Other Audit Procedures

Question 0

Accounting estimates

Answer 0

a. Measure the effects of past transactions that cannot be determined in a timely cost-effective manner.
b. Measure the effects of the present status of an asset or liability.
c. Be used to approximate an account pending the outcome of a future event (e.g., uncollectible accounts receivable).

Question 1

A lawyer’s refusal to furnish the information requested in an inquiry letter would be

Answer 1

a limitation on the scope of the audit sufficient to preclude an unmodified opinion.

Question 2

The sampling unit in a test of controls pertaining to the existence of payroll transactions ordinarily is a (an):

Answer 2

Payroll Register

Question 3

What are the internal controls for a payroll system:

Answer 3

a. A voucher for the amount of the payroll is prepared in the general accounting department based on the payroll department’s payroll summary.
b. Payroll checks are prepared by the payroll department and signed by the treasurer.
c. The personnel department sends employees’ hire and termination notices to the payroll department.

Question 4

The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the:

Answer 4

Authorization of transactions from the custody of related assets.

Question 5

By vouching a sample of employees in the payroll register to time card data, the auditor is testing the _________ assertion for hours worked.

Answer 5

Existence

Question 6

Confirmation of accounts receivable provides evidence that the customer and the receivable _______?

Answer 6

Exist

Question 7

What are the two assertions for which the confirmation of accounts receivable balances provides primary evidence for?

Answer 7

1. Rights and obligations (does the client have a right to the receivable?)
2. Existence (does the receivable really exist?).

Question 8

When an auditor does not receive replies to second requests on year-end accounts receivable confirmations, the auditor would most likely:

Answer 8

Perform alternate procedures to support the existence of the receivables. These procedures include inspection of the shipping records to determine that the merchandise was actually sold to the debtors.

Question 9

Form of AR confirmation that’s use would most likely would be justified when there are a small number of accounts that may be in dispute and the accounts receivable balance arises from sales to many customers with small balances (e.g., utility consumer customers).

Answer 9

negative confirmations

Question 10

Generally used to ascertain the reasonableness of investment income in relationship to the amount invested.

Answer 10

Analytical review

Question 11

Valuation of long term investments would be verified using:

Answer 11

listed prices (NYSE, etc.).

Question 12

Classification of gains or losses for long term investment accounts would be evaluated by the auditor based upon:

Answer 12

Appropriate accounting principles

Question 13

Existence and ownership of long-term investments is generally evaluated by:

Answer 13

Inspection of securities, review of brokerage statements, or confirmation with an outside independent custodian

Question 14

In testing long-term investments, an auditor ordinarily would use analytical procedures to ascertain the reasonableness of the:

Answer 14

Completeness of recorded investment income

Question 15

Which of the following internal controls would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

Answer 15

The internal auditor compares the securities in the bank safe deposit box with recorded investments.

Question 16

If an auditor discovers that the original insurance policy on plant equipment is not available for inspection, this most likely indicates that:

Answer 16

There is a lien on the plant equipment, since the original policy would likely be in the possession of the lien holder.

Question 17

Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control activity that provides for:

Answer 17

Investigation of variances within a formal budgeting system

Question 18

Tracing ( old) equipment recorded in the books to the actual equipment during a plant tour is a control which tests for

Answer 18

Unrecorded retirements of equipment

Question 19

The standard confirmation request seeks information on banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to:

Answer 19

Seek information about contingent liabilities and security agreements in addition to information related to deposit account balances.

Question 20

The primary evidence regarding year-end cash balances in the financial statements is documented in the:

Answer 20

Bank reconciliations.

Question 21

An auditor’s program to examine long-term debt should include steps that require:

Answer 21

Examining bond trust indentures

Question 22

The scope of an audit may be restricted when an attorney’s response is limited to:

Answer 22

a. An evaluation of the likelihood of an unfavorable outcome of the matter disclosed by the entity. (The attorney’s response should also address the nature of the claim, the progress to date, and the intended response.)
b. The attorney’s opinion of the entity’s historical experience in recent similar litigation. (The attorney’s response should address the current situation, which may not parallel historical experience).
c. The probable outcome of asserted claims and pending or threatened litigation. (The attorney’s response should also address the nature of the claim, the progress to date, and the intended response, as well as unasserted claims).

Question 23

Their primary responsibility is to verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation.

Answer 23

A bank acting as registrar of capital stock

Question 24

To determine whether checks are being issued for unauthorized expenditures, the auditor is most likely to select from the population of:

Answer 24

Canceled checks. For each check, the auditor would then look for evidence supporting the payment, such as a purchase order, a receiving report, and an approved invoice.

Question 25

The primary purpose of sending a standard confirmation request to financial institutions is to corroborate information regarding:

Answer 25

Deposit and loan balances

Question 26

A sales cut-off test is used to detect:

Answer 26

Unrecorded sales (shipments where no invoice has been generated) or sales allocated to the wrong period (January sales included in December by “holding the books open”).

Question 27

An auditor would be most likely to identify a contingent liability by obtaining a (an):

Answer 27

Standard bank confirmation.

Question 28

In a well designed internal control, employees in the same department most likely would approve purchase orders, and also:

Answer 28

Negotiate terms with vendors

Question 29

States that all transactions that should be recorded are recorded.

Answer 29

The completeness assertion

Question 30

What is the primary objective of the fraud brainstorming session?

Answer 30

Assess the potential for material misstatement due to fraud.