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Side A ------ Side B

	An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all:

	A) Cash disbursements.

	B) Approved vouchers.

	C) Receiving reports.

	D) Vendors' invoices.
 ------ 
	Cash disbursements


	Which of the following manipulations would understate accounts payable on the financial statements?

	A) Overstatement of purchases.

	B) Closing the cash disbursements journal prior to year-end.

	C) Leaving the cash receipts journal open after year-end.

	D) Overstating purchase returns.
 ------ Overstating Purchase Returns
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.

	The assertion most directly addressed when performing the search for unrecorded liabilities is:

	A) Completeness.

	B) Existence.

	C) Presentation.

	D) Rights.
 ------ Completeness
Which of the following is true about the auditors' observation of the client's physical inventory?
A) The auditors should plan the physical inventory.
B) The auditors should segregate damaged and obsolete goods.
C) The auditors should evaluate the adequacy of the client's counting procedures.
D) The auditors should supervise the client's personnel. ------ The auditors should evaluate the adequacy of the client's counting procedures.
The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are:
A) Owned by the client.
B) Not obsolete.
C) Physically present at the time of the preparation of the final inventory schedule.
D) Included in the final inventory schedule. ------ Included in the final inventory schedule.
In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified?
A) Test the computation of standard overhead rates.
B) Tour the manufacturing plant or production facility.
C) Compare inventory balances to anticipated sales volume.
D) Review inventory experience and trends. ------ Tour the manufacturing plant or production facility.
Which of the following best describes the auditors' approach to the audit of accrued liabilities?
A) Test computations.
B) Confirmation.
C) Observation.
D) A low planned assessed level of control risk. ------ Test computations.
The form typically used to confirm accounts payable:
A) Does not require a response from the vendor.
B) Confirms the balance recorded by the client at year-end.
C) Requires the vendor to indicate the amount of the payable.
D) Is the same as the form used to confirm accounts receivable. ------ Requires the vendor to indicate the amount of the payable.
Internal control over accounts payable is improved when:
A) Purchase orders show approved prices.
B) Informal bids are obtained.
C) Annual trial balance of accounts payable subsidiary ledgers is required.
D) Payment is made upon approval of the purchasing agent. ------ Purchase orders show approved prices.
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.
Which of the following is a control procedure that is usually applied to accounts payable?
A) Periodic confirmation of accounts payable.
B) Mailing statements to vendors detailing their account.
C) Periodic aging of accounts payable.
D) Reconciliation of vendor statements with accounts payable. ------ Reconciliation of vendor statements with accounts payable.
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.
Which of the following assertions is of principle concern to the auditors in the examination of accounts payable?
A) Existence.
B) Completeness.
C) Valuation.
D) Authorization. ------ Completeness.
Which of the following best describes the specific accounts payable that are selected for confirmation?
A) Accounts with large balances.
B) Accounts with zero balances.
C) Accounts with a large amount of activity regardless of their balance.
D) Accounts for which vendor statements are available. ------ Accounts with a large amount of activity regardless of their balance.
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.
Which of the following is true about the auditors' observation of the client's physical inventory?
A) The count must be made at year-end.
B) The auditors should supervise the client's personnel.
C) The auditors' observation addresses the existence assertion.
D) The auditors should justify any omission of the observation in the audit  ------ The auditors' observation addresses the existence assertion.
When the auditors select a sample of items from the vouchers payable register for the last month of the period under audit and trace these items to underlying documents, the auditors are gathering evidence primarily in support of the assertion that:
A) Recorded obligations were paid.
B) Incurred obligations were recorded in the correct period.
C) Recorded obligations occurred prior to year-end.
D) Cash disbursements were recorded as incurred obligation. ------  Recorded obligations occurred prior to year-end.
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.
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.
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.
Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?
A) Supplies of relatively little value are expensed when purchased.
B) The cycle basis is used for physical counts.
C) The storekeeper is responsible for maintenance of perpetual inventory records.
D) Perpetual inventory records are maintained only for items of significant value. ------ The storekeeper is responsible for maintenance of perpetual inventory records.
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.
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.
To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the:
A) Terms of the open purchase orders.
B) Purchase cutoff procedures.
C) Contractual commitments made by the purchasing department.
D) Purchase invoices received on or around year end. ------ Purchase cutoff procedures.
Which of the following best describes the auditors' approach to the audit of accrued liabilities?A) Test computations.B) Confirmation.C) Observation.D) A low planned assessed level of control risk. ------ Test computations

	To measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into:

	A) Net sales.

	B) Cost of good sold.

	C) Operating income.

	D) Gross sales.
 ------ Costs of Goods Sold

	An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly?

	A) Completeness.

	B) Existence.

	C) Legality.

	D) Valuation.
 ------ Completeness

	The auditors' search for unrecorded liabilities is completed:

	A) During an interim period.

	B) At the balance sheet date.

	C) Subsequent to the balance sheet date.

	D) At any time during the examination.
 ------ Subsequent to the balance sheet date

	An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of:

	A) Purchase orders.

	B) Canceled checks.

	C) Receiving reports.

	D) Approved vouchers.

	 

	 
 ------ Canceled checks

Side A ------ Side B

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all:

A) Cash disbursements.

B) Approved vouchers.

C) Receiving reports.

D) Vendors' invoices.
 ------ 
	Cash disbursements

Which of the following manipulations would understate accounts payable on the financial statements?

A) Overstatement of purchases.

B) Closing the cash disbursements journal prior to year-end.

C) Leaving the cash receipts journal open after year-end.

D) Overstating purchase returns.
 ------ Overstating Purchase Returns
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.

The assertion most directly addressed when performing the search for unrecorded liabilities is:

A) Completeness.

B) Existence.

C) Presentation.

D) Rights.
 ------ Completeness
Which of the following is true about the auditors' observation of the client's physical inventory?
A) The auditors should plan the physical inventory.
B) The auditors should segregate damaged and obsolete goods.
C) The auditors should evaluate the adequacy of the client's counting procedures.
D) The auditors should supervise the client's personnel. ------ The auditors should evaluate the adequacy of the client's counting procedures.
The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are:
A) Owned by the client.
B) Not obsolete.
C) Physically present at the time of the preparation of the final inventory schedule.
D) Included in the final inventory schedule. ------ Included in the final inventory schedule.
In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified?
A) Test the computation of standard overhead rates.
B) Tour the manufacturing plant or production facility.
C) Compare inventory balances to anticipated sales volume.
D) Review inventory experience and trends. ------ Tour the manufacturing plant or production facility.
Which of the following best describes the auditors' approach to the audit of accrued liabilities?
A) Test computations.
B) Confirmation.
C) Observation.
D) A low planned assessed level of control risk. ------ Test computations.
The form typically used to confirm accounts payable:
A) Does not require a response from the vendor.
B) Confirms the balance recorded by the client at year-end.
C) Requires the vendor to indicate the amount of the payable.
D) Is the same as the form used to confirm accounts receivable. ------ Requires the vendor to indicate the amount of the payable.
Internal control over accounts payable is improved when:
A) Purchase orders show approved prices.
B) Informal bids are obtained.
C) Annual trial balance of accounts payable subsidiary ledgers is required.
D) Payment is made upon approval of the purchasing agent. ------ Purchase orders show approved prices.
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.
Which of the following is a control procedure that is usually applied to accounts payable?
A) Periodic confirmation of accounts payable.
B) Mailing statements to vendors detailing their account.
C) Periodic aging of accounts payable.
D) Reconciliation of vendor statements with accounts payable. ------ Reconciliation of vendor statements with accounts payable.
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.
Which of the following assertions is of principle concern to the auditors in the examination of accounts payable?
A) Existence.
B) Completeness.
C) Valuation.
D) Authorization. ------ Completeness.
Which of the following best describes the specific accounts payable that are selected for confirmation?
A) Accounts with large balances.
B) Accounts with zero balances.
C) Accounts with a large amount of activity regardless of their balance.
D) Accounts for which vendor statements are available. ------ Accounts with a large amount of activity regardless of their balance.
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.
Which of the following is true about the auditors' observation of the client's physical inventory?
A) The count must be made at year-end.
B) The auditors should supervise the client's personnel.
C) The auditors' observation addresses the existence assertion.
D) The auditors should justify any omission of the observation in the audit  ------ The auditors' observation addresses the existence assertion.
When the auditors select a sample of items from the vouchers payable register for the last month of the period under audit and trace these items to underlying documents, the auditors are gathering evidence primarily in support of the assertion that:
A) Recorded obligations were paid.
B) Incurred obligations were recorded in the correct period.
C) Recorded obligations occurred prior to year-end.
D) Cash disbursements were recorded as incurred obligation. ------  Recorded obligations occurred prior to year-end.
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.
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.
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.
Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?
A) Supplies of relatively little value are expensed when purchased.
B) The cycle basis is used for physical counts.
C) The storekeeper is responsible for maintenance of perpetual inventory records.
D) Perpetual inventory records are maintained only for items of significant value. ------ The storekeeper is responsible for maintenance of perpetual inventory records.
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.
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.
To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the:
A) Terms of the open purchase orders.
B) Purchase cutoff procedures.
C) Contractual commitments made by the purchasing department.
D) Purchase invoices received on or around year end. ------ Purchase cutoff procedures.
Which of the following best describes the auditors' approach to the audit of accrued liabilities?A) Test computations.B) Confirmation.C) Observation.D) A low planned assessed level of control risk. ------ Test computations

To measure how effectively a client employs its assets, an auditor calculates inventory turnover by dividing the average inventory into:

A) Net sales.

B) Cost of good sold.

C) Operating income.

D) Gross sales.
 ------ Costs of Goods Sold

An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly?

A) Completeness.

B) Existence.

C) Legality.

D) Valuation.
 ------ Completeness

The auditors' search for unrecorded liabilities is completed:

A) During an interim period.

B) At the balance sheet date.

C) Subsequent to the balance sheet date.

D) At any time during the examination.
 ------ Subsequent to the balance sheet date

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of:

A) Purchase orders.

B) Canceled checks.

C) Receiving reports.

D) Approved vouchers.

------ Canceled checks