AUD 4.8 - Misstatements And Internal Control Deficiencies

Question 1

Matters that are inconsequential both individually and in aggregate and when judged by any criteria of size, nature, or circumstance

Answer 1

Clearly trivial matters

Question 2

If at the auditors request, management corrected misstatements that were detected, the auditor should:

Answer 2

Perform additional audit procedures to determine whether misstatements remain

Question 3

If management does not make the recommended entries and the auditor determines the incorrected errors are not material in aggregate, the auditor should:

Answer 3

Document the errors in the summary of incorrect Ed errors and document the conclusion that the errors do not cause the financials to be misstated

Question 4

A deficiency or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the entity’s financials will not be prevented, detected, o corrected on a timely basis:

Answer 4

Material weakness

Question 5

Identification of a material misstatement that would not have been detected by the entity’s internal control is an indicator of:

Answer 5

Material weakness

HOWEVER, THE REVERSE DOES NOT MEAN THE FINANCIALS ARE MATERIALLY MISSTATED

Question 6

Assets have what natural balance?
Liabilities and stockholders equity have what natural balance?
Sales have what natural balance?
Expenses have what natural balance?

Answer 6

Debit
Credit
Credit
Debit

Question 7

If sales made on account are overstated, this means the auditor thinks:

Answer 7

Sales and accounts receivable are too large

Question 8

If sales made on account are overstated, what correcting entry must be made?

Answer 8

Debit Sales
Credit AR

Question 9

If the client is the buyer and items are shipped to them FOB Shipping Point, the items should be included in the clients inventory when?

If the client is the buyer and items are shipped to them FOB Destination, the items should be included in the clients inventory when?

Answer 9

1. As soon as the items are with the carrier
2. As soon as the items reach the destination

Question 10

If the client is the seller and items are shipped to them FOB Shipping Point, the items should be excluded in the clients inventory when?

If the client is the seller and items are shipped to them FOB Destination, the items should be excluded in the clients inventory when?

Answer 10

1. When the items are with the carrier
2. When the items reach their destination

Question 11

In perpetual inventory system, the journal entry to record sale of inventory is:

Answer 11

Debit cash or AR
Credit Sales

Debit COGS
Credit Inventory

Question 12

In a periodic inventory system, what is the entry to record a sale?

Answer 12

Debit Cash or AR
Credit Sales

AT END OF PERIOD TO ADJUST COGS:
Debit COGS
Credit Inventory

Question 13

Formula to calculate cost of goods sold (which is adjusted at period end) is:

Answer 13

Beginning inventory
+ Purchases
= COGAFS
- Ending Inventory
= COGS

Question 14

If the client is the consignee (holding another company’s goods), the inventory should be included or secluded from the clients financials?

Answer 14

Excluded

Question 15

If the client is the consignor (goods are held by another company), the inventory should be included or secluded from the clients financials?

Answer 15

Included