Chs 10, 11, And 13

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Chs 10, 11, And 13

  
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  • 1. 
    According to the SEC's SAB No. 101, which of the following is not necessary for revenue recognition?
    • A. 

      The seller's price to the buyer is fixed

    • B. 

      Collectibility is reasonably assured

    • C. 

      The seller has determined that the buyer will take the discount

    • D. 

      Persuasive evidence of an arrangement exists


  • 2. 
    Which of the following most likely would give the most assurance concerning the valuation assertion for accounts receivable?
    • A. 

      Tracing amounts in the subsidiary ledger to details on shipping documents

    • B. 

      Comparing receivable turnover ratios to industry statistics for reasonableness

    • C. 

      Inquiring about receivables pledged under loan agreements

    • D. 

      Assessing the allowance for uncollectible accounts for reasonableness


  • 3. 
    Immediately upon receipt of cash, a responsible employee should...
    • A. 

      Record the amount in the cash receipts journal

    • B. 

      Prepare a listing of remittances

    • C. 

      Update the subsidiary accounts receivable records

    • D. 

      Prepare a deposit slip in triplicate


  • 4. 
    Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control activities could cause an...
    • A. 

      Understatement of revenues, receivables and inventory

    • B. 

      Overstatement of revenues and receivables and an understatement of inventory

    • C. 

      Understatement of revenues and receivables and an overstatement of inventory

    • D. 

      Overstatement of revenues, receivables, and inventory


  • 5. 
    To achieve good internal control, which department should perform the activities of matching shipping documents with sales orders and preparing daily sales summaries?
    • A. 

      Billing

    • B. 

      Shipping

    • C. 

      Credit

    • D. 

      Sales order


  • 6. 
    Tracing copies of sales invoices to shipping documents will provide evidence that all...
    • A. 

      Shipments to customers were recorded as receivables

    • B. 

      Billed sales were shipped

    • C. 

      Accounts receivable ledger is complete

    • D. 

      Shipments to customers were billed


  • 7. 
    Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of...
    • A. 

      Classification

    • B. 

      Cutoff

    • C. 

      Occurrence

    • D. 

      Authorization and accuracy


  • 8. 
    Which of the following is the best argument against the use of negative accounts receivable confirmations?
    • A. 

      The cost-per-response is excessively high

    • B. 

      There is no way of knowing if the intended recipients received them

    • C. 

      Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment

    • D. 

      The inference drawn from receiving no reply may not be correct


  • 9. 
    A client's procurement system ends with the assumtion of a liability and the evenual payment of the liability. Which of the following best describes the auditor's primary concern with respect to liabilities resulting from the procurement system?
    • A. 

      Accounts payable are not materially understated

    • B. 

      Authority to incur liabilities is restricted to one designated person

    • C. 

      Acquisition of materials is not made from one vendor or one group of vendors

    • D. 

      Commitments for all purchases are made only after established competitive bidding procedures are followed


  • 10. 
    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 packaging slip and the voucher


  • 11. 
    The accounts payable department receives the purchase order form to accomplish all of the following except to:
    • A. 

      Compare invoice price to purchase order price

    • B. 

      Ensure that the purchase had been properly authorized

    • C. 

      Ensure that the goods had been received by the party requesting the goods

    • D. 

      Compare quantity ordered to quantity purchased


  • 12. 
    Which of the following procedures would an auditor most likely perform in searching for unrecorded payments?
    • A. 

      Reconcile receiving reports with related cash payments made just prior to year-end

    • B. 

      Contrast the ratio of accounts payable to purchases with the prior year's ratio

    • C. 

      Vouch a sample of creditor balances to supporting invoices, receiving reports and purchase orders

    • D. 

      Compare cash payments occurring after the balance sheet date with the accounts payable trial balance


  • 13. 
    Which of the following departments typically approves purchase requisitions?
    • A. 

      Raw materials stores

    • B. 

      Cost accounting

    • C. 

      Inventory management

    • D. 

      IT


  • 14. 
    Shipping orders are forwarded from the revenue process to...
    • A. 

      The materials requisitions department

    • B. 

      Finished goods stores

    • C. 

      Raw materials stores

    • D. 

      Inventory management


  • 15. 
    Key segregations of duties in the inventory management process include all of the following except separating...
    • A. 

      Cost accounting from review of variance reports (standard cost and inventory records)

    • B. 

      Inventory management from cost accounting

    • C. 

      Cost accounting from the general ledger function

    • D. 

      Supervision of physical inventory from inventory management


  • 16. 
    Which of the following best describes the occurrence assertion for inventory?
    • A. 

      Purchase requisitions initiated by authorized personnel

    • B. 

      Recorded inventory actually exists

    • C. 

      Inventory properly accumulated from journals and ledgers

    • D. 

      All inventory is recorded


  • 17. 
    When perpetual inventory records are maintained in quantities and in dollars and internal control over inventory is weak, the auditor would probably...
    • A. 

      Want the client to schedules the physical inventory count at the end of the year

    • B. 

      Insist that the client perform physical counts of inventory items during the year

    • C. 

      Increase the extent of tests for unrecorded liabilities at the end of the year

    • D. 

      Have to disclaim an opinion on the income statement for that year


  • 18. 
    An inventory turnover analysis is useful to teh auditor because it may detect...
    • A. 

      Inadequacies in inventory pricing

    • B. 

      Methods of avoiding cyclical holding costs

    • C. 

      The optimum automatic reorder points

    • D. 

      The existence of obsolete merchandise


  • 19. 
    Auditors are most likely to ensure that no production activity is scheduled prior to...
    • A. 

      Determining standard costs

    • B. 

      Observing physical inventory

    • C. 

      Completing the book to physical adjustment

    • D. 

      Determining the amount of consigned inventory


  • 20. 
    An auditor selected items for test counts while observing a client's physical inventory. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's assertion of...
    • A. 

      Rights and obligations

    • B. 

      Completeness

    • C. 

      Existence

    • D. 

      Valuation


  • 21. 
    The audit of year-end physical inventories should include steps to verify that the client's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a...
    • A. 

      Sale in the subsequent period

    • B. 

      Purchase in the current period

    • C. 

      Sale in the current period

    • D. 

      Purchase return in the subsequent period


  • 22. 
    Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?
    • A. 

      Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts

    • B. 

      Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit

    • C. 

      Employees responsible for authorizing sales and bad debt write-offs are denied access to cash

    • D. 

      Employees involved in the credit-granting function are separated from the sales function


  • 23. 
    An auditor generally tests physical security controls over inventory by...
    • A. 

      Inspection and recomputation

    • B. 

      Inquiry and observation

    • C. 

      Test counts and cutoff procedures

    • D. 

      Examination and reconciliation


  • 24. 
    An auditor will usually trace the details of the test counts made during the observation of the physical inventory count to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are...
    • A. 

      Physically present at the time of the preparation of the final inventory schedule

    • B. 

      Owned by the client

    • C. 

      Not obsolete

    • D. 

      Included in the final inventory schedule


  • 25. 
    Tracing bills of lading to sales invoices provides evidence that...
    • A. 

      Billed sales were shipped

    • B. 

      Recorded sales were shipped

    • C. 

      Shipments to customers were properly authorized

    • D. 

      Shipments to customers were billed


  • 26. 
    The mailing of disbursement checks and remittance advices should be controlled by the employee who...
    • A. 

      Approved the vouchers for payment

    • B. 

      Verified the mathematical accuracy of the vouchers and remittance advices

    • C. 

      Signed the checks last

    • D. 

      Matched the receiving reports, purchase orders and vendors' invoices


  • 27. 
    The safeguarding of inventory most likely includes...
    • A. 

      Analytical procedures for raw materials, goods in process, and finished goods that identify unusual transactions, theft and obsolescence

    • B. 

      Application of established overhead rates on the basis of direct labor hours or direct labor costs

    • C. 

      Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count

    • D. 

      Comparison of the information contained on the purchase requisitions, purchase orders, receiving reports, and vendors' invoices


  • 28. 
    A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably...
    • A. 

      Apply gross profit tests to ascertain the reasonableness of the physical counts

    • B. 

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

    • C. 

      Increase the extent of tests of controls for the inventory cycle

    • D. 

      Insist that the client perform physical counts of inventory items several times during the year


  • 29. 
    Auditors may use positive and/ or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?
    • A. 

      The positive confirmation form must always be used to confirm all balances regardless of size

    • B. 

      A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances

    • C. 

      The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory

    • D. 

      A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables


  • 30. 
    When searching for unrecorded liabilities at year-end, the population identified for sampling would be...
    • A. 

      Cash receipts from related parties recorded before year-end

    • B. 

      Creditors whose accounts appear on a subsidiary trial balance of accounts payable

    • C. 

      Invoices dated a few days before and after year-end

    • D. 

      Cash disbursements recorded in the period subsequent to year-end


  • 31. 
    To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all...
    • A. 

      Purchase requisitions

    • B. 

      Receiving reports

    • C. 

      Vendor's invoices

    • D. 

      Payment vouchers


  • 32. 
    Which of the following is the most effective control activity to detect vouchers prepared for the payment of goods that were not received?
    • A. 

      Counting of goods upon receipt in the storeroom

    • B. 

      Verification of vouchers for accuracy and approval in the internal audit department

    • C. 

      Matching of purchase order, receiving report, and vendor invoice for each voucher in the accounts payable department

    • D. 

      Comparison of goods received with goods requisitioned in the receiving department


  • 33. 
    Purchase cutoff procedures should be designed to test whether or not all inventory...
    • A. 

      On the year-end balance sheet was paid for by the company

    • B. 

      On the year-end balance sheet was carried at lower of cost or market

    • C. 

      Owned by the company is in the possession of the company

    • D. 

      Purchased and received before the year-end was recorded before year-end


  • 34. 
    An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of...
    • A. 

      Valuation or allocation

    • B. 

      Existence or occurrence

    • C. 

      Rights and obligations

    • D. 

      Completeness


  • 35. 
    In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of...
    • A. 

      Valuation and allocation

    • B. 

      Existence

    • C. 

      Rights and obligations

    • D. 

      Completeness


  • 36. 
    Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?
    • A. 

      Vouching the raw materials costs to vendors' invoices

    • B. 

      Obtaining confirmation of inventories pledged under loan agreements

    • C. 

      Tracing test counts to the entity's inventory listing

    • D. 

      Reviewing shipping and receiving cutoff activities for inventories


  • 37. 
    An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of...
    • A. 

      Existence

    • B. 

      Rights and obligations

    • C. 

      Valuation

    • D. 

      Completeness


  • 38. 
    Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?
    • A. 

      The cashier endorses the checks

    • B. 

      The cashier prepares the daily deposit

    • C. 

      The cashier posts the receipts to the accounts receivable subsidiary ledger cards

    • D. 

      The cashier makes the daily deposit at a local bank


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