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Yaeger AUD > Mod 4 Wrong Answers > Flashcards

Mod 4 Wrong Answers Flashcards

0
Q

One of the deposits in transit does not appear on the cutoff bank statement (the 9/29/05 deposit for $100), accordingly what are 4 substantive procedures that should be performed?

A

1 deposit should be traced to cash receipts journal
2 reason for delay should be investigated
3 supporting documents should be inspected
4 deposits should be traced to and from bank reconciliation
And cutoff statement

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1
Q

Balance per bank may be traced to a standard form used to…2

A

1 confirm account balance information with financial institutions

2 to cutoff statement (on which will appear beginning balance)

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2
Q

One of the checks does not appear on the cutoff statement (check # 988 dated 8/31/05 for $2,200). Accordingly, what 4 substantive procedures should be performed?

A

1 check should be traced to cash disbursements journal
2 reason for delay should be investigated
3 supporting documents should be inspected
4 both deposits should be traced to and from bank reconciliation
And cutoff statement

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3
Q

The credit for the check that was charged by the bank for an incorrect amount should be investigated on both…

A

The bank credit memo and cutoff statement

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4
Q

Comparison of the details of the cash receipts journal to the details on the daily slips will reveal…

A

What date cash actually arrived in the account

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5
Q

Examining the major property and equipment items may identify situations in which…2

A

1 An item has been retired (often due to replacement) and

2 is no longer available for physical examination

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6
Q

AU-C 500 indicates that effective internal control…

A

Provides more assurance about the reliability of audit evidence
Than ineffective control

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7
Q

Reliability of audit evidence relates to…

A

The appropriateness of audit evidence

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8
Q

AU-C 500 states that the auditor concentrates on key factors and assumptions that are…5

A 
1 deviations from historical patterns
2 significant to accounting estimate
3 sensitive to variations
4 subjective
5 susceptible to misstatement and bias
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9
Q

An objective of analytical procedures is identification of…4

A

1 unusual transactions and events
2 amounts
3 ratios
4 trends that might indicate misstatements

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10
Q

As higher levels of assurance are desired from analytical procedures…

A

More predictable relationships are required to develop he auditor’s
Expectations

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11
Q

Relationships involving income statement accounts tend to be…

A

More predictable than relationships involving only balance Sheet accounts

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12
Q

In terms of analytical procedure relationships, relationships involving transactions not subject to management discretion are…

A

Generally more predictable

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13
Q

Interest expense would yield a high level of evidence through the performance of analytical procedures because interest expense…

A

Relates to the income statement and because interest expense

Is subject to only limited management discretion

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14
Q

Interest expense is subject to only limited management discretion due to…

A

Existence of related debt

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15
Q

Overall review stage of an audit consists of…2

A

1 Reading the financial statements and notes and

2 considering the adequacy of evidence gathered in response to unusual or unexpected balances

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16
Q

Tests of transactions to corroborate management’s financial statement assertions are performed when…2

A

1 Considering internal control and

2 for substantive procedures of transactions

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17
Q

AU-C 520 indicates for analytical procedures that the relationships involving…

A

Income statement accounts tend to me more predictable than relationships involving balance sheet accounts

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18
Q

Lead schedules

A

Aggregate major components to be reported in the financial

statements

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19
Q

The standard form to confirm account balance information with financial institution request information on both…

A

Cash in bank and collateral for loans

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20
Q

What is a reason that the usefulness of the standard bank confirmation request may be limited?

A

Bank employee who completes the form will not have access to all
Financial relationships the bank has with the client

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21
Q

The bank employee who completes the bank confirmation form, does not need to…

A

Have access to client’s cutoff bank statement to complete the
Confirmation

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22
Q

The auditor may analyze the completeness of sales using…

A

Cash receipts and accounts receivable

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23
Q

What is an example of an auditor analyzing the completeness of sales using cash receipts and accounts receivable?

A

Auditor may add year end receivables to cash receipts and
Subtract beginning receivables

To obtain an estimate of sales

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24
Q

While shipping as of year end will help assure an accurate cutoff of sales, the receiving activity has…

A

No necessary relationship to the sales figure

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25
Q

Deposits in transit are…

A

Those that have been sent to the bank prior to year end, but have
Not been received by the bank as of year end

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26
Q

Checks that have been disbursed per books as of year end, but have…

A

Not yet been received by the bank as of December 31 are deposits
In transit

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27
Q

Timing of performance of auditing procedures, involves the proper…

A

Synchronization of their application and thus comprehends the
Possible need for simultaneous examination

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28
Q

The timing of the performance of auditing procedures involves the proper Synchronization of their application and thus comprehends the
Possible need for simultaneous examination of, for example…4

A

1 cash on hand in banks
2 securities owned
3 bank loans
4 other related items

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29
Q

Asking the client to contact customers to ask that confirmation requests be returned may…

A

Increase response rates

30
Q

Lack of a reply to a confirmation request does not necessarily indicate…

A

That the account needs to be written off

31
Q

Misstatements may have occurred because respondents are not readily able to confirm account balances. AU-C 505 suggests that in such circumstances respondents’ accounting systems may…

A

Facilitate the confirmation of single transactions (individual invoices)

Rather than of entire account balances

32
Q

Negative confirmations are used when…3

A

1 combined assessed level of inherent and control risk is low
2 large number of small balances is involved
3 auditor has no reason to believe recipients of requests are
unlikely to give them consideration

33
Q

1 combined assessed level of inherent and control risk is low
2 large number of small balances is involved
3 auditor has no reason to believe recipients of requests are
unlikely to give them consideration

Positive confirmations are used when…2

A

1 Those conditions are not met

2 accounts are in dispute

34
Q

A negative form of confirming accounts receivable can be used when…2

A

Small balances are involved and few accounts are in dispute

35
Q

Negative confirmation should not be used when…

A

A substantial number of accounts are in dispute

36
Q

What procedure reduces risks associated with accepting fax responses to requests for confirmations of receivable?

A

Verification of sources and contents through telephone calls

37
Q

Verification of sources and contents through telephone calls will address…

A

Whether the info on the fax (which may have been sent from

anywhere) is correct

38
Q

Inspection of faxes is unlikely to…

A

Reveal forgeries and alterations, even when they’ve occurred

39
Q

What does it mean when an auditor would use the blank form of confirmations rather than positive confirmations?

A

One which includes no amount and asks the respondent to

Supply the amount due

40
Q

If a recipient simply signs a blank confirmation and returns it, the confirmation will…

A

Have no amount on it and the auditor will know additional

procedures are necessary

41
Q

When the combined assessed level of inherent risk and control risk is low it is…

A

Unlikely to lead to blank form of confirmation

42
Q

When risk is low and when adequate other substantive procedures of details have already occurred…

A

No confirmation may be necessary

43
Q

What information would be included in a client’s confirmation letter that is being used to confirm account receivable balances rather than individual invoices?

A

Including details of the account is likely to make it easier for
customer to respond in meaningful manner

44
Q

In a client’s confirmation letter being used to confirm accounts receivable balances rather than individual invoices, the auditor does not…

A

Does not enclose a letter requesting information be supplied

45
Q

What strategy would improve the response rate for confirmation of accounts receivable?

A

Including list of items or invoices that constitute the account
balance makes it easier for respondent to reply

46
Q

There is no research available on response rates to confirmations indicating that…

A

Requesting a fax or email reply or threatening a second request
Is likely to improve response rate

47
Q

Analysis of inventory turnover rates will provide the auditor with evidence on…5

A

Slow moving, excess, defective and obsolete items included in
Inventories

These items may be improperly valued

48
Q

Requiring a client representative acknowledge the receipt of securities will…

A

Eliminate any question concerning CPA’s responsibility for any
Subsequent missplacement or misappropriation of securities

49
Q

The client’s representative will generally not help…

A

The CPA detect fraudulent securities

50
Q

Identify the best procedure for testing unrecorded retirements of equipment

A

Selecting items from accounting records and attempting to

Locate them

51
Q

Selecting items from the accounting records and attempting to locate them will reveal…

A

Unrecorded retirements when items cannot be located

52
Q

Beginning with an item is unlikely to reveal…

A

A situation where an unrecorded retirement has occurred

53
Q

Experience has indicated that overstated income is more of a risk than…

A

Understated income

54
Q

The completeness assertion focuses on whether payables have been omitted, thereby…

A

Overstating income

55
Q

Payables are most frequently simply valued at…

A

Cost of the related acquisition

56
Q

Comparison of payroll costs with entity standards or budgets will generally be…

A

Included in the audit program as test of overall payroll

reasonableness

57
Q

What procedure would an auditor most likely perform when auditing payroll?

A

Comparison of payroll costs with entity standards or budgets

58
Q

Observing entity employees during a payroll distribution is generally…

A

Only included in audit program when internal control is weak

59
Q

Dividend record books produced by investment advisory services…

A

Provide summaries of dividends paid for various services

60
Q

Dividend record books produced by investment advisory services provide summaries of dividends paid for various securities, and an auditor is able to…

A

Compare the reasonableness of client’s recorded dividend income
From investments with this information

61
Q

Auditor’s in general do not determine the reasonableness of dividend income by…

A

Examining stock indentures or stock ledgers

62
Q

Materiality considerations do not apply to…4

A

1 management’s acknowledgement of its responsibility for fair
Presentation of financial statements
2 availability of all financial records
3 completeness/availability of all minutes + meeting of
stockholders, directors
4 communication from regulatory agencies

63
Q

Materiality considerations relate to…3

A

1 losses from purchase commitments

2 compensating balances

3 obsolete inventory

64
Q

Professional standards state that management refusal to furnish written representations constitutes…

A

A limitation on scope of the auditor’s examination sufficient to
Preclude an unqualified opinion in all cases

65
Q

A management representation letter is meant to…

A

Reduce the possibility of misunderstanding concerning

Management’s responsibility for financial statements

66
Q

AU-C 501 states that an attorney may appropriately limit…

A

His response to matters which he has given substantive attention
In form of legal consultation or representation

67
Q

It generally will not be possible to determine whether a particular transaction was consummated on terms equivalent to those with unrelated parties. Therefore the auditor…

A

May be required to express a qualified or adverse opinion

When such an unsubstantiated disclosure is included

68
Q

Procedure auditor would perform to obtain evidence about occurrence of subsequent events:

An auditor will inquire of officers and other executives having responsibility for financial and accounting matters whether…

A

Any unusual adjustments have been made during the period

From the balance sheet date to the date of inquiry

69
Q

Identify an auditor’s responsibility when a client refuses to adjust recently issued financial statements for a subsequent event related to bankruptcy of entity’s principal customer:

If the client refuses to make disclosures, AU-C 560 requires the auditor…

A

Notify each member of the board of directors of such refusal

Auditor will take further steps to prevent future reliance on audit
Report

70
Q

Identify an auditor’s responsibility when a client refuses to adjust recently issued financial statements for a subsequent event related to bankruptcy of entity’s principal customer:

If the client refuses to make disclosures, AU-C 560 requires the auditor to notify each member of the board of directors of such refusal and take steps to rely on the audit report. The auditor will then…

A

Notify the clients and regulatory agencies that the report should
Be associated with financial statements

71
Q

Identify an auditor’s responsibility when a client refuses to adjust recently issued financial statements for a subsequent event related to bankruptcy of entity’s principal customer:

It is less likely at…

A

All creditors will be informed

72
Q

Identify an auditor’s first responsibility upon discovering six months after completion of an audit that engagement personnel failed to confirm several of client’s material accounts receivable balances:

The auditor must first…

A

assess importance of omitted procedures to Auditor’s ability to
support previously expressed opinion

73
Q

Considering whether anyone is relying on or is likely to rely on the unqualified opinion is…

A

Made after assessing the importance of the omitted procedures

Yaeger AUD (38 decks)

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