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36 Cards in this Set
- Front
- Back
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Which of the following procedures is least likely to be completed before the balance sheet date?
a) Confirmation of receivables b) Search for unrecorded liabilities c) Observation of inventory d) Review of internal accounting control over cash disbursements |
Search for unrecorded liabilities
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An audit of the balance in the accounts payable account is ordinarily not designed to:
a) Detect accounts payable that are substantially past due b) Verify that accounts payable were properly authorized c) Ascertain the reasonableness of recorded liabilities d) Determine that all existing liabilities at the balance sheet date have been recorded |
a) Detect accounts payable that are substantially past due
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Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?
a) Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable b) Examine unusual relationships between monthly accounts payable balances and recorded purchases c) Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded d) Examine selected cash disbursements in the period subsequent to year-end |
d) Examine selected cash disbursements in the period subsequent to year-end
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Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because:
a) This is a duplication of cutoff tests b) Accounts payable balances at the balance sheet date may not be paid before the audit is completed c) Correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment d) There is likely to be other reliable external evidence available to support the balances |
d) There is likely to be other reliable external evidence available to support the balances
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A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner?
a) Footing the purchases journal b) Reconciling vendors' monthly statements with subsidiary payable ledger accounts c) Tracing totals from the purchases journal to the ledger accounts d) Sending written quarterly confirmation |
b) Reconciling vendors' monthly statements with subsidiary payable ledger accounts
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For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the:
a) Receiving report and the purchase order b) Receiving report and the voucher c) Vendor's packing slip and the purchase order d) Vendor's packing slip and the voucher |
a) Receiving report and the purchase order
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When confirming accounts payable, the approach is most likely to e one of:
a) Selecting the accounts with the largest balances at year-end, plus a sample of other accounts b) Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts c) Selecting a random sample of accounts payable at year-end d) Confirming all accounts |
b) Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts
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In an audit, the valuation of year-end accounts payable is most likely addressed by:
a) Confirmation b) Examination of cash disbursements immediately prior to year-end c) Examination of cash disbursements immediately subsequent to year-end d) Analytical procedures applied to vouchers payable at year-end |
a) Confirmation
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Ordinarily, the most significant assertion relating to accounts payable is:
a) Completeness b) Existence c) Presentation d) Valuation |
a) Completeness
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The least likely approach in auditing management's estimate relating to an accrued liability is to:
a) Independently develop an estimate of the amount to compare to management's estimate b) Review and test management's process of developing the estimate C) Review subsequent events or transactions bearing on the estimate d) Send confirmations relating to the estimate |
d) Send confirmations relating to the estimate
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To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the:
a) Authorized members of the audit committee b) Accounting department c) Individual who signs the checks d) Chief executive officer |
c) Individual who signs the checks
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In performing a test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test?
a) Completeness b) Existence c) Valuation d) Rights |
b) Existence
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Which of the following is least likely to be an audit objective for debt?
a) Determine the existence of recorded debt b) Establish the completeness of recorded debt c) Determine that the client has rights to receive proceeds relating to the redemption of debt d) Determine that the valuation of debt is in accordance with GAAP |
c) Determine that the client has rights to receive proceeds relating to the redemption of debt
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The auditors would be most likely to find unrecorded long-term liabilities by analyzing:
a) Interest payments b) Discounts on long-term liabilities c) Premiums on long-term liabilities d) Recorded long-term liability accounts |
a) Interest payments
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A likely reason that consideration of client compliance with debt provisions is important to an audit is that violation of such debt provisions may affect the total recorded:
a) Number of debt restrictions b) current liabilities c) long-term assets d) capital stock |
b) current liabilities
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A transfer agent and a registrar are most likely to provide the auditor with evidence on:
a) restrictions on the payment of accounts payable b) shares issued and outstanding c) preferred stock liquidation value d) transfers occurring between management and related parties |
b) shares issued and outstanding
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The audit procedure of confirmation is least appropriate with respect to:
a) The trustee of an issue of bonds payable b) holders of common stock c) holders of notes receivable d) holders of notes payable |
b) holders of common stock
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An auditor is most likely to trace treasury stock purchase transactions to the:
a) numbered stock certificates on hand b) articles of incorporation c) year's interest expense d) minutes of the audit committee |
a) numbered stock certificates on hand
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In the continuing audit of a manufacturing company of medium size, which of the following areas would you expect to require the least amount of audit time?
a) owners' equity b) revenue c) assets d) liabilities |
b) revenue
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The auditors can best verify a client's bond sinking fund transactions and year-end balance by:
a) recomputation of interest expense, interest payable, and amortization of bond discount or premium b) confirmation with individual holders of retired bonds c) confirmation with the bond trustee d) examination and count of the bonds retired during the year |
c) confirmation with the bond trustee
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The auditors' program for the examination of long-term debt should include steps that require the:
a) verification of the existence of the bondholders b) examination of copies of debt agreements c) inspection of the accounts payable subsidiary ledger d) investigation of credits to the bond interest income account |
b) examination of copies of debt agreements
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All corporate capital stock transactions should ultimately be traced to the:
a) minutes of the board of directors b) cash receipts journal c) cash disbursements journal d) numbered stock certificates |
d) numbered stock certificates
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Which of the following is most likely to be an audit objective in the audit of owners' equity?
a) establish that recorded owners' equity includes all long-term debt and equity balances b) determine that common stock is valued at current market value c) determine that the presentation and disclosure of owners' equity is appropriate d) determine that the existence of recorded owner's equity is in conformity with equity accounting rule valuations |
c) determine that the presentation and disclosure of owners' equity is appropriate
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In an audit of a sole proprietorship, a common difficulty is lack of:
a) segregation of personal net worth and business capital b) availability of the owner c) agreement as to the distribution between retained earnings and owners' capital d) proper measures of dividends |
a) segregation of personal net worth and business capital
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1. Which of the following is least likely to be considered a substantive procedure relating to payroll?
a. investigate fluctuations in salaries, wages and commissions b. test computations of compensation under profit sharing for bonus plans c. test commission earnings d. test whether employee time reports are approved by supervisors |
d. test whether employee time reports are approved by supervisors
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2. Which of the following is the best way for auditors to determine that every name on a company’s payroll is that of a bona fide employee presently on the job?
a. Examine human resources records for accuracy and completeness b. Examine employees’ names listed on payroll tax returns for agreement with payroll accounting records c. Make a surprise observation of the company’s regular distribution of paychecks on a test basis d. Visit the working areas and verify that employees exist by examining their badge or identification number. |
c. Make a surprise observation of the company’s regular distribution of paychecks on a test basis
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3. As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditors should:
a. Express an opinion that is qualified due to the inability of the client company to continue as a going concern b. Evaluate management’s performance in causing this decline c. Require not disclosure d. Consider the possibility of misstatement in the financial statements |
d. Consider the possibility of misstatement in the financial statements
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4. When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments?
a. Capitalization b. Financing c. Investing d. Operations |
a. Capitalization
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5. The search for unrecorded liabilities for a public company includes procedures usually performed through the
a. Day the audit report is issued b. End of the client’s year c. Date of the auditors’ report d. Date report is filed with the SED |
c. Date of the auditors’ report
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6. The aggregated misstatement in the financial statements is made up of:
a. Known misstatements, projected misstatements, and other misstatements b. Known misstatements, and projected misstatements c. Projected misstatements d. Projected misstatements and other misstatements |
a. Known misstatements, projected misstatements, and other misstatements
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7. A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n)
a. Analytical process b. Loss contingency c. Probable loss d. Unassertive claim |
b. Loss contingency
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8. Which of the following is most likely to be considered a type 1 subsequent event?
a. A business combination completed after year-end but for which negotiations began prior to year end b. A strike subsequent to year end due to employee complaints about working conditions which originated two years ago c. Customer checks deposited prior to year end but determined to be uncollectible after year end d. Introduction of a new line of products after year end for which major research had been completed prior to year end |
c. Customer checks deposited prior to year end but determined to be uncollectible after year end
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9. An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9 and delivered the report on February 16, 20X9. The client’s representation letter normally would be dated:
a. December, 31 20X8 b. January 17, 20X9 c. February 10, 20X9 d. February 16, 20X9 |
c. February 10, 20X9
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10. Which of the following procedures is most likely to be included in the financial review stage of an audit?
a. Obtain an understanding of internal control b. Confirmation of receivables c. Observation of inventory d. Perform analytical procedures |
d. Perform analytical procedures
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11. Subsequent to the issuance of the auditor’s report the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next:
a. Notify the board of directors that the auditor’s report must no longer be associated with the financial statements b. Determine whether there are person relying or likely to rely on the financial statements who would attached importance to the information c. Request that management disclose the effects of the newly discovered information by adding a footnote to subsequently issued financial statements d. Issue revised pro forma financial statements taking into consideration the newly discovered information |
b. Determine whether there are person relying or likely to rely on the financial statements who would attached importance to the information
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12. Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements?
a. A business combination b. Early retirement of bonds payable c. Settlement of litigation d. Plant closure due to a strike |
c. Settlement of litigation
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