Fin Audit
In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also:
Is responsible for mailing the checks.
Under SEC rules, which of the following is not among the criteria that ordinarily exist for revenue to be recognized?
Delivery has occurred or is scheduled to occur in the near future.
The auditors suspect that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the:
Details of bank deposit slips with details of credits to customer accounts.
In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the:
Efficiency of the audit.
Kiting would least likely be detected by:
tracing each day's total deposits from the cash receipts journal to the cash account.
Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees?
A bank lockbox system.
The auditors' primary objective in selecting a sample of items from an audit population is to obtain:
A representative sample.
To test the existence assertion for recorded receivables, the auditors would select a sample from the:
Accounts receivable subsidiary ledger.
The auditors who physically examine securities should insist that a client representative be present in order to:
Acknowledge the receipt of securities returned.
Hall Company had large amounts of funds to invest on a temporary basis. The board of directors decided to purchase securities and derivatives and assigned the future purchase and sale decisions to a responsible financial executive. The best person or persons to make periodic reviews of the investment activity would be:
An investment committee of the board of directors.
The auditors should confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low:
And accounts receivable are immaterial, or the use of confirmations would be ineffective
Which of the following would provide the most assurance concerning the valuation of accounts receivable?
Assess the allowance for uncollectible accounts for reasonableness.
Sampling that reaches a conclusion about a population in terms of a rate of occurrence is:
Attributes sampling.
Which of the following statistical sampling techniques is least desirable for use by the auditors?
Block selection.
Assume Customers are saying they owe a smaller amount than that on the confirmation? This is consistent with:
Cash receipts journal held open after year end. Sales journal closed prior to year end. None is correct.
On receiving the bank cutoff statement, the auditor should trace:
Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation, to ensure they are included on that list
Which of the following is an element of sampling risk?
Choosing an audit procedure that is inconsistent with the audit objective
Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices?
Completeness.
You have been assigned to the year-end audit of a financial institution and are planning the timing of audit procedures relating to cash. You decide that it would be preferable to:
Coordinate the count of cash with the count of marketable securities and other negotiable assets.
To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except:
General ledger.
This year the audit plan, as compared to the prior year, includes a lower risk of assessing control risk too low. Other factors held constant, which of the following is most likely to be correct relating to the planned risk of incorrect acceptance for substantive procedures?
Higher than prior year.
In attributes sampling, what effect does a decrease in the tolerable deviation rate have on sample size?
Increase.
Which of the following would most likely be detected by an auditor's review of the client's
Inflated sales for the year.
Which of the following is the risk that audit tests will not uncover existing exceptions in a sample?
Nonsampling risk
Which of the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?
Observe the consistency of the employees' use of cash registers and tapes.
Which of the following is least likely to be considered an inherent risk relating to receivables and revenues?
Over-recorded sales due to a lack of control over the sales entry function.
Reconciliation of the bank account should not be performed by an individual who also:
Processes cash disbursements.
Which of the following is most likely to be an example of fraudulent financial reporting relating to sales?
Recording sales when the customer is likely to return the goods.
In order to guard against the misappropriation of company-owned marketable securities, which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities?
Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent.
Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely:
Send positive confirmation requests.
Which audit procedures might identify a possible cutoff error on cash receipt:
Sending accounts receivable confirmations. Sending bank confirmations. Trace remittance advice to cash receipts journal.
Which audit procedures might identify a possible cutoff error on sales :
Sending accounts receivable confirmations. &Tracing sales journal to sales invoices or shipping documents
To determine that all sales have been recorded, the auditors would select a sample of transactions from the:
Shipping documents file.
To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is:
Stamped "paid" by the check signer.
Discovery sampling is particularly effective when:
The auditors are looking for critical deviations that are not expected to be frequent in number.
Which of the following would be least likely to diminish the validity of evidence obtained from confirmation of accounts receivable?
The confirmations are sent on the client's letterhead.
In which of the following circumstances is it least likely that tests of controls will be performed?
The expected deviation rate exceeds the tolerable deviation rate.
Which of the following is an example of misappropriation of assets relating to sales?
Theft of cash register sales.
Which of the following is accurate regarding tolerable misstatement?
Tolerable misstatement is directly related to materiality.
The best way to verify the amounts of dividend revenue received during the year is:
Verification by reference to dividend record books.
Identify the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable:
Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence.
By preparing a bank reconciliation at year end, an auditor will generally be able to detect:
an unrecorded check written at the beginning of the month which was cashed during the period covered by the reconciliation.
In attributes sampling, what effect does an increase in the acceptable risk of assessing control risk too low have on sample size?
Decrease.
What effect on sample size does increasing the allowable risk of incorrect acceptance have for a substantive test?
Decrease.
