Ch 9-10, 12 Check Your Basic Knowledge

10-1 A fake cash problem relates to management's cash valuation assertion. True or False

False

10-13 Controls for completeness of cash are important because they help to provide reasonable assurance that the cash exists. True or False

False

10-14 Because a primary concern is that cash will be stolen and thus understated, the auditor is not usually concerned about overstatements of cash. True or False

False

10-17 Planning analytical procedures for cash balances are highly effective because of the generally stable relationship with past cash levels and the fact that cash is a managed account. True or False

False

10-2 Short selling enables managers to get away with perpetrating fraud undetected and undeterred. True or False

False

10-26 Because of the level of inherent risk associated with cash accounts, auditors are required to test the controls over cash accounts. True or False

False

10-29 Because cash balances are usually relatively low at year-end, auditing standards encourage auditors to send bank confirmations on a sample basis. True or False

False

10-30 A typical bank statement prepared at an interim agreed-upon date and sent directly to the auditor is a bank transfer statement. True or False

False

10-5 The volume of activity in cash accounts makes cash accounts less susceptible to error than most other accounts. True or False

False

10-9 Skimming occurs when an employee purchases merchandise and records the sale at an unauthorized discounted price. True or False

False

12-1 Long-lived assets are typically immaterial for most manufacturing organizations. True or False

False

12-14 A formal budgeting process tied to the acquisition of long-lived assets is a management activity, but is not a control over long-lived assets. True or False

False

12-18 When performing planning analytical procedures, the auditor should not typically expect the client to use depreciable lives similar to organizations in the same industry. True or False

False

12-22 Assume a client setting where there are weak controls and client incentives to capitalize items that it should expense. In such a setting, the auditor likely obtains most of the audit evidence through tests of controls. True or False

False

12-25 When testing a control that requires training for all employees involved in equipment management, the auditor would typically reperform the control. True or False

False

12-34 Because of conservatism considerations, auditors should require a client to overestimate its reserve for restructuring. True or False

False

9-13 It is not possible for internal controls to mitigate risks associated with the valuation of accounts receivable. True or False

False

9-14 Diageo made improper cash payments to government officials in Mexico, Brazil, and Argentina during the period 2003-2009, which violated provisions of the Foreign Corrupt Practices Act. True or False

False

9-18 When performing planning analytical procedures, the auditor could perform trend analysis with ratios, but not with account balances. True or False

False

9-21 Responding to identified risks in the revenue cycle rarely involves developing an audit approach that contains substantive procedures (e.g., tests of details and, when appropriate, substantive analytical procedures). True or False

False

9-26 Surprisingly, AmTrust's restatement was followed by a stock price increase, likely because investors inferred that by revealing the restatement the company could move forward with confidence. True or False

False

9-29 Auditors in practice commonly use negative confirmations. True or False

False

9-5 Channel stuffing is a fraud in the revenue cycle that involves recording revenue after a customer has requested to purchase the inventory. True or False

False

10-10 In assessing fraud risk related to cash, auditors engage in brainstorming to consider incentives, opportunities to commit fraud, and rationalization about risks relating to cash. True or False

True

10-18 If the auditor observes that the company reports consistent profits over several years while cash inflows are decreasing, the auditor should likely assess a heightened risk of fraud in cash. True or False

True

10-21 The relative percentage of substantive analytics that an auditor will use as evidence in the audit of cash will be somewhat limited regardless of the riskiness of the client. True or False

True

10-22 When auditing cash, the auditor will perform a relatively larger percentage of tests of details for a high-risk client compared to a low-risk client. True or False

True

10-25 An example of a monitoring control in cash would include a review of cash budgets and a comparison of them with actual cash balances, with appropriate follow-up. True or False

True

10-33 The following is an inherent risk that is particularly applicable to owning stock in a company like Genie Energy: Risk of sudden market declines, which would adversely affect the valuation of securities. True or False

True

10-34 The following is a reasonable test of control over marketable securities: Inquire of management about its process for establishing valuation of marketable securities and review related documentation. True or False

True

10-37 When there is a ready market for financial instruments, the audit procedures related to valuation and disclosures are more straightforward than when the instrument is not readily marketable. True or False

True

10-38 Auditor expertise is critically important in evaluating the validity of the valuation of complex financial instruments. True or False

True

10-6 The electronic transfer of cash and the automated controls over cash are such that if errors are built into computer programs, they could be repeated on a large volume of transactions. True or False

True

12-10 A fraud scheme that WorldCom top-management employed involved capitalizing items that should have been expensed. True or False

True

12-13 Auditors should expect clients to have written policies for the acquisition and disposal of long-lived assets. True or False

True

12-17 The auditor needs to understand the client's business to perform meaningful planning analytical procedures. True or False

True

12-2 Patents are an example of long-lived assets. True or False

True

12-21 If a client's long-lived assets involve only a few assets of relatively high value, it might be most efficient to test long-lived assets by using only substantive tests of details. True or False

True

12-26 Auditors who are aware of control deficiencies that could result in the material misstatement of lease accounts need to modify their substantive testing in response to those deficiencies. True or False

True

12-29 One procedure that the auditor can use to test management's assertion that tangible long-lived assets exist would be to inspect the tangible asset. True or False

True

12-30 When testing potential impairment of assets, the auditor may need to rely on work performed by a specialist/expert. True or False

True

12-33 Goodwill is the excess of the purchase price over the fair market value of the acquired organization's tangible assets, identifiable intangible assets, and liabilities. True or False

True

12-5 The pervasiveness of management estimates is a factor that heightens the inherent risk associated with long-lived assets. True or False

True

12-6 An inherent risk associated with intangible long-lived assets is the difficulty in determining the cost of the asset. True or False

True

12-9 Some common techniques that managers may use to fraudulently misstate financial statements related to long-lived assets include overvaluing existing assets, recording fictitious assets, or capitalizing expenses. True or False

True

9-1 The revenue cycle involves receiving a customer's order, approving credit for a sale, determining whether the goods are available for shipment, shipping the goods, billing the customer, collecting cash, and recognizing the effect of this process on revenue and other related accounts such as accounts receivable, inventory, and sales commission expense. True or False

True

9-10 When assessing fraud risks, the auditor should consider the client's motivation to increase revenue due to both internal and external pressures. True or False

True

9-17 The auditor might conclude that a heightened risk of fraud exists if the planning analytical procedures indicate increases in revenue and net income, but negative cash flow from operations. True or False

True

9-2 In the revenue cycle, the most significant accounts typically include revenue and accounts receivable. True or False

True

9-22 While audit firms may have a standardized audit program for the revenue cycle, the auditor should customize the audit program based on the assessment of risk of material misstatement. True or False

True

9-25 In testing controls over whether sales are properly valued, the auditor could take a sample of recorded sales invoices and agree the price on the invoice to an authorized price list. True or False

True

9-30 A substantive audit procedure that would reveal ownership and related disclosure issues includes scanning the cash receipts journal for relatively large inflows of cash that from unusual sources. True or False

True

9-6 If the contract stipulates more than one deliverable, the client must allocate a separate price to each deliverable. True or False

True

9-9 Research indicates that a majority of financial statement frauds involve inappropriate recording of revenue. True or False

True

10-23 Which mix of evidence would be most appropriate for the following scenario? This is a client where the auditor has assessed the risk of material misstatement related to the existence and completeness of cash at high. This client has incentives to overstate cash in order to meet debt covenants. Further, the client has relatively weak controls to prevent theft of cash. a. 100% tests of details. b. 70% tests of details, 10% analytics, 20% tests of controls. c. 50% tests of details, 10% analytics, 40% tests of controls. d. 20% tests of details, 40% analytics, 40% tests of controls.

a. 100% tests of details.

12-8 Which of the following risks is an inherent risk related to asset impairment? a. Determination of asset impairment requires management judgment. b. It is difficult to identify the costs associated with the discovery of natural resources. c. Management might have incentives to not record all asset disposals. d. All of the above are inherent risks related to asset impairment.

a. Determination of asset impairment requires management judgment.

10-8 Which of the following questions would be relevant for an inherent risk analysis related to cash? a. Does the company have significant cash flow problems in meeting its current obligations on a timely basis? b. Are cash transactions properly authorized? c. Are bank reconciliations performed on a timely basis by personnel independent of processing? d. Does the internal audit department conduct timely reviews of the cash management and cash-handling process? e. All of the above.

a. Does the company have significant cash flow problems in meeting its current obligations on a timely basis?

12-4 Which of the following statements is true ? a. Existence and valuation assertions related to long-lived assets are usually the most relevant assertions. b. A concern regarding the existence of long-lived assets relates to whether management has properly recorded depreciation. c. Depletion expense is not an account that would be included when auditing long-lived assets. d. All of the above statements are true.

a. Existence and valuation assertions related to long-lived assets are usually the most relevant assertions.

12-19 An auditor performing planning analytical procedures scans the repairs and maintenance expense accounts. Which of the following statements is likely to be consistent with the auditor's focus? a. Expenditures for long-lived assets have not been charged to expense. b. Expenditures for long-lived assets have been properly approved. c. Expenditures for long-lived assets have been recorded in the correct period. d. The auditor would not be performing scanning as a planning analytical procedure.

a. Expenditures for long-lived assets have not been charged to expense.

9-12 Which of the following explanations best describes the purpose of lapping? a. Lapping is a technique used by client personnel to cover up the embezzlement of cash. b. Lapping is an approach used by client personnel to eliminate differences between a customer's records and the client's records reported on confirmations. c. Lapping is a procedure used by the auditor to obtain evidence the client's customer does return a positive confirmation. d. Lapping is an agreement containing contract terms that are not part of a formal sales contract.

a. Lapping is a technique used by client personnel to cover up the embezzlement of cash.

10-40 Which of the following is a risk associated with complex financial instruments? a. Management's objective for entering into such transactions may relate to misstating the financial statements. b. Most of these financial instruments have a high volume of activity and relate to deep capital markets. c. Most management teams today have the necessary sophistication to invest in complex financial instruments with relatively little downside risk. d. All of the above are risks.

a. Management's objective for entering into such transactions may relate to misstating the financial statements.

9-32 The auditor is concerned that the client has recorded fictitious sales. Which of the following procedures would be the best audit procedure to identify fictitious sales? a. Select a sample of recorded sales invoices and trace to shipping documents (bills of lading and packing slips) to verify shipment of goods. b. Select a sample of shipping documents (bills of lading) and trace to the sales invoice to determine whether the invoice was properly recorded. c. Select a sample of customer purchase orders and trace through to the generation of a sales invoice. d. Select a sample of customer purchase orders to determine whether a valid customer actually exists.

a. Select a sample of recorded sales invoices and trace to shipping documents (bills of lading and packing slips) to verify shipment of goods.

12-24 Assume that a client's controls over recording retirements of long-lived tangible assets are not well designed. Which of the following procedures would the auditor plan to perform as a way of responding to the heightened risk of material misstatement? a. Select long-lived tangible assets recorded in the property ledger and locate them for inspection. b. Inspect long-lived tangible assets located at the client location and trace those assets to the property ledger. c. Review the tangible long-lived asset property ledger to see if depreciation was recorded on each tangible long-lived asset. d. The auditor would perform all of the above procedures to respond to the heightened risk of material misstatement due to poor client controls over recording retirements.

a. Select long-lived tangible assets recorded in the property ledger and locate them for inspection.

12-36 Which of the following evidence items would an auditor most likely not consider when evaluating the potential impairment of goodwill? a. The acquisition made by a competitor of an organization that is not a direct competitor of the client. b. The current market capitalization of the organization in comparison with its net book value. c. The cash flows and operating data of the reporting unit since acquisition compared with estimates made at the time of acquisition. d. The growth or decline in market share of the reporting unit since acquisition

a. The acquisition made by a competitor of an organization that is not a direct competitor of the client.

10-19 The first step in performing planning analytical procedures is to develop an expectation of the account balance. Which of the following does not typically represent a likely expected relationship for cash accounts? a. The company reports consistent profits over several years, but operating cash flows are declining. b. No unusual large cash or other liquid asset transactions are found. c. Operating cash flow is not significantly different from that of the prior year. d. Investment income is consistent with the level of and returns expected from the investments. e. All of the above represent likely expected relationships.

a. The company reports consistent profits over several years, but operating cash flows are declining.

9-20 Assume that an auditor expected that the client's activities related to sales and accounts receivable would be similar to industry averages. Which of the following relationships detected as part of planning analytical procedures would not suggest a heightened risk of material misstatement in the revenue cycle? a. The number of days' sales in accounts receivable decreased from 65 days in the prior year to 47 days in the current year. The industry average increased from 45 to 47 days. b. The gross margin increased from 16.7% to 18.3%, while the industry average changed from 16.7% to 16.3%. c. Accounts receivable increased 35% over the prior year, while sales stayed relatively stable. d. All of the above relationships are suggestive of a heightened risk of fraud.

a. The number of days' sales in accounts receivable decreased from 65 days in the prior year to 47 days in the current year. The industry average increased from 45 to 47 days.

9-23 After identifying the risks of material misstatement, the auditor develops an audit plan in response to those risks. Which of the following plans for testing revenue would be most likely when the auditor believes that control risk is high? a. The only evidence the auditor plans to obtain is from tests of details. b. The auditor plans to obtain 40% of the necessary audit evidence from tests of controls, and the remaining 60% from substantive analytical procedures. c. The auditor plans to obtain the majority of the necessary audit evidence from tests of controls. d. Any of the above would be an appropriate audit plan if the auditor believes that control risk is high.

a. The only evidence the auditor plans to obtain is from tests of details.

9-8 Which of the following statements is false regarding the fraud at ArthroCare? a. Two of ArthroCare's sales executives overstated ending inventory that improperly inflated company revenue and earnings. b. PricewaterhouseCoopers' audit was deficient for ArthroCare, thereby enabling the fraud to go undetected for a period of time. c. ArthroCare agreed to pay a $30 million fine to resolve the investigation. d. ArthroCare is a manufacturer of medical devices, based in Austin, Texas, whose shares are traded on NASDAQ.

a. Two of ArthroCare's sales executives overstated ending inventory that improperly inflated company revenue and earnings.

10-32 A bank confirmation contains which of the following two parts? 1. A part that seeks information on the client's deposit balances, the existence of loans, due dates of the loans, interest rates, dates through which interest has been paid, and collateral for loans outstanding. 2. A part that contains a listing of the last checks issued near year-end. 3. A part that seeks information about any loan guarantees. 4. A part that lists all transfers between the company's bank accounts for a short period of time before and after year-end. a. 1 & 2. b. 1 & 3. c. 2 & 3. d. 2 & 4. e. 3 & 4.

b. 1 & 3.

9-15 Which of the following procedures can organizations use to address credit risk most effectively? a. An informal credit policy, which may be automated for most transactions, but requires special approval for large and/or unusual transactions. b. A periodic review of the credit policy by key executives to determine whether changes are dictated either by current economic events or by deterioration of the receivables. c. Periodic monitoring of receivables for evidence of increased risk, such as increases in the number of days past due or an unusually high concentration in a few key customers whose financial prospects are declining d. Adequate segregation of duties over fixed assets, with specific authorization to write off fixed assets that have been fully depreciated.

b. A periodic review of the credit policy by key executives to determine whether changes are dictated either by current economic events or by deterioration of the receivables.

12-15 Which of the following controls would be most useful in providing reasonable assurance about the valuation of tangible long-lived assets? a. A policy requiring the reconciliation of the physical asset count with the property ledger. b. A policy requiring that deprecation categories and lives be periodically assessed. c. A formal budgeting process. d. Written policies requiring authorization for the acquisition of long-lived assets.

b. A policy requiring that deprecation categories and lives be periodically assessed.

10-39 An audit client has invested heavily in new equity and debt securities. Which of the following would not constitute an appropriate role for the organization's board of directors or others charged with governance? a. Receive and review periodic reports by the internal audit function on compliance with the organization's investment policies and procedures. b. Approve all new investments prior to reviewing their risks. c. Review and approve written policies and guidelines for investments in marketable securities. d. Periodically review the risks inherent in the portfolio of marketable securities to determine whether the risk is within parameters deemed acceptable by the board.

b. Approve all new investments prior to reviewing their risks.

12-11 Which of the following statements is false regarding fraud risk related to long-lived assets? a. A potential fraud scheme involves not removing sold assets from the books. b. Because long-lived assets are typically an audit area of low risk, auditors do not need to perform brainstorming activities related to long-lived assets. c. Management might use unreasonably long depreciable lives in an effort to reduce current-period expenses. d. None of the above statements is false.

b. Because long-lived assets are typically an audit area of low risk, auditors do not need to perform brainstorming activities related to long-lived assets.

10-15 Skimming most likely results in a violation of which of the following management assertions? a. Existence b. Completeness c. Rights and obligations d. Valuation e. All of the above

b. Completeness

10-35 Refer to Exhibit 10.15. Which of the following assertions is relevant to whether the marketable securities balances include all securities transactions that have taken place during the period? a. Existence/occurrence. b. Completeness. c. Rights and obligations. d. Valuation or allocation. e. All of the above.

b. Completeness.

12-32 As part of auditing equipment, the auditor will inspect new equipment additions selected from the client's property ledger. When performing this procedure, which assertion is the auditor focusing on? a. Completeness. b. Existence. c. Valuation. d. Rights and obligations.

b. Existence.

9-3 Which of the following statements is true regarding assertions in the revenue cycle? a. It is typical that all five assertions for revenue are equally important. b. If a client has an incentive to overstate revenues, the existence assertion would be more relevant than the completeness assertion. c. Audit evidence about the existence of revenues is also the most appropriate evidence about the valuation of receivables. d. The allowance for doubtful accounts has important implications for the ownership assertion of accounts receivable.

b. If a client has an incentive to overstate revenues, the existence assertion would be more relevant than the completeness assertion.

9-28 An auditor performs tests of controls in the revenue cycle. First, the auditor makes inquiries of company personnel about credit-granting policies. The auditor then selects a sample of sales transactions recorded in the general ledger and examines documentary evidence of credit approval. Which of the financial statement assertion(s) does this test of controls most likely support? Completeness Valuation or Allocation a. Yes Yes b. No Yes c. Yes No d. No No

b. No Yes

12-27 Which of the following situations would lead an auditor to test controls over long-lived assets? a. Substantive analytical procedures suggested that controls over long-lived assets were not effective. b. Risk assessment procedures indicated that controls were effectively designed. c. Tests of details identified many errors in recording long-lived asset transactions. d. The auditor has decided that the additional effort to test controls would not exceed the potential reduction in substantive procedures.

b. Risk assessment procedures indicated that controls were effectively designed.

10-27 Refer to Exhibit 10.6. Which of the following represents a reasonable test of controls for cash receipts? a. Document internal controls over cash by completing the internal control questionnaire or by flowcharting the process. b. Segregation of duties between those handling cash and those recording cash transactions. c. Obtain a bank confirmation. d. Obtain a bank cutoff statement. e. All of the above.

b. Segregation of duties between those handling cash and those recording cash transactions.

9-16 Which of the following statements about the Medicis fraud is false? a. In 2012, the PCAOB settled a disciplinary order censuring Ernst & Young (EY), imposing a $2 million penalty against the firm and sanctioning four of its current and former partners. b. The PCAOB found that EY and its partners failed to properly evaluate a material component of the company's financial statements—its allowance for doubtful accounts. c. EY did not properly evaluate Medicis' practice of reserving for most of its estimated product returns at replacement cost, instead of at gross sales price. It appears that EY accepted the company's basis for reserving at replacement cost, when the auditors should have known that this approach would not be supported by the audit evidence. d. The PCAOB investigation revealed that by using replacement cost for the reserve, rather than gross sales price, Medicis' reported sales returns reserve were materially understated and its reported revenue was materially overstated. e. All of the above are true.

b. The PCAOB found that EY and its partners failed to properly evaluate a material component of the company's financial statements—its allowance for doubtful accounts.

9-24 Responding to identified risks involves developing an audit approach that addresses those risks. Which of the following statements about the planned audit approach is true for the revenue cycle? a. The audit approach needs to include tests of controls, substantive analytical procedures, and tests of details. b. The audit approach will typically require more evidence for higher risk assertions than lower risk areas. c. The audit approach should follow the audit firm's standardized audit program. d. The sufficiency and appropriateness of selected procedures will not vary across assertions.

b. The audit approach will typically require more evidence for higher risk assertions than lower risk areas.

9-7 Under the FASB's guidance on revenue recognition, which of the following is not a criteria that must be met in order for a contract to exist? a. The parties have approved it. b. The auditor has ensured that the contract's valuation is reasonable in all material respects. c. The goods and/or services involved are clearly identified. d. The payment terms are spelled out. e. There is commercial value to the contract.

b. The auditor has ensured that the contract's valuation is reasonable in all material respects.

10-24 Which mix of evidence would be most appropriate for the following scenario? This is a client where the auditor has assessed the risk of material misstatement related to the existence and completeness of cash as low, and believes that the client has implemented effective controls in this area. a. 100% tests of details. b. 70% tests of details, 10% analytics, 20% tests of controls. c. 50% tests of details, 10% analytics, 40% tests of controls. d. 20% tests of details, 40% analytics, 40% tests of controls.

c. 50% tests of details, 10% analytics, 40% tests of controls.

12-16 Which of the following controls should management have in place to provide reasonable assurance about asset impairment judgments? a. A policy requiring the reconciliation of the physical asset count with the property ledger. b. Limits to physical access of long-lived assets. c. A systematic process to identify assets that are not currently in use. d. A formal budgeting process.

c. A systematic process to identify assets that are not currently in use.

10-16 Which of the following is not a type of common control over cash? a. Segregation of duties b. Restrictive endorsements of customer checks c. Bank reconciliations by employees who handle cash d. Prenumbered cash receipt documents and turnaround documents e. Two of the above (a-d)

c. Bank reconciliations by employees who handle cash

9-31 To test the completeness of sales, the auditor would select a sample of transactions from which of the following populations? a. Customer order file. b. Open invoice file. c. Bill of lading file. d. Sales invoice file.

c. Bill of lading file.

9-11 Which of the following factors is not a motivation for clients to fraudulently misstate revenue? a. Bankruptcy may be imminent. b. Management bonuses are contingent on a certain revenue goal. c. Controls over revenue process are ineffective. d. Management wants to meet publicly announced earnings expectations.

c. Controls over revenue process are ineffective.

12-23 Assume that the auditor decides to only perform substantive tests of details when auditing the equipment account. Which of the following statements best describes the account being audited? a. The client does not have effective controls over equipment. b. The equipment account involves only a few assets of relatively high value. c. Either (a) or (b) could be descriptive the account being audited. d. Neither (a) nor (b) would be descriptive of the account being audited.

c. Either (a) or (b) could be descriptive the account being audited.

12-28 Which of the following procedures could the auditor perform to test the effectiveness of controls over asset impairment? a. Perform substantive analytical procedures. b. Send confirmations to the management specialist who performed work related to the impairment. c. Inquire of management as to its process for determining assessment impairment, and follow up as appropriate. d. Inspect the asset for potential impairment.

c. Inquire of management as to its process for determining assessment impairment, and follow up as appropriate.

10-3 Which of the following assertions is relevant to whether the company owns the cash accounts as of the balance sheet date? a. Existence/occurrence. b. Completeness. c. Rights and obligations. d. Valuation or allocation. e. All of the above.

c. Rights and obligations.

10-36 Refer to Exhibit 10.15. Which of the following assertions is relevant to the audit procedure for marketable securities that requires the auditor to examine selected documents to identify any restrictions on the securities? a. Existence/occurrence. b. Completeness. c. Rights and obligations. d. Valuation or allocation. e. All of the above.

c. Rights and obligations.

12-31 When auditing intangible assets, the auditor would likely recompute amortization and determine whether management's recorded amount is reasonable. When performing this procedure, which assertion is the auditor focusing on? a. Completeness. b. Existence. c. Valuation. d. Rights and obligations.

c. Valuation.

12-7 Which of the following is not an inherent risk related to long-lived asset accounts? a. Failing to record asset disposals. b. Capitalizing repairs and maintenance expense. c. Changing depreciation estimates to manage earnings. d. All of the above are inherent risks related to long-lived asset accounts.

d. All of the above are inherent risks related to long-lived asset accounts.

9-27 When auditing a nonpublic company, the auditor would generally make a decision not to test the operating effectiveness of controls in which of the following situations? a. The preliminary assessment of control risk is high. b. It is more cost efficient to directly test ending account balances than to test controls. c. The auditor believes that controls are designed effectively but are not operating as described. d. All of the above are situations when the auditor would likely not test the operating effectiveness of controls.

d. All of the above are situations when the auditor would likely not test the operating effectiveness of controls.

12-20 Which of the following analyses might an auditor perform as part of planning analytical procedures for long-lived assets? a. Develop an overall estimate of depreciation expense. b. Compare capital expenditures with the client's capital budget. c. Perform a trend analysis of the ratio of depreciation expense to total depreciable long-lived tangible assets. d. All of the above could be performed as part of planning analytical procedures.

d. All of the above could be performed as part of planning analytical procedures.

9-19 Which of the following statements is false regarding planning analytical procedures in the revenue cycle? a. As revenue is typically regarded as a high-risk account, planning analytical procedures related to revenue are not required. b. The first step in planning analytical procedures includes developing an expectation of recorded amounts or ratios, and evaluating whether that expectation is precise enough to accomplish the relevant objective. c. Trend analysis would not be appropriate as a planning analytical procedure in the revenue cycle. d. All of the above statements are false.

d. All of the above statements are false.

12-3 Which of the following is a long-lived asset? a. Tangible assets such as equipment. b. Intangible assets such as patents. c. Natural resources. d. All of the above.

d. All of the above.

12-35 Which of the following valuation issues are associated with merger and acquisition activity? a. Valuing assets of the acquired organization at their FMV at the time of acquisition. b. Measuring restructuring charges associated with the acquisition. c. Valuing liabilities of the acquired organization at their FMV at the time of acquisition. d. All of the above.

d. All of the above.

10-11 Which of the following terms best defines this scenario? The employee steals a payment from Customer X. To cover the theft, the employee applies a payment from Customer Y to Customer X's account. Before Customer Y has time to notice that its account has not been appropriately credited, the employee applies a payment from Customer Z to Customer Y's account. a. Skimming. b. Kiting. c. Collateralizing. d. Lapping.

d. Lapping.

9-4 Which of the following statements is true regarding the processing and recording of revenue transactions? a. The accurate recording of revenue transactions is important for preparing financial statements, but not important for the client's management decisions. b. Invoices should be prepared once the client determines that the goods ordered by a customer are available. c. A bill of lading provides documentation that the customer has received the goods. d. Sales transactions typically begin with the receipt of a purchase order from a customer.

d. Sales transactions typically begin with the receipt of a purchase order from a customer.

10-31 Which of the following statements regarding reperformance of bank reconciliations is true? a. The auditor's reperformance of a reconciliation of the client's bank accounts provides evidence as to the accuracy of the year-end cash balance. b. The process reconciles the balance per the bank statements with the balance per the books. c. Reperformance of the bank reconciliation is ineffective in detecting major errors, such as those that might be covered up by omitting or underfooting outstanding checks. d. Two of the above (a-c) are true. e. All of the above (a-c) are true.

d. Two of the above (a-c) are true.

10-4 Which of the following assertions is relevant to whether the cash balances reflect the true underlying economic value of those assets? a. Existence/occurrence. b. Completeness. c. Rights and obligations. d. Valuation or allocation. e. All of the above.

d. Valuation or allocation.

10-12 Affirmative answers to which of the following questions would lead the auditor to assess fraud risk at a higher level for cash? a. Is an individual with access to cash or its recording experiencing financial or personal distress? b. Is an individual with access to cash or its recording being compensated at an amount that he or she might consider low? c. Is the company in potential violation of its debt covenants? d. Two of the above (a-c) e. All of the above (a-c).

e. All of the above (a-c).

10-20 Which of the following is a common example of trend analysis of accounts and ratios that the auditor might consider for cash accounts? a. Compare monthly cash balances with past years and budgets. b. Identify unexpected spikes or lows in cash during the year. c. Compute trends in interest returns on investments. d. Two of the above (a-c). e. All of the above (a-c).

e. All of the above (a-c).

10-28 Which of the following represents a control related to cash that an auditor might test? a. Reviews of reconciliations of reported cash receipts with remittances prepared by independent parties. b. Reviews of cash budgets and comparison of them with actual cash balances. c. Reviews of discrepancies in cash balances. d. Two of the above (a-c). e. All of the above (a-c).

e. All of the above (a-c).

10-7 Inherent risk for cash is usually assessed as high for which of the following reasons? a. The volume of transactions flowing through cash accounts throughout the year makes the account more susceptible to error. b. The cash account is more susceptible to fraud because cash is liquid and easily transferable. c. The electronic transfer of cash and the automated controls over cash are such that if errors are built into computer programs, they will be repeated on a large volume of transactions. d. Cash can be easily manipulated. e. All of the above.

e. All of the above.

12-12 Which of the following techniques can managers use to prevent the outright theft of long-lived assets? a. Assign accountability for long-lived assets to specific individuals. b. Conduct physical counts of existing and new long-lived assets purchased during the year. c. Capitalize transactions that they should expense. d. All of the above. e. Two of the above.

e. Two of the above.