A4 Flashcards
In auditing accounts receivable, the negative form of confirmation request most likely would be used when:
A.
The combined assessed level of inherent risk and control risk relative to accounts receivable is low.
B.
The total recorded amount of accounts receivable is immaterial to the financial statements taken as a whole.
C.
Response rates in prior years to properly designed positive confirmation requests were inadequate.
D.
Recipients are likely to return positive confirmation requests without verifying the accuracy of the information.
Choice “A” is correct. Negative confirmations are most likely to be used when the assessed level of audit risk, including inherent and control risk, is low.
Which of the following functions represents a weakness in internal control related to cash disbursements?
A.
After the checks are mailed, the Treasurer returns the voucher packages to the accounts payable department for cancellation of the voucher and filing of the documents.
B.
Voucher packages are prepared and approved by the accounts payable department and then forwarded to the Treasurer for payment.
C.
The general accounting department posts the payments to the general ledger after receiving the paid vouchers.
D.
The Treasurer receives the unpaid voucher packages and then prepares, signs, and mails the checks.
A. Correct. The treasurer cancels the voucher and keeps the return vouchers
An auditor is in the process of performing substantive procedures on a client’s accounts payable. In order to test the existence and occurrence assertion, the auditor would most likely perform which of the following auditing procedures?
A.
Select a sample of vendor statements and agree amounts to the vendor accounts.
B.
Select cash disbursements made subsequent to year-end and examine supporting documentation to determine if applicable to the prior balance sheet date.
C.
Review a sample of voucher packages for the presence of a purchase requisition or receiving report to determine accounts payable ownership.
D.
Vouch selected amounts from the accounts payable listing to the client’s voucher packages.
D. Correct, from GL to the supporting documents. Proves existence
On receiving a client’s bank cutoff statement, an auditor most likely would trace:
A.
Prior-year checks listed in the cutoff statement to the year-end outstanding checklist.
B.
Deposits in transit listed in the cutoff statement to the year-end bank reconciliation.
C.
Checks dated after year-end listed in the cutoff statement to the year-end outstanding checklist.
D.
Deposits recorded in the cash receipts journal after year-end to the cutoff statement.
Choice “A” is correct. The auditor should obtain bank cutoff statements that include transactions for 10 to 15 days after year-end. The outstanding checks and deposits in transit at year-end on the bank reconciliation should agree with the information in the bank cutoff statement.
For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the:
A.
Accounts payable accountant.
B.
Internal auditor.
C.
Accounts receivable accountant.
D.
Controller.
Choice “B” is correct. The internal auditor generally is independent of other functions relating to cash.
The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may:
A.
Sign and return the form without inspecting the accuracy of the client’s bank reconciliation.
B.
Not have access to the client’s cutoff bank statement.
C.
Be unaware of all the financial relationships that the bank has with the client.
D.
Not believe that the bank is obligated to verify confidential information to a third party.
Choice “C” is correct. A bank employee may not have access to all information about transactions with the audit client and thus may be unaware of all the financial relationships the bank has with the client.
The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the:
A.
Administrative controls from the internal accounting controls.
B.
Authorization of transactions from the custody of related assets.
C.
Human resources function from the controllership function.
D.
Operational responsibility from the recordkeeping responsibility.
Choice “B” is correct. The purpose of segregating the duties of hiring personnel (personnel department/human resources) and distributing payroll checks (treasurer’s department) is to separate the authorization of transactions (hiring, pay rates, etc. are authorized by the personnel department/human resources) from the custody of related assets (cash or checks are held in the treasurer’s department).
Which of the following statements concerning an auditor’s communication of significant deficiencies identified during the financial statement audit of a nonissuer is correct?
A.
Significant deficiencies discovered and communicated at an interim date should be reexamined with tests of controls before completing the engagement.
B.
Suggestions concerning administration efficiencies and business strategies should not be communicated in the same report with significant deficiencies.
C.
Any report issued on significant deficiencies should indicate that providing assurance on internal control was not the purpose of the audit.
D.
The auditor should request a meeting with management one level above the source of the significant deficiencies to discuss suggestions for remedial action.
C. Choice “C” is correct. Any report issued on significant deficiencies should indicate that providing assurance on internal control was not the purpose of the audit.
Which of the following matters would an auditor most likely consider to be a significant deficiency in internal control to be communicated to management and those charged with governance?
A.
Recurring operating losses that may indicate going concern problems.
B.
Evidence of a lack of objectivity by those responsible for accounting decisions.
C.
Management’s current plans to reduce its ownership equity in the entity.
D.
Management’s failure to renegotiate unfavorable long-term purchase commitments.
Choice “B” is correct. A lack of objectivity by those responsible for accounting decisions represents a significant internal control deficiency because it may result in financial statements that are biased rather than being presented fairly. This is a matter that would merit attention by those charged with governance.
Which of the following statements is correct concerning significant deficiencies in internal control with respect to a financial statement audit of a nonissuer?
A.
An auditor is required to search for significant deficiencies during an audit.
B.
All significant deficiencies are also considered to be material weaknesses.
C.
An auditor may report that no significant deficiencies were noted during an audit.
D.
An auditor may communicate significant deficiencies during an audit or after the audit’s completion.
Choice “D” is correct. Because timely communication may be important, the auditor may choose to communicate significant deficiencies during the course of the audit rather than after the audit is concluded.
