Ch 12 +14

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1. 
Which of the following best describes the reason that the auditors record their inventory test counts in the working papers?
A) To document every test count.
B) For subsequent comparison with the completed inventory listing.
C) To document compliance with generally accepted accounting principles.
D) For use in subsequent audits.
 
For subsequent comparison with the completed inventory listing.
 
2. 
A likely analytical procedure to test the accuracy of purchase discounts would be to compute the ratio of cash discounts earned to:
A) Accounts payable.
B) Notes payable.
C) Purchases.
D) Sales discounts.
 
Purchases
 
3. 
Which of the following audit procedures is least likely to detect an unrecorded liability?
A) Analysis and recomputation of interest expense.
B) Analysis and recomputation of depreciation expense.
C) Mailing of a cash confirmation form.
D) Reading of the minutes of meetings of the board of directors.
 
Analysis and recomputation of depreciation expense.
 
4. 
Which statement is correct with respect to accounts payable confirmations?
A) The negative form is used in most circumstances.
B) Accounts with new suppliers are always confirmed.
C) They are a required auditing procedure.
D) They are more frequently used in situations in which some vendors don't send monthly statements.
 
They are more frequently used in situations in which some vendors don't send monthly statements.
 
5. 
The confirmation of accounts payable is most closely associated with:
A) Assertion risk.
B) Detection risk.
C) Inherent risk.
D) Relative risk.
 
Detection risk.
 
6. 
Which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper?
A) Testing the entity's computation of standard overhead rates.
B) Obtaining confirmation of inventories pledged under loan agreements.
C) Reviewing a cutoff procedure for inventories.
D) Tracing test counts to the entity's inventory listing.
 
Testing the entity's computation of standard overhead rates.
 
7. 
An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all:
A) Merchandise received.
B) Vendor's invoices.
C) Canceled checks.
D) Receiving reports.
 
Vendor's invoices.
 
8. 
Which of the following is the best control procedure to prevent the payment of an invoice twice?
A) Review of supporting documentation by the person signing the check.
B) Requiring dual signatures on checks.
C) Use of a check protector.
D) Reconciliation of vendor statements to accounts payable.
 
Review of supporting documentation by the person signing the check.
 
9. 
An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?
A) Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the receiving reports.
B) Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving reports.
C) Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the checks.
D) Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.
 
Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.
 
10. 
Purchase cutoff procedures should be designed to test whether all inventory:
A) Owned by the company was recorded.
B) On the year end balance sheet was carried at lower of cost or market.
C) On the year end balance sheet was paid for by the company.
D) Owned by the company is in the possession of the company.
 
Owned by the company was recorded.
 
11. 
In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the:
A) Purchases journal.
B) Purchase requisitions.
C) Purchase orders.
D) Vendors' invoices.
 
Vendors' invoices.
 
12. 
Effective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has:
A) The ability to prepare payment vouchers based on the information on a vendor's invoice.
B) The responsibility of reviewing purchase orders issued by user departments.
C) The authority to make purchases of requisitioned materials and services.
D) A direct reporting responsibility to controller of the organization.
 
The authority to make purchases of requisitioned materials and services
 
13. 
Which of the following best describes the auditors' response to a client's use of statistical sampling techniques to estimate the inventory?
A) The auditors should satisfy themselves as to the statistical validity of the technique, and the reasonableness of the allowance for sampling risk and sampling error used.
B) The auditors should qualify their opinion, because the client must perform a complete count of the inventory.
C) The auditors should increase the extent of their test counts to compensate for the use of a statistical technique.
D) The auditors should withdraw from the engagement.
 
The auditors should satisfy themselves as to the statistical validity of the technique, and the reasonableness of the allowance for sampling risk and sampling error used.
 
14. 
The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with:
A) Purchase requisitions.
B) Receiving reports.
C) Purchase orders.
D) Vendor payments.
 
Receiving reports.
 
15. 
When the auditors discover an understatement of liabilities, they would most likely also expect to find an:
A) Understatement of assets.
B) Understatement of owners' equity.
C) Overstatement of expenses.
D) Understatement of revenues.
 
Understatement of assets.
 
16. 
Which of the following best describes the reason for the auditors' review of the client's cost accounting system?
A) To obtain evidence regarding the quantities of good described as work-in-process.
B) To obtain evidence about the valuation of work-in-process, finished goods, and cost of goods sold.
C) To obtain evidence about the profit margin on specific jobs.
D) To obtain evidence about compliance with Cost Accounting Standards.
 
To obtain evidence about the valuation of work-in-process, finished goods, and cost of goods sold.
 
17. 
Which of the following is not a procedure that typically is used by the auditors in their examination of a client's goods held in the custody of a public warehouse?
A) Confirmation.
B) Obtaining reports on internal control at the warehouse.
C) Observation.
D) Corresponding with the state agency regarding the authenticity of the public warehouse.
 
Corresponding with the state agency regarding the authenticity of the public warehouse.
 
18. 
Auditors may choose not to confirm accounts payable because:
A) Confirmation obtains evidence identical to that obtained by cutoff tests.
B) Other reliable external evidence to support the balances is likely to be available.
C) A reading of the corporate minutes reveals that confirmation is unnecessary.
D) The balances due will have changed between the year-end and the date of confirmation.
 
Other reliable external evidence to support the balances is likely to be available.
 
19. 
Auditors should be aware that a voucher system may result in which of the following at year-end:
A) Understatement of liabilities.
B) Overstatement of assets.
C) Understatement of owners' equity.
D) Overstatement of expenses.
 
Understatement of liabilities.
 
20. 
Which of the following is an example of an accrued liability?
A) Accounts payable.
B) Notes payable.
C) Prepaid insurance.
D) Product warranty liability.
 
Product warranty liability.
 
21. 
Which of the following procedures is least likely to be completed before the balance sheet date?
A) Observation of inventory.
B) Review of internal control over cash disbursements.
C) Search for unrecorded liabilities.
D) Confirmation of receivables.
 
Search for unrecorded liabilities.
 
22. 
Which of the following best describes a voucher prepared under good internal control?
A) A document prepared by Stores that indicates amount to be purchased.
B) A document prepared by Receiving that indicates the quantity received and approves payment.
C) A document prepared by Accounts Payable authorizing a cash disbursement.
D) A document received by Purchasing, from a supplier, indicating quantity of goods purchased and amount due.
 
A document prepared by Accounts Payable authorizing a cash disbursement.
 
23. 
Which of the following procedures for detecting unrecorded transactions at the client's December 31 year-end is least likely to result in discovery of an unrecorded year-end account payable?
A) Examination of invoices received after year-end.
B) Examination of vouchers payable entered in the January voucher register.
C) Examination of January receiving reports prepared for goods shipped FOB destination in December to the client.
D) Confirmation of year-end accounts payable.
 
Examination of January receiving reports prepared for goods shipped FOB destination in December to the client.
 
24. 
Which of the following is an effective control that encourages receiving department personnel to count and inspect all merchandise received?
A) Quantities ordered are excluded from the receiving department copy of the purchase order.
B) Vouchers are prepared by accounts payable department personnel only after they match item counts on the receiving report with the purchase order.
C) Receiving department personnel are expected to match and reconcile the receiving report with the purchase order.
D) Internal auditors periodically examine, on a surprise basis, the receiving department copies of receiving reports.
 
Quantities ordered are excluded from the receiving department copy of the purchase order.
 
25. 
Which of the following would an auditor most likely question included in calculation of the overhead rate for a company that manufactures a product?
A) Factory supervisor salary.
B) Indirect materials.
C) Miscellaneous expense.
D) Sales expense.
 
Sales expense.