i-75 - SIMS

Question 1

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

Answer 1

1. human resources:
2. engagement/client acceptance and continuance:
3. leadership responsibilities
4. performance of the engagement
5. monitoring
6. ethical requirements

Question 2

examples of quality control for human resources

Answer 2

-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

Question 3

examples of quality control for leadership responsibilities

Answer 3

-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

Question 4

examples of quality control for engagement/client acceptance and continuance

Answer 4

-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

Question 5

examples of quality control for ethical requirements

Answer 5

-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

Question 6

examples of quality control for performance of the engagement

Answer 6

-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

Question 7

examples of quality control for monitoring

Answer 7

-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

Question 8

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

Answer 8

-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

Question 9

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

Answer 9

-inherent and control: no impact
-detection: increase

Question 10

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

Answer 10

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

Question 11

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

Answer 11

-inherent, control and detection: no impact

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

Question 12

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

Answer 12

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

Question 13

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

Answer 13

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

Question 14

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

Answer 14

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

Question 15

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

Answer 15

-inherent, control and detection: no impact

Question 16

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

Answer 16

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

Question 17

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

Answer 17

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

Question 18

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

Answer 18

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

Question 19

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

Answer 19

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

Question 20

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

Answer 20

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

Question 21

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

Answer 21

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

Question 22

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

Answer 22

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

**high turnover = inherent increase

Question 23

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

Answer 23

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

Question 24

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

Answer 24

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

**complex = inherent increase

Question 25

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

Answer 25

-inherent, control and detection: no impact

Question 26

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

Answer 26

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

Question 27

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

Answer 27

-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

Question 28

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

Answer 28

-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

Question 29

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

Answer 29

-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

Question 30

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

Answer 30

-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

Question 31

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

Answer 31

-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

Question 32

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

Answer 32

-fraud risk

Question 33

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

Answer 33

-audit risk

Question 34

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

Answer 34

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

Question 35

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

Answer 35

-detection risk

Question 36

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?

Answer 36

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

Question 37

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?

Answer 37

neither party

**material errors = CPA

Question 38

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?

Answer 38

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

Question 39

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?

Answer 39

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

Question 40

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?

Answer 40

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

Question 41

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?

Answer 41

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

Question 42

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?

Answer 42

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

Question 43

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?

Answer 43

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

Question 44

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?

Answer 44

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

Question 45

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

Answer 45

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

Question 46

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

Answer 46

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

Question 47

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

Answer 47

-false
-can do that after accepting in planning stage

Question 48

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

Answer 48

-false
-can do that after accepting in planning stage

Question 49

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

Answer 49

-false
-this should happen prior to accepting

Question 50

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

Answer 50

-false
-this should happen prior to accepting

Question 51

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

Answer 51

-true
-this occurs in the planning stage

Question 52

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 this engagement, kilmer CPA must create a written audit plan

Answer 52

-true

Question 53

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

Answer 53

accounts receivable

Question 54

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

Answer 54

human resources

Question 55

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

Answer 55

credit department

Question 56

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

Answer 56

vouchers payable

Question 57

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

Answer 57

billings department

Question 58

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

Answer 58

receiving department

Question 59

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

Answer 59

all payroll hours should be approved by the department supervisors

Question 60

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

Answer 60

independent pay master; low entry secretary

Question 61

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

Answer 61

warehouse department

Question 62

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

Answer 62

vouchers payable

Question 63

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

Answer 63

shipping department

Question 64

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

Answer 64

warehouse –> they will release to shipping

Question 65

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

Answer 65

credit

Question 66

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

Answer 66

warehouse

Question 67

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

Answer 67

credit

Question 68

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

Answer 68

sales

Question 69

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

Answer 69

shipping

Question 70

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

Answer 70

billing

Question 71

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

Answer 71

billing

Question 72

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 mail the sales invoice to the customer

Answer 72

billing

Question 73

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

Answer 73

credit

Question 74

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

Answer 74

valuation

Question 75

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

Answer 75

rights and obligations

Question 76

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

Answer 76

existence - positive confirmation

Question 77

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

Answer 77

valuation

Question 78

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 compares a sample of sales invoices to the corresponding bills of lading

Answer 78

existence/occurrence

Question 79

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 examines cash collections received the first two weeks of the subsequent period

Answer 79

existence

Question 80

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

Answer 80

completeness

Question 81

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

Answer 81

completeness

Question 82

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

Answer 82

purchase requisition

Question 83

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

Answer 83

purchase requisition

Question 84

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

Answer 84

purchase order

Question 85

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

Answer 85

purchase order known as blind copy

Question 86

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

Answer 86

receiving report

Question 87

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

Answer 87

receiving report

Question 88

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

Answer 88

purchase invoice

Question 89

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)

Answer 89

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

Question 90

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

Answer 90

voucher

Question 91

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 voucher package includes a copy of which form?

Answer 91

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

Question 92

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

Answer 92

two directional test; existence

Question 93

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

Answer 93

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

Question 94

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

Answer 94

-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

Question 95

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

Answer 95

two directional test; completeness

Question 96

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

Answer 96

valuation and accuracy

Question 97

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

Answer 97

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

Question 98

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

Answer 98

-test of controls

Question 99

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

Answer 99

completeness of liabilities

Question 100

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

Answer 100

existence of inventory
-cutoff test

Question 101

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

Answer 101

classification

Question 102

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 traces a sample of vouchers to the purchases journal

Answer 102

completeness

Question 103

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 re computes the math on a sample of vendor invoices

Answer 103

valuation

Question 104

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

Answer 104

presentation and disclosure

Question 105

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

Answer 105

rights and obligations

Question 106

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 was charged a handling fee of $26 for an NSF check received

Answer 106

subtract from hersh book balance

Question 107

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

Answer 107

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

Question 108

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

Answer 108

subtract from hersh book balance

Question 109

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 deposit of $4,890 was dropped off in the night deposit on dec 31. the bank posts night deposit activity on the following bank day

Answer 109

add to bank balance

Question 110

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

Answer 110

subtract $200 from the bank balance

Question 111

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

Answer 111

add $18 to hersh’s book balance

Question 112

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

Answer 112

add to hersh book balance

Question 113

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

Answer 113

no impact on book or bank balance

Question 114

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

Answer 114

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

Question 115

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: checking account interest income for the month of dec in the amount of $33 was recorded by hersh on jan 4

Answer 115

add $33 to hersh dec book balance

Question 116

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

Answer 116

-strength: authorization

Question 117

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

Answer 117

-strength: authorization

Question 118

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

Answer 118

-strength: record keeping

Question 119

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

Answer 119

-strength: record keeping

Question 120

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

Answer 120

-strength: record keeping

Question 121

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

Answer 121

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

Question 122

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

Answer 122

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

Question 123

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

Answer 123

strength: authorization

Question 124

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

Answer 124

internal control authorization weakness

Question 125

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

Answer 125

strength: custody

Question 126

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

Answer 126

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

Question 127

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

Answer 127

internal control weakness
-independent party or internal audit department

Question 128

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

Answer 128

valuation, allocation and accuracy

Question 129

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

Answer 129

rights and obligations

Question 130

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

Answer 130

completeness

Question 131

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

Answer 131

completeness

Question 132

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

Answer 132

valuation/allocation

Question 133

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

Answer 133

existence/occurrence

Question 134

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

Answer 134

valuation/allocation

Question 135

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

Answer 135

-existence/occurrence for sales
-cutoff too

Question 136

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

Answer 136

rights and obligations

Question 137

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

Answer 137

completeness

Question 138

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

Answer 138

existence and rights & obligations

Question 139

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

Answer 139

completeness

Question 140

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

Answer 140

valuation

Question 141

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

Answer 141

existence

Question 142

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

Answer 142

existence

Question 143

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

Answer 143

classification

Question 144

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

Answer 144

completeness

Question 145

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

Answer 145

existence

Question 146

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

Answer 146

management rep letter

Question 147

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

Answer 147

audit inquiry letter to legal counsel

Question 148

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

Answer 148

management rep letter

Question 149

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

Answer 149

auditor’s engagement letter

Question 150

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

Answer 150

auditor’s engagement letter

Question 151

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

Answer 151

management rep letter

Question 152

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?

Answer 152

communication with predecessor

Question 153

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?

Answer 153

partner engagement review

Question 154

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

Answer 154

standard financial institution confirmation request

Question 155

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

Answer 155

auditor’s engagement letter

Question 156

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

Answer 156

management rep letter

Question 157

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

Answer 157

auditor’s report

Question 158

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

Answer 158

communication with audit committee

Question 159

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

Answer 159

AR confirmation

Question 160

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

Answer 160

auditor’s report

Question 161

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

Answer 161

type 2 sub event, footnote disclosure only

Question 162

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

Answer 162

-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

Question 163

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

Answer 163

type 1 sub event, restate needs to happen

Question 164

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

Answer 164

type 2 sub event, disclosure only

Question 165

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

Answer 165

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

Question 166

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

Answer 166

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

Question 167

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

Answer 167

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

Question 168

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

Answer 168

type 2 sub event

Question 169

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

Answer 169

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

Question 170

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

Answer 170

-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

Question 171

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

Answer 171

no adjusting JE needed

Question 172

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

Answer 172

-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

Question 173

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

Answer 173

permanent file

Question 174

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 copy of the client’s debt agreements and bond indenture

Answer 174

permanent file

Question 175

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 copy of the financial statements

Answer 175

current file

Question 176

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: the client’s organization chart

Answer 176

permanent file

Question 177

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: difficulty in applying necessary auditing procedures such as lack of responsiveness of the client

Answer 177

current file

Question 178

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 list of alternative procedures that were considered but not used in the audit

Answer 178

not required to go in the current or permanent file

Question 179

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: an indication that the accounting records agree or reconcile with the financial statements

Answer 179

current file

Question 180

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: copies of lease agreement and employee stock option plans

Answer 180

permanent file

Question 181

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: the basis for conclusions about all relevant assertions

Answer 181

current file

Question 182

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: the manner in which management considered trivial errors discovered in the audit

Answer 182

not required to go in the current or permanent errors

Question 183

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: the analysis of asset accounts and their related expense or income accounts that appear on the same working paper

Answer 183

current file

Question 184

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: the management rep letter

Answer 184

current file

Question 185

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: analysis of capital stock and owners equity accounts

Answer 185

permanent file

Question 186

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: documentation that the audit was adequately planned and supervised

Answer 186

current file

Question 187

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: significant audit findings that could result in modification of the auditor’s report

Answer 187

current file

Question 188

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: PY AR confirmations that were classified as exceptions in 2019 audit

Answer 188

not required to go in current or permanent file

Question 189

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: working trial balances and lead schedules

Answer 189

current file

Question 190

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: the articles of incorporation and bylaws

Answer 190

permanent file

Question 191

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

Answer 191

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

Question 192

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

Answer 192

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

Question 193

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

Answer 193

no

Question 194

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

Answer 194

yes
-determine whether disclosures are necessary

Question 195

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

Answer 195

yes

Question 196

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

Answer 196

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

Question 197

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

Answer 197

no

Question 198

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

Answer 198

yes

Question 199

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

Answer 199

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

Question 200

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

Answer 200

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

Question 201

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

Answer 201

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

Question 202

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

Answer 202

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

Question 203

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

Answer 203

no

Question 204

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

Answer 204

no

Question 205

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

Answer 205

yes
-type 1 specifically

Question 206

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 due to any sudden customer bankruptcies

Answer 206

yes
-footnote disclosure only
-type 2

Question 207

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

Answer 207

no

Question 208

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

Answer 208

no

Question 209

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

Answer 209

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

Question 210

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

Answer 210

no

Question 211

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

Answer 211

yes

Question 212

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

Answer 212

yes

Question 213

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

Answer 213

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

Question 214

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

Answer 214

-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

Question 215

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

Answer 215

-JE: no entry needed
-ratio: no impact

Question 216

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

Answer 216

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

Question 217

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

Answer 217

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

Question 218

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

Answer 218

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

Question 219

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

Answer 219

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

Question 220

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

Answer 220

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

Question 221

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

Answer 221

-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

Question 222

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

Answer 222

rights and obligations

Question 223

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

Answer 223

existence/occurrence

Question 224

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

Answer 224

rights and obligations

Question 225

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

Answer 225

completeness

Question 226

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

Answer 226

rights and obligations

Question 227

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

Answer 227

existence

Question 228

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

Answer 228

presentation

Question 229

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

Answer 229

valuation

Question 230

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

Answer 230

valuation

Question 231

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

Answer 231

completeness

Question 232

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?

Answer 232

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

Question 233

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?

Answer 233

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

Question 234

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?

Answer 234

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

Question 235

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?

Answer 235

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

Question 236

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

Answer 236

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

Question 237

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

Answer 237

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

Question 238

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

Answer 238

-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

Question 239

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

Answer 239

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

Question 240

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: check #4544 for $9,198, written by edgar corp to farrell inc, a vendor, was recorded in the books as $9,819

Answer 240

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

Question 241

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 charged the monthly bank service fee of $80 on 12/30/8

Answer 241

-impacts balance per books
-80

Question 242

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

Answer 242

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

Question 243

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%?

Answer 243

increase

Question 244

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 tolerable misstatement increases to 8%?

Answer 244

decrease

Question 245

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?

Answer 245

increase

Question 246

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?

Answer 246

controls are effective

Question 247

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?

Answer 247

controls are ineffective

Question 248

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

Answer 248

40,000 / 2.31 = $17,316

Question 249

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 sample size for the PPS sampling

Answer 249

sampling interval = 17,316

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

Question 250

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

true or false: if no misstatements are found in the sample, jenkins CPA could conclude with 90% confidence that the $1.2M recorded balance of AR is not overstated by more than $40,000

Answer 250

true

Question 251

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

true or false: if no misstatements are found in the auditor’s sample, the risk of incorrect acceptance drops from 10% to a lower rate

Answer 251

false

Question 252

chapter 7 lecture 9 simulation - LOOK AT IT AGAIN

Answer 252

too long to put into this

Question 253

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

Answer 253

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

Question 254

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): AP of $1,000 is paid down

Answer 254

-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

Question 255

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): dividends of $1,700 are declared and paid

Answer 255

-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

Question 256

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): depreciation expense of $1,200 is booked

Answer 256

-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

Question 257

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): PP&E of $4,400 is purchased

Answer 257

-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

Question 258

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): AR of $1,776 is received

Answer 258

-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

Question 259

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): inventory is sold for $2,455

Answer 259

-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

Question 260

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): stocking costing $6,250 is repurchased

Answer 260

-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

Question 261

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?

Answer 261

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

Question 262

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

Answer 262

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

Question 263

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

Answer 263

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

Question 264

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

Answer 264

-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

Question 265

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

Answer 265

-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

Question 266

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?

Answer 266

-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