AUD 3

Question 1

what is inventory turnover?

Answer 1

Beginning Inventory plus purchases = goods available for sale minus Cost of goods sold = Ending Inventory

Question 2

what is inventory turnover?

Answer 2

Cost of goods sold divided by average inventory

Question 3

What is sample deviation rate?

Answer 3

[n] errors in a sample ÷ [n] of items

Question 4

When are customers invoiced?

Answer 4

Customers are invoiced when good are shipped.

Question 5

Is an auditor concerned with assessing control risk too high.

Answer 5

No. An auditor is concerned with assessing control risk too low.

Question 6

What is the unit in a test of controls pertaining to the existence of payroll transactions?

Answer 6

The sampling unit pertaining to the test of existence of payroll transactions is a payroll register entry.

Question 7

The phrase “we are not aware of any material modifications that should be made to the accompanying financial statements” is found in what type of report?

Answer 7

It is found in a compilation report in accordance with the SSARS (Statements on Standards for Accounting and Review Services.

Question 8

What does the auditor control regarding probablility-proportional-to-size sampling?

Answer 8

The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.

Question 9

What is the essences of a financial projection review, and can it be used without restrictions?

Answer 9

the financial projection review is based on hypothetical circumstances, and should not be used without restrictions. (i.e. initial public offering IPO)

Question 10

Can an auditor obtain at the same time information regarding the effectiveness of both the design and operation of control ativities?

Answer 10

Yes, an auditor may asses control risk by obtaining audit evidence about the effectiveness of both the design and operation of control activities that supports a lower assessed level of control risk for some assertions.

Question 11

What statements should be in a practioner’s agreed-upon procedures report?

Answer 11

The agreed-upon procedures report should include a statement restricting the report to specified parties, an identification of the responsible party, and a statement that the procedures performed were agreed to by the specified parties. The report should not include any form of limited or negative assurance, opinion, or representation regarding the sufficiency of the procedures.

Question 12

What does Sarbanes-Oxley Section 404 require?

Answer 12

Section 404 requires that an internal control report be filed with each annual report. Management must acknowledge responsibility for establishing and maintaining adequate internal control.

Question 13

What does Sarbanes-Oxley Section 406 require?

Answer 13

Section 406 of Title IV of the Sarbanes-Oxley Act (SOX) dictates that each issuer disclose whether or not they have adopted a code of ethics for senior financial officers. Any change in or waiver of the code of ethics for senior financial officers requires immediate disclosure.

Question 14

What does Sarbanes-Oxley Section 402 require?

Answer 14

Section 402 of Title IV of the Sarbanes-Oxley Act (SOX) dictates that it is unlawful for any issuer to extend or maintain credit in the form of a personal loan to or for any director or executive officer of that issuer.

Question 15

What does Sarbanes-Oxley Section 403 require?

Answer 15

Section 403 requires disclosures from a person who is directly or indirectly a beneficial owner of more than 10% of any class of any security registered pursuant to Section 12 of the Securities Exchange Act of 1934.

Question 16

What does Section 407 of the Sarbanes-Oxley act state?

Answer 16

Section 407 of the Sarbanes-Oxley Act (SOX) dictates that each issuer disclose whether or not the audit committee is comprised of at least one member who is a financial expert.

Financial experts are persons who:

have an understanding of GAAP and financial statements,
are experienced in the preparation or auditing of financial statements and the application of accounting principles,
are experienced with internal accounting controls, and
have an understanding of audit committee functions.

Question 17

What is kiting?

Answer 17

Kiting is the practice of covering a defalcation of cash by transferring money from one bank to another and improperly recording the transaction.

Question 18

Threats to independence according to the GAO

Answer 18

The Government Accountability Office (GAO) has identified seven types of circumstances that could lead to threats of independence:

    Self-interest
    Self-review
    Bias
    Familiarity
    Undue influence
    Management participation
    Structural threats

Question 19

Accounts receivable Turnover =

Answer 19

Net credit sales ÷ Arg. accounts receivable

Question 20

Avg. days to collect A/R =

Answer 20

Days in year / Accounts receivable turnover