Auditing - Final - Multiple Choice

53 Questions | By Dodonutt | Last updated: Sep 2, 2020 | Total Attempts: 2324

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The final exams for the Audit class are just around the corner and the quiz below is designed to help you pass the quiz by getting rid of the cold feet you may be having. Give it a try and choose the right answer according to you for each question.

Questions and Answers

1.

As a result of analytical procedures, the auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should:
- A.
  
  Express a qualified opinion due to inability of the client company to continue as a going concern
- B.
  
  Evaluate management's performance in causing this decline
- C.
  
  Require footnote disclosure
- D.
  
  Consider the possibility of a misstatement in the financial statements
2.

After a CPA has determined that accounts receivable have increased as a result of slow collections in a "tight money" environment, the CPA will be likely to
- A.
  
  Increase the balance in the allowance for bad debt account
- B.
  
  Review the going concern ramifications
- C.
  
  Reciew the credit and collection policy
- D.
  
  Expand test of collectibility
3.

In connection with the review of key ratios, the CPA notes that Pyzi had accounts receivable equal to 30 days' sales at December 31, 2008, and to 4 days' sales at December 31, 2009. Assuming that there have been no changes in economic conditions, clientele, or sales mix, this change most likely will indicate
- A.
  
  A steady increase in sales in 2009
- B.
  
  An easing of credit policies in 2009
- C.
  
  A decrease in accounts receivable relative to sales in 2009
- D.
  
  A steady decrease in sales 2009
4.

The negative form of accounts receivable confirmation request is useful except when
- A.
  
  Internal control surrounding accounts receivable is considered to be effective
- B.
  
  A large number of small balances are involved
- C.
  
  The auditor has reason to believe the persons receiving the requests are likely to give them consideration
- D.
  
  Individual account balances are relatively large
5.

The return of a positive confirmation of accounts receivable without an exception attests to the
- A.
  
  Collectibility of the receivable balance
- B.
  
  Accuracy of the receivable balance
- C.
  
  Accuracy of the aging of accounts receivable
- D.
  
  Accuracy of the allowance for uncollectible accounts
6.

In confirming a client's accounts receivable in prior years, an auditor found that there were many differences between the recorded accounts balances and the confirmation responses. These differences, which were not misstatements, required substantial time to resolve. In defining the sampling unit for the current year's audit, the auditor will most likely choose
- A.
  
  Individual overdue balances
- B.
  
  Individual invoices
- C.
  
  Small account balances
- D.
  
  Large account balances
7.

When evaluating the adequay of the allowance for uncollectible accounts, an auditor recviews the entity's aging of receivables to support management's balance-related assertion of
- A.
  
  Exisence
- B.
  
  Completeness
- C.
  
  Valuation and allocation
- D.
  
  Rights and obligations
8.

Which of the following audit procedures will best uncover an understatement of sales and accounts receivables?
- A.
  
  Test a sample of sales tranactions, selecting the sample from prenumbered shipping documents
- B.
  
  Test a sample of sales tranactions, selecting the sample from sales invoices recorded in the sales journal
- C.
  
  Confirm accounts receivable
- D.
  
  Review the aged receivable trial balance
9.

Mr. Murray decides to use stratified sampling. The reason for using stratified sampling rather than unrestricted random sampling is to
- A.
  
  Reduce as much as possible the degree of variability in the overall population
- B.
  
  Give every element in the population an equal chance of being included in the sample
- C.
  
  Allow the person selecting the sample to use personal judgnment in deciding which elements should be included in the sample
- D.
  
  Allow the auditor to emphasize larger items from the population
10.

In an audit of financial statements, a CPA wil generally find stratified sampling techniques to be most applicable to
- A.
  
  Recomputing net wage and salary payments to employees
- B.
  
  Tracing hours woked from the payroll summary back to the individual time cards
- C.
  
  Confirming accounts recivable for residential customers at a large electric utility
- D.
  
  Review supporting documentation for additions to plant and equipment
11.

From prior experience, a CPA is aware that the accounts receivable trial balance contains a few unusually large balances. In using statistical sampling, the CPA's best course of action is to
- A.
  
  Eliminate any unusually large balances that appear in the sample
- B.
  
  Continue to draw new samples until no unusually large balances appear in the sample
- C.
  
  Stratify the accounts receivable population so that the unusually large balances are reviewed separately
- D.
  
  Increase the sample size to lessen the effet of the unusually large balances.
12.

A number of factors influence the sample size for a substantive test of details of an account balance. All other things being equal, which of the following would lead to a larger sample size?
- A.
  
  Greater reliance on internal control
- B.
  
  Greater reliance on analytical procedures
- C.
  
  Smaller expected frequency of errors
- D.
  
  Smaller measure of tolerable misstatement
13.

An auditor uses audit sampling to perform tests of controls in the acquisition and payment cycle. Those tests indicate that the related controls are operating effectively. The auditor plans to use audit sampling to perform tests of details of balances for accounts payable. The auditor's acceptable risk of incorrect acceptance (ARIA) for the test of details of balances for accounts payable will most likely be
- A.
  
  The same as the ARACR for test of controls
- B.
  
  Greater than the ARACR for tests of controls
- C.
  
  Less than the ARACR for tests of controls
- D.
  
  Totally independent from the ARACR used for test of controls
14.

Which of the following sample planning factors will influence the sample size for a test of details of balances for a specific account?EXPECTED AMOUNT MEASURE OFOF MISSTATEMENTS TOLERABLE MISSTATEMENT
- A.
  
  No, No
- B.
  
  Yes, Yes
- C.
  
  No, Yes
- D.
  
  Yes, No
15.

A client erroneously recorded a large purchse twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner?
- A.
  
  Footing the purchases journal
- B.
  
  Reconciling vendors' monthly statements with subsidiary payable ledger accounts
- C.
  
  Tracing totals from the purchses journal to the ledger accounts
- D.
  
  Sending written quarterly confirmations to all vendors
16.

Budd, the purchasing agent of Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a COD basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this because of Lake's poor internal control over
- A.
  
  Purchase requisitions
- B.
  
  Purchase orders
- C.
  
  Cash receipts
- D.
  
  Perpetual inventory records
17.

Which of the following is an internal control that will prevent paid cash disbursement documents from being presented for payment a second time?
- A.
  
  The date on cash disbursement documents must be within a few dys of the date that the document is presented for payment
- B.
  
  The official signing the check compares with the documents and should deface the documents
- C.
  
  Unsigned checks are prepared by individuals who are responsible for signing checks
- D.
  
  Cash disbursement documents are approved by at least two responsible management officials.
18.

In auditing accounts payable, an auditor's procedures most likely will focus primarily on management's assertion of
- A.
  
  Existence
- B.
  
  Relizable value
- C.
  
  Completeness
- D.
  
  Valuation and allocation
19.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
- A.
  
  Examining unusual relationships between monthly accounts payable balances and recorded cash payments
- B.
  
  Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date
- C.
  
  Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period
- D.
  
  Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports
20.

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely is
- A.
  
  Vendors with whom the entity has previously done business
- B.
  
  Amounts recorded in the accounts payable subsidiary ledger
- C.
  
  Payees of checks drawn in th emonth after year-end
- D.
  
  Invoices filed in the entity's open invoice file
21.

Which of the following controls most likely will justify a reduced assessed level of control risk concerning plant and equipment acquisitions
- A.
  
  Periodic physical inspection of plant and equipment by the internal audit staff
- B.
  
  Comparison of current-year plant and equipment account balances with prior-year balances.
- C.
  
  Review of prenumbered purchase orders to detect unrecorded trade-ins
- D.
  
  Approval of periodic depreciation entries by a supervisor independent of the accounting department
22.

Which of the following is not an internal control deficiency related to factory equipment?
- A.
  
  Checks issued in payment of acquisitions of equipment are not signed by the controller
- B.
  
  All acquisitions of factory equipment are required to be made by the department in need of the equipment
- C.
  
  Factory equipment replacements are generaly made when estimated usefullives, as indicated in depreiation schedules, have expired
- D.
  
  Proceeds from sales of fully depreciated equipment are credited to other income
23.

With respect to an internal control measure that wil ensure accountability for fixed asset retirements, management should implement controls that include
- A.
  
  Continuous analysis of miscellaneous revenue to locate any cash proceeds from sale of plant assets
- B.
  
  Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired
- C.
  
  Continuous use of serially numbered retirement work orders
- D.
  
  Periodic observation of plant assets by the inernal auditors
24.

Which of the following comparisons will be most useful to an auditor in aduting an entity's income and expense accounts?
- A.
  
  Prior year accounts payable to current year accounts payable
- B.
  
  Prior year payroll expense to budgeted current year payroll expense
- C.
  
  Current year revenue to budgeted current year revenue
- D.
  
  Current year warranty expense to current year contingent liabilities
25.

The controler of Excello Manufacturing, Inc., wants to use analytical procedures to identify the possible existence of idle equipment or the possibility that equipment has been disposed of without having been written off. Which of the following ratios will best accomplish this objective?
- A.
  
  Depreciation expense/book value of manufacturing equipment
- B.
  
  Accumulated depreciation/book value of manufacturing equipment
- C.
  
  Repairs and maintenance cost/direct labor costs
- D.
  
  Gross manufacturing equpment cost/units produced