Finals

Question 1

Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the

Answer 1

Receiving Department

Question 2

Which of the following controls is most effective in providing assurance that recorded purchases are free of material errors?

Answer 2

Purchase orders, receiving reports, and vendors’ invoices are independently matched in preparing vouchers

Question 3

to provide assurance that each voucher is submitted and paid only once, an auditor would most likely examine a sample of paid vouchers and determine whether each voucher is

Answer 3

stamped “paid” by the check signer

Question 4

which of the following is a substantive procedure that an auditor most likely would perform to verify the existence assertion and the accuracy, valuation, and allocation assertion about recorded accounts payable?

Answer 4

vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports

Question 5

when using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely is

Answer 5

vendors with whom the entity has previously done business

Question 6

which of the following activities performed by a department supervisor most likely would help in the prevention or detection of payroll fraud?

Answer 6

approving a summary of hours each employee worked during the pay period

Question 7

which of the following human resources department procedures reduces the risk of payroll fraud and represents an appropriate responsibility for the department

Answer 7

authorizing the addition or deletion of employees from payroll

Question 8

an auditor most likely would perform substantive tests of details on payroll transactions and balances when

Answer 8

analytical procedures indicate unusual fluctuations in recurring payroll entities

Question 9

vouching selected items from the payroll journal to employee time cards that have been approved by supervisory personnel provides evidence that

Answer 9

employees worked the number of hours for which their pay was computed

Question 10

an auditor’s test of controls over the issuance of raw materials to production would most likely include

Answer 10

examining materials requisitions and reperforming client controls designed to process and record issuances

Question 11

which of the following internal control activities most likely would be used to maintain accurate inventory records

Answer 11

periodic inventory counts are used to adjust the perpetual inventory records

Question 12

an auditor most likely would analyze inventory turnover rates to obtain evidence concerning relevant assertions about

Answer 12

accuracy, valuation, and allocation

Question 13

which of the following auditing procedures most likely would provide assurance regarding a manufacturing entity’s relevant assertions about the inventory valuation

Answer 13

testing the entity’s computation of standard overhead rates

Question 14

to obtain assurance that items reflected in a client’s perpetual inventory records actually exist, an auditor would most likely trace

Answer 14

items in the inventory perpetual records to inventory tags and auditor’s test counts

Question 15

recomputing the unexpired portion of insurance policies in effect tests which of the following assertions for prepaid insurance

Answer 15

accuracy, valuation, and allocation

Question 16

an auditor typically sets inherent risk for intangible assets at this level

Answer 16

high

Question 17

in verifying the amounts of goodwill recorded by a client in the current period, the most convincing evidence an auditor can obtain is by comparing the recorded amounts of assets acquired and liabilities assumed with the

Answer 17

fair values as evidenced by independent appraisals

Question 18

one objective of internal control is to record PPE additions correctly as to account, amount, and period. which of the following environmental considerations indicates that the risks of material misstatements of these additions are high

Answer 18

most construction is performed in-house

Question 19

to strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic

Answer 19

inspection of equipment and reconciliation with accounting records

Question 20

an analysis of which of the following accounts would best aid in verifying that all fixed assets have been capitalized

Answer 20

repairs and maintenance

Question 21

an auditor traces the serial numbers on equipment to a nonissuer’s sub-ledger. which of the following management assertions is supported by this test

Answer 21

completeness

Question 22

during an audit of an issuer of bonds, the auditor should obtain written confirmation regarding debenture transactions from the

Answer 22

trustee

Question 23

during its fiscal year, a company issued, at a discount, a substantial amount of first mortgage bonds. when performing audit work in connection with the bond issue, the independent auditor should

Answer 23

review the minutes for authorization

Question 24

when a client’s company does not maintain its own stock record, the auditor should obtain written confirmation from the transfer agent and the registrar concerning

Answer 24

the number of shares issued and outstanding

Question 25

an auditor should vouch corporate stock issuances and treasury stock transactions to the

Answer 25

minutes of the board of directors

Question 26

a company issued bonds for cash during the year under audit. to ascertain that this transaction was properly recorded, the auditor's best course of action is to

Answer 26

trace the cash received from the issuance to the accounting records

Question 27

an auditor selects a sample of recorded cash receipts and vouches them to accounts receivable and customer orders. the procedure is relevant to which assertion

Answer 27

occurrence

Question 28

the best evidence regarding year-end bank balances is documented in the

Answer 28

bank reconciliation

Question 29

the primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to

Answer 29

corroborate information regarding deposit and loan balances

Question 30

an auditor should test bank transfers for the last part of the audit period and first part of the subsequent period to detect whether

Answer 30

cash balances were overstated because of kiting

Question 31

which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed

Answer 31

two company officials have joint control of marketable securities, which are kept in a bank safe-deposit box

Question 32

in establishing the existence and ownership of an investment held by a corporation in the form of publicly traded stock, an auditor should inspect the securities for

Answer 32

confirm the number of shares owned that are held by an independent custodian

Question 33

the auditor should insist that a representative of the client be present during the physical examination of securities to

Answer 33

acknowledge the receipt of securities return

Question 34

which of the following is the most effective audit procedure for verification of dividends earned on investments in marketable equity securities

Answer 34

reconciling amounts received with published dividend records

Question 35

how should an auditor verify the valuation of marketable securities at the balance sheet date

Answer 35

compare the prices of the securities to published closing prices at the balance sheet date

Question 36

in assessing risks of material misstatement for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. which assertion would this test of controls most likely support

Answer 36

occurrence

Question 37

internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the

Answer 37

receiving department

Question 38

in a properly designed internal control system, the same employee most likely would match vendors' invoices with receiving reports and also

Answer 38

recompute the calculations on vendors' invoices

Question 39

which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities

Answer 39

vouch a sample of cash disbursements recorded just after year end to receiving reports and vendor invoices

Question 40

when using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely is

Answer 40

vendors with whom the entity has previously done business

Question 41

an effective control that protects against the preparation of improper or inaccurate disbursements is to require that all checks be

Answer 41

signed by an officer after necessary supporting evidence has been examined

Question 42

an auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. the purpose of this substantive audit procedure most likely was to

Answer 42

determine that purchases were properly recorded

Question 43

which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice

Answer 43

the check signer reviews and cancels the voucher packets

Question 44

which of the following is a substantive procedure that an auditor most likely would perform to verify the existence assertion and the accuracy, valuation, and allocation assertion about the recorded accounts payable

Answer 44

vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports

Question 45

which of the following controls is most effective in providing assurance that recorded purchases are free of material errors

Answer 45

purchase orders, receiving reports, and vendors' invoices are independently matched in preparing vouchers

Question 46

an auditor's tests of controls over the issuance of raw materials to production would most likely include

Answer 46

examining materials requisitions and reperforming client controls designed to process and record issuances

Question 47

the auditor tests the quantity of materials charged to work-in-process by vouching these quantities to

Answer 47

materials requisitions

Question 48

as part of the process of observing a client's physical inventories, an auditor should be alert to

Answer 48

the inclusion of any obsolete or damaged goods

Question 49

which of the following procedures would an auditor most likely perform to obtain assurance that slow-moving and obsolete items included in inventories are properly identified

Answer 49

examining an analysis of inventory turnover

Question 50

after accounting for sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items

Answer 50

represented by inventory tags are included in the listing

Question 51

in assessing risks of material misstatement for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. which assertion would this test of controls most likely support

Answer 51

occurrence

Question 52

in an audit of purchasing department, which of the following usually is considered a risk factor

Answer 52

purchases are made from parties related to buyers or other company officials

Question 53

which of the following controls most likely would assist in reducing the risks of material misstatement related to the existence of manufactured products

Answer 53

perpetual inventory records are independently compared with goods on hand

Question 54

to obtain assurance that items reflected in a client's perpetual inventory records actually exist, an auditor would most likely trace

Answer 54

items in the inventory perpetual records to inventory tags and the auditor's test counts

Question 55

which of the following procedures most likely would provide assurance regarding a manufacturing entity's relevant assertions about inventory valuation

Answer 55

testing the entity's computation of standard overhead rates

Question 56

in auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of the relevant financial statement assertion of

Answer 56

accuracy, valuation, and allocation

Question 57

to strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic

Answer 57

inspection of equipment and reconciliation with accounting records

Question 58

in verifying the amounts of goodwill recorded by a client in the current period, the most convincing evidence an auditor can obtain is by comparing the recorded amounts of assets acquired and liabilities assumed with the

Answer 58

fair values as evidenced by independent appraisals

Question 59

which of the following activities is most likely to prevent the improper disposition of equipment

Answer 59

a segregation of duties between those authorized of dispose of equipment and those authorized to approve removal work orders

Question 60

one objective of internal control is to record property, plant, and equipment (PPE) additions correctly as to account, amount, and period. which of the following environmental considerations indicates that the risks of material misstatement of these additions are high

Answer 60

most construction is performed in-house

Question 61

in testing plant and equipment balances, an auditor physically examines new additions listed on an analysis of plant and equipment. this procedure most likely obtains evidence concerning management's assertion of

Answer 61

existence

Question 62

in testing for unrecorded retirements of equipment, an auditor most likely would

Answer 62

select items of equipment from an accounting records and then locate them during the plant tour

Question 63

an auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. which of the following management assertions is supported by this test

Answer 63

completeness

Question 64

an auditor's principal objective in analyzing repairs and maintenance expense accounts is to

Answer 64

discover expenditures that were expensed but should have been capitalized

Question 65

to achieve effective internal control over fixed-asset additions, a company should require

Answer 65

authorization and approval of major fixed-asset additions

Question 66

during the fiscal year, a company issued, at a discount, a substantial amount of first-mortgage bonds. when performing audit work in connection with the bond issue, the independent auditor should

Answer 66

review the minutes for authorization

Question 67

when a company's stock record books are maintained by an outside registrar or transfer agent, the auditor should obtain confirmation from the registrar or transfer agent concerning the

Answer 67

number of shares issued and outstanding

Question 68

an auditor considers stock sales that occurred near the end of the year to verify that they were not recorded in the following year. which assertion is the auditor testing

Answer 68

cutoff

Question 69

during the year under audit, a client issued a substantial amount of bonds to an insurance company (a private placement). which of the following is the most important step in the auditor's plan for the audit of bonds payable

Answer 69

tracing the cash received from the issue to the accounting records

Question 70

an auditor who wishes to test for the occurrence of equity transactions should complete which of the following procedures

Answer 70

vouch entries to supporting documents

Question 71

an audit plan for noncurrent debt should include steps that require

Answer 71

examining bond trust indentures

Question 72

which of the following is the most important consideration of an auditor when examining the shareholders' equity section of a client's balance sheet

Answer 72

entries in the capital stock account can be traced to a resolution in the minutes of the board of directors' meetings

Question 73

inspecting the stock certificates of a client tests which of the following

Answer 73

existence of treasury stock

Question 74

which of the following actions is an analytical procedure that an auditor most likely would use while auditing a company's notes payable

Answer 74

multiplying the average outstanding loan balances by the interest rate and comparing the result to interest expense actually recorded

Question 75

the auditor can best verify a client's bond sinking-fund transactions and year-end balance by

Answer 75

confirmation with bond trustee