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Audit MC Final
Terms in this set (44)
Which of the following controls will most likely justify a reduced assessed level of control risk for the occurrence assertion for purchases of inventory?
3. The perpetual inventory system will not allow an addition of inventory to be posted without entry of a valid receiving report number
For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order that is
2. Forwarded to the receiving department
Which of the following procedures will best detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?
1. Maintain a perpetual inventory master file of only the more valuable items with frequent periodic verification of the validity of the perpetuals
Which of the following internal control procedures most likely would be used to maintain accurate inventory records?
4. Periodic inventory counts are used to adjust the perpetual inventory records
When an auditor tests a client's cost accounting records, the auditor's tests are primarily designed to determine that...?
1. Costs have been correctly assigned to finished goods, work in process and cost of goods sold
Which of the following sets of duties related to inventory and warehousing causes the greatest concern about inadequate segregation of duties?
2. Purchasing agents who arrange for shipment of raw materials from vendors are responsible for verifying actual receipt of the inventory items at the receiving dock
An auditor selected items for test counts while observing a client's physical inventory. The auditor traced the test counts to the client's inventory listing. This procedure likely obtained evidence about which balance-related audit objective for inventory?
Which of the following procedures is the auditor least likely to perform on the actual date the physical inventory count is observed?
4. Examine documentation supporting the acquisition of highly material inventory items on hand at the count date
An inventory turnover analysis is useful to the auditor because it may detect...?
3. The existence of obsolete merchandise
Which of the following controls will most likely justify a reduced assessed level of control risk for the completeness assertion for notes payable?
1. The accounting staff reviews board of director minutes for any indication of any transactions involving outstanding debt to make sure all borrowings are included in the general ledger
Which of the following questions would an auditor likely include on an internal control questionnaire for notes payable?
4. Are direct borrowings on notes payable authorized by the board of directors?
When an auditor observes that the recorded interest expense seems to be excessive in relation to the balance in the bonds payable account, the auditor might suspect that
2. Bonds payable are understated
In the audit of notes payable, which balance-related audit objective is generally one of the most important for the auditor to verify?
3. Existing notes payable are included on the balance sheet as of year end
During an audit of a publicly held company, the auditor should obtain written confirmation regarding debenture transactions from the
An auditor usually obtains evidence of stockholders' equity transactions by reviewing the entity's
1. Minutes of the boards of directors meetings
Which of the following internal controls is least likely to reduce risks related to the occurrence transaction-related audit objective for issuances of stock?
1. The board of directors must approve the distribution of cash dividends
Which of the following audit procedures would be most relevant when examining the completeness transaction-related audit objective for capital stock?
1. The auditor examines minutes of the board of directors' meetings to identify any actions involving the issuance of capital stock
A CPA obtains a January 10 cutoff bank statement for a client directly from the bank. Very few of the outstanding checks listed on the client's December 31 bank reconciliation cleared during the cutoff period. A probable cause for this is that the client
4. Transmitted the check to the payees after year-end
In establishing the existence and ownership of an investment held by a corporation in the form of publicly traded stock, an auditor should inspect the securities or
3. Confirm the number of shares owned that are held by an independent custodian
The auditor should ordinarily send confirmation requests to all banks with which the client has conducted any business during the year, regardless of the year-end balance, because
2. The confirmation form also seeks information about indebtedness to the bank
The auditor should control and verify all liquid assets simultaneously to prevent
2. Conversion of assets to conceal a shortage
Which of the following is one of the better auditing techniques to detect kiting?
4. Prepare a schedule of bank transfers from the client's books
Which of the following cash transfers results in a misstatement of cash at Dec, 31, 2013
2. 1/4/14 1/5/14 12/31/13 1/4/14
The audit step most likely to reveal the existence of contingent liabilities is
4. An inquiry directed to legal councel
When a contingency is resolved subsequent to the issuance of audited financial statements, which correctly contained disclosure of the contingency in the footnotes based on information available at the date of issuance, the auditor should
1. Take no action regarding the event
Which of the following would be least likely to be included in a standard inquiry to the client's attorney?
2. A request for the attorney to opine on the correct accounting treatment associated with an outstanding claim or pending lawsuit outcome
Which of the following is not a required item to be communicated by the auditor to the audit committee or others charged with governance?
3. Recommendations for improving the client's business
Written management representations obtained by the auditor in connection with a financial statement audit should include a
3. Statement of management's belief that the effects of uncorrected misstatements are not material
A management letter
2. Contains the recommendations from the auditor designed to help the client improve the efficiency and effectiveness of its business
An audit report was dual-dated for a subsequent event disclosed in the financial statements, which occurred after the completion of the evidence collection process but before the issuance of the financial statements. The auditor's responsibility for events occurring subsequent to the completions of the evidence collection process was
3. Limited to the specific events referred to
Subsequent events for reporting purposes are defined as events that occur subsequent to the
1. Balance sheet date but before the date of the auditor's report
An example of an event occurring in the period of the auditor's field work subsequent to the end of the year being audited that normally will not require disclosure in the financial statements or auditor's report is
4. Decreased sales volume resulting from a general business recession
The form 10-K filed by management of a public company includes a section on management's discussion and analysis (MD&A) in addition to the annual financial statements. Which of the following best describes the auditor's responsibility for the MD&A information?
3. The auditor must read the MD&A information to determine if there is any material inconsistency with the audited financial statements
Management of Thurman Corporation included additional supplementary information in documents that include the audited financial statements for the year ended December 31, 2013. Management has asked its audit firm, Wally, CPAs, whether they can report on the supplementary information. Which of the following conditions would preclude Wally, CPAs, from conducting this engagement?
2. The supplementary information covers the period January 1, 2013, through February 15, 2014.
Investment and property schedules are presented for purposes of additional analysis in a document outside the basic financial statements. The schedules are not required supplementary information. When the auditor is engaged to report on whether the supplementary information is fairly stated in relation to the audited financial statements as a whole, the measurement of materiality is the
3. Same as that used in forming an opinion o the basic financial statements as a whole
Mr. Murray decides to use stratified sampling. The reason for using stratified sampling rather than unrestricted random sampling is to
4. Allow the auditor to emphasize larger items from the population
Which of the following sample planning factors will influence the sample size for a test of details of balances for a specific account
2. Expected amount of misstatements-yes
Measure of tolerable misstatement - yes
How would increases in tolerable misstatement and assessed level of control risk affect the sample size in substantive tests of details?
3. Increase in tolerable misstatement -Decrease sample size
Increase in assessed level of control risk - increase sample size
While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation illustrates the risk of
3. Incorrect rejection
In an MUS sample with a sampling interval of $5,000, an auditor discovered that a selected accounts receivable with a recorded amount of $10,000 had an audit value of $8,000. If this is the only error discovered by the auditor, the projected error of the sample would be
The accounting department reports the accounts receivable balance as $175,000. You are willing to accept that balance if it is within $15,000 of the actual balance. Using a variables sampling plan, you compute a 95% confidence interval of $173,000 to $187,000. You would therefore
4. Accept the $175,000 balance because the confidence interval is within the materiality limits
When the auditor uses monetary unit statistical sampling to examine the total dollar value of invoices, each invoice
4. Has a probability proportional to its dollar value
Which of the following would be an advantage of using variables sampling rather than probability proportional to size (PPS) sampling?
3. The inclusions of zero and negative balances usually does not require special design considerations
In applying variables sampling, an auditor attempts to
4. Predict a monetary population value within a range of precision
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