i-75 - SIMS Flashcards by Lauren Petoskey

what are the six inter-related elements of quality control?

human resources:
engagement/client acceptance and continuance:
leadership responsibilities
performance of the engagement
monitoring
ethical requirements

How well did you know this?

Not at all

Perfectly

examples of quality control for human resources

-the requirement that individuals are hired only if they possess the competencies necessary to fulfill engagement responsibilities
-potential new hires are subject to a background check and drug testing
-personnel are required to attend training and participate in continuing professional education and other professional development activities

How well did you know this?

Not at all

Perfectly

examples of quality control for leadership responsibilities

-the firm’s board of managing partners assume ultimate responsibility for developing, communicating and supporting the quality control system
-the audit firm has a manager of audit quality and this manager is responsible for updating the audit quality control handbook, and for disseminating information via web based emails

How well did you know this?

Not at all

Perfectly

examples of quality control for engagement/client acceptance and continuance

-the audit partner reviews the financial statements and credit rating of the proposed client
-the firm undertakes only those engagements that the firm can reasonably expect to complete with professional competence

How well did you know this?

Not at all

Perfectly

examples of quality control for ethical requirements

-policies and procedures should be established to provide the firm with reasonable assurance that personnel maintain independence (in fact and appearance) in all required circumstances and perform all responsibilities with integrity
-the firm maintains records showing which personnel were previously employed by clients
-at least annually, audit firm personnel must complete forms relating to potential conflicts such as personal investments, loans, and immediate family employment

How well did you know this?

Not at all

Perfectly

examples of quality control for performance of the engagement

-procedures used during an audit should include the use of checklists, industry specific guidance materials and standardized audit documentation, for consistency
-policies and procedures should be in place to ensure that the audit is appropriately supervised and that audit work is reviewed in accordance with appropriate legal and regulatory requirements prior to the opinion being issued
-policies and procedures should be in place to allow for consultations with experts inside or outside the firm with respect to complex, unfamiliar, unusual, difficult, or contentious issues
-the firm maintains confidentiality, safe custody, accessibility, integrity, and retention of engagement documentation and the documentation is released to approved firm personnel or by issuing passwords to approved firm personnel

How well did you know this?

Not at all

Perfectly

examples of quality control for monitoring

-the firm provides training to its staff related to peer review quality control deficiencies that were noted by the outside peer reviewing firm during the inspection
-the firm randomly selects 7% of engagements annually to undergo an internal review performed by partners NOT on that engagement. the review includes review of administrative records, working papers, and reports

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: in the current year collins corp changed its general ledger accounting software

-inherent: increase
-control: no impact since it doesn’t mention IC
-detection: decrease since inherent risk is increasing to maintain the same overall audit risk

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA’s chose the correct procedure to audit the cash balance but rely on only internally generated evidence such as the cash receipts and cash disbursements journal

-inherent and control: no impact
-detection: increase

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA’s tests controls in the revenue cycle and deem them to be ineffective

-inherent: no impact
-control: increase
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: collins corp imports most of its raw materials from a foreign supplier and all transactions are denominated in US dollars

-inherent, control and detection: no impact

**would’ve been different if it was denominated in the foreign currency

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: during the year under audit, a new technology made part of collins corp inventory obsolete

-inherent: increase
-control: no impact
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA’s believe that there are many related party transactions between the client and its gabriel inc subsidiary

-inherent: increase
-control: no impact
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: at collins corp, the role of shipping and warehouse are combined at an estimated cost savings of $1,2000,000 per year

-inherent: no impact
-control: increase
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: the risk of material misstatement is being assessed by rutherford and banks CPA’s in percentages rather than qualitative terms

-inherent, control and detection: no impact

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA’s performed analytical procedures, and determined that sales increased 500% over the last year. additionally, collins corp’s asset turnover has tripled since the previous year

-inherent: increase
-control: no impact (control will never be involved with analytical procedures)
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA’s is concerned that certain activities that have been used by the company to safeguard assets may not have been kept up to date due to advances in technology

-inherent: no impact
-control: increase
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA’s test certain controls over expenditures and decide to revise the timing of inventory testing from year end to interim dates

-inherent: no impact
-control: decrease
-detection: increase

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA are concerned that warranty expense may not be valued correctly

-inherent: increase
-control: no impact
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA’s consider collins corp’s management operating style to be overly aggressive

-inherent: no impact
-control: increase
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA’s is concerned that financial management may be biased in regard to estimates when producing the financial statements

-inherent: increase
-control: no impact
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: rutherford and banks CPA’s has noticed that there is high turnover in collin corp’s accounting department and is concerned that the hiring of non-CPA’s has resulted in an accounting department that lacks knowledge of basic GAAP rules

-inherent: increase
-control: no impact
-detection: decrease

**high turnover = inherent increase

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: in the fixed asset cycle, rutherford and banks gained an understanding of the five components on internal control and decided not to test controls although they determined that the controls were placed into operation

-inherent: no impact
-control: increase
-detection: decrease

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: in the hackett segment, one of collins corp major divisions, rutherford and banks determined that accounting transactions are complex and it’s difficult to determine when revenue should be recognized

-inherent: increase
-control: no impact
-detection: decrease

**complex = inherent increase

How well did you know this?

Not at all

Perfectly

impact on inherent risk, control risk and detection risk: collins corp uses a publicly traded company to process its payroll and the service organization automatically removes the payroll taxes from collins corp's checking account each period three days prior to the payroll check date

-inherent, control and detection: no impact

impact on inherent risk, control risk and detection risk: collins corp issued bonds for the first time this past year to fund expansion

-inherent: increase -control: no impact -detection: decrease

what risk is impacted: falzone and felter CPA's chose to perform most of the testing of receivables at interim and they do not identify a significant error in the recording of receivables that occurred between interim and year end

-detection risk -risk that the auditor will not detect a material misstatement that exists in an assertion -auditor's focused their attention on interim testing and didn't appropriately address the incremental risk between interim and year end

what risk is impacted: based on investments selected Link erroneously concludes that dividend income is materially understated

-risk of incorrect rejection -risk that a sample mistakenly indicates a material misstatement in an account balance when in fact such balance is fairly stated

what risk is impacted: nadasky associates recently invested, for the first time, in highly complex derivates

-inherent risk -susceptibility of an assertion to a material misstatement assuming there are no related controls -assertions involving complex calculations like derivates have high built in inherent risk

what risk is impacted: a lack of appropriate controls surrounding nadasky associates receiving department may allow unintentional errors to occur and not be detected

-control risk -risk that a material misstatement that could occur in an assertion would not be prevented or detected on a timely basis by the entity's internal control -in this case, the receiving function lacks the controls that would prevent or detect erros

what risk is impacted: nadasky associates employees are aware that a large reduction in the workforce is planned

-fraud risk -risk of material misstatements of the financial statements due to fraud -the auditor is required to evaluate fraud risk and must consider whether and to what extent, fraud risk factors (incentives, opportunity, rationalization) exist -anticipated future layoffs create a fraud risk in that they sometimes provide an incentive for employees to steal

what risk is impacted: the CEO and CFO of nadasky associates will receive significant bonuses if financial targets are achieved

-fraud risk

what risk is impacted: falzone and felter CPA's render an unmodified opinion on nadasky associates year end financial statements but the financial statements are misstated due to a computer error that causes sales revenue for a particular product to be recorded one and one half times the amount. falzone and felter are totally unaware of the computer error

-audit risk

what risk is impacted: link CPA, selects a number of sales orders and noting that a number of sales orders lack appropriate credit approval, decides to increase substantive testing. as it turns out, link just so happened to chose a non representative sample and most sales orders in the population at large have in fact been properly approved

-risk of assessing control risk too high -risk that the sample indicates a greater error rate than actually exists for the population at large

what risk is impacted: falzone and felter CPA's rely primarily on the cash receipts journal and the cash disbursements journal, internally generated evidence, in its audit of cash. they conclude cash is fairly stated, when in fact, a large withdrawal on dec 31 was not recorded resulting in a material overstatement of the year end cash balance

-detection risk

brodsky, CPA, is planning the audit engagement of griffin industries, a non issuer. an understanding of responsibilities needs to occur. who is responsible for coordinating client assistance?

-both -brodsky must coordinate with griffin's management regarding the nature and extent of client assistance to be provided

brodsky, CPA, is planning the audit engagement of griffin industries, a non issuer. an understanding of responsibilities needs to occur. who is responsible for detection of immaterial errors?

neither party **material errors = CPA

brodsky, CPA, is planning the audit engagement of griffin industries, a non issuer. an understanding of responsibilities needs to occur. who is responsible for provision of the representation letter?

griffin's management is responsible for providing a representation letter to the auditor at the conclusion of the audit

brodsky, CPA, is planning the audit engagement of griffin industries, a non issuer. an understanding of responsibilities needs to occur. who is responsible for following the correct accounting and reporting framework?

griffin's management is responsible for following GAAP when preparing the financial statements

brodsky, CPA, is planning the audit engagement of griffin industries, a non issuer. an understanding of responsibilities needs to occur. who is responsible for obtaining an understanding of internal control?

-brodsky CPA is responsible -auditor is responsible to obtain an understanding of the entity and its environment

brodsky, CPA, is planning the audit engagement of griffin industries, a non issuer. an understanding of responsibilities needs to occur. who is responsible for following generally accepted auditing standards?

-brodsky CPA -auditor is responsible for following GAAS in the audit of a non issuer

brodsky, CPA, is planning the audit engagement of griffin industries, a non issuer. an understanding of responsibilities needs to occur. who is responsible for establishment of internal control?

-griffin management -responsible for establishing and maintaining an effective system of internal control

brodsky, CPA, is planning the audit engagement of griffin industries, a non issuer. an understanding of responsibilities needs to occur. who is responsible for establishing the timing of the audit?

-both -brodsky must coordinate with griffin's management to establish an appropriate schedule for performing the audit

brodsky, CPA, is planning the audit engagement of griffin industries, a non issuer. an understanding of responsibilities needs to occur. who is responsible for compliance with laws and regulations?

-griffin's management is responsible for complying with relevant laws and regulations

kilmer, CPA, is performing a year end audit of a new client, jurgensen corp. jurgensen corp is a publicly held auto parts manufacturer. as an assistant on this new engagement, you are asked to help plan the engagement. indicate whether the following statement is true or false: because kilmer CPA has no experience with audits of auto parts manufacturers, they should not accept the engagement until after they have obtained sufficient knowledge of the auto parts industry

-false -you can accept without knowledge as long as you get an understanding after

kilmer, CPA, is performing a year end audit of a new client, jurgensen corp. jurgensen corp is a publicly held auto parts manufacturer. as an assistant on this new engagement, you are asked to help plan the engagement. indicate whether the following statement is true or false: prior to accepting the engagement, kilmer CPA should determine whether the accounting records are likely to be sufficient to support an opinion on the financial statement

-true -need to make sure the records are adequate for even performing an audit

kilmer, CPA, is performing a year end audit of a new client, jurgensen corp. jurgensen corp is a publicly held auto parts manufacturer. as an assistant on this new engagement, you are asked to help plan the engagement. indicate whether the following statement is true or false: prior to accepting, kilmer CPA should obtain knowledge relating to jurgensen's accounting methods including the extent to which computer processing is used

-false -can do that after accepting in planning stage

kilmer, CPA, is performing a year end audit of a new client, jurgensen corp. jurgensen corp is a publicly held auto parts manufacturer. as an assistant on this new engagement, you are asked to help plan the engagement. indicate whether the following statement is true or false: prior to accepting the engagement, kilmer CPA is required to make use of analytical procedures to identify unusual transactions and events that might be significant to the financial statements or might represent significant risks relevant to this audit

-false -can do that after accepting in planning stage

kilmer, CPA, is performing a year end audit of a new client, jurgensen corp. jurgensen corp is a publicly held auto parts manufacturer. as an assistant on this new engagement, you are asked to help plan the engagement. indicate whether the following statement is true or false: after accepting the engagement, kilmer CPA should inquire of third parties regarding jurgensen's reputation

-false -this should happen prior to accepting

kilmer, CPA, is performing a year end audit of a new client, jurgensen corp. jurgensen corp is a publicly held auto parts manufacturer. as an assistant on this new engagement, you are asked to help plan the engagement. indicate whether the following statement is true or false: after accepting the engagement, kilmer CPA should contact the predecessor auditor as part of evaluating the integrity of jurgensen's managemeent

-false -this should happen prior to accepting

kilmer, CPA, is performing a year end audit of a new client, jurgensen corp. jurgensen corp is a publicly held auto parts manufacturer. as an assistant on this new engagement, you are asked to help plan the engagement. indicate whether the following statement is true or false: after accepting the engagement, kilmer CPA should determine whether specialists should be utilized

-true -this occurs in the planning stage

-true

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the revenue cycle, the department that should NOT be allowed to authorize a bad debt write off because they will be executing the write off once permission is granted

accounts receivable

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the payroll cycle, the department that maintains hiring date, department salary and position

human resources

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the revenue cycle, the department that should approve the sales order before goods are shipped to the customer

credit department

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the expenditures cycle, the department that should approve the voucher and record the payment to the vendor after the payment is made but should NOT be allowed to mail the check

vouchers payable

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the rev cycle, the department that should prepare the sales invoice

billings department

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the expenditure cycle, the department that should receive a blind copy of the purchase order and prepare a document indicating what goods arrived from the vendor

receiving department

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the payroll cycle, the department that should approve employees hours worked including over time

all payroll hours should be approved by the department supervisors

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the payroll cycle, the department that should consistently hand out the payroll checks to employees that do NOT already receive direct deposit

independent pay master; low entry secretary

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the rev cycle, the department that should only be allowed to move goods within the organization and not be allowed to send goods outside the company to the customer

warehouse department

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the expenditures cycle, the department that should match up the vendor invoice to the purpose order and receiving report

vouchers payable

the harpers ferry corp sells all products on 30 day trade credit. bolivar and co CPA is performing an audit of harpers ferry corp and is becoming familiar with the departments and documents of the beverage wholesaler. bolivar CPA is hopeful that they can reduce control risk to a minimum level but only if control activities are found including segregation of duties and safeguarding of assets. which department within the organization is likely to perform this task for proper internal control: in the rev cycle, the department that should prepare the bill of lading

shipping department

harvey CPA is performing an audit of best beverage wholesalers and is anticipating assessing control risk for the revenue cycle at below the max level but only if harvey CPA can establish that assets are properly safeguarded and duties are properly segregated. choose which department should be responsible for maintaining internal control at a high level for the following: the department at best beverage wholesales that should have custody of all goods prior to releasing inventory ordered for shipment

warehouse --> they will release to shipping

harvey CPA is performing an audit of best beverage wholesalers and is anticipating assessing control risk for the revenue cycle at below the max level but only if harvey CPA can establish that assets are properly safeguarded and duties are properly segregated. choose which department should be responsible for maintaining internal control at a high level for the following: the department whose manager should report to the treasurer and not to anyone within the sales function

credit

harvey CPA is performing an audit of best beverage wholesalers and is anticipating assessing control risk for the revenue cycle at below the max level but only if harvey CPA can establish that assets are properly safeguarded and duties are properly segregated. choose which department should be responsible for maintaining internal control at a high level for the following: the department who should only be allowed to ship merchandise within the company, back and forth between company stores, etc

warehouse

harvey CPA is performing an audit of best beverage wholesalers and is anticipating assessing control risk for the revenue cycle at below the max level but only if harvey CPA can establish that assets are properly safeguarded and duties are properly segregated. choose which department should be responsible for maintaining internal control at a high level for the following: the department that should perform a check prior to allowing the shipment of goods on all orders over a certain dollar amount

credit

harvey CPA is performing an audit of best beverage wholesalers and is anticipating assessing control risk for the revenue cycle at below the max level but only if harvey CPA can establish that assets are properly safeguarded and duties are properly segregated. choose which department should be responsible for maintaining internal control at a high level for the following: the department that should prepare the pre numbered multi purpose document when a customer order is initially placed

sales

harvey CPA is performing an audit of best beverage wholesalers and is anticipating assessing control risk for the revenue cycle at below the max level but only if harvey CPA can establish that assets are properly safeguarded and duties are properly segregated. choose which department should be responsible for maintaining internal control at a high level for the following: the department that should prepare the second document in the sales cycle known as the bill of lading

shipping

harvey CPA is performing an audit of best beverage wholesalers and is anticipating assessing control risk for the revenue cycle at below the max level but only if harvey CPA can establish that assets are properly safeguarded and duties are properly segregated. choose which department should be responsible for maintaining internal control at a high level for the following: the department that should receive a copy of both the sales order and the bill of lading

billing

harvey CPA is performing an audit of best beverage wholesalers and is anticipating assessing control risk for the revenue cycle at below the max level but only if harvey CPA can establish that assets are properly safeguarded and duties are properly segregated. choose which department should be responsible for maintaining internal control at a high level for the following: the department that should prepare the third document in the sales cycle known as the sales invoice

billing

harvey CPA is performing an audit of best beverage wholesalers and is anticipating assessing control risk for the revenue cycle at below the max level but only if harvey CPA can establish that assets are properly safeguarded and duties are properly segregated. choose which department should be responsible for maintaining internal control at a high level for the following: the department that should initiate bad debt write offs by seeking authorization for the write off from the treasurer

credit

harvey CPA is now performing tests of controls and substantive tests regarding assertions relating to the revenue cycle of best beverage wholesales. what assertion is impacted based on the following: harvey CPA tests to determine how often a customer can place an order and receive a shipment of goods without a credit check being performed

valuation

harvey CPA is now performing tests of controls and substantive tests regarding assertions relating to the revenue cycle of best beverage wholesales. what assertion is impacted based on the following: harvey inquires of management and reviews debt agreements and board minutes for evidence that AR have been factored/sold

rights and obligations

harvey CPA is now performing tests of controls and substantive tests regarding assertions relating to the revenue cycle of best beverage wholesales. what assertion is impacted based on the following: harvey sends external confirmations to best beverage customers requesting return whether the amount indicated is correct or not

existence - positive confirmation

harvey CPA is now performing tests of controls and substantive tests regarding assertions relating to the revenue cycle of best beverage wholesales. what assertion is impacted based on the following: harvey CPA examines how much bad debt was written off just after year end due to customer bankruptcies

valuation

existence/occurrence

existence

harvey CPA is now performing tests of controls and substantive tests regarding assertions relating to the revenue cycle of best beverage wholesales. what assertion is impacted based on the following: harvey compares a sample of bills of lading to corresponding sales invoices and entries in the sales journal

completeness

harvey CPA is now performing tests of controls and substantive tests regarding assertions relating to the revenue cycle of best beverage wholesales. what assertion is impacted based on the following: harvey CPA finds several bills of lading for which no sales invoice or entry in the sales journal can be located. harvey inquires and is told by best management that there were no goods shipped or received on consignment

completeness

lombard CPA is performing an audit of the lawhorne corp. lawhorne corp owns several retain furniture stores. lombard CPA is assessing control risk for expenditures, payables and cash payments for lawhorne corp. choose which document is relating to the expenditure cycle for the following: the assistant manager of the sales department notices that furniture will be needed for the holiday sale and requests permission to order 6 green love seats

purchase requisition

lombard CPA is performing an audit of the lawhorne corp. lawhorne corp owns several retain furniture stores. lombard CPA is assessing control risk for expenditures, payables and cash payments for lawhorne corp. choose which document is relating to the expenditure cycle for the following: if the warehouse does not hold the goods, the warehouse should sign this form and forward it to the purchasing department

purchase requisition

lombard CPA is performing an audit of the lawhorne corp. lawhorne corp owns several retain furniture stores. lombard CPA is assessing control risk for expenditures, payables and cash payments for lawhorne corp. choose which document is relating to the expenditure cycle for the following: if the goods are not in the warehouse, the purchasing department should fill out the second document in the purchasing cycle and send a copy to AP

purchase order

lombard CPA is performing an audit of the lawhorne corp. lawhorne corp owns several retain furniture stores. lombard CPA is assessing control risk for expenditures, payables and cash payments for lawhorne corp. choose which document is relating to the expenditure cycle for the following: one copy of this document should go to the company's receiving room and the copy should not indicate quantity to be received to ensure the receiving room makes an accurate count

purchase order known as blind copy

lombard CPA is performing an audit of the lawhorne corp. lawhorne corp owns several retain furniture stores. lombard CPA is assessing control risk for expenditures, payables and cash payments for lawhorne corp. choose which document is relating to the expenditure cycle for the following: when the goods first arrive, the receiving room should count the goods and prepare the third document in the cycle

receiving report

lombard CPA is performing an audit of the lawhorne corp. lawhorne corp owns several retain furniture stores. lombard CPA is assessing control risk for expenditures, payables and cash payments for lawhorne corp. choose which document is relating to the expenditure cycle for the following: a copy of this document should be sent to the user department that first requested the goods

receiving report

lombard CPA is performing an audit of the lawhorne corp. lawhorne corp owns several retain furniture stores. lombard CPA is assessing control risk for expenditures, payables and cash payments for lawhorne corp. choose which document is relating to the expenditure cycle for the following: the fourth document in the purchasing cycle will ultimately be received from outside the organization and be forwarded to AP

purchase invoice

lombard CPA is performing an audit of the lawhorne corp. lawhorne corp owns several retain furniture stores. lombard CPA is assessing control risk for expenditures, payables and cash payments for lawhorne corp. choose which document is relating to the expenditure cycle for the following: AP should receive a copy of this document prior to authorizing the bill to be paid in order to make sure that the company is not being scammed (more than one document can be the answer for this one)

purchase requisition, purchase order, receiving report, and purchase invoice

lombard CPA is performing an audit of the lawhorne corp. lawhorne corp owns several retain furniture stores. lombard CPA is assessing control risk for expenditures, payables and cash payments for lawhorne corp. choose which document is relating to the expenditure cycle for the following: if vouchers payable approves the purchase invoice, this document should be prepared authorizing the payment to the vendor

voucher

purchase requisition, purchase order, receiving report, and purchase invoice and the voucher

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA begins with a sample of entries in the AP listing and traces them to the voucher package

two directional test; existence

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA examines a sample of purchase requisitions to determine whether they are properly approved by department managers prior to being sent to the warehouse

-test of controls -if the auditor determines the control is working, reduce the assessed level of control risk

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA examines a sample of paid vouchers and determines whether each voucher is stamped paid by the check signer

-test of controls -provides assurance that each voucher is submitted and paid only once -if the auditor tests the control and determines that the paid vouchers were all perforated, the control would pass the auditor's test (observation) and as a result the auditor could reduce the assessed level of control risk and do less substantive testing

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA picks a sample of purchase orders and the related receiving reports and compares them to the purchases journal and the cash disbursements journal

two directional test; completeness

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA obtains the AP listing, adds it and compares the listing to the general ledger

valuation and accuracy

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA observes whether the treasurer who signs the check also mails the check

-test of controls -can't send items backwards -custody should be segregated

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA observes whether the vouchers payable department reconciles the purchase invoice to the receiving report and the purchase order before approving the bill for payment

-test of controls

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA examines cash disbursements made in the first two weeks of year two

completeness of liabilities

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA selects inventory transactions recorded in the voucher register for 3 days prior to the end of the fiscal year, then compares each of these entries to the related receiving report and purchase invoice

existence of inventory -cutoff test

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA selects a sample of vouchers related to expenses to determine whether the purchase was posted incorrectly to an asset account

classification

completeness

valuation

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA determines that related party purchases have been given proper mention in the footnotes

presentation and disclosure

lombard CPA is gathering evidence by performing substantive tests and tests of controls regarding the expenditures cycle. if the test represents a substantive test, choose which assertion is impacted; if the procedure is a test of controls, choose the test of controls --> lombard CPA reviews a sample of voucher packages for the presence of the purchase requisition, purchase order, receiving report and purchase invoice to ensure that the debt is not of the president of lawhorne corp

rights and obligations

subtract from hersh book balance

poznok and co, CPA is performing an audit of hersh markets for the current year. as part of the reconciliation of the checking account on dec 31, iggy, a staff auditor at poznok and co CPA, has noted the following item. determine the appropriate treatment to the book or bank (subtract or add) balance: all checks mailed by hersh markets have cleared first union bank except for check #5994 written to imperial products on dec 26 for $10,310

subtract from bank balance -bank doesn't know about it yet for dec 31 -it will be shown as a disbursement in the books of the company for dec and will most likely clear in jan

poznok and co, CPA is performing an audit of hersh markets for the current year. as part of the reconciliation of the checking account on dec 31, iggy, a staff auditor at poznok and co CPA, has noted the following item. determine the appropriate treatment to the book or bank (subtract or add) balance: a customer wrote a bad check to hersh markets on dec 14 for $444 which hersh deposited immediately on dec 15 and recorded in the books when deposited

subtract from hersh book balance

add to bank balance

poznok and co, CPA is performing an audit of hersh markets for the current year. as part of the reconciliation of the checking account on dec 31, iggy, a staff auditor at poznok and co CPA, has noted the following item. determine the appropriate treatment to the book or bank (subtract or add) balance: a check written by hersh markets dated dec 8 was correctly recorded in the books for $2,200, but was cashed for $2,000. the bank corrected the error on jan 3

subtract $200 from the bank balance

poznok and co, CPA is performing an audit of hersh markets for the current year. as part of the reconciliation of the checking account on dec 31, iggy, a staff auditor at poznok and co CPA, has noted the following item. determine the appropriate treatment to the book or bank (subtract or add) balance: hersh markets is a preferred customer of its bank, first union bank, and receives a partial fee rebate at the end of each month. the fee rebate on dec 31 was $18

add $18 to hersh's book balance

poznok and co, CPA is performing an audit of hersh markets for the current year. as part of the reconciliation of the checking account on dec 31, iggy, a staff auditor at poznok and co CPA, has noted the following item. determine the appropriate treatment to the book or bank (subtract or add) balance: on dec 31, hersh prepares and records the check for refuse removal for the month of jan in the amount of $200. the president of hersh likes to present the check to the waste removal company (whose owner is a close personal friend) in person and does so on jan 2. the check clears the bank on jan 4

add to hersh book balance

poznok and co, CPA is performing an audit of hersh markets for the current year. as part of the reconciliation of the checking account on dec 31, iggy, a staff auditor at poznok and co CPA, has noted the following item. determine the appropriate treatment to the book or bank (subtract or add) balance: hersh markets uses XYZ inc to prepare its payroll. XYZ inc withdrew the payroll and taxes for the pay period ended dec 20 on dec 24. the amount of the withdrawal was $18,320. the payroll service communicated this information to the company on dec 25 and the withdrawal was recorded by hersh in the accounting records on dec 28

no impact on book or bank balance

poznok and co, CPA is performing an audit of hersh markets for the current year. as part of the reconciliation of the checking account on dec 31, iggy, a staff auditor at poznok and co CPA, has noted the following item. determine the appropriate treatment to the book or bank (subtract or add) balance: credit card deposits for the month of dec totaled $34,000. first union bank reduces the daily deposits for a credit card vendor fee of 2%. the fee for dec credit card deposits has not been recorded on the books of hersh

subtract $680 from hersh book balance -34000*.02=680

add $33 to hersh dec book balance

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: on the basis of requisitions from various users departments, the human resources department hires new employees

-strength: authorization

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: overtime must be approved by the employee's immediate supervisor

-strength: authorization

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: where employees are paid hourly, a time clock is used to track hours worked

-strength: record keeping

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: salaried employees prepare time sheets to indicate the time spent on various projects

-strength: record keeping

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: assuming an outside service org is NOT used, the payroll department computes gross wages based on information received from the user departments regarding hours worked, salary, jobs completed and prepares the payroll register

-strength: record keeping

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: assuming an outside service organization is used to compute gross and net payroll, the payroll department reviews the report issued by the service organization after issuing the payroll checks

-internal control weakness -if it said it reviewed the report prior to issues the checks, that would have been record keeping

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: if a service organization is not used, the payroll department is responsible for issuing signed payroll checks using either a pre printed, manual signature, or signed with a signature stamp

internal control custody weakness -unsigned checks go to the treasurer or CFO

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: human resources department has the ability to initiate changes in pay rates

strength: authorization

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: the payroll department has the ability to initiate changes in the number of hours worked

internal control authorization weakness

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: while most employees receive direct deposit, those that still prefer a paycheck will receive it from the company paymaster rather than their department supervisor

strength: custody

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: unclaimed payroll checks are not returned to the payroll department nor returned to the user department supervisors

strength: custody -return to an independent party to investigate or the paymaster should investigate themselves -checks should never go backwards through the system

as part of the annual audit, you are gathering evidence regarding the payroll cycle to determine proper segregation of duties as part of assessing control risk. for the following, if the item represents an internal control strength, determine whether it relates to authorization, record keeping, or custody. if it describes a weakness, choose the weakness: the HR department periodically compares the personnel files with the payroll files. this is to help ensure that only authorized payments have been made in the proper amounts to appropriate personnel

internal control weakness -independent party or internal audit department

what assertion is impacted by the auditor's substantive testing of payroll with the following: auditor recalcs the payroll accrual and compares it to the recorded amount

valuation, allocation and accuracy

what assertion is impacted by the auditor's substantive testing of payroll with the following: auditor examines supporting documentation like the quarterly payroll tax returns to verify whether the payroll accrual is the liability of the entity

rights and obligations

what assertion is impacted by the auditor's substantive testing of payroll with the following: auditor performs a test of balances to determine whether all accrued payroll liabilities were recorded

completeness

what assertion fits the following: in the fixed asset cycle, the auditor reviews lease agreements to determine if lease capitalization might be required

completeness

what assertion fits the following: in the rev cycle, the auditor gathers evidence in regards to the credit granting policies of the company

valuation/allocation

what assertion fits the following: in the expenditure cycle, the auditor begins with cancelled checks and attempts to match them to receiving reports and purchase invoices

existence/occurrence

what assertion fits the following: in the fixed assets cycle, the auditor reviews the provision for depreciation expense and determines that depreciable lives and methods used in the current year are consistent with those used in the prior year

valuation/allocation

what assertion fits the following: in performing the year end audit procedures for sales, the auditor identified several sales transactions recorded in dec of year 1, that were not actually shipped until jan of year 2

-existence/occurrence for sales -cutoff too

what assertion fits the following: in the fixed asset cycle, the auditor inquires of management about any fixed assets pledged as security for borrowings and reviews loan agreements to identify such collateral

rights and obligations

what assertion fits the following: in the inventory cycle, the auditor traces client tags to client inventory listing

completeness

what assertion fits the following: during the investment cycle, the auditor obtains confirmations of investments held by independent custodians

existence and rights & obligations

what assertion fits the following: in the expenditure cycle, the auditor examines cash payments made by the client in the sub period and traces the payment to balances at year end

completeness

what assertion fits the following: in the rev cycle, the auditor examines the debits to allowance for doubtful accounts that were made in the sub period

valuation

what assertion fits the following: in the inventory cycle, the auditor locates items in the client's inventory listing and traces them to the tags used to count the client's investory

existence

what assertion fits the following: in the rev cycle, the auditor examines cash collections made by the client in the sub period

existence

what assertion fits the following: in the rev cycle, the auditor scanned the sales account and noticed that sales returns were being debited to sales instead of using a contra account, such as sales returns and allowances

classification

what assertion fits the following: in the payroll cycle, the auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing. assume the last payroll date of the year is friday dec 30

completeness

what assertion fits the following: in the fixed assets cycle, the auditor identifies assets from the fixed asset records and then attempts to physically examine them

existence

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: all transactions have been recorded in the accounting records and are reflected in the financial statements

management rep letter

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: in connection with an audit of our financial statements, management has prepared and furnished to our auditors, a description of evaluation of certain contingencies

audit inquiry letter to legal counsel

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: provision has been made for any material loss to be sustained in the fulfillment of, or from the inability to fulfill, any sales commitments

management rep letter

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: fees for our services are based on our regular per diem rates, plus travel and other out of pocket expenses

auditor's engagement letter

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: the objective of our audit is to express an unmodified opinion on the financial statements, although it is possible that facts or circumstances encountered may preclude us from expressing an unmodified opinion

auditor's engagement letter

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: we are not aware of any instances of non compliance with laws and regulations that have not been fully disclosed

management rep letter

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: are you aware of any facts or circumstances that may indicate a lack of integrity by any member of senior management?

communication with predecessor

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: if a difference of opinion on a practice problem existed between engagement personnel and a specialist or other consultant, was the difference resolved in accordance with firm policy and appropriately documented?

partner engagement review

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: although we have not conducted a comprehensive, detailed search of our records, no other deposit or loan accounts have come to our attention except as noted below

standard financial institution confirmation request

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: at the conclusion of our audit, we will request certain written representations from you about the financial statements and related matters

auditor's engagement letter

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable

management rep letter

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: as discussed in note 14 to the financial statements, the company has had numerous dealings with businesses controlled by, and the people who are related to, the officers of the company

auditor's report

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: there were unreasonable delays by management in permitting the commencement of the audit and in providing needed information

communication with audit committee

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: if this statement is not correct, please write promptly, using the enclosed envelope, and give details of any differences directly to our auditors

AR confirmation

the following scenario represents a series of statements, questions, excerpts and comments taken from various parts of an auditor's working paper file. select the documentation where you'd find: the company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern

auditor's report

rappaport CPA is engaged to audit the financial statements of burke inc for the year ended dec 31, year 5. choose whether the item described is a type 1 sub event, type 2 sub event, or a sub discovery of of facts for the following scenario: burke corp completed its purchase of opperman inc on jan 3 year 6 and this event is considered significant

type 2 sub event, footnote disclosure only

rappaport CPA is engaged to audit the financial statements of burke inc for the year ended dec 31, year 5. choose whether the item described is a type 1 sub event, type 2 sub event, or a sub discovery of of facts for the following scenario: during the audit, rappaport discovered that several material transactions were not recorded in the financial records of burke

-not a sub event -this is just forgetting a procedure, go to management and tell them books aren't complete -if this was after the audit instead of during, it would've been a sub discovery of facts

rappaport CPA is engaged to audit the financial statements of burke inc for the year ended dec 31, year 5. choose whether the item described is a type 1 sub event, type 2 sub event, or a sub discovery of of facts for the following scenario: prior to the audit report release, a customer in financial trouble who owed burke corp, $2.5M, declared bankruptcy in early jan year 6. this receivable was listed on the aging schedule in dec of year 5

type 1 sub event, restate needs to happen

rappaport CPA is engaged to audit the financial statements of burke inc for the year ended dec 31, year 5. choose whether the item described is a type 1 sub event, type 2 sub event, or a sub discovery of of facts for the following scenario: prior to releasing the audit report, rappaport discovered that burke corp redeemed $5M in bond debt in early jan of year 6

type 2 sub event, disclosure only

rappaport CPA is engaged to audit the financial statements of burke inc for the year ended dec 31, year 5. choose whether the item described is a type 1 sub event, type 2 sub event, or a sub discovery of of facts for the following scenario: prior to releasing the audit report, rappaport discovered that a material flood loss occurred in jan year 6 at a warehouse where burke corp stored inventory. this loss is considered to be material

type 2 sub event, disclosure only -if this happened in decemeber, it wouldn't be a sub event

rappaport CPA is engaged to audit the financial statements of burke inc for the year ended dec 31, year 5. choose whether the item described is a type 1 sub event, type 2 sub event, or a sub discovery of of facts for the following scenario: shortly after the audit report release, rappaport CPA realized they forgot to confirm certain receivables considered to be material

-not a sub event -this is an omitted audit procedure, rappaport should try to determine if the opinion could still be supported

rappaport CPA is engaged to audit the financial statements of burke inc for the year ended dec 31, year 5. choose whether the item described is a type 1 sub event, type 2 sub event, or a sub discovery of of facts for the following scenario: shortly after the audit report release, rappaport CPA discovered that there were material related party transactions that were not discovered

sub discovery of facts -new financial statements should be issued that disclose the related party transactions

rappaport CPA is engaged to audit the financial statements of burke inc for the year ended dec 31, year 5. choose whether the item described is a type 1 sub event, type 2 sub event, or a sub discovery of of facts for the following scenario: in jan, prior to the audit report being issued, a customer of burke's suddenly declared bankruptcy. the amount of the receivable was considered material

type 2 sub event

a CPA discovered the following item while auditing the inventory account of jeffries inc. record the adjusting JE for year 3, if necessary for the following scenario: goods in the shipping area were excluded from inventory although shipment was not made until jan 2, year 4. the goods, billed on account for $100K on dec 30, year 3, were shipped FOB shipping point. the goods had a cost of $80K

-debit to inventory and credit to COGS for $80K -debit to sales and credit to AR of $100K

a CPA discovered the following item while auditing the inventory account of jeffries inc. record the adjusting JE for year 3, if necessary for the following scenario: the company purchased inventory on account for $16K, which was shipped FOB shipping point from the vendor on dec 23, year 3. the inventory was received jan 3, year 4. this transaction was recorded on jan 3, year 4

-JE should've been on dec 23, year 3 bc the transfer of title occurred when the goods were shipped from the vendor -debit to inventory and credit to AP $16K

a CPA discovered the following item while auditing the inventory account of jeffries inc. record the adjusting JE for year 3, if necessary for the following scenario: inventory sold on dec 30, year 3 for $15K on account were shipped on dec 31, year 3. the terms of the sale were FOB destination and the goods were received by the customer on jan 2, year 4. this transactions was recorded on jan 2, year 4

no adjusting JE needed

a CPA discovered the following item while auditing the inventory account of jeffries inc. record the adjusting JE for year 3, if necessary for the following scenario: inventory sold on dec 31, year 3 for $50K on account were shipped FOB shipping point on dec 31, year 3. the goods were received by the customer on jan 2, year 4. the company has a profit margin of 20%. no JE was recorded in year 3

-should have been recorded on dec 31 year 3 -50k * (1-.2) = 40K -debit COGS $40K and AR $50K, credit sales $50K and inventory $49K

lester CPA is auditing belfer inc, a non issuer for the current year ended dec 31, 2020. indicate whether the item should be stored in lester CPA's 2020 current audit file, permanent file, or is not required to be stored in the 2020 audit documentation for the following: a flowchart of the internal control procedure

permanent file

current file

permanent file

current file

not required to go in the current or permanent file

current file

permanent file

current file

not required to go in the current or permanent errors

current file

permanent file

current file

not required to go in current or permanent file

current file

permanent file

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: compare the latest subsequent interim financial information with the financial statements being reported on

yes -interim statements might provide evidence about conditions arising subsequent to the balance sheet date that need to be discovered to prevent the statements from being misleading -sub events that provide evidence of conditions that arose subsequent to the date of the financial statements may require footnote disclosures to prevent the misleading

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: comparing the financial statements being reported on with those of the prior period

no -performed at the beginning of the audit in planning stage for an analytical procedure

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: communicate material weaknesses in internal control to the client's audit committee

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: investigate changes in non-current debt occurring after year end

yes -determine whether disclosures are necessary

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: reading the minutes of meetings of those charged with governance after year end

yes

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: determine whether the company's stock price declined significantly after year end as a result of a major financial advisor's negative outlook on the company's long term prospects

no -market price of a company's common stock is not a financial event that affects the fairness of financial statements or how they are interpreted -no revision or footnote disclosure is needed even if it did occur as a result of an advisor's call

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: investigate personnel changes in the accounting department occurring after year end

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: inquire of management whether any unusual accounting adjustments were made or considered

yes

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: inquire about payroll checks that were written before year end but cashed after year end

no -the checks were written in the year under audit, so the assumption is that they are properly included on the income statement as expenses already

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: examine changes in the quoted market prices of investments purchased since year end

no -investments purchased after year end do not affect the current year's balance sheet

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: inquire about the current status of transactions that were recorded on the basis of preliminary data

yes -may discover sub events that require adjustment of, or further disclosure about, the prelim data

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: obtaining a letter of rep from management regarding whether any assets in the sub period have been appropriated by the government or destroyed by natural disaster

yes -should be dated as of the auditor's report from management stating that adjustments or disclosures have been made for any sub events -auditor should determine whether any sub events have been properly accounted for and disclosed

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: determine that changes in employee pay rates after year end were properly authorized

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: recompute depreciation charges for plant assets sold for substantial gains since the year end

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: inquiring as to whether any credit losses have been reported in the sub period from any acknowledged distressed customers bankruptcy filings

yes -type 1 specifically

yes -footnote disclosure only -type 2

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: reperform tests fo controls that indicated significant deficiencies in the operation of internal control

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: apply analytical procedures to the details of the balance sheet accounts that were tested at interim dates

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: inquiry of management as to whether any events occurred relevant to the recoverability of assets

yes -may result in financial statements needing to be restated -type 1

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: confirming a sample of material accounts receivable established after year end

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: understanding management's procedures for identifying sub events

yes

for the following situation, answer yes or no whether the audit procedure described provides evidence regarding subsequent events: inquiring of management about whether new commitments, borrowings or guarantees have been entered into

yes

sadecki and gibson CPA's are performing an audit of major corp, a non issuer. prepare the adjusting or correcting JE and then determine the impact on the inventory turnover ratio (COGS/avg inventory) after the correction or adjustment, based on the following situation: major corp fails to record inventory in transit at year end, with shipping terms FOB shipping point since the vendor invoice had not arrived by year end

-JE: debit inventory, credit AP -ratio: increase in inventory would increase the denominator, decreasing the turnover ratio

sadecki and gibson CPA's are performing an audit of major corp, a non issuer. prepare the adjusting or correcting JE and then determine the impact on the inventory turnover ratio (COGS/avg inventory) after the correction or adjustment, based on the following situation: inventory in one of major corp's new warehouses on dec 31, was inadvertently omitted by major corp during the year end physical count

-JE: debit to inventory, credit to COGS -ratio: increase in inventory increases the denominator, decreasing the ratio; but the decrease in COGS would decrease the numerator and reduce the ratio as well

sadecki and gibson CPA's are performing an audit of major corp, a non issuer. prepare the adjusting or correcting JE and then determine the impact on the inventory turnover ratio (COGS/avg inventory) after the correction or adjustment, based on the following situation: during the physical inventory, major corp included inventory out on consignment

-JE: no entry needed -ratio: no impact

sadecki and gibson CPA's are performing an audit of major corp, a non issuer. prepare the adjusting or correcting JE and then determine the impact on the inventory turnover ratio (COGS/avg inventory) after the correction or adjustment, based on the following situation: during the physical inventory count, major corp included inventory that it was holding on consignment

-JE: debit to COGS, credit to inventory -ratio: reducing inventory decreases the denominator, increasing the ratio; increasing COGS increases the numerator, increasing the ratio

sadecki and gibson CPA's are performing an audit of major corp, a non issuer. prepare the adjusting or correcting JE and then determine the impact on the current ratio (CA/CL) as a result of failing to record the proper entry for the following: during the final week of the year under audit, major corp recorded revenue for services actually rendered to clients in the sub year

-JE: debit sales, credit AR -ratio: overstated since AR would've been overstated

sadecki and gibson CPA's are performing an audit of major corp, a non issuer. prepare the adjusting or correcting JE and then determine the impact on the current ratio (CA/CL) as a result of failing to record the proper entry for the following: major corp pays employees bi-weekly. employee pay for regular and overtime work just before year end but paid in the sub year, was not recorded by major in the year under audit

-JE: debit wages expense, credit wages payable -ratio: overstated since CL would've been understated

sadecki and gibson CPA's are performing an audit of major corp, a non issuer. prepare the adjusting or correcting JE and then determine the impact on the current ratio (CA/CL) as a result of failing to record the proper entry for the following: during the year under audit, a former employee of major corp sued the company for wrongful termination. legal counsel has advised that it is "reasonably possible" that the company will be assessed damages in the estimated amount of $100K. no entry was made at year end

-JE: none needed; just a footnote since it said reasonably possible not probable -ratio: no impact

sadecki and gibson CPA's are performing an audit of major corp, a non issuer. prepare the adjusting or correcting JE and then determine the impact on the current ratio (CA/CL) as a result of failing to record the proper entry for the following: the auditor's confirm major corp's line of credit with shore bank. the bank's confirmation reply indicated that interest due for the year under audit was unpaid ay year end. monthly interest payments had been made for the first eleven months of the year and the auditor's noted that nothing was recorded for unpaid interest at year end

-JE: debit interest expense, credit interest payable for december's interest -ratio: overstated because CL would've been understated

sadecki and gibson CPA's are performing an audit of major corp, a non issuer. prepare the adjusting or correcting JE and then determine the impact on the current ratio (CA/CL) as a result of failing to record the proper entry for the following: major corp received cash in advance of $30K in june and by year end only $6K remained unearned. no adjustment was made at year end but the proper entry was made in june

-JE: june - debit cash $30k, credit unearned rev $30k; december - debit unearned rev $24k, credit earned rev $24k -ratio: understated because CL would've been overstated

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: a portion of calderon corp's LT liabilities is guaranteed by bostock corp, an affiliated company, which becomes liable for the debts if calderon corp defaults on the debt

rights and obligations

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: in performing the year end sales cutoff procedures, maskell and magee identified several of calderon corp's sales transactions recorded in dec of year 1, that were not actually shipped until jan of year 2

existence/occurrence

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: while auditing inventory, maskell and magee discovered that half of calderon corp's inventory was pledged as collateral for a loan obtained from 1st interstate bank

rights and obligations

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: while performing the year end search for unrecorded liabilities, maskell and magee identified several instances where merchandise had been received from vendors before year end but the liability was recorded in the sub period

completeness

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: while auditing accounts receivable, maskell and magee inquire about AR that have been sold or factored

rights and obligations

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: maskell and magee trace recorded sales to the shipping documents in order to verify that the merchandise that produced the receivable was actually sent to the customer

existence

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: maskell and magee examine calderon corp's debt instruments for proper classification

presentation

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: while auditing AR, maskell and magee compare calderon corp's AR write offs with doubtful account estimates

valuation

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: makell and magee are concerned that recorded net PPE are for proper amounts so they review the provision for depreciation expense

valuation

maskell and magee CPA's are performing an audit of the calderon corp, a non issuer for dec 31, year 1. what assertion applies to the following situation: when auditing inventory, maskell and magee trace inventory test counts to inventory subsidiary accounts

completeness

if ending inventory is understated by $26K in year 5, what is the impact in year 5 for: beginning inventory, purchases, goods avail, ending inventory, COGS, NI, RE and WC?

BI = good purchases = good goods avail = good EI = understated by $26k COGS = overstated by $26k NI = understated by $26k RE = understated by $26k WC = understated by $26k

if ending inventory is understated by $26K in year 5, what is the impact in year 6 for: beginning inventory, purchases, goods avail, ending inventory, COGS, NI, RE and WC?

BI = understated by $26k purchases = good goods avail = understated by $26k EI = good COGS = understated by $26k NI = overstated by $26k RE = good WC = good

if ending inventory is overstated by $50K in year 5, what is the impact in year 5 for: beginning inventory, purchases, goods avail, ending inventory, COGS, NI, RE and WC?

BI = good purchases = good goods avail = good EI = overstated by $50k COGS = understated by $50k NI = overstated by $50k RE = overstated by $50k WC = overstated by $50k

if ending inventory is overstated by $50K in year 5, what is the impact in year 6 for: beginning inventory, purchases, goods avail, ending inventory, COGS, NI, RE and WC?

BI = overstated by $50k purchases = good goods avail = overstated by $50k EI = good COGS = overstated by $50k NI = understated by $50k RE = good WC = good

what is the impact on COGS and NI if there were errors in both beginning and ending inventory for year 5?

BI = understated by $26k purchases = good goods avail = understated by $26k EI = overstated by $50k COGS = understated by $76k NI = overstated by $76k RE = overstated by $76k WC = overstated by $50k

you are doing an audit of edgar corp as of dec 31, year 8. as part of the audit, information was obtained regarding the corporate checking account at lexington bank as of dec 31, year 8. analyze the following and prepare the adjusted cash balance as of dec 31, year 8: lexington bank collected. antoe for $4,330 from an edgar corp customer on 12/31/8 but charged edgar corp a $30 service fee

-impacts balance per books 4,330 - 30 = +4,300

you are doing an audit of edgar corp as of dec 31, year 8. as part of the audit, information was obtained regarding the corporate checking account at lexington bank as of dec 31, year 8. analyze the following and prepare the adjusted cash balance as of dec 31, year 8: two customer checks in the amount of $36k each, were received by edgar corp on dec 31 year 8, but not listed on the 12/31/8 bank statement. edgar corp recorded one of the deposits on 12/31/8 but not the other

-impacts balance per books and per bank -books: +36,000 for the one check not recorded yet -bank: +72,000 for both checks not credited by bank yet

you are doing an audit of edgar corp as of dec 31, year 8. as part of the audit, information was obtained regarding the corporate checking account at lexington bank as of dec 31, year 8. analyze the following and prepare the adjusted cash balance as of dec 31, year 8: a customer's check received on 12/24 for $5,280 was returned for insufficient funds. the customer, raff brands, has never previously bounded a check. lexington bank charged edgar corp a fee of $5

-impacts balance per books 5,280 + 5 = -5,285

-impacts balance per books 9,819 - 9,198 = +621

-impacts balance per books -80

you are doing an audit of edgar corp as of dec 31, year 8. as part of the audit, information was obtained regarding the corporate checking account at lexington bank as of dec 31, year 8. analyze the following and prepare the adjusted cash balance as of dec 31, year 8: the following checks were recorded by edgar corp but did not clear the bank as of dec 31, year 8 --> 12/29 check #44980 for $13,456, 12/30 check #44991 for $12,322, 12/31 check #44998 for $5,829. all of the above checks were mailed prior to dec 31 year 8. check #44980 was voided on 1/04/9

-impacts balance per bank and per book -bank: 12,322 + 5,829 = -18,151 -book: +13,456

in auditing receivables, riley CPA will use statistical sampling to evaluate whether there was proper authorization for shipping the goods and to determine whether the resulting receivables are fairly stated. riley had determined the following: -risk of assessing control risk too low = 5% -tolerable deviation = 7% -expected deviation = 2.5% -allowance for sampling risk = 3% -sample size = 75 customer invoices how will the sample size change if the risk of assessing control risk too low is revised to 4%?

increase

decrease

in auditing receivables, riley CPA will use statistical sampling to evaluate whether there was proper authorization for shipping the goods and to determine whether the resulting receivables are fairly stated. riley had determined the following: -risk of assessing control risk too low = 5% -tolerable deviation = 7% -expected deviation = 2.5% -allowance for sampling risk = 3% -sample size = 75 customer invoices how will the sample size change if the auditor determined that the credit manager was out of work for three months of the year due to surgery?

increase

in auditing receivables, riley CPA will use statistical sampling to evaluate whether there was proper authorization for shipping the goods and to determine whether the resulting receivables are fairly stated. riley had determined the following: -risk of assessing control risk too low = 5% -tolerable deviation = 7% -expected deviation = 2.5% -allowance for sampling risk = 3% -sample size = 75 customer invoices in evaluating the invoices for proper authorization, riley determines a sample deviation rate of 3.5%. what conclusion will riley draw?

controls are effective

in auditing receivables, riley CPA will use statistical sampling to evaluate whether there was proper authorization for shipping the goods and to determine whether the resulting receivables are fairly stated. riley had determined the following: -risk of assessing control risk too low = 5% -tolerable deviation = 7% -expected deviation = 2.5% -allowance for sampling risk = 3% -sample size = 75 customer invoices if the allowance for sampling risk was 5% rather than 3%, what conclusion will riley make?

controls are ineffective

jenkins CPA is performing PPS sampling on the AR of its client, koonce corp. koonce AR is reported at $1.2M and has over 1000 customers. tolerable misstatement is $40,000. the allowance for sampling risk (risk of incorrect acceptance) specified by jenkins CPA is 10%. jenkins wants to be 90% confident that the recorded balance is not overstated by more than $40,000. risk of incorrect acceptance 5% = 3.0 confidence level 10% = 2.31 15% = 1.9 determine the sampling interval

40,000 / 2.31 = $17,316

sampling interval = 17,316 1,200,000 / 17,316 = 69.3 --> 70 items in sample to test for overstatement

true

false

chapter 7 lecture 9 simulation - LOOK AT IT AGAIN

too long to put into this

an auditor is evaluating the impact that several cash transactions may have on key financial ratios. assume the stock price remains the same and cash flow from operations (CFO) prior to any events is $500k. how does the following impact the cap ex ratio (CFO/Cap ex --> 4.5:1), OCF ratio (CFO/CL --> 0.35:1), acid test ((cash + AR + ST marketable securities)/CL --> 1.05:1), and price to OCF (stock p/CFO --> 30:1): the company receives customer advances of $3,000

debit cash, unearned rev credit -cap ex ratio: increase bc CFO increases with no change in cap ex -OCF ratio: increase bc both CFO and CL increase by the same amount -acid test: decrease bc both cash and CL increase by the same amount -price to OCF: decrease bc stock price stays the same, while CFO increases

-cap ex ratio: decrease bc CFO decreases with no change in cap ex -OCF ratio: decrease bc both CFO and CL decrease and when the ratio is below 1, a decrease in both the numerator and denominator will cause the overall ratio to decrease -acid test: increase bc both cash and CL decrease and when the ratio is above 1, a decrease in both the numerator and denominator will cause the overall ratio to increase -price to OCF: increase bc price stays the same, while CFO decreases

-cap ex ratio: no change bc dividends paid are a CFF outflow and cap ex does not change -OCF ratio: no change bc CFO is not impacted and CL will remain the same after the declaration and subsequent payment of dividends -acid test: decreases bc cash decreases while CL remain the same -price to OCF: no change bc price and CFO are not impacted

-cap ex: no change bc depreciation is a non cash event and cap ex does not change -OCF: no change bc CFO and CL are not impacted -acid test: no change bc cash and CL are not impacted -price to OCF: no change bc price and CFO are not impacted

-cap ex: decreases bc CFO is not impacted while cap ex increases -OCF: no change bc CFO and CL aren't impacted -acid test: decrease bc cash decreases -price to OCF: no change bc price and CFO aren't impacted

-cap ex: increases bc CFO increases, while cap ex does not change -OCF: increase bc CFO increase while CL remains the same -acid test: no change bc cash and AR offset, while CL remain the same -price to OCF: because bc price stays the same while CFO increases

-cap ex: increases bc CFO increases while cap ex doesn't change -OCF: increases bc CFO increases while CL remain the same -acid test: increases bc cash increases while CL remain the same -price to OCF: decrease bc price stays the same while CFO increases

-cap ex: no change bc a stock repurchase is a CFF outflow, while cap ex doesn't change -OCF: no change bc CFO and CL aren't impacted -acid test: decreases bc cash decreases while CL remain the same -price to OCF: no change bc price and CFO aren't impacted

what is the most likely reason for LT debt to be increased from prior year and interest expense increased in a larger than proportionate amount than LT debt?

-ST borrowing was refinanced on a LT basis at higher interest rates

what is the most likely reason that operating income increased from PY although the entity was less profitable than in the PY?

-the effective income tax rate increased as compared to PY -ST borrowing was refinanced on a LT basis at higher interest rates

what is the most likely reason that gross margin % was unchanged from PY although gross margin increased from PY?

-sales increased at the same % as COGS as compared to PY

what is the most likely reason that inventory turnover increased substantially from the PY?

-items shipped on consignment were recorded as sales -a significant number of credit memos for return merchandise that were issued during the last month of the year were not recorded -YE purchases of inventory were understated by incorrectly including items received in the first month of the sub year

what is the most likely reason that AR turnover decreased substantially from the YR?

-items shipped on consignment were recorded as sales -a significant number of credit memos for return merchandise that were issued during the last month of the year were not recorded -a larger % of sales occurred during the last month of the year, as compared to PY

what is the most likely reason that allowance for doubtful accounts increased from PY but allowance for doubtful accounts as a % of AR decreased from PY?

-items shipped on consignment were recorded as sales -a significant number of credit memos for return merchandise that were issued during the last month of the year were not recorded -a larger % of sales occurred during the last month of the year, as compared to PY