Exam 4

Which of the following procedures is least likely to be performed before the balance-sheet date? a. Search for unrecorded liabilities. b. Observation of inventory. c. Review of internal control over cash disbursements. d. Confirmation of receivables.

a. Search for unrecorded liabilities.

A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows: Employee- Responsibility Clerk 1 Reviews vendor invoices for proper signature approval Clerk 2 Enters vendor invoices into the accounting system and verifies payment terms. Clerk 3 Posts entered vendor invoices to the accounts payable ledger for payment and mails checks. TreasurerReviews the vendor invoices and signs each check. Which of the following would indicate a weakness in the company's internal control? a. Clerk 3 mails the checks and remittances after they have been signed. b. Clerk 1 opens all of the incoming mail. c. Clerk 2 reconciles the accounts payable ledger with the general ledger monthly. d. The treasurer uses a stamp for signing checks.

a. Clerk 3 mails the checks and remittances after they have been signed.

Which of these persons generally does not participate in writing the management letter? a. Client's outside attorneys. b. Public accounting firm's audit team on the engagement. c. Public accounting firm's consulting and tax experts. d. Client's accounting and production managers.

a. Client's outside attorneys.

Which of the following steps in attributes sampling is most closely related to identifying key controls corresponding to the relevant management assertions? a. Determine the objective of sampling. b. Define the population. c. Determine the sample size. d.Define the deviation condition.

a. Determine the objective of sampling.

Jerry Tim is examining an important internal control in the audit of Langly Company. In past audits, deviations from this control have been observed at a minimal rate (less than 0.1 percent); however, because the account balance affected by this control is highly susceptible to fraud, it is important that Tim obtain a high level of assurance that deviations occur at no higher than a predetermined (low) rate. Which of the following sampling methods would Tim most likely use to evaluate this control? a. Discovery sampling. b. Attributes sampling. c. Sequential sampling. d. Statistical sampling.

a. Discovery sampling.

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated? a. Examining vendor statements for amounts not reported as purchases. b. Examining reported purchase returns that appear too low. c. Searching for customer-returned goods that were not reported as returns. d. Reviewing bank transfers recorded as cash received from customers.

a. Examining vendor statements for amounts not reported as purchases.

Which of the following would not be an example of nonsampling risk in an attributes sampling application? a. Incorrectly estimating the expected population deviation rate. b. Failure to notice a deviation from prescribed control procedures. c. Failure to perform the appropriate type of test of controls procedure. d. Incorrectly accumulating the number of deviations.

a. Incorrectly estimating the expected population deviation rate.

For which of the following audit tests would an auditor most likely use attributes sampling? a. Inspecting employee time cards for proper approval by supervisors. b. Selecting accounts receivable for confirmation of account balances. c. Examining invoices in support of the valuation of fixed asset additions. d. Making an independent estimate of the amount of a LIFO inventory.

a. Inspecting employee time cards for proper approval by supervisors.

Which of the following is not required by generally accepted auditing standards? a. Management letter. b.Written representations. c. Engagement letter. d. Attorney letter.

a. Management letter.

Which of the following procedures is not used in auditors' examination of litigation, claims, and assessments? a. Performing analytical procedures. b. Obtaining a description and evaluation of litigation, claims, and assessments from management. c. Examining documentary evidence regarding litigation, claims, and assessments. d. Reading minutes of meetings of stockholders, directors, and appropriate committees.

a. Performing analytical procedures.

Which of the following accounts would most likely be audited in connection with a related balance-sheet account? a. Property Tax Expense. b. Payroll Expense. c. Research and Development. d. Legal Expense.

a. Property Tax Expense.

Auditors have a responsibility related to management's disclosure of new information related to subsequent events until a. The audit report release date. b. The date of the auditor's report. c. The date of the financial statements. d. The following year's date of the financial statements.

a. The audit report release date.

Which of the following statements is not true with respect to written representations? a. The failure of management to furnish them is a significant scope limitation, resulting in either an adverse opinion or a disclaimer of opinion. b. Auditors use them to corroborate information received during the audit from the client and its employees. c. They are dated the same date as the auditor's reports. d. They should address management's responsibility for designing internal control to prevent and detect fraud.

a. The failure of management to furnish them is a significant scope limitation, resulting in either an adverse opinion or a disclaimer of opinion.

Why is the auditor more concerned with the risk of overreliance than the risk of underreliance? a. The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures. b. The risk of underreliance is not a type of sampling risk. c. The risk of overreliance cannot be controlled by the auditor during the sampling process. d. The risk of overreliance exposes the auditor to an efficiency loss.

a. The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures.

What is the primary purpose of obtaining written representations? a. To impress upon management its primary responsibility for the financial statements. b. To allow auditors to communicate important internal control deficiencies to management. c. To allow auditors to communicate important suggestions for improvement to management. d. To provide auditors with substantive evidence of important assertions.

a. To impress upon management its primary responsibility for the financial statements.

Which of the following factors used to determine sample size is normally based on the extent to which the audit team expects to rely on the internal control being examined? a. Tolerable rate of deviation. b. Expected population deviation rate. c. Allowance for sampling risk. d. Sample rate of deviation.

a. Tolerable rate of deviation.

Analytical procedures performed near the end of an audit generally include a. considering unusual or unexpected account balances that were not previously identified. b. retesting control activities that appeared to be ineffective during the assessment of control risk. c. performing tests of transactions to corroborate management's financial statement assertions. d. gathering evidence concerning account balances that have not changed from the prior year.

a. considering unusual or unexpected account balances that were not previously identified.

In determining the effectiveness of an entity's policies and procedures relating to the occurrence assertion for payroll transactions, auditors most likely would inquire about and a. observe the separation of duties concerning personnel responsibilities and payroll disbursement. b. recompute the payroll deductions for employee fringe benefits. c. inspect evidence of accounting for prenumbered payroll checks. d. verify the preparation of the monthly payroll account bank reconciliation.

a. observe the separation of duties concerning personnel responsibilities and payroll disbursement.

Lincoln, CPA, selected a sample of 100 items by dividing the population of 100,000 sales invoices by 100. With a random start, she then selected every 1,000th invoice. This selection process is referred to as: a. systematic random selection. b. unrestricted random selection. c. nonstatistical selection. d. judgmental selection.

a. systematic random selection.

When goods are received, the receiving clerk should match the goods with the a. vendor's shipping document and the purchase order. b. vendor's invoice and the receiving report. c. receiving report and the vendor's shipping document. d. purchase order and the requisition form.

a. vendor's shipping document and the purchase order.

An audit team designed a sample that would provide a 10 percent risk of overreliance that not more than 7 percent of sales invoices lacked credit approval. From previous audits, the audit team expected that 3 percent of the sample invoices lacked proper approval. From the sample of 90 invoices, 7 were found to lack credit approval. Using AICPA sample evaluation tables, the audit team determined that the ULRD was a.12.8 percent. b. 7.8 percent. c. 4.5 percent. d. 3.3 percent.

a.12.8 percent.

A client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes auditors' primary concern with respect to liabilities resulting from the purchasing system? a. Authority to incur liabilities is restricted to one designated person. b. Accounts payable are not materially understated. c. Acquisition of materials is not made from one vendor or one group of vendors. d. Commitments for all purchases are made only after established competitive bidding procedures are followed.

b. Accounts payable are not materially understated.

An audit team designed a sample that would provide a 10 percent risk of overreliance that not more than 7 percent of sales invoices lacked credit approval. From previous audits, the audit team expected that 3 percent of the sample invoices lacked proper approval. From the sample of 90 invoices, 7 were found to lack credit approval. Using AICPA sample evaluation tables. Based on the above information, the audit team determined that the allowance for sampling risk was a. 2.2 percent. b. 5.0 percent. c. 7.8 percent. d. 10.0 percent.

b. 5.0 percent.

Assume that Dylan Lee found two deviations in a sample of 90 transactions. Using AICPA sample evaluation tables, Lee determined that the ULRD at a 5 percent risk of overreliance is a. 2.2 percent. b. 6.9 percent. c. 5.9 percent. d. 2.0 percent.

b. 6.9 percent.

Which of the following would not result in the audit team's selecting a larger sample of controls for examination? a. A reduction in the risk of overreliance from 10 percent to 5 percent. b. An increase in the tolerable rate of deviation from 3 percent to 6 percent. c. An increase in the expected population deviation rate from 2 percent to 4 percent. d. All of the choices would result in a larger sample of controls.

b. An increase in the tolerable rate of deviation from 3 percent to 6 percent.

Which of the following best describes auditors' responsibilities with respect to evaluating the going-concern status of the entity? a. Auditors are required to specifically gather evidence with respect to going-concern status and modify their report on the financial statements if substantial doubts exist. b. Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist. c. Auditors are required to specifically gather evidence with respect to going-concern status and separately report on the entity's ability to continue as a going concern. d. Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and separately report on the entity's ability to continue as a going concern.

b. Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.

When auditing account balances of liabilities, auditors are most concerned with management's assertion about a. Valuation and allocation. b. Completeness. c. Existence. d. Rights and obligations.

b. Completeness.

The primary reason auditors request responses to attorney letters is to provide auditors a. The probable outcome of asserted claims and pending or threatened litigation. b. Corroboration of the information furnished by management about litigation, claims, and assessments. c. A description and evaluation of litigation, claims, and assessments that existed at the date of the financial statements. d. The attorney's opinions of the client's historical experiences in recent similar litigation.

b. Corroboration of the information furnished by management about litigation, claims, and assessments.

After the audit report release date, auditors determine that an important auditing procedure was omitted. Which of the following initial courses of action is most appropriate? a. Engage another public accounting firm to conduct a quality assurance review. b. Determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements. c. Notify the board of directors and regulatory agencies that are currently relying on auditors' reports. d. Perform the omitted procedure or an alternative procedure.

b. Determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements.

In which step of a sampling plan is nonstatistical sampling different from statistical sampling? a. Define the characteristic of interest. b. Evaluate the sample results. c. Define the population. d. Measure the sample items.

b. Evaluate the sample results.

Which of the following conditions or set of circumstances would not ordinarily raise questions about the entity's ability to continue as a going concern: a. Negative cash flow from operations for each of the last three years. b. Failure to meet forecasted earnings per share. c. Legal proceedings that may have a significant negative impact on the entity. d. Violation of debt covenants.

b. Failure to meet forecasted earnings per share.

If an audit team calculated an ULRD of 5 percent when the tolerable rate of deviation was 4 percent, both at the same risk of overreliance, control risk should be a. Assessed at the maximum level (100 percent) because the company's performance failed the test. b. Increased and substantive procedures should be adjusted accordingly. c. Assessed at the level associated with the 4 percent tolerable rate of deviation. d. Decreased and substantive procedures should be adjusted accordingly.

b. Increased and substantive procedures should be adjusted accordingly.

Which of the following results of analytical procedures would most likely indicate possible unrecorded liabilities? a. Accounts payable balance increase greater than 10 percent over the prior period. b. Ratio of accounts payable to total current liabilities of 3:1, compared to 5:1 for the prior period. c. Current ratio of 3:1 as compared to 6:1 for the prior period. d. Accounts payable turnover of 4, compared to 8 for the prior period.

b. Ratio of accounts payable to total current liabilities of 3:1, compared to 5:1 for the prior period.

What is an auditor's primary method to corroborate information on litigation, claims, and assessments? a. Examining legal invoices sent by the client's attorney. b. Reviewing the response from the client's lawyer to a letter of audit inquiry. c. Verifying attorney-client privilege through interviews. d. Reviewing the written representation letter obtained from management.

b. Reviewing the response from the client's lawyer to a letter of audit inquiry.

Which of these substantive procedures is not used to obtain evidence about contingencies? a. Obtaining a letter from the client's attorney. b. Scanning expense accounts for credit entries. c. Examining terms of sale in sales contracts. d. Reading the minutes of the board of directors' meetings.

b. Scanning expense accounts for credit entries.

A type of sampling application in which a relatively small initial sample is examined and decisions regarding expanding that sample are based on the results of this initial sample is known as a. Discovery sampling. b. Sequential sampling. c. Attributes sampling. d. Statistical sampling.

b. Sequential sampling.

Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time? a. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment. b. The official who signs the check should compare the check with the voucher and should stamp "PAID" on the voucher documents. c. Disbursement vouchers should be approved by at least two responsible management officials. d. Vouchers should be prepared by individuals who are responsible for signing disbursement checks.

b. The official who signs the check should compare the check with the voucher and should stamp "PAID" on the voucher documents.

Why is the audit team more concerned with controlling the exposure to the risk of overreliance than with the risk of underreliance? a. The risk of underreliance can be controlled by performing tests of controls during the interim period. b. The risk of overreliance can ultimately result in the audit team's failing to reduce audit risk to acceptable levels. c. The risk of underreliance is not related to the audit team's study and evaluation of internal control. d. Only the risk of overreliance results in an incorrect audit decision.

b. The risk of overreliance can ultimately result in the audit team's failing to reduce audit risk to acceptable levels.

An audit team was testing source documents in the purchasing cycle and identified the following circumstances. Which of the following would be the most indicative of source document fraud? a. The same item code appears on different invoices from the same vendor. b. The same invoice number appears on different invoices from the same vendor. c. The same invoice date appears on different invoices from the same vendor. d. The same purchase order number appears on two invoices from the same vendor.

b. The same invoice number appears on different invoices from the same vendor.

Why should auditors be particularly concerned with "miscellaneous," "other," and "clearing" accounts classified as revenues or expenses? a. These accounts are often more difficult to audit using normal substantive procedures. b. These accounts may represent attempts of earnings management. c. These accounts are likely to require the assistance of a specialist. d. These accounts are likely to relate to going-concern matters.

b. These accounts may represent attempts of earnings management.

Using AICPA sample evaluation tables, determine the conclusion from a statistical sample of internal controls when a sample of 125 documents indicates five deviations if the tolerable rate of deviation is 5 percent, the expected population deviation rate is 2 percent, and the allowance for sampling risk is 3 percent. a. Accept the evidence as support for assessing a low control risk because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation. b. Use the evidence to assess a higher control risk than planned because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation. c. Accept the evidence as support for assessing a low control risk because the tolerable rate of deviation less the allowance for sampling risk is less than the expected population deviation rate. d. Use the evidence to assess a higher control risk than planned because tolerable rate of deviation plus the allowance for sampling risk exceeds the expected population deviation rate.

b. Use the evidence to assess a higher control risk than planned because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

Lee and Kerzman is the auditor for Nance Corporation. During the course of the audit, the audit team noticed that Nance Corporation showed signs of financial distress. In particular, Nance Corporation was at risk for defaulting on several key loans and had therefore begun the process of restructuring their debt. This, among other indicators, led the audit team to have substantial doubt regarding Nance Corporation's ability to continue as a going concern. The next step the team should take is to: a. do nothing, as the auditors have no responsibility related to going concern assessments. b. obtain and discuss with management their plan to continue as a going concern and assess the likelihood the plan will be successful. c. issue an unmodified opinion with an emphasis of a matter paragraph related ability of Nance Corporation to continue as a going concern. d. resign from the engagement.

b. obtain and discuss with management their plan to continue as a going concern and assess the likelihood the plan will be successful.

Auditors conclude that the omission of a substantive procedure considered necessary at the time of the examination may impair their present ability to support the previously-expressed opinion. Auditors need not try to perform the omitted procedure if a. the risk of adverse publicity or litigation is low. b. the results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence. c. some financial statement users are currently relying on the auditors' reports. d. the auditors' opinion was qualified because of a departure from generally accepted accounting principles.

b. the results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence.

If the _____ exceeds the _____, the audit team would decide to rely on internal control as planned and maintain control risk at planned levels. a. ULRD; tolerable rate of deviation. b. tolerable rate of deviation; ULRD. c. tolerable rate of deviation; expected population deviation rate. d. expected population deviation rate; tolerable rate of deviation.

b. tolerable rate of deviation; ULRD.

Which of the following factors has a direct relationship with sample size in an attributes sampling application? Tolerable Rate ofDeviation/ Expected PopulationDeviation Rate a.YesYes b.NoYes c.YesNo d.NoNo

b.NoYes

Baily Cox, an audit manager, judged that the test of controls of the company's 50,000 purchase transactions should be based on a tolerable rate of deviation of 6 percent, a risk of overreliance of 5 percent, and an expected population deviation rate of 3 percent. Using AICPA sample size tables, Cox determined that the appropriate sample size in this situation would be a. 132. b. 78. c. 195. d. 49.

c. 195.

Which of the following would detect the understatement of a purchase discount? a. Verify the arithmetic accuracy of the purchases journal b. Verify the receipt of items ordered and invoiced c. Compare purchase disbursement records and checks with invoice terms d. Compare approved purchase orders to receiving reports

c. Compare purchase disbursement records and checks with invoice terms

Which of the following would not overstate current-period net income? a. Capitalizing an expenditure that should be expensed. b. Failing to record a liability as an expense. c. Failing to record a check paying an item in Vouchers Payable. d. All of the choices would overstate net income.

c. Failing to record a check paying an item in Vouchers Payable.

Tony LaRussa, an audit manager, considered the control risk assessments listed in the left column of the following table in evaluating A. Cardinal's internal control over sales transactions. The sample sizes for the substantive procedures of the customer accounts receivable are shown to the right of each control risk. What risk of overreliance (ROO) could be assigned for tests of controls at each control risk level? Control Risk / Accounts Receivable Sample/ ROO 0.20/400/? 0.50/390/? 0.80/350/? 0.90/190/10% a. From top to bottom: 5 percent, 10 percent, 1 percent. b. From top to bottom: 1 percent, 10 percent, 5 percent. c. From top to bottom: 1 percent, 5 percent, 10 percent. d. From top to bottom: 10 percent, 1 percent, 5 percent.

c. From top to bottom: 1 percent, 5 percent, 10 percent.

The primary benefit of using nonstatistical sampling is that a. It generally results in a smaller sample size. b. It removes the need to consider allowance for sampling risk. c. It is simpler to use. d. All of the choices are true.

c. It is simpler to use.

An audit team would most likely examine the detail support for charges to which of the following accounts? a. Payroll expense. b. Cost of goods sold. c. Legal expense. d. Supplies expense.

c. Legal expense.

If an audit team examined 100 transactions and found one deviation from an important control procedure, the audit conclusion could be that control risk can be assessed at the associated control risk level when a. The tolerable rate of deviation is 4 percent. b. The tolerable rate of deviation is 3 percent. c. More information about decision criteria is available. d. The tolerable rate of deviation is 2 percent.

c. More information about decision criteria is available

Which of the following is ordinarily performed last in the audit examination? a. Securing a signed engagement letter from the client. b. Performing tests of controls. c. Obtaining signed written representations. d. Performing a review for subsequent events.

c. Obtaining signed written representations.

Which of the following major stages of the audit is most closely related to attributes sampling? a. Determining preliminary levels of materiality. b. Performing substantive procedures. c. Performing tests of controls d. Searching for the possible occurrence of subsequent events.

c. Performing tests of controls

A furniture company ordered 84 tables from a supplier. The supplier accidentally sent only 48 tables, but the receiving department at the furniture company accepted the tables. The invoice was eventually received but was for the original 84 tables. The furniture company paid the entire amount. Which of the following controls would have been least likely to have prevented this erroneous payment? a. Personnel in the furniture company's accounts payable department should compare the receiving report to the purchase invoice before creation of the voucher. b. Personnel in the furniture company's cash disbursements department should compare the check that is prepared to all of the backup documentation. c. Personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order. d. The copy of the purchase order sent to the furniture company's receiving department should not have shown an expected quantity.

c. Personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order.

For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written. Written representations a. Prior to the engagement, Written b. Either following the date of the auditors' report or as significant matters are identified, Written c. Prior to or at the date of the auditors' report, Written d. Following the date of the auditors' report; Either oral or written

c. Prior to or at the date of the auditors' report, Written

Curtis, a maintenance supervisor, submitted maintenance invoices from a phony repair company and received the checks at a post office box. This should have been prevented by a. Comparison of the company name to the approved vendor list by the check signer. b. Recognition of the excess maintenance costs by Curtis's supervisor. c. Refusal by the purchasing department to approve the vendor. d. All of the choices are correct.

c. Refusal by the purchasing department to approve the vendor.

Which of the following accounts does not appear in the acquisition and expenditure cycle? a. Purchases returns. b. Cash. c. Sales returns. d. Prepaid insurance.

c. Sales returns.

The interpretation of the ULRD in an attributes sampling application is a. The estimated rate of deviation in the population with certainty that the actual rate of deviation is lower. b. The estimated rate of deviation in the population with certainty that the actual rate of deviation is higher. c. The estimated rate of deviation in the population with probability equal to the risk of overreliance that the population deviation rate is higher. d. The estimated rate of deviation in the population with probability equal to the risk of overreliance that the actual rate of deviation is lower.

c. The estimated rate of deviation in the population with probability equal to the risk of overreliance that the population deviation rate is higher.

In order for the auditor to decide to perform tests of controls, which of the following relationships should exist? a. The expected population deviation rate should exceed the tolerable rate of deviation. b. The expected population deviation rate should exceed the risk of overreliance. c. The tolerable rate of deviation should exceed the expected population deviation rate. d. The sampling risk should be less than 5%.

c. The tolerable rate of deviation should exceed the expected population deviation rate.

Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the: a. subsequent year's date of the financial statements. b. date of the financial statements. c. audit report release date. d. date of the auditors' report.

c. audit report release date.

An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal. The purpose of this substantive audit procedure most likely was to a. identify usually large purchases that should be investigated further. b. verify that cash disbursements were for goods actually received. c. determine that purchases were properly recorded. d. test whether payments were for goods actually ordered.

c. determine that purchases were properly recorded.

For the copy of the purchase order that goes to the receiving department, it is best to a. leave off the description of the goods ordered. b. leave off the name of the vendor. c. leave off the quantity of the goods ordered. d. have the receiving department forward all copies of the purchase order to accounts payable.

c. leave off the quantity of the goods ordered.

As a result of tests of controls, an auditor assessed control risk at an inappropriately low level and decreased the effectiveness of substantive procedures. This assessment occurred because the true deviation rate in the population was: a. more than the risk of overreliance based on the auditor's sample. b. less than the risk of overreliance based on the auditor's sample. c. more than the deviation rate in the auditor's sample. d. less than the deviation rate in the

c. more than the deviation rate in the auditor's sample.

In performing attributes sampling, the auditor will conclude that the control is functioning as intended if the ______ is less than or equal to ______. a. tolerable rate of deviation; upper limit rate of deviation b. expected population deviation rate; tolerable rate of deviation c. upper limit rate of deviation; tolerable rate of deviation d. tolerable rate of deviation; expected population deviation rate

c. upper limit rate of deviation; tolerable rate of deviation

In a test of controls, auditors may trace receiving reports to vouchers recorded in the voucher register. This is a test for a.Cutoff. b.Classification. c.Completeness. d. Occurrence.

c.Completeness.

Which of the following sampling risks does the audit team control in an attributes sampling application (ROO = risk of overreliance, ROU = risk of underreliance)? ROO/ ROU a.YesYes b.NoYes c.YesNo d.NoNo

c.YesNo

When confirming accounts payable, emphasis should be put on what kind of accounts? a. Accounts listed in the accounts payable subsidiary b. Accounts with large balances c. All accounts should be equally emphasized. d. Accounts with small or zero balances from known suppliers.

d. Accounts with small or zero balances from known suppliers.

If the sample evidence does not support the planned level of control risk, the audit team could a. Increase the assessed level of control risk. b. Perform additional substantive procedures, reducing the necessary level of detection risk. c. Expand the sample to achieve an observed upper limit rate of deviation less than the tolerable rate of deviation. d. All of the choices are acceptable.

d. All of the choices are acceptable.

What does the auditor need to document when there is substantial doubt that a client will continue as a going concern? a. The conditions or events that suggest there is a going concern uncertainty. b. Management's plan (or lack thereof) to mitigate the conditions and to continue as a going concern. c. The auditor's conclusion on whether, after evaluating management's plan, substantial doubt exists regarding the company's ability to continue as a going concern and whether any report modifications are needed. d. All of the choices are correct.

d. All of the choices are correct.

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables? a. Contrast the ratio of accounts payable to purchases with the prior year's ratio. b. Vouch a sample of creditor balances to supporting invoices, receiving reports, and purchase orders. c. Reconcile receiving reports with related cash payments made just prior to year-end. d. Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.

d. Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.

Which of the following substantive procedures should auditors ordinarily perform regarding subsequent events? a. Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests. b. Communicate material weaknesses in internal control to the client's audit committee. c. Review the cutoff bank statements for several months after the date of the financial statements. d. Compare the latest available interim financial statements with the financial statements being audited.

d. Compare the latest available interim financial statements with the financial statements being audited.

For which of the following accounts would the matching concept be the most appropriate? a. Depreciation expense. b. Research and development. c. Sales. d. Cost of goods sold.

d. Cost of goods sold.

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? a. Examine a sample of invoices a few days prior to and subsequent to the year-end to ascertain whether they have been properly recorded. b. Examine confirmation requests returned by creditors whose accounts are on a subsidiary trial balance of accounts payable. c. Examine unusual relationships between monthly accounts payable and recorded purchases. d. Examine a sample of cash disbursements in the period subsequent to year-end.

d. Examine a sample of cash disbursements in the period subsequent to year-end.

If auditors are appointed on January 3, 2020, the date of the financial statements is December 31, 2020, the date of the auditors' report is February 7, 2021, and the audit report release date is March 3, 2021, what is the appropriate date of the written representations? a. March 3, 2021 b. January 3, 2020 c. December 31, 2020 d. February 7, 2021

d. February 7, 2021

A major objective of written representations is to a. Provide a substitute source of audit evidence for substantive procedures that auditors would otherwise perform. b. Provide management an opportunity to make assertions about the quantity and valuation of the physical inventory. c. Shift responsibility for financial statements from the management to auditors. d. Impress on management its ultimate responsibility for the financial statements and disclosures.

d. Impress on management its ultimate responsibility for the financial statements and disclosures.

Which of the following substantive procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events? a. Confirm bank accounts established after the date of the financial statements. b. Send confirmations to vendors with whom the client normally does business but for which no balance in accounts payable is noted. c. Recompute a sample of large-dollar transactions occurring after the date of the financial statements for arithmetic accuracy. d. Investigate changes in shareholders' equity occurring after the date of the financial statements.

d. Investigate changes in shareholders' equity occurring after the date of the financial statements.

When verifying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchase a.Orders. b.Requisitions. c. Approvals. d. Invoices.

d. Invoices.

Which of the following is not true with regard to the relationship among control risk, the risk of overreliance, and the tolerable rate of deviation? a. All of the options are correct. b. Lower levels of control risk result in a lower tolerable rate of deviation. c. Lower levels of the risk of overreliance result in a lower tolerable rate of deviation. d. Lower levels of control risk result in a higher level of the risk of overreliance.

d. Lower levels of control risk result in a higher level of the risk of overreliance.

Hall accepted an engagement to audit the year 1 financial statements of XYZ Company. XYZ completed the preparation of the year 1 financial statements on February 13, year 2, and its auditors began the fieldwork on February 17, year 2. Hall completed gathering sufficient appropriate evidence on March 24, year 2; Hall's report and XYZ's financial statements were released on March 28, year 2. The written representations normally would be dated a. February 13, year 2. b. March 28, year 2. c. February 17, year 2. d. March 24, year 2.

d. March 24, year 2.

The scope of an audit is not restricted when an attorney letter limits the response to a. An evaluation of the likelihood of an unfavorable outcome of the matters disclosed by the entity. b. The attorney's opinion of the entity's historical experience in recent similar litigation. c. The probable outcome of asserted claims and pending or threatened litigation. d. Matters to which the attorney has given substantive attention in the form of legal representation.

d. Matters to which the attorney has given substantive attention in the form of legal representation.

What is an auditor's evaluation of a statistical sample for attributes when a test of 100 documents results in 4 deviations if the tolerable rate of deviation is 5%, the expected population deviation rate is 3%, and the allowance for sampling risk is 2%? a. Accept the sample results as support for planned reliance on the control because the tolerable rate of deviation less than allowance for sampling risk equals the expected population deviation rate. b. Modify planned reliance on the control because the tolerable rate of deviation plus the allowance for sampling risk exceeds the expected population deviation rate. c. Accept the sample results as support for planned reliance on the control because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation. d. Modify planned reliance on the control because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

d. Modify planned reliance on the control because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation

For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written. Engagement letter a. Following the date of the auditors' report; Either oral or written b. Prior to or at the date of the auditors' report, Written c. Either following the date of the auditors' report or as significant matters are identified, Written d. Prior to the engagement, Written

d. Prior to the engagement, Written

Budd, the purchasing agent of Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a cash-on-delivery (C.O.D) basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this because of Lake's poor internal control over? a. Purchase requisitions. b. Cash receipts. c. Perpetual inventory records. d. Purchase orders.

d. Purchase orders.

What evidence is appropriate to determine whether recorded purchase transactions are valid and the vendors charged the correct prices? a. Purchase requisitions and accounts payable entries b. Purchase requisitions and purchases orders c. Purchase orders and bid quotes d. Receiving reports and purchase orders

d. Receiving reports and purchase orders

To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all a. Canceled checks. b. Purchase orders. c. Vendors' invoices. d. Receiving reports.

d. Receiving reports.

Which of the following normally occurs earliest in the audit examination? a. Dual dating the auditor's report on the entity's financial statements for subsequent events that exist at the date of the financial statements. b. Preparation of the management letter. c. Discovery of an omitted audit procedure. d. Review of audit documentation.

d. Review of audit documentation.

An audit plan for accounts payable would not include which of the following procedures? a. Sending confirmation to accounts with zero balances b. Obtaining a trial balance of recorded accounts payable c. Obtaining written client representations about related-party payables and pledges of assets as collateral for liabilities d. Reviewing cash receipts for the period after year-end.

d. Reviewing cash receipts for the period after year-end.

Which of the following best describes the method of determining the ULRD? a. Expected population deviation rate + Allowance for sampling risk. b. Tolerable rate of deviation + Allowance for sampling risk. c. Risk of underreliance + Allowance for sampling risk. d. Sample rate of deviation + Allowance for sampling risk.

d. Sample rate of deviation + Allowance for sampling risk.

n which of the following circumstances would the audit team most likely use attributes sampling? a. Selecting additions to property, plant, and equipment during the year. b. Selecting inventory items for verification of physical quantities. c. Selecting customer accounts receivable for confirmation. d. Selecting purchase orders for indication of proper authorization.

d. Selecting purchase orders for indication of proper authorization.

Which of the following is true with respect to the use of sequential sampling when used with attributes sampling? a. Sequential sampling is normally used when expected deviations occur at a relatively low rate in the population. b. Sequential sampling will always provide auditors with the smallest final sample size for a given set of sampling parameters. c. Sequential sampling is normally used when the audit team wishes to place greater reliance on internal control. d. Sequential sampling may provide a more efficient sample size than the use of traditional attributes sampling.

d. Sequential sampling may provide a more efficient sample size than the use of traditional attributes sampling.

An audit firm is testing controls within the purchasing cycle. In which of the following procedures would the firm most likely apply sampling techniques? a. Tests of automated application controls involving check amount limits when effective information technology general controls are present. b. Analyses of controls to determine the appropriate segregation of duties in the purchasing cycle. c. Risk assessment procedures performed to obtain an understanding of internal control in the purchasing cycle. d. Testing of operating effectiveness of controls over authorization of purchase orders.

d. Testing of operating effectiveness of controls over authorization of purchase orders.

The auditing standards regarding subsequently discovered facts refers to knowledge obtained after a. The date interim audit work was complete. b. The date the fieldwork began. c. The date of the financial statements. d. The date of the auditor's report.

d. The date of the auditor's report.

Which of the following best describes the role of analytical procedures near the end of the audit engagement? a. To gather evidence to support one or more assertion(s) related to the account balance or class of transactions. b. To identify possible deficiencies in the client's internal control over financial reporting. c. To identify accounts that appear to be misstated with the intention of planning the nature, timing, and extent of other substantive procedures. d. To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement.

d. To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement.

A large retail enterprise has established a policy that requires the paymaster to deliver all unclaimed payroll checks to the internal audit department at the end of each payroll distribution day. This policy was most likely adopted to a. ensure that employees who were absent on a payroll distribution day are not paid for that day. b. prevent a bona fide employee's check from being claimed by another employee. c. prevent the paymaster from cashing checks that are unclaimed for several weeks. d. detect any fictitious employee who may have been placed on the payroll.

d. detect any fictitious employee who may have been placed on the payroll.

The purpose of tests of controls is to determine that: a. the extent of further audit procedures can be reduced. b. the auditor has an understanding of internal control. c. errors and irregularities are prevented or detected in a timely manner. d. internal control policies and procedures are functioning as prescribed.

d. internal control policies and procedures are functioning as prescribed.

Auditors may conclude that depreciation charges are too small by noting a. insured values much larger than book values. b. large numbers of fully depreciated assets. c. frequent trade-ins of relatively new assets. d. large and frequent losses on assets retired.

d. large and frequent losses on assets retired.