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Class Questions Flashcards

1
Q

Lecture 1.05

  1. Which of the following best describes what is meant by the term generally accepted auditing standards for a PCAOB audit?
    a. Rules acknowledged by the accounting profession because of their universal application.
    b. Pronouncements issued by the Auditing Standards Board.
    c. Measures of the quality of the auditor’s performance.
    d. Procedures to be used to gather evidence to support financial statements.
A

Lecture 1.05

  1. Which of the following best describes what is meant by the term generally accepted auditing standards for a PCAOB audit?
    c. Measures of the quality of the auditor’s performance.
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2
Q

Lecture 1.05

  1. To exercise due professional care an auditor should
    a. Critically review the judgment exercised by those assisting in the audit.
    b. Examine all available corroborating evidence supporting management’s assertions.
    c. Design the audit to detect all instances of noncompliance (illegal acts).
    d. Attain the proper balance of professional experience and formal education.
A

Lecture 1.05

  1. To exercise due professional care an auditor should
    a. Critically review the judgment exercised by those assisting in the audit.
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3
Q

Lecture 1.05

  1. Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

a. Objective judgment.
b. Independent integrity.
c. Professional skepticism.
d. Impartial conservatism.

A

Lecture 1.05

  1. Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of
    c. Professional skepticism.
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4
Q

Lecture 1.08

  1. Before accepting an engagement to audit a new client, a CPA is required to obtain
    a. An understanding of the prospective client’s industry and business.
    b. The prospective client’s signature to the engagement letter.
    c. A preliminary understanding of the prospective client’s control environment.
    d. The prospective client’s consent to make inquiries of the predecessor auditor, if any.
A

Lecture 1.08

  1. Before accepting an engagement to audit a new client, a CPA is required to obtain
    d. The prospective client’s consent to make inquiries of the predecessor auditor, if any.
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5
Q

Lecture 1.08

  1. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor’s
    a. Opinion of any subsequent events occurring since the predecessor’s audit report was issued.
    b. Understanding as to the reasons for the change of auditors.
    c. Awareness of the consistency in the application of GAAP between periods.
    d. Evaluation of all matters of continuing accounting significance.
A

Lecture 1.08

  1. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor’s
    b. Understanding as to the reasons for the change of auditors.
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6
Q

Lecture 1.08

  1. An auditor would least likely initiate a discussion with those charged with governance of an audit client concerning
    a. The methods used to account for significant unusual transactions.
    b. The maximum dollar amount of misstatements that could exist without causing the financial statements to be materially misstated.
    c. Indications of fraud and noncompliance committed by a corporate officer that were discovered by the auditor.
    d. Disagreements with management as to accounting principles that were resolved during the current year’s audit.
A

Lecture 1.08

  1. An auditor would least likely initiate a discussion with those charged with governance of an audit client concerning
    d. Disagreements with management as to accounting principles that were resolved during the current year’s audit.
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7
Q

Lecture 1.10

  1. During the initial planning phase of an audit, a CPA most likely would
    a. Identify specific internal control activities that are likely to prevent fraud.
    b. Evaluate the reasonableness of the client’s accounting estimates.
    c. Discuss the timing of the audit procedures with the client’s management.
    d. Inquire of the client’s attorney as to whether any unrecorded claims are probable of assertion.
A

Lecture 1.10

  1. During the initial planning phase of an audit, a CPA most likely would
    c. Discuss the timing of the audit procedures with the client’s management.
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8
Q

Lecture 1.10

  1. Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
    a. Inquiring of the client’s legal counsel concerning pending litigation.
    b. Comparing the financial statements to anticipated results.
    c. Examining computer-generated exception reports to verify the effectiveness of internal control.
    d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.
A

Lecture 1.10

  1. Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
    b. Comparing the financial statements to anticipated results.
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9
Q

Lecture 1.13

  1. As the acceptable level of detection risk decreases, the assurance directly provided from

a. Substantive tests should increase.
b. Substantive tests should decrease.
c. Tests of controls should increase.
d. Tests of controls should decrease.

A

Lecture 1.13

  1. As the acceptable level of detection risk decreases, the assurance directly provided from
    a. Substantive tests should increase.
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10
Q

Lecture 1.13

  1. Which of the following audit risk components may be assessed in nonquantitative terms?
Control Risk (CR)
Detection Risk (DR) 
Inherent Risk (IR)
A

Lecture 1.13

  1. Which of the following audit risk components may be assessed in nonquantitative terms?
Control Risk (CR)
Detection Risk (DR) 
Inherent Risk (IR)

Control Risk and Inherent Risk may be assessed in nonquantitative terms.

CR and IR are components of RMM - The risk of material misstatement.
RMM and Detection Risk (DR) are components of Audit Risk (AR)
All maybe assessed in quantitative or nonquantitative terms.

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11
Q

Lecture 1.13

  1. Which of the following are conditions that make up the fraud triangle?

Rationalization
Opportunity
Motivation

A

Lecture 1.13

  1. Which of the following are conditions that make up the fraud triangle?

Rationalization
Opportunity
Motivation

The Association of Certified Fraud Examiners has identified 3 characteristics necessary for a fraud scheme to be successful (fraud triangle)

Rationalization
Opportunity
Motivation

If one of these conditions does not exist, it is not likely that the fraudulent act will be successful.

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12
Q

Lecture 1.13

  1. If an auditor discovers fraud that they consider immaterial, to whom should they report this?

a. Report the fraud to those charged with governance.
b. Report the fraud directly to the Public Company Oversight Board.
c. Report the fraud to management at least one level below those involved in the fraud.
d. Not report it to anyone as it is considered immaterial.

A

Lecture 1.13

  1. If an auditor discovers fraud that they consider immaterial, to whom should they report this?
    a. Report the fraud to those charged with governance.

There is no materiality threshold in determining the suspicion of fraud. Auditor must communicated to those charged with governance, such as the audit committee.

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13
Q

Lecture 1.13

  1. The nature and extent of a CPA firm’s quality control policies and procedures depend on:

The CPA firm’s size
The nature of the CPA firm’s practice
Cost benefit considerations

A

Lecture 1.13

  1. The nature and extent of a CPA firm’s quality control policies and procedures depend on:

(All 3)

The CPA firm’s size
The nature of the CPA firm’s practice
Cost benefit considerations

A CPA firm is required to maintain a system of quality control to assure that it is complying with all applicable standards.

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14
Q

Lecture 2.06

  1. According to the standards of the profession, which of the following circumstances will prevent a CPA performing audit engagements from being independent?
    a. Obtaining a collateralized automobile loan from a financial institution client.
    b. Litigation with a client relating to billing for consulting services for which the amount is immaterial.
    c. Employment of the CPA’s spouse as a client’s director of internal audit.
    d. Acting as an honorary trustee for a not-for-profit organization client.
A

Lecture 2.06

  1. According to the standards of the profession, which of the following circumstances will prevent a CPA performing audit engagements from being independent?
    c. Employment of the CPA’s spouse as a client’s director of internal audit.

a) A collateralize automobile loan is a normal transaction for a financial institution and, provided the terms are comparable to those offered to other customers, such a loan would not impair an auditor’s independence
b) Although litigation with a client might generally impair an auditor’s Independence, that would not be the case if it is immaterial.
d) Not-for-profit organizations often name individuals as honorary trustees in order to add credibility to the organization or attract supporters. However, the CPA is not assuming management responsibilities and is not involved in governance, independence would not impaired.
c) Independence might be impaired if a CPA’s spouse is the director of the audit client’s internal audit function. The CPA may inclined, for example, to accept the results of work done by the client’s internal auditors without the same level of due diligence that might be applied if the auditor had no relationship with the director.

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15
Q

Lecture 2.06

  1. Which of the following reports may be issued only by an accountant who is independent of a client?
    a. Standard report on an examination of a financial forecast.
    b. Report on consulting services.
    c. Compilation report on historical financial statements.
    d. Compilation report on a financial projection.
A

Lecture 2.06

  1. Which of the following reports may be issued only by an accountant who is independent of a client?
    a. Standard report on an examination of a financial forecast.

a) An engagement to report on an examination of financial forecast is an attest engagement that is also an assurance engagement, requiring the auditor to be independent.
b) An auditor is not required to be independent to perform a nonattest engagement, such as a consulting engagement.

c) and d)
Compilation are not assurance engagements, whether they are compilations of historical financial statements or financial projections.
An accountant may perform a compilation engagement despite a lack of Independence as long as the lack of independence is clearly indicated in the compilation report.

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16
Q

Lecture 2.06

  1. Which of the following statements is correct regarding an accountant’s working papers?
    a. The accountant owns the working papers and generally may disclose them as the accountant sees fit.
    b. The client owns the working papers but the accountant has custody of them until the accountant’s bill is paid in full.
    c. The accountant owns the working papers but generally may not disclose them without the client’s consent or a court order.
    d. The client owns the working papers but, in the absence of the accountant’s consent, may not disclose them without a court order.
A

Lecture 2.06

  1. Which of the following statements is correct regarding an accountant’s working papers?
    c. The accountant owns the working papers but generally may not disclose them without the client’s consent or a court order.
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17
Q

Lecture 2.06

  1. According to the ethical standards of the profession, which of the following acts is generally prohibited?
    a. Issuing a modified report explaining a failure to follow a governmental regulatory agency’s standards when conducting an attest service for a client.
    b. Revealing confidential client information during a quality review of a professional practice by a team from the state CPA society.
    c. Accepting a contingent fee for representing a client in an examination of the client’s federal tax return by an IRS agent.
    d. Retaining client records after an engagement is terminated prior to completion and the client has demanded their return.
A

Lecture 2.06

  1. According to the ethical standards of the profession, which of the following acts is generally prohibited?
    d. Retaining client records after an engagement is terminated prior to completion and the client has demanded their return.
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18
Q

Lecture 2.06

  1. According to the ethical standards of the profession, which of the following acts is generally prohibited?
    a. Purchasing a product from a third party and reselling it to a client.
    b. Writing a financial management newsletter promoted and sold by a publishing company.
    c. Accepting a commission for recommending a product to an audit client.
    d. Accepting engagements obtained through the efforts of third parties.
A

Lecture 2.06

  1. According to the ethical standards of the profession, which of the following acts is generally prohibited?
    c. Accepting a commission for recommending a product to an audit client.
19
Q

Lecture 2.06

  1. Which of the following services may a CPA perform in carrying out a consulting service for a client?

I. Analysis of the client’s accounting system.
II. Review of the client’s prepared business plan.
III. Preparation of information for obtaining financing.

a. I and II only.
b. I and III only.
c. II and III only.
d. I, II, and III.

A

Lecture 2.06

  1. Which of the following services may a CPA perform in carrying out a consulting service for a client?

I. Analysis of the client’s accounting system.
II. Review of the client’s prepared business plan.
III. Preparation of information for obtaining financing.

d. I, II, and III.

20
Q

Lecture 2.06

  1. Per the Sarbanes Oxley act (SOX) title ll, which of the following non-audit services to audit clients, are not prohibited from being performed by a registered public accounting firm?

a. Bookkeeping services.
b. Appraisal or valuation services.
c. Internal audit services.
d. Tax services.

A

Lecture 2.06

  1. Per the Sarbanes Oxley act (SOX) title ll, which of the following non-audit services to audit clients, are not prohibited from being performed by a registered public accounting firm?
    d. Tax services.
21
Q

Lecture 2.06

  1. The profession’s ethical standards most likely would be considered to have been violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representations that the
    a. Actual fee would be substantially higher.
    b. Actual fee would be substantially lower than the fees charged by other CPAs for comparable services.
    c. CPA would not be independent.
    d. Fee was a competitive bid.
A

Lecture 2.06

  1. The profession’s ethical standards most likely would be considered to have been violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representations that the
    a. Actual fee would be substantially higher.
22
Q

Lecture 2.06

  1. According to the profession’s standards, which of the following statements is correct regarding the standards a CPA should follow when recommending tax return positions and preparing tax returns?
    a. A CPA may recommend a position that the CPA concluded is frivolous as long as the position is adequately disclosed on the return.
    b. A CPA may recommend a position in which the CPA has a good faith belief that the position has substantial authority in favor of its being sustained if challenged.
    c. A CPA will usually not advise the client of the potential penalty consequences of the recommended tax return position.
    d. A CPA may sign a tax return as preparer knowing that the return takes a position that will not be sustained if challenged.
A

Lecture 2.06

  1. According to the profession’s standards, which of the following statements is correct regarding the standards a CPA should follow when recommending tax return positions and preparing tax returns?
    b. A CPA may recommend a position in which the CPA has a good faith belief that the position has substantial authority in favor of its being sustained if challenged.
23
Q

Lecture 2.08

  1. According to the AICPA Code of Professional Conduct, which of the following activities results in an act discreditable to the profession?
    a. A CPA solicits recent Uniform CPA Examination questions without written authorization from the AICPA.
    b. A CPA signs a document containing immaterial false and misleading information, or permits or directs another CPA to do so.
    c. A CPA who is engaged to perform a government audit neglects to follow certain government auditing requirements and discloses in the audit report the fact that such requirements were not followed and the reasons for it.
    d. A CPA fails to give a client copies of the CPA’s workpapers related to a completed and issued work product upon the client’s request because the client has not paid fees payable to the CPA for the work product.
A

Lecture 2.08

  1. According to the AICPA Code of Professional Conduct, which of the following activities results in an act discreditable to the profession?
    a. A CPA solicits recent Uniform CPA Examination questions without written authorization from the AICPA.
24
Q

Lecture 2.08

  1. When a former partner of a registered public accounting firm who left the firm two years ago accepts a financial reporting oversight role at an issuer audit client, the independence of the registered public accounting firm is considered impaired unless which of the following is true?
    a. The former partner discloses the relationship to the issuer audit client’s board of directors.
    b. The former partner was employed by the registered public accounting firm for a period of 2 years or less.
    c. The former partner has no remaining capital balance in the registered public accounting firm.
    d. The former partner exerts only limited influence over the registered public accounting firm’s operations and financial policies.
A

Lecture 2.08

  1. When a former partner of a registered public accounting firm who left the firm two years ago accepts a financial reporting oversight role at an issuer audit client, the independence of the registered public accounting firm is considered impaired unless which of the following is true?
    c. The former partner has no remaining capital balance in the registered public accounting firm.

It would be considered a conflict of interest if a firm performs an audit of an issuer if someone with financial reporting oversight responsibility was employed by the firm and participated in any capacity in the audit during the 1-year period preceding the date of the initiation of the audit.

In addition, the former firm member may have no remaining capital balance in the firm.

It is not sufficient for the former firm member to inform the client’s board of directors.

25
Q

Lecture 2.08

  1. An auditor has performed certain bookkeeping and other nonattest services that are not prohibited by the AICPA Code of Professional Conduct for a potential audit client. The auditor has established and documented an understanding with the client and the client has agreed to assume all management responsibility, to oversee the services and designate an individual within the organization to do so, to evaluate the adequacy of the services, and accept responsibility for the results.

Which of the following is correct?

a. The auditor may conduct the audit under GAAS but additional requirements must be met.
b. The auditor may conduct the audit under PCAOB standards, but must disclose the performance of the services.
c. The auditor may conduct the audit under GAGAS, but must disclose the performance of the services.
d. The auditor may not perform the audit under GAGAS.

A

Lecture 2.08

  1. An auditor has performed certain bookkeeping and other nonattest services that are not prohibited by the AICPA Code of Professional Conduct for a potential audit client. The auditor has established and documented an understanding with the client and the client has agreed to assume all management responsibility, to oversee the services and designate an individual within the organization to do so, to evaluate the adequacy of the services, and accept responsibility for the results.

Which of the following is correct?

a. The auditor may conduct the audit under GAAS but additional requirements must be met.

An auditor may perform certain nonattest services for an attest client provided the auditor establishes and documents an understanding with the client under which the client agrees to assume all management responsibility, oversee the services and designate an appropriately qualified individual to do so, evaluate the adequacy of the services, and accept responsibility for the results.

In addition, however, when an auditor is performing multiple nonattest services for an attest client, the auditor is also required to apply the conceptual framework to determine if the effect of the aggregate of the nonattest services raises 1 of 7 threats to independence to an unacceptable level.

In general, an auditor may not perform nonattest services for an audit client under PCAOB standards. Certain nonattest services, such as tax planning services, may be performed for an audit client if they are approved in advance by the client’s audit committee, who is responsible for making certain that the services do not impair the auditor’s independence.

26
Q

Lecture 2.08

  1. The controller of a small utility company has interviewed audit firms proposing to perform the annual audit of their employee benefit plan. According to the guidelines of the Department of Labor (DOL), the selected auditor must be
    a. The firm that proposes the lowest fee for the work required.
    b. Independent for purposes of examining financial information required to be filed annually with the DOL.
    c. Included on the list of firms approved by the DOL.
    d. Independent of the utility company and not relying on its services.
A

Lecture 2.08

  1. The controller of a small utility company has interviewed audit firms proposing to perform the annual audit of their employee benefit plan. According to the guidelines of the Department of Labor (DOL), the selected auditor must be
    b. Independent for purposes of examining financial information required to be filed annually with the DOL.

The DOL requires an auditor to be independent when auditing an employee benefit plan and prohibits the auditor from having a direct or material indirect interest in the plan or its sponsor; from serving as promoter, underwriter, investment advisor, voting trustee, director, officer, or employee of the plan or the sponsor; or from maintaining financial records for the plan.

27
Q

Lecture 2.08

  1. Which of the following services would constitute a management function under Government Auditing Standards, and result in the impairment of a CPA’s independence if performed by the CPA?
    a. Developing entity program policies.
    b. Providing methodologies, such as practice guides.
    c. Providing accounting opinions to a legislative body.
    d. Recommending internal control procedures.
A

Lecture 2.08

  1. Which of the following services would constitute a management function under Government Auditing Standards, and result in the impairment of a CPA’s independence if performed by the CPA?
    a. Developing entity program policies.
28
Q

Lecture 3.05

  1. Which of the following is not a component of an entity’s internal control?

a. Control risk.
b. Control activities.
c. Monitoring.
d. Control environment.

A

Lecture 3.05

  1. Which of the following is not a component of an entity’s internal control?
    a. Control risk.

Control risk is the risk that internal control will not prevent a misstatement due to error or fraud or detect and correct it on a timely basis. It is not a component of internal control.

The 5 components of internal control is:

  • Control activities
  • Risk assessment
  • Information and communication
  • Monitoring
  • Control Environment

The mnemonic CRIME reminds management that it would be a crime not to consider all of the internal control elements when designing the system.

29
Q

Lecture 3.05

  1. In obtaining an understanding of an entity’s internal control in a financial statement audit, an auditor is required to obtain knowledge about the
      Operating     effectiveness            Implementation
 of controls                  of controls

a. Yes Yes
b. No Yes
c. Yes No
d. No No

A

Lecture 3.05

  1. In obtaining an understanding of an entity’s internal control in a financial statement audit, an auditor is required to obtain knowledge about the
      Operating     effectiveness            Implementation
 of controls                  of controls

b. No Yes

  1. Understand the Design of CRIME by performing Risk Assessment Procedures (what is the form?)

Have the controls been IMPLEMENTED (put into use?).

To evaluate the implementation of a control means to determine whether a control is actually being used by the entity.

The knowledge obtained through risk assessment procedures is used to:

• Design tests of controls and substantive procedures.
o Determine if these have been Implemented (Placed into operation).
▪ Understanding DOES NOT require evaluating their operating effectiveness. (

30
Q

Lecture 3.05

  1. When an auditor increases the assessed level of control risk (Risk of Material Misstatement) because certain control activities were determined to be ineffective, the auditor would most likely increase the

a. Extent of tests of controls.
b. Level of detection risk.
c. Extent of tests of details.
d. Level of inherent risk.

A

Lecture 3.05

  1. When an auditor increases the assessed level of control risk (Risk of Material Misstatement) because certain control activities were determined to be ineffective, the auditor would most likely increase the
    c. Extent of tests of details.

An increase in control risk as a result of the ineffectiveness of a control, increases the risk of material misstatement.

In order to maintain a level of audit risk that is sufficiently low, the auditor will be required to decrease, rather than increase, detection risk (b),

which is likely to result in an increase in the extent of tests of details.

Tests of controls are performed in order to determine whether or not controls can be relied upon (a)

and inherent risk is the risk associated with the element of financial reporting and is not within the control of the auditor. (d)

31
Q

Lecture 3.05

  1. Which of the following is NOT a step in an auditor’s assessment of Control Risk (Risk of Material Misstatement)?
    a. Evaluate the effectiveness of internal control with tests of controls.
    b. Obtain an understanding of the entity’s information system and control environment.
    c. Perform tests of details of transactions to detect material misstatements in the financial statements.
    d. Consider whether controls can have a pervasive effect on financial statement assertions.
A

Lecture 3.05

  1. Which of the following is NOT a step in an auditor’s assessment of Control Risk (Risk of Material Misstatement)?
    c. Perform tests of details of transactions to detect material misstatements in the financial statements.
32
Q

Lecture 3.05

  1. After obtaining an understanding of internal control and assessing the risk of material misstatement, an auditor decided to perform tests of controls. The auditor most likely decided that
    a. It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests.
    b. Additional evidence to support a further reduction in the risk of material misstatement is not available.
    c. An increase in the assessed level of the risk of material misstatement is justified for certain financial statement assertions.
    d. There were many
A

Lecture 3.05

  1. After obtaining an understanding of internal control and assessing the risk of material misstatement, an auditor decided to perform tests of controls. The auditor most likely decided that
    a. It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests.
33
Q

Lecture 3.05

  1. In assessing Risk of Material Misstatement (Control Risk), an auditor ordinarily selects from a variety of techniques, including

a. Inquiry and recalculation.
b. Reperformance and observation.
c. Comparison and confirmation.
d. Inspection and verification.

A

Lecture 3.05

  1. In assessing Risk of Material Misstatement (Control Risk), an auditor ordinarily selects from a variety of techniques, including
    b. Reperformance and observation.
34
Q

Lecture 3.05

  1. Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity’s internal control?

a. Incompatible duties.
b. Management override.
c. Mistakes in judgment.
d. Collusion among employees.

A

Lecture 3.05

  1. Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity’s internal control?
    a. Incompatible duties.
35
Q

Lecture 3.05

  1. When considering internal control, an auditor should be aware of the concept of reasonable assurance, which recognizes that
    a. Internal control may be ineffective due to mistakes in judgment and personal carelessness.
    b. Adequate safeguards over access to assets and records should permit an entity to maintain proper accountability.
    c. Establishing and maintaining internal control is an important responsibility of management.
    d. The cost of an entity’s internal control should not exceed the benefits expected to be derived.
A

Lecture 3.05

  1. When considering internal control, an auditor should be aware of the concept of reasonable assurance, which recognizes that
    d. The cost of an entity’s internal control should not exceed the benefits expected to be derived.
36
Q

Lecture 3.10

  1. Sound internal control dictates that immediately upon receiving checks from customers by mail, a responsible employee should
    a. Add the checks to the daily cash summary.
    b. Verify that each check is supported by a prenumbered sales invoice.
    c. Prepare a duplicate listing of checks received.
    d. Record the checks in the cash receipts journal.
A

Lecture 3.10

  1. Sound internal control dictates that immediately upon receiving checks from customers by mail, a responsible employee should
    c. Prepare a duplicate listing of checks received.

(c) Immediately preparing a duplicate list of checks received provides a degree of accountability as one forwarded to the accounting department can be used to verify that the appropriate amount has been deposited by the person responsible for making the deposit, who would receive the other copy.
(a) A daily cash summary is likely to be complete at the end of each day, not immediately upon receiving checks in the mail.
(d) Recording the checks in the journal and verifying that each check is supported by a prenumbered sales invoice (b) are both performed as part of the vouching and recording processes, not immediately upon receiving the checks.

37
Q

Lecture 3.10

  1. Tracing shipping documents to prenumbered sales invoices provides evidence that

a. No duplicate shipments or billings occurred.
b. Shipments to customers were properly invoiced.
c. All goods ordered by customers were shipped.
d. All prenumbered sales invoices were accounted for.

A

Lecture 3.10

  1. Tracing shipping documents to prenumbered sales invoices provides evidence that
    b. Shipments to customers were properly invoiced.

(b) Tracing shipping documents to prenumbered sales invoices verifies that all goods shipped have been invoiced. If not, there would be no invoice to match selected shipping documents.
(a) Duplicate shipments would be detected by tracing all shipping documents to customer orders and duplicate billings would be detected by tracing all billing to shipping documents.
(c) Tracing customer orders to shipping documents could determine if all goods ordered by customers were shipped.
(d) Accounting for the sequence of all sales invoices in the sales journal will determine if all sales invoices were accounted for.

38
Q

Lecture 3.10

  1. In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also

a. Reviews the monthly bank reconciliation.
b. Returns the checks to accounts payable.
c. Is denied access to the supporting documents.
d. Is responsible for mailing the checks.

A

Lecture 3.10

  1. In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also
    d. Is responsible for mailing the checks.

(d) For proper segregation of duties, the person reviewing the bank reconciliation should not have any other duties in relation to cash (a).

Once checks are signed, they become negotiable and the person signing them should not relinquish custody to accounts payable (b) or anyone else.

The person should, instead, mail the checks to the recipients. The person signing checks needs access to supporting documents to determine if the disbursement is authorized and appropriate (c).

39
Q

Lecture 3.10

  1. For effective internal control, the accounts payable department generally should
    a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.
    b. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee.
    c. Obliterate the quantity ordered on the receiving department copy of the purchase order.
    d. Establish the agreement of the vendor’s invoice with the receiving report and purchase order.
A

Lecture 3.10

  1. For effective internal control, the accounts payable department generally should
    d. Establish the agreement of the vendor’s invoice with the receiving report and purchase order.

(d) To verify that a voucher or check should be prepared, the account payable department will match the vendor’s invoice to the purchase order, to make certain that the goods were ordered, and the receiving report to make certain they were received.
(a) The person signing checks will cancel supporting documents.
(b) The purchasing department will ascertain that requisitions are approved by an authorized employee.
(c) and obliterate the quantity ordered on the receiving department’s copy of the purchase order so that they will be required to count the goods received.

40
Q

Lecture 3.10

  1. An auditor most likely would assess control risk (risk of material misstatement) at a high level if the payroll department supervisor is responsible for
    a. Examining authorization forms for new employees.
    b. Comparing payroll registers with original batch transmittal data.
    c. Authorizing payroll rate changes for all employees.
    d. Hiring all subordinate payroll department employees.
A

Lecture 3.10

  1. An auditor most likely would assess control risk (risk of material misstatement) at a high level if the payroll department supervisor is responsible for
    c. Authorizing payroll rate changes for all employees.

(c) It is the responsibility of personnel, or human resources, however, to institute payroll rate changes that are ordinarily instituted by the employee’s department.
(a) The payroll department supervisor will examine authorization forms for new employees to make certain they are not paying nonexistent or unauthorized employees
(b) and will compare payroll registers to original batch transmittal data to verify that the amount paid is correct.
(d) The payroll department supervisor will also have responsibility for hiring subordinate employees for that department.

41
Q

Lecture 3.10

  1. The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the
    a. Authorization of transactions from the custody of related assets.
    b. Operational responsibility from the recordkeeping responsibility.
    c. Human resources function from the controllership function.
    d. Administrative controls from the internal accounting controls.
A

Lecture 3.10

  1. The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the
    a. Authorization of transactions from the custody of related assets.

(a) Hiring personnel is essentially authorizing that the individual be paid and distribution of payroll checks is custody of related assets, which would be incompatible duties.
(b) While hiring personnel is an operational responsibility, distributing payroll checks is not part of the record keeping process.
(c) While hiring personnel is a human resource function, distributing payroll checks is a function of the treasury, not the controller.
(d) Segregation of duties is an internal accounting control and an administrative control, which often overlap.

42
Q

Lecture 3.10

  1. In meeting the control objective of safeguarding of assets, which department should be responsible for
    Distribution of          Custody of unclaimed 
   paychecks                   paychecks

a. Treasurer Treasurer
b. Payroll Treasurer
c. Treasurer Payroll
d. Payroll Payroll

A

Lecture 3.10

  1. In meeting the control objective of safeguarding of assets, which department should be responsible for
    Distribution of          Custody of unclaimed 
   paychecks                   paychecks

a. Treasurer Treasurer

(a) The treasurer’s department is responsible for the custody of the entity’s cash. Once paychecks are signed, they are equivalent of cash and should remain in the custody of the treasurer who should distribute them.

Unclaimed paychecks are also the equivalent of cash and should remain in the custody of the treasurer.

Payroll is responsible for preparing the checks but should not have custody of them once they are signed.

43
Q

Lecture 3.10

  1. The auditor may observe the distribution of paychecks to ascertain whether
    a. Pay rate authorization is properly separated from the operating function.
    b. Deductions from gross pay are calculated correctly and are properly authorized.
    c. Employees of record actually exist and are employed by the client.
    d. Paychecks agree with the payroll register and the time cards.
A

Lecture 3.10

  1. The auditor may observe the distribution of paychecks to ascertain whether
    c. Employees of record actually exist and are employed by the client.

(c) Observing the distribution of paychecks will allow the auditor to see who is receiving them to determine that they actually exist and appear to be employed by the client.
(a) The auditor can determine if pay rate authorization is properly separated from the operating function by determining who is responsible for operations and making certain that the same party is not responsible for pay rate authorizations.
(b) The auditor can determine if deductions are proper by recalculation
(d) and can determine if paychecks agree with the payroll register and time cards by tracing a sample of paychecks to the supporting time cards and also to the payroll register.

44
Q

Lecture 3.10

  1. Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?

a. Personnel.
b. Treasurer.
c. Controller.
d. Payroll.

A

Lecture 3.10

  1. Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?
    a. Personnel.

(a) The personnel, or human resources, department will generally approved pay rate changes that are recommended by operating personnel, and deductions from employees’ salaries.
(b) The treasurer has custody of the cash, which should be segregated from authorization of transactions
(c) the controller (d) and payroll are responsible for the recordkeeping function, which should also be segregated from authorization of transactions.

CPA AUD Flashcards (62 decks)

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