Second Deck

Question 1

For control activities to be effective, employees maintaining the accounts receivable subsidiary ledger should not also approve:

Answer 1

Write-offs of customer accounts.

Question 2

Which of the following internal controls would be most likely to deter the lapping of collections from customers?

Answer 2

Segregation of duties between receiving cash and posting the accounts receivable ledger.

Question 3

Smith Corp has numerous customers. A customer file is kept on disk. Each customer file contains a name, an address, a credit limit, and an account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to:q

Answer 3

Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.

Question 4

If accounts receivable turnover (credit sales/receivables) was 7.1 times in 2011 compared to only 5.6 times in 2012, it is possible that there were

Answer 4

Fictitious sales in 2012.

Question 5

If the number of days’ sales in accounts receivable (365 days/receivables turnover) decreases significantly, which of the following assertions for accounts receivable most likely is violated?

Answer 5

Completeness

Question 6

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when

Answer 6

No reply to a positive confirmation is received.

Question 7

When goods are received, the receiving clerk should match the goods with

Answer 7

the vendor shipping document and the purchase order.

Question 8

Which of the following control activities is not usually performed in the accounts payable department?

Answer 8

Accounting for unused pre-numbered purchase orders and receiving reports.

Question 9

In a properly designed purchasing process, the same employee most likely would match vendors’ invoices with receiving reports and also

Answer 9

Re-compute the calculations on vendors’ invoices.

Question 10

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

Answer 10

Review of cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

Question 11

Which of the following procedures is least likely to be performed before the balance sheet date?

Answer 11

Search for unrecorded liabilities.

Question 12

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be

Answer 12

Vendors with whom the entity has previously done business.

Question 13

The objectives of internal control for an inventory management process are to provide assurance that transactions are properly authorized and recorded and that

Answer 13

Custody of work in process and finished goods is properly maintained.

Question 14

A client maintains perpetual inventory records in both quantities and dollars. If the level of control risk were set at high, an auditor would probably

Answer 14

Request that the client schedule the physical inventory count at the end of the year.

Question 15

An auditor would probably be least interested in which of the following fields in an electronic perpetual inventory file

Answer 15

Economic re-order quantity.

Question 16

When auditing prepaid insurance, an auditor discovers that the original insurance policy on a key piece of manufacturing equipment is not available for inspection. The policy’s absence most likely indicates the possibility of a(n)

Answer 16

Third-party lien holder with a secured interest in the equipment.

Question 17

Due to a weakness observed in a client’s control over recording retirement of equipment, the auditor may decide to

Answer 17

Select certain items of equipment from the accounting records and locate them in the plant.

Question 18

Which of the following situations would not support the auditor’s decision to reduce control risk below maximum for the audit of intangible assets?

Answer 18

The company has made no acquisitions of other companies during the fiscal year under audit. (that makes no sense!)

Question 19

Which of the following control activities would most likely allow for a reduction in the scope of the auditor’s tests of depreciation expense?

Answer 19

Review and approval of the periodic equipment depreciation entry by a supervisor who does not actively participate in its participation.

Question 20

When there are numerous property and equipment transactions during the year, an auditor who plans to set the control risk at a low level usually performs

Answer 20

Tests of controls and limited tests of current-year property and equipment transactions.

Question 21

What audit procedure should be used to verify that net property and equipment are properly valued at the balance sheet date (valuation and allocation)?

Answer 21

Review the provision for depreciation expense and determine that depreciable lives and methods used in the current year are consistent with those used in the prior year.

Question 22

The tick mark (up solid triangle) most likely indicates that the amount was traced to the

Answer 22

Deposit in transit of the applicable bank reconciliation.

Question 23

Which of the following controls would most effectively ensure that the proper custody of assets in the investing process is maintained?

Answer 23

The recorded balances in the investment subsidiary ledger are periodically compared with the contents of the safe-deposit box by independent personnel.

Question 24

An auditor testing long-term investments would ordinarily use substantive analytical procedures to ascertain the reasonableness of the

Answer 24

Completeness of recorded investment income.

Question 25

To establish the existence and rights of a long-term investment in the common stock of a publicly traded company, an auditor ordinarily performs a security count or

Answer 25

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

Question 26

Bank Rec: Audit procedure to check balance per bank

Answer 26

Vouch items on bank rec to cutoff statement.

Directly confirm with bank.

Question 27

Bank Rec: 5 procedures to check deposits in transit

Answer 27

Trace to cash receipts journal.
Ascertain reason for unusual delay.
Inspect supporting documents for reconciling item not appearing on cut-off statement.
Vouch items on bank reconciliation to cut-off statement.
Vouch items on the cut-off statement to bank reconciliation.

Question 28

Bank Rec: 5 procedures to check outstanding checks

Answer 28

Trace to cash disbursements journal.
Ascertain reason for unusual delay.
Inspect supporting documents for reconciling item not appearing on cut-off statement.
Vouch items on bank reconciliation to cut-off statement.
Vouch items on the cut-off statement to bank reconciliation.

Question 29

Bank Rec: 1 procedure to check the error

Answer 29

Vouch items on bank reconciliation to cut-off statement.