Auditing Quiz 10-11 and Auditing Quiz 12, 16-17

An audit client has refused to allow the auditors to perform an auditing procedure and there are no other effective alternate procedures available. The circumstance would normally result in the issuance of: a. a disclaimer of opinion b. an adverse opinion c. a standard unmodified opinion with a qualified scope paragraph d. an unmodified report with an emphasis-of-matter paragraph

a. a disclaimer of opinion

Ray, an independent auditor, was engaged to perform an audit of the financial statements of Zena Incorporated one month after its fiscal year had ended. Although the inventory count was not observed by Ray, the auditors were able to obtain sufficient appropriate audit evidence by applying alternative auditing procedures. Rays audit report will probably contain: a. a standard unmodified opinion b. an unmodified opinion and an emphasis-of-matter paragraph c. either a qualified opinion or a disclaimer of opinion d. an "except for" qualification

a. a standard unmodified opinion

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 understates 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. accounts receivable are overstated at December 31, 20x0

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: a. cash disbursements b. approved vouchers c. receiving reports d. vendors' invoices

a. cash disbursements

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 has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly? a. completeness b. existence c. legality d. valuation

a. completeness

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 revenue b. fraudulent cash disbursements c. improper asset valuations d. improper disclosures

a. fictitious revenue

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. collectability of the receivable is in doubt d. pledging of the receivables is probable

a. no reply to a positive confirmation request is received

For effective internal control, the billing function should not be performed by the: a. sales department b. accounting department c. finance department d. information processing department

a. sales department

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. test of a control

Which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper? a. testing the entity's computation of standard overhead rates b. obtaining confirmation of inventories pledged under loan agreements c. reviewing a cutoff procedure for inventories d. tracing test counts to the entity's inventory listing

a. testing the entity's computation of standard overhead rates

Which of the following circumstances generally results in the issuance of a report that includes an opinion that is modified? a. the auditor is unable to obtain the financial records of a foreign subsidiary which is material to the client 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. the auditor is unable to obtain the financial records of a foreign subsidiary which is material to the client

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom? a. the cashier posts the receipts to the accounts receivable subsidiary ledger b. the cashier prepares the daily deposit c. the cashier makes the daily deposit at a local bank d. the cashier endorses the checks

a. the cashier posts the receipts to the accounts receivable subsidiary ledger

An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance for uncollectible accounts a. true b. false

a. true

Which of the following subsequent events might require an adjustment to the client's financial statement? a. a business combination with another company b. a major customer declares bankruptcy causing a material receivable to be uncollectible c. loss of plant and equipment due to a fire, the loss is insured d. plant employees could possibly go on strike

b. a major customer declares bankruptcy causing a material receivable to be uncollectible

Which of the following cash transfers from one bank account to another bank account is most likely to result in a misstatement of cash at December 31, 19X7? a. a b. b c. c d. d

b. b

Tracing copies of sales invoices to shipping documents will provide evidence that all a. TrueShipment 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. billed sales were shipped

Which of the following manipulations would understate receivables on the financial statements? a. understatement of cash sales b. closing the sales journal prior to year-end c. closing the cash receipts journal prior to year-end d. underestimating the allowance for doubtful accounts

b. closing the sales journal prior to year-end

Which of the following is not true about the confirmation of accounts receivable? a. confirmation requests should bear the auditors' return address b. confirmation requests should be signed by the auditors c. confirmation requests should be mailed directly by the auditors d. confirmation requests should include a return envelope addressed to the office of the auditors

b. confirmation requests should be signed by the auditors

The confirmation of accounts receivable is most closely associated with: a. business risk b. detection risk c. risk of incorrect acceptance d. control risk

b. detection risk

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers? a. to document every test count b. for subsequent comparison with the completed inventory listing c. to document compliance with generally accepted accounting principles d. for use in subsequent audits

b. for subsequent comparison with the completed inventory listing

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 litigation is probable d. an adverse opinion

b. qualification of the audit report

A "bill and hold" scheme is most likely to include: a. shipment of items to a customer beyond what the consumer has ordered b. recording as sales items that the company retains as of year-end c. billing of items that are held by customers for future revenue production purposes d. selling items at substantial discounts near year-end

b. recording as sales items that the company retains as of year-end

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. the auditors should issue a qualified report for the departure from generally accepted accounting principles

Which of the following is not a reason for the special significance attached by the auditors to the verification of inventories? a. the determination of inventory valuation directly affects net income b. the existence of inventories is inherently difficult to substantiate c. special valuation problems often exist for inventories d. inventories are often the largest current asset of an enterprise

b. the existence of inventories is inherently difficult to substantiate

The primary objective of analytical procedures used near the end of an audit is to: a. obtain evidence from details tested to corroborate particular assertions. b. identify areas that represent specific risks relevant to the audit c. assist the auditor when forming overall conclusions about the financial statements d. satisfy doubts when questions arise about a client's ability to continue in existence

c. assist the auditor when forming overall conclusions about the financial statements

Why do auditors often spend a lot of time auditing cash? a. cash is tempting to steal, increasing inherent and fraud risk b. many other account transactions (e.g. liabilities, revenues) flow through the cash accounts c. both a and b d. neither a nor b

c. both a and b

The auditors obtain audit evidence for accounts receivable by using positive or negative confirmation requests. Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful? a. a substantial number of accounts are in disputes b. the combination of inherent risk and control risk is high c. client records include a large number of relatively small balances d. the auditors believe that recipients of the requests are unlikely to give them consideration

c. client records include a large number of relatively small balances

Purchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client company, if the company: a. has paid for the merchandise b. has physical possession of the merchandise c. holds legal title to the merchandise d. holds the shipping documents for the merchandise issued in the company's name

c. holds legal title to the merchandise

The review of audit working papers by the audit partner is normally completed: a. prior to year-end b. immediately as each working paper is completed c. near the completion of the audit d. after issuance of the audit report, but prior to required subsequent event review procedures

c. near the completion of the audit

Which of the following is true about the auditors' observation of the client's physical inventory? a. the auditors should plan the physical inventory b. the auditors should segregate damaged and obsolete goods c. the auditors should evaluate the condition of the inventory d. the auditors should supervise the client's personnel

c. the auditors should evaluate the condition of the inventory

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. the request was mailed by the assistant treasurer

Which of the following financial statement assertions are we most concerned about when auditing the allowance for doubtful accounts? a. existence b. completeness c. valuation d. none of these

c. valuation

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: a. vendors' invoices b. approved vouchers c. receiving reports d. cash disbursements

d. cash disbursements

Which of the following is an analytical procedure that should be applied to the income statement? a. select sales and expense items and trace amounts to related supporting documents. b. ascertain that the net income amount in the statement of cash flows agrees with the net income amount in the income statement. c. obtain from the proper client representatives, the beginning and ending inventory amounts that were used to determine costs of sales. d. compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences.

d. compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences.

In evaluating whether there is a sufficiently low probability of material misstatement in the financial statements, the auditors accumulate: a. factual misstatements in the financial statements b. judgmental misstatements in the financial statements c. factual and judgmental misstatements in the financial statements d. factual, judgmental, and projected misstatements and an allowance for undetected misstatements in the financial statements

d. factual, judgmental, and projected misstatements and an allowance for undetected misstatements in the financial statements

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. inquiring of the entity's legal counsel about litigation, claims, and assessments

To which of the following matters would materiality limits not apply when obtaining written client representations? a. violations of state labor regulations b. disclosure of line-of-credit arrangements c. information about related party transactions d. instances of fraud involving management

d. instances of fraud involving management

An inventory turnover analysis is useful to the auditor because it detect: a. inadequacies in inventory pricing b. method of avoiding cyclical holding cost c. the optimum automatic reorder points d. the existence of obsolete merchandise

d. the existence of obsolete merchandise

To verify that all sales that have been shipped to customers have been recorded, a test of transactions should be completed on a representative sample drawn from: a. the sales journal b. the billing clerk's file of sales orders c. duplicate copies of sales invoices d. the shipping clerk's file of duplicate copies of bills of lading

d. the shipping clerk's file of duplicate copies of bills of lading