Auditing - Final - Multiple Choice

Inadequacies in inventory pricing

Methods of avoiding cyclical holding costs

The existence of obsolete merchandise

The optimum automatic reorder points

Eliminate any unusually large balances that appear in the sample

Continue to draw new samples until no unusually large balances appear in the sample

Stratify the accounts receivable population so that the unusually large balances are reviewed separately

Increase the sample size to lessen the effet of the unusually large balances.

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 account techniques that reasonable approximate actual quantities on hand

Physical inventories are in substantial agreement with book inventories

The internal controls are in accordance with generally accepted accounting principles and are functioning as planned

Collectibility of the receivable balance

Accuracy of the receivable balance

Accuracy of the aging of accounts receivable

Accuracy of the allowance for uncollectible accounts

Footing the purchases journal

Reconciling vendors' monthly statements with subsidiary payable ledger accounts

Tracing totals from the purchses journal to the ledger accounts

Sending written quarterly confirmations to all vendors

Exisence

Completeness

Valuation and allocation

Rights and obligations

Existence

Relizable value

Completeness

Valuation and allocation

Select sales and expense items and trace amounts to related supporting documents

Ascertain that the new tincome amount in the statement of cash flows agrees with the net income amount in th eincome statement

Obtain from the proper client representatives the beginning and ending inventory amounts that were used to determine costs of sales

Compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences

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

Greater reliance on internal control

Greater reliance on analytical procedures

Smaller expected frequency of errors

Smaller measure of tolerable misstatement

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

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

An inquiry directed to legal counsel

Accounts payable confirmations

Mortgage-note confirmation

Balance sheet date

Date of the auditor's report

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

Date of the engagement agreement

Express a qualified opinion due to inability of the client company to continue as a going concern

Evaluate management's performance in causing this decline

Require footnote disclosure

Consider the possibility of a misstatement in the financial statements

Recomputing net wage and salary payments to employees

Tracing hours woked from the payroll summary back to the individual time cards

Confirming accounts recivable for residential customers at a large electric utility

Review supporting documentation for additions to plant and equipment

Purchase requisitions

Purchase orders

Cash receipts

Perpetual inventory records

Prima facie evidence that the financial statements are not present fairly

A violation of the Foreign Corrupt Practices Act

An uncertainty sufficient to preclude an unqualified opinion

A scope limitation sufficient to prelude an unqualified opinion

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

Applying a rigid measurement standard designed to test for understatement of net income

Analyzing the beginning and ending balance sheet inventory amounts

Making net income comparisons to published industry trends and ratios

Auditing income statement accounts concurrently with the related balance sheet accounts

Purchase requisitions

Receiving reports

Purchase orders

Vendor payments

The date on cash disbursement documents must be within a few dys of the date that the document is presented for payment

The official signing the check compares with the documents and should deface the documents

Unsigned checks are prepared by individuals who are responsible for signing checks

Cash disbursement documents are approved by at least two responsible management officials.

Accumulated depreciation

Insurance expense

Property, plant and equipment

Purchase returns and allowances

Maintain a perpetual invenotry 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 a separate warehouse space for the more valuable items with sequentially numbered tags

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

Inquiry of sales personnel

Inquiry of store personnel

Physical observation of inventory

Review of perpetual inventory mater files

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 management's approval of limitations on the scope of the audit

Confirm in writing management's approval of limitations on the scope of the audit

Remind management of its primary repsonsibility for financial statements

Balance sheet date

Date of the auditor's report

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

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

Vendors with whom the entity has previously done business

Amounts recorded in the accounts payable subsidiary ledger

Payees of checks drawn in th emonth after year-end

Invoices filed in the entity's open invoice file

Returned to the requisitioner

Forwarded to the receiving department

Forwarded to the accounting department

Retained in the purchasing department's files

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

Issuance of a widely advertisied 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

Average price of inventory items

Percentage of lsow-moving inventory items

Dollar value of inventory

Physical quantity of inventory items

The period in which the underlying cause of the litigation occurred

The probability of an unfavorable outcome

An estimate of when the matter wil be resolved

An estimate of the potential loss

A steady increase in sales in 2009

An easing of credit policies in 2009

A decrease in accounts receivable relative to sales in 2009

A steady decrease in sales 2009

Test a sample of sales tranactions, selecting the sample from prenumbered shipping documents

Test a sample of sales tranactions, selecting the sample from sales invoices recorded in the sales journal

Confirm accounts receivable

Review the aged receivable trial balance

Recompute the portion of the premium that expired during the year

Prepare exerpts of the insurance policies for audit documentation

Confirm premium rates with an independent insurance broker

Examine support for premium payments

Analysis and recomputation of interest expense

Analysis and recomputation of depreciation expense

Mailing of standard bank confirmation forms

Reading of the minutes of meetings of the board of directors

The cycle basis for physical inventory taking was to be used

Minor supply items were to be expensed when acquired

A perpetual invenotry master file is not maintained for items of small value

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

Internal control surrounding accounts receivable is considered to be effective

A large number of small balances are involved

The auditor has reason to believe the persons receiving the requests are likely to give them consideration

Individual account balances are relatively large

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

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

The auditor should report on the information accompanying the basic financial statements only if the auditor did not participate in its preparation

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

Make inquiries

Inspect documents

Observe procedures

Consider policy and procedure manuals

Select items of equipment from the accounting records and then locate them during the plant tour

Compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment

Inspect items of equipment observed during the plant tour and then trace them to the equipment master file

Scan the journal for unusual equipment additions and excessive debits to repairs and maintenance expense.

February 27, 2010

February 28, 2010

March 31, 2010

April 4, 2010

Increase the balance in the allowance for bad debt account

Review the going concern ramifications

Reciew the credit and collection policy

Expand test of collectibility

Individual overdue balances

Individual invoices

Small account balances

Large account balances

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 financial statements

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

The same as the ARACR for test of controls

Greater than the ARACR for tests of controls

Less than the ARACR for tests of controls

Totally independent from the ARACR used for test of controls

To provide an opinion about the supplemental information 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 information to supplement and analyze the basic financial statements

To provide the documentation required by the SEC in anticipation of a public offering of Rainco's stock

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 the equipment

Factory equipment replacements are generaly made when estimated usefullives, as indicated in depreiation 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 inquiry 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 inernal auditors