Audit Final Exam May 2010

A review of vouchers paid during the month following the year end

An inquiry directed to legal counsel

Accounts payable confirmation

Mortgage note confirmation

The period in which the underlying cause of the litigation occured

The probability of an unfavorable outcome

An estimate of when the matter will be resolved

An estimate of the potential loss

Take no action regarding the event

Insist that the client issue revised financial statements

Inform the audit committee that the report cannot be relied on

Inform the appropriate authorities that the report cannot be relied on

Serve as an introduction to company personnel and an authorization to examine the records

Discharge the auditor from legal liability for the audit

Confirm in writing managements approval of limitations on the scope of the audit

Remind management of its primary responsibility for financial statements

Balance sheet date

Date of the auditors report

Date of the latest subsequent event referred to in the notes to the financial statements

Date of the engagement agreement

Prima facie evidence that the financial statements are not presented fairly

A violation of the foreign corrupt practices act

An uncertainty sufficient to preclude an unqualified opinion

A scope limitation sufficient to preclude an unqualified opinion

Balance sheet date

Date of the auditors report

Balance sheet date but before the date of the auditor's report

Date of the auditor's report and concern contingencies that are not reflected in the financial statements

Serious damage to the company's plant from a widespread flood

Issuance of a widely advertised capital stock issue with restrictive covenants

Settlement of a large liability for considerably less than the amount recorded

Decreased sales volume resulting from a general business recession

Feb. 27, 2010

Feb. 28, 2010

March 31, 2010

April 4, 2010

The auditor has no reporting responsibility concerning info accompanying the basic financial statements

The auditor should report on the info accompanying the basic financial statements only if the auditor participated in its preparation

The auditor should report on the information accompanying the basic f/s only if the auditor did not participate in its preparation

The auditor should report on all the information included in the document

To provide an opinion about the supplemental info when certain items are not in accordance with GAAP

To provide Rainco's creditors a greater degree of assurance as to the financial soundness of the company

To provide Rainco's management with info to supplement and analyze the basic F/S

To provide the documentation required by the SEC in anticipation of a public offering of Raincos stock

Issue a standard short-form report on the same audit

Include a description of the scope of the audit in more detail than the description in the usual short-form report

State the source of any statistical data and that such data have not been subjected to the same auditing procedures as the basic F/S

Maintain a clear cut distinction between management's representations and the auditor's representations

The cycle basis for physical inventory taking was to be used

Minor supply items were to be expensed when acquired

A perpetual inventory master file is not maintained for items of smaller value

The storekeeping function were to be combined with production and record keeping

Returned to the requisitioner

Forwarded to the receiving department

Forwarded to the accounting department

Retained in the purchasing departments files

Maintain a perpetual inventory master file of only the more valuable items with frequent periodic verification of the validity of the perpetuals

Have an independent CPA firm prepare an internal control report on the effectiveness of the administrative and accounting controls over inventory

Have separate warehouse space for the more valuable items with sequentially numbered tags

Require an authorized officer's signature on all requisitions for the more valuable items

Costs have been correctly assigned to finished goods, work in process, and cost of goods sold

Quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand

Physical inventories are in substantial agreement with book inventories

The internal controls are in accordance with GAAP and are functioning as planned

Purchase requisitions

Receiving reports

Purchase orders

Vendor payments

Make inquiries

Inspect documents

Observe procedures

Consider policy and procedure manuals

Inquiry of sales personnel

Inquiry of store personnel

Physical observation

Review of perpetual inventory master files

Inadequacies in inventory pricing

Methods of avoiding cyclical holding costs

The existence of obsolete inventory

Physical quantity of inventory items

Average price of inventory items

Percentage of slow moving items

Dollar value of inventory

Physical quantity of inventory items

Periodic physical inspection of plant and equipment by the internal audit staff

Comparison of current-year plant and equipment account balances with prior-year balances

Review of prenumbered purchase orders to detect unrecorded trade-ins

Approval of periodic depreciation entries by a supervisor independent of the accounting department

Checks issued in payment of acquisitions of equipment are not signed by the controller

All acquisitions of factory equipment are required to be made by the department in need of equipment

Factory equipment replacements are generally made when estimated useful lives as indicated in depreciation schedules, have expired

Proceeds from sales of fully depreciated equipment are credited to other income

Continuous analysis of miscellaneous revenue to locate any cash proceeds from sale of plant assets

Periodic inventory of plant executives by internal auditors as to whether any plant assets have been retired

Continuous use of serially numbered retirement work orders

Periodic observation of plant assets by the internal auditors

Prior year accounts payable to current year accounts payable

Prior year payroll expense to budgeted current year payroll expense

Current year revenue to budgeted current year revenue

Current year warranty expense to current year contingent liabilities