the most conclusive forms of evidence in establishing the existence of accounts receivable? A) Close inspection of notes on hand and verification with company personnel B) Comparisons of last year's receivables with current year amounts to test for reasonableness C) The confirmation of accounts D) Contacting a credit reporting agency to determine the credit worthiness of customers.
C
Which of the following is one of the most fundamental and effective controls? A) Increased use of computers for recording accounting transactions. B) Increased reliance on internal auditors to monitor accounting systems. C) Segregation of incompatible duties across several people. D) Having internal auditors report only to the Board of Directors.
C
Which of the following is statements is correct about "window dressing?" A) Window dressing involves intentional overstatements of receivables and sales through decreases in the percentage complete of long-term construction projects. B) An audit is not developed to provide assurance of detecting any forms of window dressing. C) A number of window dressing practices represent proper and appropriate business practices. D) Window dressing ordinarily involves the intentional overstatement of liability and equity accounts.
C
Which of the following is the best way for the auditors to determine that every name on a company's payroll is that of a bona fide employee presently on the job? (1) Examine human resources records for accuracy and completeness. (2) Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. (3) Make a surprise observation of the company's regular distribution of paychecks on a test basis. (4) Visit the working areas and verify that employees exist by examining their badge or identification numbers.
C
Which of the following is true regarding the notes to financial statements prepared following GAAP? A) Notes are not required, but are typically included by all companies. B) Notes are not required, since they only give additional information contained in the financial statements. C) Notes are an integral part of the financial statements. D) Notes are not encompassed in the auditors' opinion of the financial statements since they are supplementary information.
C
Which statement is correct concerning the audit of notes receivable? A) An aged schedule of notes receivable is ordinarily used to estimate an allowance for uncollectible notes. B) Because note forms are tightly controlled by banks, physical inspection is ordinarily a particularly effective audit technique. C) Confirmation in writing from the holder of the note is ordinarily considered as an acceptable alternative to inspection of the note. D) The inspection of notes receivable on hand is ordinarily performed concurrently with the inspection of notes payable.
C
You have been assigned to the year-end audit of a financial institution and are planning the timing of audit procedures relating to cash. You decide that it would be preferable to: A. Count the cash in advance of the balance sheet date in order to disclose any kitting operations at year-end B. Coordinate the count of cash with the cutoff of accounts payable C. Coordinate the count of cash with the count of marketable securities and other negotiable assets D. Count the cash immediately upon the return of the confirmation letters from the financial institution
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
A client's internal control appears strong, but the CPA has elected not to perform any tests of controls. The planned assessed level of control risk is at what level? A. Zero B. Low C. Moderate D. Maximum
D
A client's previous two years of financial statements understated estimated warranty payable by $15,000 and $25,000 respectively, immaterial amounts. This year the auditors estimate that the accrual is understated by an additional $30,000. In this year's audit $50,000 represents a material amount. Assuming that the entire understatement is to be recorded, following SEC SAB 108 the decrease in this year's income due to these understatements is: A) $0. B) $30,000. C) $55,000. D) $70,000.
D
A common audit procedure in the audit of payroll transactions involves vouching selected items from the payroll journal to employee time cards that have been approved by supervisory personnel. This procedure is designed to provide evidence in support of the audit objective of determining that: A) Only bona fide employees worked and their pay was properly computed. B) Jobs on which employees worked were charged with the appropriate labor cost. C) Controls relating to disbursements are operating properly. D) Employees worked the number of hours for which their pay was computed.
D
A company owns a large amount of debt securities that pay interest twice a year - August 1 and February 1. On the financial statements the company accrued the 5 months of interest it was due as interest receivable. The auditor should: A) Require the accrual be reversed since the interest has not yet been paid. B) Confirm the interest accrual with the security issuer. C) Require the accrual be reversed since the company could sell the security before interest has been paid. D) Verify the company owns the security, check the accuracy of the accrual, and require no adjustment.
D
A security owned by a company is from another company that recently declared bankruptcy. Which of the following is the auditor's primary concern with the investment? A) Existence B) Presentation C) Completeness D) Valuation
D
A significant deficiency: A. Differs from a material weakness in that it involves internal control over operations rather than internal control over financial reporting . B. Involves an amount of discovered misstatements greater than the amount used as the planning measure of materiality. C. Is identical to a material weakness except that it need not be communicated to those responsible for oversight of the company's financial reporting. D. Is less severe than a material weakness.
D
An analysis of the aged accounts receivables is most directly related to which substantive test objective? A) Existence and occurrence B) Presentation and disclosure C) Rights and obligations D) Valuation
D
An auditor examining check disbursements discovered a missing check number. Upon inquiry to the person responsible for disbursements and reconciliation of the cash account, she is told that the check number is missing because the check was voided. What is the auditor's next step? A) Prepare a bank transfer schedule at to identify the check. B) Examine the bank confirmation to determine whether the check cleared. C) Since the person responsible for disbursements also reconciles the account, no additional procedures are necessary. D) Examine the voided checks file to determine whether the check is in the file.
D
An auditor's analytical procedures have revealed that the accounts receivable of a client have 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 most likely would satisfy the auditor? A. Credit standards were liberalized in the current year B. Twice as many accounts receivables were written off in the prior year as compared to this year C. A greater percentage of accounts were currently listed in the "more than 90 days overdue" category than in the prior year D. The client opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet
D
An entity's ongoing monitoring activities often include: A. Periodic audits by internal auditors B. The audit of the annual financial statements C. Approval of cash disbursements D. Management review of weekly performance reports
D
As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should: (1) Express an opinion that is qualified due to the inability of the client company to continue as a going concern. (2) Evaluate management's performance in causing this decline. (3) Require note disclosure. (4) Consider the possibility of a misstatement in the financial statements.
D
Assume that the opinion paragraph of an auditors' report begins as follows: "With the explanation given in Note 6, ... the financial statements referred to above present fairly..." This is: (1) An unmodified opinion. (2) A disclaimer of opinion. (3) An "except for" opinion. (4) An improper type of reporting.
D
If the auditors do not perform tests of controls for certain assertions: A. They have performed a standard audit. B. They are not required to communicate significant deficiencies relating to those accounts to management and the board of directors. C. They must have a qualified opinion D. They must assess control risk at the maximum level for these assertions
D
If the auditors do not perform tests of controls for certain assertions: A. They have performed a substandard audit B. They are not required to communicate significant deficiencies relating to those accounts to management and the board of directors C. They must issues a qualified opinion D. They must assess control risk at the maximum level for those assertions
D
In a financial statement audit, an auditor would express an unmodified opinion with an emphasis of matter paragraph added to the audit report for: A) Either an unjustified accounting change or an unjustified departure from generally accepted accounting principles. B) An unjustified accounting change. C) An unjustified departure from generally accepted accounting principles. D) Neither an unjustified accounting change nor an unjustified departure from generally accepted accounting principles.
D
In order to guard against the misappropriation of company-owned marketable securities, which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities? A. Require that one trustworthy and bonded employee be responsible for access to the safekeeping areas where securities are kept B. Require that employees who enter and leave the safekeeping are sign and record in a log the exact reason for their access. C. Require that employees who enter and leave the safekeeping function maintain a subsidiary control ledger for securities on a current basis D. Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent
D
In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also: A. Reviews the monthly bank reconciliation B. Returns the checks to accounts payable C. Is denied access to the supporting documents D. Is responsible for mailing the checks
D
Internal control over marketable securities is enhanced when: A. Securities are held by the cashier B. Securities are registered in the name of the custodian C. Detailed records of securities are maintained by the custodian of the securities D. Securities are held under joint control of two or more officials
D
Issuance of a going concern modification relates most directly to which of the following terms? A) More likely than not B) Probable C) Reasonably possible D) Substantial doubt
D
It is most likely to be efficient to test the controls over financial investments when: A) Controls are thought to be weak. B) Substantive tests may be performed. C) Analytical procedures are possible. D) The company trades or holds a large number of securities.
D
Of the following, which procedure or document is most effective for detecting kiting? A) A bank cutoff statement B) A bank reconciliation C) A bank kiting statement D) A bank transfer schedule
D
Properly designed internal control will permit the same employee to: A. Receive and deposit checks, and also approve write-offs of customer accounts B. Approve vouchers for payment, and also receive and deposit cash C. Reconcile the bank statements, and also receive and deposit cash D. Sign checks, and also cancel supporting documents
D
The auditors compare information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that: A. Recorded cash disbursement transactions are properly authorized B. Proper cash purchase discounts have been recorded C. Cash disbursements are for goods and services actually received D. No discrepancies exist between the data on the check and the data in the journal
D
The auditors should insist that a representative of the client be present during the physical examination of securities in order to: A. Lend authority of the auditor's directives B. Detect forged securities C. Coordinate the return of all securities to proper locations D. Acknowledge the receipt of securities returned
D
The auditors' best course of action with respect to "other financial information" included in a client prepared annual report containing the auditors' report is to: A) Indicate in the auditors' report that the "other financial information" is unaudited. B) Consider whether the "other financial information" is accurate by performing a review. C) Obtain written representations from management as to the material accuracy of the "other financial information." D) Read and consider the manner of presentation of the "other financial information."
D
To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except: A. Cutoff bank statement B. Tear-end bank statement C. Bank confirmation D. General ledger
D
To gather evidence regarding the balance per bank on a bank reconciliation, an auditor could examine all of the following except: A) Cutoff bank statement. B) Year-end bank statement. C) Bank confirmation. D) General ledger.
D
To have strong internal control over payroll, which of the following functions does not need to be separated from the others? A) Personnel B) Timekeeping C) Payroll preparation D) Personnel verification
D
Under which of the following set of circumstances might the auditors disclaim an opinion? A. The financial statements contain a departure from generally accepted accounting principles, the effect of which is material. B. The group auditors decide to make reference to the report of component auditor who audited a subsidiary. C. There has been a material change between periods in the method of application of accounting principles. D. There are significant scope limitations on the audit.
D
What is ordinarily the primary concern when auditing the income statement? A) Overstatement of Revenues, Expenses and Net Income B) Overstatement of Revenues and Expenses, and understatement of Net Income C) Overstatement of Net Income and understatement of Revenues and Expenses D) Overstatement of Revenues and Net Income, and understatement of Expenses
D
When an auditor 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 current financial statement date (9/30/X1), 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 (9/30/X0 to 9/30/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
Which is most likely when the assessed level of control risk increase? A. Change from performing substantive procedures at year-end to an interim date B. Perform substantive procedures directed inside the entity rather than tests directed toward parties outside the entity. C. Use the maximum number of dual purpose tests. D. Use larger sample sizes for substantive procedures.
D
Which is most likely when the assessed level of control risk increases? A. Change from performing substantive procedures at year-end to an interim date B. Perform substantive procedures directed inside the entity rather than tests directed toward parties outside the entity C. Use the maximum number of dual purpose tests D. Use larger samples sizes for substantive procedures
D
Which of the following is an example of misappropriation of assets relating to sales? A. Accidentally recording cash that represents a liability as revenue B. Holding the sales journal open to record next year's sales as having occurred in the current year C. Intentionally recording cash received from a new debt agreement as revenue D. Theft of cash register sales
D
Which of the following is correct concerning cash confirmation requests? A) They ask for information on kiting activities. B) They should be sent quarterly by the auditors to financial institutions the client has accounts with. C) They should be sent by the client to financial institutions the client has accounts with. D) They may be sent electronically or non-electronically.
D
Which of the following is least likely to be considered a substantive procedures relating to payroll? A. Investigate fluctuations in salaries wages, and commissions B. Test computations of compensation under profit sharing for bonus plans C. Test commission earnings D. Test whether employee time reports are approved by supervisors
D
Which of the following is least likely to be considered an inherent risk relating to receivables and revenues? A. Restrictions placed on sales by laws and regulations B. Decline in sales due to economic declines C. Decline in sales due to protect obsolescence D. Over-recorded sales due to a lack of control over the sales entry function
D
Which of the following is most likely to be an example of fraudulent financial reporting relating to sales? A. Inaccurate billing due to a lack of controls B. Lapping of accounts receivables C. Misbilling a client due to a data input error D. Recording sales when the customer is likely to return the goods
D
Which of the following is not correct concerning a type I and a type II subsequent event? A) A type I may require adjustment to financial statements while a type II will not. B) Both a type I and a type II subsequent event may require note disclosure. C) A type I is an event that occurred prior to year end, but was discovered after, while a type II is one that arose subsequent to year end. D) A type II event may require adjustment to the financial statements and a type I may require note disclosure.
D
Which of the following is the best argument against the use of negative accounts receivable confirmations? A) The cost-per-response is excessively high. B) There is no way of knowing if the intended recipients received them. C) Recipients are likely to feel that in reality the confirmation is a subtle request for payment. D) The inference drawn from receiving no reply may not be correct.
D
Which of the following procedures is most likely to be included near completion of an audit? (1) Obtain an understanding of internal control. (2) Confirmation of receivables. (3) Observation of inventory. (4) Perform analytical procedures.
D
Which of the following procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? A. Performing cutoff tests of sales transactions with customers with long-standing receivable balances. B. Evaluating the entity's procedures for identifying and recording related party transactions. C. Inspecting title documents to verify whether any real property is pledged as collateral. D. Inquiring of the entity's legal counsel about litigation, claims, and assessments.
D
Which of the following symbols indicate that a file has been consulted? A. Rectangle > Rhombus B. Weird box > Triangle C. <Diamond> D. Rhombus <> Triangle
D
Which of the following would most likely be detected by an auditor's review of the client's sales cutoff? A. Excessive goods returned for credit B. Unrecorded sales discounts C. Lapping of year-end accounts receivable D. Inflated sales for the year
D
Which of the following would provide the most assurance concerning the valuation of accounts receivable? A. Trace amounts in the accounts receivables subsidiary ledger to details on shipping documents B. Compare receivable turnover ratios to industry statistics for reasonableness C. Inquire about receivables pledge under loan agreements D. Assess the allowance for uncollectible accounts for reasonableness
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
