Auditing Multiple Choice - Mid-term #2

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Auditing Quizzes & Trivia

As you prepare for your midterm exams the quiz below is the second of a series of tests aimed at helping you get an idea of what to expect come exam time. The questions cover most of what you have learnt in class. Try them out and see how much you score.


Questions and Answers
  • 1. 

    Which of the following is an effective audit planning procedure that helps prevent misunderstandings and inefficient use of audit personnel?

    • A.

      Arrange to make copies, for inclusion in the audit files, of those client supporting documents examined by the auditor.

    • B.

      Arrange to provide the client with copies of the audit programs to be used during the audit.

    • C.

      Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.

    • D.

      Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final closing.

    Correct Answer
    C. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.
    Explanation
    LO 8-1, 8-3

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  • 2. 

    When auditing related party transactions, an auditor places primary emphasis on

    • A.

      confirming the existence of the related parties.

    • B.

      verifying the valuation of related party transactions.

    • C.

      Evaluating the disclosure of the related party transactions.

    • D.

      Ascertaining the rights and obligations of the related parties.

    Correct Answer
    C. Evaluating the disclosure of the related party transactions.
    Explanation
    LO 8-1, 8-3

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  • 3. 

    Which of the following will most likely indicate the existence of related parties?

    • A.

      Writing down obsolete inventory prior to year end.

    • B.

      Failing to correct weaknesses in the client’s internal control.

    • C.

      An unexplained increase in gross margin.

    • D.

      Borrowing money at a rate significantly below the market rate.

    Correct Answer
    D. Borrowing money at a rate significantly below the market rate.
    Explanation
    LO 8-1, 8-3

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  • 4. 

    When using the work of a specialist, the auditor may identify and refer to the specialist in the auditor’s report if the

    • A.

      Auditor expresses a qualified opinion as a result of the specialist’s findings.

    • B.

      Specialist is not independent of the client.

    • C.

      Auditor wishes to indicate a division of responsibility.

    • D.

      Specialist’s work provides the auditor greater assurance of reliability.

    Correct Answer
    A. Auditor expresses a qualified opinion as a result of the specialist’s findings.
    Explanation
    LO 8-1, 8-3

    Rate this question:

  • 5. 

    In assessing whether to accept a client for an audit engagement, a CPA should consider                                 Client Business Risk                            Acceptable Audit Risk  

    • A.

      Yes, Yes

    • B.

      Yes, No

    • C.

      No, Yes

    • D.

      No, No

    Correct Answer
    A. Yes, Yes
    Explanation
    LO #8-2

    Rate this question:

  • 6. 

    When approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining whether

    • A.

      The predecessor’s work should be used.

    • B.

      The company follows the policy of rotating its auditors.

    • C.

      In the predecessor’s opinion internal control of the company has been satisfactory.

    • D.

      The engagement should be accepted.

    Correct Answer
    D. The engagement should be accepted.
    Explanation
    LO #8-2

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  • 7. 

    A successor would most likely make specific inquiries of the predecessor auditor regarding 

    • A.

      specialized accounting principles of the client’s industry.

    • B.

      the competency of the client’s internal audit staff.

    • C.

      the uncertainty inherent in applying sampling procedures.

    • D.

      Disagreements with management as to auditing procedures.

    Correct Answer
    D. Disagreements with management as to auditing procedures.
    Explanation
    LO #8-2

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  • 8. 

    Analytical procedures used in planning an audit should focus on identifying

    • A.

      Material weaknesses of internal control.

    • B.

      The predictability of financial data from individual transactions.

    • C.

      The various assertions that are embodied in the financial statements.

    • D.

      Areas that may represent specific risks relevant to the audit.

    Correct Answer
    D. Areas that may represent specific risks relevant to the audit.
    Explanation
    LO #8-5, 8-6, 8-7, 8-8

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  • 9. 

    For all audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent                                 In the Planning Stage          As a Substantive Test         In the Completion Stage  

    • A.

      Yes, No, Yes

    • B.

      No, Yes, No

    • C.

      No, Yes, Yes

    • D.

      Yes, No, No

    Correct Answer
    A. Yes, No, Yes
    Explanation
    LO #8-5, 8-6, 8-7, 8-8

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  • 10. 

    Which of the following is least likely to be comparable between similar corporations in the same industry line of business?  

    • A.

      Accounts Receivable turnover

    • B.

      Earnings per Share

    • C.

      Gross Profit percent

    • D.

      Return on Assets before interest and taxes

    Correct Answer
    B. Earnings per Share
    Explanation
    LO #8-5, 8-6, 8-7, 8-8

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  • 11. 

    Which of the following situations has the best chance of being detected when a CPA compares 2009 revenues and expenses with the prior year and investigates all changes exceeding a fixed percent?  

    • A.

      An increase in property tax rates has not been recognized in the company’s 2009 accrual.

    • B.

      The cashier began lapping accounts receivable in 2009.

    • C.

      Because of worsening economic conditions, the 2009 provision for uncollectible accounts was inadequate.

    • D.

      The company changed its capitalization policy for small tools in 2009.

    Correct Answer
    D. The company changed its capitalization policy for small tools in 2009.
    Explanation
    LO #8-5, 8-6, 8-7, 8-8

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  • 12. 

    Which one of the following statements is correct concerning the concept of materiality?  

    • A.

      Materiality is determined by reference to guidelines established by the AICPA.

    • B.

      Materiality depends only on the dollar amount of an item relative to other items in the financial statements.

    • C.

      Materiality depends on the nature of an item rather than the dollar amount.

    • D.

      Materiality is a matter of professional judgment.

    Correct Answer
    D. Materiality is a matter of professional judgment.
    Explanation
    LO #9-1, 9-2

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  • 13. 

    The concept of materiality will be least important to the CPA in determining the  

    • A.

      Scope of the audit for specific accounts.

    • B.

      Specific transactions that should be reviewed.

    • C.

      Effects of audit exceptions upon the opinion.

    • D.

      Effects of the CPA’s direct financial interest in a client upon the CPA’s independence.

    Correct Answer
    D. Effects of the CPA’s direct financial interest in a client upon the CPA’s independence.
    Explanation
    LO #9-1, 9-2

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  • 14. 

    In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 will have material effect on an entity’s income statement, but that misstatements will have to aggregate $20,000 to materially effect the balance sheet. Ordinarily, it is appropriate to design audit procedures that are expected to detect misstatements that aggregate  

    • A.

      $ 10,000

    • B.

      $ 15,000

    • C.

      $ 20,000

    • D.

      $ 25,000

    Correct Answer
    A. $ 10,000
    Explanation
    LO #9-1, 9-2

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  • 15. 

    Edison Corporation has a few large accounts receivable that total $1,400,000. Victor Corporation has a great number of small accounts receivable that also total $1,400,000. The importance of a misstatement in any one account is therefore greater for Edison than for Victor. This is an example of the auditor’s concept of  

    • A.

      Materiality.

    • B.

      Comparative analysis.

    • C.

      Reasonable assurance.

    • D.

      Relative risk.

    Correct Answer
    A. Materiality.
    Explanation
    LO #9-1, 9-6, 9-8

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  • 16. 

    Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to afford a reasonable basis for an opinion?  

    • A.

      Auditor judgment

    • B.

      Materiality

    • C.

      Inherent risk

    • D.

      Reasonable assurance

    Correct Answer
    A. Auditor judgment
    Explanation
    LO #9-1, 9-6, 9-8

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  • 17. 

    Which of the following best describes the element of inherent risk that underlies the application of generally accepted auditing standards, specifically the standards of fieldwork and reporting?  

    • A.

      Cash audit work may have to be carried out in a more conclusive manner than inventory audit work.

    • B.

      Intercompany transactions are usually subject to less detailed scrutiny than arm’s-length transactions with outside parties.

    • C.

      Inventories may require more attention by the auditor on an engagement for a merchandising enterprise than on an engagement for a public utility.

    • D.

      The scope of the audit need not be expanded if misstatements that arouse suspicion of fraud are of relatively insignificant amounts.

    Correct Answer
    A. Cash audit work may have to be carried out in a more conclusive manner than inventory audit work.
    Explanation
    LO #9-1, 9-6, 9-8

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  • 18. 

    Which of the following statements is not correct about materiality?  

    • A.

      The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, whereas other matters are not important.

    • B.

      An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.

    • C.

      Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments.

    • D.

      An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements.

    Correct Answer
    B. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.
    Explanation
    LO #9-1 9-2, 9-5, 9-6, 9-8

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  • 19. 

    Inherent risk and control risk differ from planned detection risk in that they  

    • A.

      Arise from the misapplication of auditing procedures.

    • B.

      May be assessed in either quantitative or nonquantitative terms.

    • C.

      Exist independently of the financial statement audit.

    • D.

      Can be changed at the auditor’s discretion.

    Correct Answer
    C. Exist independently of the financial statement audit.
    Explanation
    LO #9-1 9-2, 9-5, 9-6, 9-8

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  • 20. 

    Based on evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk control level that is substantially the same as the planned audit control risk, the auditor could  

    • A.

      Decrease detection risk.

    • B.

      Increase materiality levels.

    • C.

      Decrease substantive testing.

    • D.

      increase inherent risk.

    Correct Answer
    A. Decrease detection risk.
    Explanation
    LO #9-1 9-2, 9-5, 9-6, 9-8

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  • 21. 

    When considering internal control, an auditor must be aware of the concept of reasonable assurance, which recognizes that the  

    • A.

      Employment of competent personnel provides assurance that management’s control objectives will be achieved.

    • B.

      Establishment and maintenance of internal control is an important responsibility of management and not of the auditor.

    • C.

      Cost of internal control should not exceed the benefits expected to be derived therefrom.

    • D.

      Separation of incompatible functions is necessary to ascertain that the internal control is effective.

    Correct Answer
    C. Cost of internal control should not exceed the benefits expected to be derived therefrom.
    Explanation
    LO #10-1, 10-2, 10-7

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  • 22. 

    When an auditor issues an unqualified opinion about internal control over financial reporting for a public company, the auditor has obtained reasonable assurance that  

    • A.

      The likelihood of fraud is minimal.

    • B.

      There are no control deficiencies.

    • C.

      Internal control over financial reporting is operating effectively.

    • D.

      The financial statements are fairly presented in all material aspects.

    Correct Answer
    C. Internal control over financial reporting is operating effectively.
    Explanation
    LO #10-1, 10-2, 10-7

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  • 23. 

    Which of the following most accurately describe the auditor’s responsibilities for reporting on internal control required by PCAOB standards? The auditor tested  

    • A.

      All controls related to the objectives of reliable financial reporting, efficiency and effectiveness of operations, and compliance with laws and regulations.

    • B.

      Controls solely related to the reliability of financial reporting objective.

    • C.

      Controls related to the compliance with laws and regulations objective.

    • D.

      Controls related to the reliability of financial reporting objective in addition to those controls related to operations and compliance with laws and regulations objectives that could materially effect financial reporting.

    Correct Answer
    D. Controls related to the reliability of financial reporting objective in addition to those controls related to operations and compliance with laws and regulations objectives that could materially effect financial reporting.
    Explanation
    LO #10-1, 10-2, 10-7

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  • 24. 

    What is the independent auditor’s principal purpose for obtaining an understanding of internal control and assessing control risk in a financial statement audit?  

    • A.

      To comply with generally accepted accounting principles.

    • B.

      To obtain a measure of assurance of management’s efficiency.

    • C.

      To maintain a state of independence in mental attitude during the audit.

    • D.

      To determine the nature, timing, and extent of subsequent audit work.

    Correct Answer
    D. To determine the nature, timing, and extent of subsequent audit work.
    Explanation
    LO #10-1, 10-2, 10-7

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  • 25. 

    In general, an internal control deficiency may be defined as a condition under which misstatements would ordinarily not be detected within a timely period by  

    • A.

      An auditor during the typical obtaining of an understanding of internal control and assessment of control risk.

    • B.

      A controller when reconciling accounts in the general ledger.

    • C.

      Employees in the normal course of performing their assigned functions.

    • D.

      The chief financial officer when reviewing interim financial statements.

    Correct Answer
    C. Employees in the normal course of performing their assigned functions.
    Explanation
    LO #10-5, 10-7

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  • 26. 

    A material weakness in internal control represents a control deficiency that  

    • A.

      More than remotely adversely affects a company’s ability to initiate, authorize, record, process, or report external financial statements reliably.

    • B.

      Results in a reasonable possibility that internal control will not prevent or detect material financial statement misstatements.

    • C.

      Exists because a necessary control is missing or not properly defined.

    • D.

      Reduces the efficiency and effectiveness of the entity’s operations.

    Correct Answer
    B. Results in a reasonable possibility that internal control will not prevent or detect material financial statement misstatements.
    Explanation
    LO #10-5, 10-7

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  • 27. 

    An auditor of a public company identifies a material weakness in internal control. The auditor  

    • A.

      Will be unable to issue an unqualified opinion on the financial statements.

    • B.

      Must issue a qualified or disclaimer of opinion on internal control over financial reporting.

    • C.

      May stil be able to issue an unqualified opinion on internal control over financial reporting.

    • D.

      Must issue an adverse opinion on internal control over financial reporting.

    Correct Answer
    D. Must issue an adverse opinion on internal control over financial reporting.
    Explanation
    LO #10-5, 10-7

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  • 28. 

    When a nonpublic company auditor’s tests of controls identify deficiencies in internal control over financial reporting, the auditor  

    • A.

      Must communicate to management all deficiencies identified.

    • B.

      Must communicate both significant deficiencies and material weaknesses to those charged with governance.

    • C.

      May communicate orally or in writing to the board all significant deficiencies and material weaknesses identified.

    • D.

      Must issue an adverse opinion on the financial statements.

    Correct Answer
    B. Must communicate both significant deficiencies and material weaknesses to those charged with governance.
    Explanation
    LO #10-5, 10-7

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  • 29. 

    The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the  

    • A.

      Factors that raise doubts about the auditability of the financial statements.

    • B.

      Operating effectiveness of internal controls.

    • C.

      risk that material misstatements exist in the financial statements.

    • D.

      Possibility that the nature and extent of substantive tests may be reduced.

    Correct Answer
    C. risk that material misstatements exist in the financial statements.
    Explanation
    LO #10-5, 10-6, 10-8

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  • 30. 

    An auditor uses assessed control risk to  

    • A.

      Evaluate the effectiveness of the entity’s internal controls.

    • B.

      Identify transactions and account balances where inherent risk is at the maximum.

    • C.

      Indicate whether materiality thresholds for planning and evaluation purposes are sufficiently high.

    • D.

      Determine the acceptable level of detection risk for financial statement assertions.

    Correct Answer
    D. Determine the acceptable level of detection risk for financial statement assertions.
    Explanation
    LO #10-5, 10-6, 10-8

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  • 31. 

    On the basis of audit evidence gathered and evaluated, an auditor decides to increase assessed control risk from that originally planned. To achieve an audit risk level (AcAR) that us substantially the same as the planned audit risk level (AAR), the auditor will  

    • A.

      Increase inherent risk.

    • B.

      Increase materiality levels.

    • C.

      Decrease substantive testing.

    • D.

      Decrease planned detection risk.

    Correct Answer
    D. Decrease planned detection risk.
    Explanation
    LO #10-5, 10-6, 10-8

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  • 32. 

    Which of the following statements about test of controls is incorrect? Tests of controls  

    • A.

      Must be done in every audit of a public company’s financial statements.

    • B.

      Provide persuasive evidence that a material misstatement exists when the auditor determines that the control is not being consistently applied.

    • C.

      Are often based on the same types of audit techniques used to gain an understanding of internal controls, except the extent of testing is generally greater when testing controls.

    • D.

      Allow a reduction in the extent of substantive testing, as long as the results of the test of controls are equal to or better than what the auditor expects.

    Correct Answer
    B. Provide persuasive evidence that a material misstatement exists when the auditor determines that the control is not being consistently applied.
    Explanation
    LO #10-5, 10-6, 10-8

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  • 33. 

    The auditor looks for an indication on duplicate sales invoices to see whether the invoices have been verified. This is an example of a. b. c. d.

    • A.

      A test of details of balances.

    • B.

      A test of control.

    • C.

      A substantive test of transactions.

    • D.

      Both a test of control and a substantive test of transactions.

    Correct Answer
    B. A test of control.
    Explanation
    LO #13-1, 13-5, 13-7

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  • 34. 

    Analytical procedures may be classified as being primarily  

    • A.

      Tests of controls.

    • B.

      Substantive tests.

    • C.

      Tests of ratios.

    • D.

      Tests of details of balances.

    Correct Answer
    B. Substantive tests.
    Explanation
    LO #13-1, 13-5, 13-7

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  • 35. 

    The auditor faces a risk that the audit will not detect material misstatements that occur in the accounting process. To minimize this risk, the auditor relies primarily on  

    • A.

      Substantive tests.

    • B.

      Test of controls.

    • C.

      Internal control.

    • D.

      Statistical analysis.

    Correct Answer
    A. Substantive tests.
    Explanation
    LO #13-1, 13-5, 13-7

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  • 36. 

    A conceptually logical approach to the auditor’s evaluation of internal control consists of the following four steps: I.   Determining the internal controls that should prevent or detect errors and fraud. II.  Identifying control deficiencies to determine their effect on the nature, timing, or extent of auditing procedures to be applied and suggestions to be made to the client. III. Determining whether the necessary internal control procedures are prescribed and are being followed satisfactorily. IV. Considering the types of errors and fraud that can occur. What should be the order in which these four steps are performed?  

    • A.

      I, II, III, and IV

    • B.

      I, III, IV, and II

    • C.

      III, IV, I, and II

    • D.

      IV, I, III, and II

    Correct Answer
    D. IV, I, III, and II
    Explanation
    LO #13-1, 13-5, 13-7

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  • 37. 

    Which of the following statements about tests of controls is most accurate?  

    • A.

      Auditing procedures cannot concurrently provide both evidence of the effectiveness of internal control procedures and evidence required for substantive tests.

    • B.

      Tests of controls include observations of the proper segregation of duties.

    • C.

      Tests of controls provide direct evidence about monetary misstatements in transactions.

    • D.

      Tests of controls ordinarily should be performed as of the balance sheet date or during the period subsequent to that date.

    Correct Answer
    B. Tests of controls include observations of the proper segregation of duties.
    Explanation
    LO #13-1

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  • 38. 

    To support the auditor’s initial assessment of control risk below maximum, the auditor performs procedures to determine that internal controls are operating effectively. Which of the following audit procedures is the auditor performing?  

    • A.

      Tests of details of balances

    • B.

      Substantive tests of transactions

    • C.

      Tests of controls

    • D.

      Tests of trends and ratios

    Correct Answer
    C. Tests of controls
    Explanation
    LO #13-1

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  • 39. 

    The primary objective of performing tests of controls is to obtain  

    • A.

      A reasonable degree of assurance that the client’s internal controls are operating effectively on a consistent basis throughout the year.

    • B.

      Sufficient, appropriate audit evidence to afford a reasonable basis for the auditor’s opinion, without the need for additional evidence.

    • C.

      Assurances that informative disclosures in the financial statements are reasonably adequate.

    • D.

      Knowledge and understanding of the client’s prescribed procedures and methods.

    Correct Answer
    A. A reasonable degree of assurance that the client’s internal controls are operating effectively on a consistent basis throughout the year.
    Explanation
    LO #13-1

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  • 40. 

    Which of the following is ordinarily considered a test of control audit procedures?  

    • A.

      Sending confirmation letters to banks.

    • B.

      Counting and listing cash on hand.

    • C.

      Examining signatures on checks.

    • D.

      Preparing reconciliations of bank accounts as of the balance sheet date.

    Correct Answer
    C. Examining signatures on checks.
    Explanation
    LO #13-1

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  • 41. 

    When a customer fails to include a remittance advice with a payment, it is common for the person opening the mail to prepare one. Consequently, mail should be opened by which of the four company employees?  

    • A.

      Credit manager

    • B.

      Sales manager

    • C.

      Accounts receivable clerk

    • D.

      Receptionist

    Correct Answer
    D. Receptionist
    Explanation
    LO #14-3, 14-4, 14-5, 14-6

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  • 42. 

    A key internal control in the sales and collection cycle is the separation of duties between cash handling and record keeping. The objective most directly associated with this control is to verify that  

    • A.

      Cash receipts recorded in the cash receipts journal are reasonable.

    • B.

      Cash receipts are correctly classified.

    • C.

      Recorded cash receipts result from legitimate transactions.

    • D.

      Existing cash receipts are recorded.

    Correct Answer
    D. Existing cash receipts are recorded.
    Explanation
    LO #14-3, 14-4, 14-5, 14-6

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  • 43. 

    Company personnel account for the sequence of shipping documents and verify that an entry for each shipment is included in the sales journal. This control relates most directly to the sales transaction-related audit objective of  

    • A.

      Occurrence.

    • B.

      Accuracy.

    • C.

      Completeness.

    • D.

      Timing.

    Correct Answer
    C. Completeness.
    Explanation
    LO #14-3, 14-4, 14-5, 14-6

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  • 44. 

    A manufacturing company received a substantial sales return in the last month of the year, but the credit memorandum for the return was not prepared until after the auditors had completed their testing. The returned merchandise was included in the physical inventory. Select the control that should have prevented the misstatement.  

    • A.

      Aged trial balance of accounts receivable is prepared.

    • B.

      Credit memoranda are prenumbered and all numbers are accounted for.

    • C.

      A reconciliation of the trial balance of customers’ accounts with the general ledger control is prepared periodically.

    • D.

      Receiving reports are prepared for all materials received and such reports are account for on a regular basis.

    Correct Answer
    D. Receiving reports are prepared for all materials received and such reports are account for on a regular basis.
    Explanation
    LO #14-3, 14-4

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  • 45. 

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

    • A.

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

    • B.

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

    • C.

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

    • D.

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

    Correct Answer
    C. Employees involved in the credit-granting function are separated from the sales function.
    Explanation
    LO #14-3, 14-4

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  • 46. 

    A sales invoice for $5,200 was computed correctly, but, by mistake, was key-entered as $2,500 to the sales journal and to the accounts receivable master file. The customer remitted only $2,500, the amount on his monthly statement. Select the control that should have prevented the misstatement.  

    • A.

      Prelistings and predetermined totals are used to control postings.

    • B.

      Sales invoice numbers, prices, discounts, extensions, and footings are independently checked.

    • C.

      The customers’ monthly statements are verified and mailed by a responsible person other than the bookkeeper who prepared them.

    • D.

      Unauthorized remittance deductions made by customers or other matters in dispute are investigated promptly by a person independent of the accounts receivable function.

    Correct Answer
    A. Prelistings and predetermined totals are used to control postings.
    Explanation
    LO #14-3, 14-4

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  • 47. 

    Copies of sales invoices show different unit prices for apparently identical items. Select the control that should have prevented the misstatement.  

    • A.

      All sales invoices are checked as to all details after their preparation.

    • B.

      Differences reported by customers are satisfactorily investigated.

    • C.

      Statistical sales data are compiled and reconciled with recorded sales.

    • D.

      All sales invoices are compared with the customers’ purchase orders.

    Correct Answer
    A. All sales invoices are checked as to all details after their preparation.
    Explanation
    LO #14-3, 14-4

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  • 48. 

    An auditor is performing substantive test of transactions for sales. One step is to trace a sample of debit entries from the accounts receivable master file back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step?  

    • A.

      Sales invoices represent existing sales.

    • B.

      All sales have been recorded.

    • C.

      All sales invoices have been correctly posted to customer accounts.

    • D.

      Debit entries in the accounts receivable master file are correctly supported by sales invoices.

    Correct Answer
    D. Debit entries in the accounts receivable master file are correctly supported by sales invoices.
    Explanation
    LO #14-1, 14-3

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  • 49. 

    To verify that all sales transactions have been recorded, a substantive test of transactions should be complete on a representative sample drawn from  

    • A.

      Entries in the sales journal.

    • B.

      The billing clerk’s file of sales orders.

    • C.

      A file of duplicate copies of sales invoices for which all prenumbered forms in the series have been accounted.

    • D.

      The shipping clerk’s file of duplicate bills of lading.

    Correct Answer
    D. The shipping clerk’s file of duplicate bills of lading.
    Explanation
    LO #14-1, 14-3

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  • 50. 

    Which audit procedure is most effective in testing credit sales for overstatement?  

    • A.

      Trace a sample of postings from the sales journal to the sales account in the general ledger.

    • B.

      Vouch a sample of recorded sales from the sales journal to shipping documents.

    • C.

      Prepare an aging of accounts receivable.

    • D.

      Trace a sample of initial sales orders to sales recorded in the sales journal.

    Correct Answer
    B. Vouch a sample of recorded sales from the sales journal to shipping documents.
    Explanation
    LO #14-1, 14-3

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  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 16, 2010
    Quiz Created by
    Dodonutt
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