FINAL EXAM Flashcards
PROCEDURE: Select a sample of receiving reports and agree to inventory record posting of additions.
Required: For the procedure, indicate the related transaction assertion.
COMPLETENESS
PROCEDURE: Trace debits arising from accounts payable transactions for proper account.
Required: For the procedure, indicate the related transaction assertion
CUTOFF
PROCEDURE: Test a sample of cash disbursement voucher documents for accurate mathematics.
Required: For the procedure, indicate the related transaction assertion.
VALUATION/ACCURACY
PROCEDURE: Trace a sample of voucher debits to general and subsidiary ledger accounts.
Required: For the procedure, indicate the related transaction assertion.
VALUATION/ACCURACY
PROCEDURE: Compare a sample of receiving reports to related purchase orders.
Required: For the procedure, indicate the related transaction assertion.
OCCURRENCE
PROCEDURE: Scan a sample of vouchers for missing numbers.
Required: For the procedure, indicate the related transaction assertion.
COMPLETENESS
PROCEDURE: Select a sample of open accounts payable and vouch to supporting documents of purchase.
Required: For the procedure, indicate the related transaction assertion.
OCCURRENCE
PROCEDURE: Trace a sample of voucher debits to general and subsidiary ledger accounts.
Required: For the procedure, indicate the related transaction assertion.
VALUATION/ACCURACY
PROCEDURE: Select a sample of open accounts payable and vouch to supporting documents of purchase.
Required: For the procedure, indicate the related transaction assertion.
OCCURRENCE
PROCEDURE: Scan a sample of vouchers for missing numbers.
Required: For the procedure, indicate the related transaction assertion.
COMPLETENESS
PROCEDURE: Test a sample of cash disbursement voucher documents for accurate mathematics.
Required: For the procedure, indicate the related transaction assertion.
VALUATION/ACCURACY
PROCEDURE: Select a sample of receiving reports and agree to inventory record posting of additions.
Required: For the procedure, indicate the related transaction assertion.
COMPLETENESS
PROCEDURE: Compare a sample of receiving reports to related purchase orders.
Required: For the procedure, indicate the related transaction assertion.
OCCURRENCE
PROCEDURE: Trace debits arising from accounts payable transactions for proper account.
Required: For the procedure, indicate the related transaction assertion.
CLASSIFICATION
PROCEDURE: Compare a sample of receiving reports to related purchase orders.
Required: For the procedure, indicate the related transaction assertion.
OCCURRENCE
When auditing account balances of liabilities, auditors are most concerned with management’s assertion about
COMPLETENESS
The inherent risk that accounts payable may be omitted or otherwise understated typically is
HIGH
An auditor is planning the testing of the accounts payable balance. The auditor’s main concerns should be
COMPLETENESS AND CUTOFF
A CPA learns that his client has paid a vendor twice for the same shipment; once based upon the original invoice and once based upon the monthly statement sent from the vendor. A control procedure that should have prevented this duplicate payment is
ATTACHMENT OF THE RECEIVING REPORT TO THE DISBURSEMENT REPORT
In determining the effectiveness of an entity’s policies and procedures relating to the occurrence assertion for payroll transactions, auditors most likely would inquire about and
OBSERVE THE SEPARATION OF DUTIES CONCERNING PERSONNEL RESPONSIBILITIES AND PAYROLL DISBURSEMENT
Auditors should inspect the “unmatched receiving report” file to determine whether the liability for the receipt of goods has been recorded.
TRUE
The typical functions of the personnel and payroll cycle would not include
LABOR RELATIONS
When confirming accounts payable, emphasis should be put on what kind of accounts?
ACCOUNTS WITH SMALL OR ZERO BALANCES
An audit plan for accounts payable would not include which of the following procedures?
REVIEWING CASH RECEIPTS FOR THE PERIOD AFTER YEAR -END
In order to ensure appropriate segregation of duties, the supervisor in each department handles the custody of the payroll checks.
FALSE
An internal control questionnaire for payroll processing occurrence assertion would not include which of the following questions?
ARE ALL WAGES RATES DETERMINED BY CONTRACT OR APPROVED BY A PERSONNEL OFFICER?
Computer controls that might be found in an advanced online acquisition and expenditure system would not include
an identification number and password are required to enter the nonautomatic purchase orders.
The auditor traces items from the receiving reports to the accounts payable journal in order to satisfy the
COMPLETENESS ASSERTION
Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice?
THE CHECK SIGNER REVIEWS AND CANCELS THE VOUCHER PACKETS
Which of the following procedures is least likely to be performed before the balance-sheet date?
SEARCH FOR UNRECORDED LIABILITIES
Specific balance assertions typical of accounts payable would not include
ACCOUNTS PAYABLE ARE NOT PLEDGED AS COLLATERAL
When goods are received, the receiving clerk should match the goods with the
VENDOR’S SHIPPING DOCUMENT AND THE PURCHASE ORDER
Which of the following would detect the understatement of a purchase discount?
COMPARE PURCHASE DISBURSEMENT RECORDS AND CHECKS WITH INVOICE TERMS
The auditors’ “search for unrecorded liabilities” should emphasize payments made shortly after the end of the year.
TRUE
Which of the following would be an indicator of potential fraud?
ALL OF THESE EXAMPLES INDICATE POTENTIAL FRAUD
Which of the following fraud detection steps could not be performed by CAATs?
LOOK FOR PHOTOCOPIES IN INVOICE FILES
Which of the following situations most likely represents the highest risk of a misstatement arising from misappropriation of assets?
A LARGE NUMBER OF BEARER BONDS ON HAND
Which of the following control objectives is achieved by reviewing and testing control procedures over physical inventory count?
VERIFICATION OF EXISTENCE OF INVENTORY
An independent auditor asked a client’s internal auditor to assist in preparing a standard bank confirmation request for a payroll account that had been closed during the year under audit. After the auditor prepared the form, the controller signed it and mailed it to the bank. What major flaw, if any, is evident in this procedure?
THE FORM WAS MAILED BY THE CONTROLLER
An auditor selected items for test counts while observing a client’s physical inventory. The auditor then traced the test counts to the client’s inventory listing. This procedure most likely obtained evidence concerning management’s assertion of:
COMPLETENESS
If the auditors discover that the carrying amount of a client’s investments is overstated because of a loss in value that is other than a temporary decline in market value, they should insist that
THE LOSS IN VALUE BE RECOGNIZED IN THE FINANCIAL STATEMENTS
An auditor’s inquiries of management disclosed that the entity recently invested in a series of energy derivatives to hedge against the risks associated with fluctuating oil prices. Under these circumstances, the auditor should:
EXAMINE THE CONTRACTS FOR POSSIBLE RISK EXPOSURE AND THE NEED TO RECOGNIZE LOSSES
The auditors should insist that a representative of the client be present during the inspection and count of securities to
ACKNOWLEDGE THE RECEIPT OF SECURITIES RETURNED
When the client holds a large amount of negotiable securities, auditors need to plan to guard against
SUBSTITUTION OF SECURITIES ALREADY COUNTED FOR OTHER SECURITIES THAT SHOULD BE ON HAND BUT ARE NOT
Which of the following auditing procedures probably would provide the most reliable evidence concerning the entity’s assertion of rights and obligations related to inventories?
INSPECT AGREEMENTS TO DETERMINE WHETHER ANY INVENTORY IS PLEDGED AS COLLATERAL OR SUBJECT TO ANY LIENS
Which of the following internal control activities will most likely prevent the concealment of a cash shortage by improperly writing off a trade account receivable?
WRITE OFFS MUST BE APPROVED BY A RESPONSIBLE OFFICER AFTER REVIEW OF CREDIT DEPARTMENT RECOMMENDATIONS AND SUPPORTING EVIDENCE
In testing for unrecorded retirements of equipment, an auditor most likely would:
SELECT ITEMS OF EQUIPMENT FROM THE ACCOUNTING RECORDS AND THEN LOCATE THEM DURING THE PLANT TOUR
The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is to
DETECT UNRECORDED LIABILITIES
In connection with the audit of an issue of long-term bonds payable, the audit team should
ASCERTAIN THAT THE CLIENT HAS OBTAINED THE OPINION OF COUNSEL ON THE LEGALITY OF THE ISSUE
An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management’s financial statement assertion of:
VALUATION AND ALLOCATION
The mail which includes payments should be opened by two people. This control is called:
JOINT CUSTODY
Which of the following would not typically be a specific relevant assertion about fixed asset accounts?
NET CARRYING BOOK VALUES IN THE ACCOUNTS ARE REFLECTED AT CURRENT MARKET VALUES
Which of the following audit procedures probably would provide the most reliable evidence concerning the entity’s assertion of rights and obligations related to inventories?
INSPECT AGREEMENTS TO DETERMINE WHETHER ANY INVENTORY IS PLEDGED AS COLLATERAL OR SUBJECT TO ANY LIENS
An audit team would most likely verify the interest earned on bond investments by
RECOMPUTING THE INTEREST EARNED ON THE BASIS OF FACE AMOUNT, INTEREST RATE, AND PERIOD HELD
To obtain assurance that all inventory items in a client’s inventory listing are valid, an auditor most likely would trace:
ITEMS IN THE INVENTORY LISTING TO INVENTORY TAGS AND THE AUDITOR’S RECORDED COUNT SHEETS
To determine the client’s planned amount and timing of production of a product, the auditor reviews the
PRODUCTION PLAN
An audit team testing long-term investments would ordinarily use analytical procedures to ascertain the reasonableness of the
COMPLETENESS OF RECORDED INVESTMENT INCOME
Jones was engaged to examine the financial statements of Gamma Corporation for the year ended June 30. Having completed an examination of the investment securities, which of the following is the best method of verifying the accuracy of recorded dividend income?
COMPARING RECORDED DIVIDENDS WITH A STANDARD FINANCIAL REPORTING SERVICE’S RECORD OF DIVIDENDS
A portion of a client’s inventory is in public warehouses. Evidence of the existence of this merchandise can most efficiently be acquired through which of the following methods?
CONFIRMATION
A proof of cash:
CAN BE USED TO TEST THE TRANSACTIONS PROCESS
Which of the following internal controls most likely would be used to maintain accurate inventory records?
PERIODIC INVENTORY COUNTS ARE USED TO ADJUST THE PERPETUAL INVENTORY RECORDS
Before the impact of adjusting entries proposed by auditors are included in the client’s financial statements, the adjustments must be approved by the
CLIENT’S MANAGEMENT
Which of the following reporting options is available if the client refuses to provide auditors with written representations?
QUALIFIED OPINION OR DISCLAIMER OF OPINION
Assume that GoodenCo CPAs encountered the following issue during its various audit engagements in 2015:
ISSUE: It conducted the audit of Luck, a new client this past year. Last year, Luck was audited by another CPA, who issued an unmodified opinion on its financial statements. Luck is presenting financial statements for 2014 and 2015 in comparative form.
Required: What audit opinion(s) could be issued for the issue above?
UNQUALIFIED WITH OTHER-MATTER PARAGRAPH
An important method used by auditors to learn of material contingencies is
OBTAINING RESPONSES TO AN ATTORNEY LETTER
SCENARIO: Because of the late appointment to the audit engagement, Bruce is unable to observe Weaver’s physical inventory for the year ended December 31, 2014. However, Weaver maintains extensive perpetual inventory records, and Bruce has been able to perform other substantive procedures and is satisfied as to the fairness of the ending inventory balance for December 31, 2014.
Required: Assume that the ending balance in inventory is material to the company’s financial position, results of operations, and cash flows. For the scenario above, indicate what audit report option(s) that the auditor should consider in deciding which type of opinion to issue in the circumstances.
UNQUALIFIED
SITUATION: During the year, the entity changed its method of accounting for inventories from FIFO to LIFO and has disclosed this change in the footnotes to the financial statements and accounted for the change properly. However, the auditors do not agree with the rationale for the change and believe that it was made to report a higher level of earnings.
For the preceding situation, indicate: What audit opinion(s) could be issued for the issue above?
ADVERSE
The following statement is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate or inappropriate.
STATEMENT: “We have prepared a description and evaluation of certain contingencies for which our attorneys have devoted substantive attention on our behalf in the form of legal representation.”
INAPPROPRIATE
SCENARIO: Because of the late appointment to the audit engagement, Bruce is unable to observe Weaver’s physical inventory for the year ended December 31, 2014. Because Weaver’s accounting records are not complete, Bruce is unable to perform other substantive procedures and is not satisfied as to the fairness of the ending inventory balance for December 31, 2014.
Required: Assume that the ending balance in inventory is material to the company’s financial position, results of operations, and cash flows. For the scenario above, indicate what audit report option(s) that the auditor should consider in deciding which type of opinion to issue in the circumstances.
QUALIFIED AND DISCLAIMER
SITUATION: The auditors have engaged component auditors to conduct a portion of the audit but do not wish to assume responsibility for their work. The auditors have not approached the component auditors about presenting their reports with the company’s financial statements and do not plan to do so.
For the preceding situation, indicate: What audit opinion(s) could be issued for the issue above?
UNQUALIFIED
ISSUE: GoodenCo has assisted Cardinal Inc. with the preparation of its financial statements but has not audited, compiled, or reviewed those financial statements. Cardinal wishes to include these financial statements in a communication that would describe GoodenCo’s involvement in the preparation of the financial statements. GoodenCo believes that Cardinal’s communication is adequate and appropriately describes GoodenCo’s limited role in the preparation of the financial statements.
Required: What audit opinion(s) could be issued for the issue above?
DISCLAIMER
SITUATION: Auditors have identified an immaterial departure from GAAP in their examination, but the entity has not adjusted its financial statements for this departure or disclosed this departure in its financial statements or related disclosures.
For the preceding situation, indicate: What audit opinion(s) could be issued for the issue above?
UNQUALIFIED
Why should auditors be particularly concerned with “miscellaneous,” “other,” and “clearing” accounts classified as revenues or expenses?
THESE ACCOUNTS MAY REPRESENT ATTEMPTS OF EARNINGS MANAGEMENT
The following statement is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate or inappropriate.
STATEMENT: “No frauds involving management, employees who have significant roles in internal control, or other frauds that could have a material effect on the financial statements have occurred during the year under audit.”
INAPPROPRIATE
Assume that GoodenCo CPAs encountered the following issue during its various audit engagements in 2015:
ISSUE: GoodenCo believes that some of the verbiage in Plunkett’s Management Discussion & Analysis section is inconsistent with the firm’s financial statements. GoodenCo has concluded that Plunkett’s financial statements present its financial position, results of operations, and cash flows in accordance with GAAP and has decided to issue an unmodified opinion on Plunkett’s financial statements.
Required: What audit opinion(s) could be issued for the issue above?
UNQUALIFIED WITH OTHER-MATTER PARAGRAPH
The following statement is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate or inappropriate.
STATEMENT: “Our assessment of internal control over financial reporting provides us absolute assurance that no material misstatements will occur and be undetected by our internal control.”
INAPPROPRIATE
When auditors qualify their opinion on the entity’s financial statements because of inadequate disclosure, the auditors should describe the nature of the omission in an additional paragraph and modify
NEITHER THE INTRODUCTORY PARAGRAPH NOR AUDITOR’S RESPONSIBILITY SECTION
Which of the following statements is not included in the Auditor’s Responsibility section of the standard (unmodified) report?
“In accordance with accounting principles generally accepted in the United States of America.“
When auditors are engaged to examine an entity’s financial statements but decide to issue a disclaimer of opinion because of a scope limitation, the report would not
modify the Auditor’s Responsibility section to identify the basis for the disclaimer.
Why is it the client’s decision to record adjustments to the financial statements?
The financial statements are the responsibility of the client’s management.
For which of the following objectives would auditors be least likely to use analytical procedures near the end of the audit?
Obtaining evidence about assertions related to account balances or classes of transactions
Assume that GoodenCo CPAs encountered the following issue during its various audit engagements in 2015:
ISSUE: One of GoodenCo’s clients is RealCo, a real estate holding company. Assume that RealCo experienced a significant decline in the value of its investment properties during the past year because of a downturn in the economy and has appropriately recognized that decline in market value under GAAP. GoodenCo wishes to emphasize the decline in the economy and its impact on RealCo’s financial position and results of operations for 2015 in its audit report.
Required: What audit opinion(s) could be issued for the issue above?
Unqualified with emphasis-of-matter paragraph
SITUATION: The client has not recognized a material loss related to a decline in the market value of its investments. Because the auditors believe this decline in value is not temporary, they believe the financial statements do not present the client’s financial position and results of operations in accordance with GAAP.
For the preceding situation, indicate: What audit opinion(s) could be issued for the issue above?
QUALIFIED AND ADVERSE
SCENARIO: Because of a direct request by Weaver’s management, Bruce did not observe Weaver’s physical inventory for the year ended December 31, 2014. Weaver’s accounting records are not complete, so Bruce is unable to perform other substantive procedures and is not satisfied as to the fairness of the ending inventory balance for December 31, 2014.
Required: Assume that the ending balance in inventory is material to the company’s financial position, results of operations, and cash flows. For the scenario above, indicate what audit report option(s) that the auditor should consider in deciding which type of opinion to issue in the circumstances.
Check all that apply. If none of the answers are correct, then select “None of the above”.
QUALIFIED AND DISCLAIMER
Which of the following would not ordinarily be considered when using analytical procedures to verify the overall reasonableness of revenue and expense accounts?
Current-year recorded (unaudited) balances
The following statement is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate or inappropriate.
STATEMENT: “Based on our assessment, we conclude that the Company has maintained an effective internal control over financial reporting as of December 31, 2014.”
APPROPRIATE
Which of the following events or activities may occur following the audit report release date?
Subsequently discovered facts
Roll-forward work normally occurs between the ________ and the ________.
date of interim work; date of the auditors’ report
