The process which requires the calculation of an interval and then selects the items based on the size of the interval is:

The process which requires the calculation of an interval and then selects the items based on the size of the interval is:

    a.    statistical sampling.
    b.    random sample selection.
    c.    systematic sample selection.
    d.    computerized sample selection.

When auditors wish to evaluate a sample statistically, the only acceptable selection method is:

When auditors wish to evaluate a sample statistically, the only acceptable selection method is:

    a.    probabilistic selection.
    b.    judgmental selection.
    c.    haphazard selection.
    d.    block sample selection.

When the auditor goes through a population and selects items for the sample without regard to their size, source, or other distinguishing characteristics, it is called:

When the auditor goes through a population and selects items for the sample without regard to their size, source, or other distinguishing characteristics, it is called:

    a.    block sample selection.
    b.    haphazard selection.
    c.    systematic sample selection.
    d.    statistical selection.

An auditor can increase the likelihood that a sample is representative by using care in:

An auditor can increase the likelihood that a sample is representative by using care in:

    a.    designing the sampling process.
    b.    designing the sample selection.
    c.    evaluating the sample results.
    d.    performing all of the above.

One cause of non-sampling risk is:

One cause of non-sampling risk is:

    a.    ineffective use of audit procedures.
    b.    testing less than the entire population.
    c.    use of extensive tests of controls.
    d.    any of the above.

One of the ways to eliminate non-sampling risk is through:

One of the ways to eliminate non-sampling risk is through:

    a.    proper supervision and instruction of the client’s employees.
    b.    proper supervision and instruction of the audit team.
    c.    the use of attributes sampling rather than variables sampling.
    d.    controls which ensure that the sample drawn is random and representative.

To determine if a sample is truly representative, an auditor must:

To determine if a sample is truly representative, an auditor must:

   a.    conduct multiple samples of the same population.
    b.    never use sampling because of the expense involved.
    c.    audit the entire population.
    d.    perform none of the above.

In practice, auditors __ know if a sample is truly a representative one.

In practice, auditors _________ know if a sample is truly a representative one.

    a.    sometimes
    b.    often
    c.    routinely
    d.    never

When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to use:

When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to use:

    a.    audit sampling.
    b.    representative sampling.
    c.    poor judgment.
    d.    none of the above.

A sample in which the characteristics of the sample are the same as those of the population is a(n):

A sample in which the characteristics of the sample are the same as those of the population is a(n):

    a.    variables sample.
    b.    representative sample.
    c.    attributes sample.
    d.    random sample.

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

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 prepares the daily deposit.
    b.    The cashier makes the daily deposit at a local bank.
    c.    The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
    d.    The cashier endorses the checks.

An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the:

An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the:

    a.    sales register to the accounts receivable ledger.
    b.    sales register to the meter department records.
    c.    accounts receivable ledger to the sales register.
    d.    meter department records to the sales register.

When designing substantive tests of transactions for sales, the auditor is concerned with the possibility of several types of misstatements. Which of the following is not one of the types of these misstatements?

When designing substantive tests of transactions for sales, the auditor is concerned with the possibility of several types of misstatements. Which of the following is not one of the types of these misstatements?

    a.    Sales being included in the journal for which no shipment was made.
    b.    Sales to related parties, such as officers and subsidiaries.
    c.    Sales recorded more than once.
    d.    Shipments being made to nonexistent customers and recorded as sales.

A proof of cash is not useful in discovering differences in the actual and reported cash balances due to:

A proof of cash is not useful in discovering differences in the actual and reported cash balances due to:

    a.    deposits in transit.
    b.    collections on the company’s behalf by the bank which are deposited directly to the     company’s account.
    c.    cash receipts that were not recorded in the relevant journals.
    d.    any of the above reasons.

Which of the following would be the best protection for a company that wishes to prevent the “lapping” of trade accounts receivable?

Which of the following would be the best protection for a company that wishes to prevent the “lapping” of trade accounts receivable?

    a.    Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail.
    b.    Segregate duties so that no employee has access to both checks from customers and currency from daily cash receipts.
    c.    Have customers send payments directly to the company’s depository bank.
    d.    Request that customer’s payment checks be made payable to the company and addressed to the treasurer.

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

    a.    Understating the sales journal.
    b.    Overstating the accounts receivable control account.
    c.    Overstating the accounts receivable subsidiary ledger.
    d.    Understating the cash receipts journal.

Transaction-related audit objectives are essentially the same for processing credit memos as for sales with certain differences. Which of the following are two key differences?

Transaction-related audit objectives are essentially the same for processing credit memos as for sales with certain differences. Which of the following are two key differences?

    a.    Risk and emphasis on the completeness objective.
    b.    Materiality and emphasis on the accuracy objective.
    c.    Risk and emphasis on the classification objective.
    d.    Materiality and emphasis on the occurrence objective.

Which one of the following is not an auditor’s concern about a key authorization point in the sales/collection cycle?

Which one of the following is not an auditor’s concern about a key authorization point in the sales/collection cycle?

    a.    The receiving room must have authorization before releasing items to inventory control.
    b.    Credit must be authorized before the sale.
    c.    Goods must be shipped after the authorization.
    d.    Prices must be authorized.

Proper separation of duties is useful to prevent various types of misstatements.

Proper separation of duties is useful to prevent various types of misstatements. Which of the following is not an essential separation of duties?

    a.    Persons having access to cash should not have access to marketable securities.
    b.    Separate the credit-granting function from the sales function.
    c.    Personnel doing internal comparisons should be independent of those entering the original data.
    d.    Anyone responsible for inputting sales and cash receipts transactions information into the computer should be denied access to cash.

Generally, audit evidence gathered from the sales and collection cycle is combined with evidence from other parts of the audit:

Generally, audit evidence gathered from the sales and collection cycle is combined with evidence from other parts of the audit:

    a.    as the evidence accumulation process proceeds.
    b.    only when all fieldwork processes of the engagement are completed.
    c.    only after the audit of the sales and collection cycle is concluded.
    d.    after the conclusion of both the cash cycle and the sales and collection cycle.

Smith Manufacturing Company’s accounts receivable clerk has a friend who is also a Smith’s customer

Smith Manufacturing Company’s accounts receivable clerk has a friend who is also a Smith’s customer. The accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned. The most effective procedure for preventing this activity is to:

    a.    prenumber and account for all credit memorandums.
    b.    require receiving reports to support all credit memorandums before they are approved.
    c.    have independent sales and accounts receivable departments.
    d.    mail monthly statements to customers.

At which point in an ordinary sales transaction would a lack of specific authorization be of least concern to the auditor?

At which point in an ordinary sales transaction would a lack of specific authorization be of least concern to the auditor?

    a.    Granting of credit.
    b.    Shipment of goods.
    c.    Determination of discounts.
    d.    Selling of goods for cash.

Which of the following procedures would ordinarily be best expected to find unrecorded sales?

Which of the following procedures would ordinarily be best expected to find unrecorded sales?

    a.    Compare shipping documents with sales records.
    b.    Apply gross profit rates to inventory disposed of during the period.
    c.    Trace payments received subsequent to the balance sheet date.
    d.    Send accounts receivable confirmation requests.

The audit procedure referred to as proof of cash receipts is useful to test:

The audit procedure referred to as proof of cash receipts is useful to test:

   a.    time lags in making deposits.
    b.    whether all recorded cash receipts have been deposited in the bank.
    c.    whether there are cash receipts that have not been recorded in the journals.
    d.    all three of the above.

tests for omitted transactions, while __ tests for nonexistent transactions.

_______ tests for omitted transactions, while _____ tests for nonexistent transactions.

    a.    Tracing, vouching
    b.    Vouching, tracing
    c.    Verifying, tracking
    d.    Tracking, verifying

It is important that sales be billed and recorded in the journal as soon as possible after:

It is important that sales be billed and recorded in the journal as soon as possible after:

    a.    the order is received.
    b.    the order is received and credit is approved.
    c.    credit is approved and it is verified that there is enough inventory to fill the order.
    d.    the shipment takes place.

Pre-numbered documents will only be useful for control purposes if:

Pre-numbered documents will only be useful for control purposes if:

    a.    a different numerical sequence is used for each company.
    b.    the sequence is accounted for periodically.
    c.    employees do not have access to the complete sequence.
    d.    all of the above are true.

With respect to sales, pre-numbered documents are intended to:

With respect to sales, pre-numbered documents are intended to:

    a.    prevent the failure to bill or record sales.
    b.    prevent duplicate billings or recordings of sales.
    c.    both a and b.
    d.    neither a nor b.

Which of the following is not a point at which the auditor deems authorization to be critical?

Which of the following is not a point at which the auditor deems authorization to be critical?

    a.    Authorization of credit.
    b.    Price authorization.
    c.    Shipment of goods.
    d.    Each of the above is an important point for authorization.

To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with:

To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with:

    a.    the original invoices.
    b.    an approved price list.
    c.    the amounts recorded in the sales journal for that transaction.
    d.    the amounts posted to the customer’s account in the accounts receivable master file.

In many audits of sales transactions, no substantive tests of transactions are performed for the completeness objective because:

In many audits of sales transactions, no substantive tests of transactions are performed for the completeness objective because:

    a.    understatements of assets and income are a greater concern than overstatements.
    b.    overstatements of assets and income are a greater concern than understatements.
    c.    it doesn’t matter if income is understated because the savings on income tax offsets the reduced revenue and net income is correct.
    d.    the unrecorded sales cause a reduction of accounts receivable; therefore, the ratios of the two financial statements will not be misleading.
   

The auditor traces items from the source documents to the journals to satisfy the:

The auditor traces items from the source documents to the journals to satisfy the:

    a.    existence objective.
    b.    completeness objective.
    c.    ownership objective.
    d.    valuation objective.

An effective procedure to test for unbilled shipments is to trace from the:

An effective procedure to test for unbilled shipments is to trace from the:

    a.    sales journal to the shipping documents.
   b.    shipping documents to the sales journal.
    c.    sales journal to the accounts receivable ledger.
    d.    sales journal to the general ledger sales account.

To test for recorded sales for which there were no actual shipments, the auditor traces from the:

To test for recorded sales for which there were no actual shipments, the auditor traces from the:

    a.    bill of lading to the sales journal.
    b.    sales journal to the bill of lading.
    c.    sales journal to the accounts receivable subsidiary ledger.
    d.    bill of lading to the supporting customer order and sales order.

Which one of the following statements is true? In deciding on substantive tests of transactions:

Which one of the following statements is true? In deciding on substantive tests of transactions:

    a.    some procedures are commonly employed on every audit regardless of the circumstances.
    b.    all procedures are dependent on the adequacy of the controls and the results of the tests of controls.
    c.    results obtained in the prior year’s audit will not affect the procedures used this year.
    d.    the materiality of the item will not influence the choice of procedures used.

The credit-granting function should be separated from which of the following?

The credit-granting function should be separated from which of the following?

    a.    Purchasing function
    b.    Manufacturing function
    c.    Sales function
    d.    None of the above

One key internal control to prevent fictitious transactions in the sales and collection cycle is:

One key internal control to prevent fictitious transactions in the sales and collection cycle is:

    a.    to include a list of customer numbers in the computer files.
    b.    to account for the integrity of the numerical sequence of sales orders.
    c.    to include the sales price list of all products in the computer files.
    d.    having bank reconciliations prepared by one who is independent of the treasury function.

To prevent fraud, management should deny cash access to anyone responsible for:

To prevent fraud, management should deny cash access to anyone responsible for:

    a.    entering sales transactions.
   b.    entering cash receipts transactions.
    c.    both a and b.
    d.    neither a nor b.

Management’s assertions for sales and collection activities are

Management’s assertions for sales and collection activities are _____ when sales are generated via e-commerce activities.

    a.    unchanged
    b.    expanded
    c.    mitigated
    d.    decreased

After the auditor has identified the key internal controls and deficiencies and assessed control risk for a private company, it is appropriate to decide whether:

After the auditor has identified the key internal controls and deficiencies and assessed control risk for a private company, it is appropriate to decide whether:

    a.    substantive tests will be reduced sufficiently to justify costs of performing tests of controls.
    b.    substantive tests will be increased sufficiently to justify costs of performing tests of controls.
    c.    tests of controls will be increased sufficiently to justify costs of performing substantive tests.
    d.    tests of controls will be reduced sufficiently to justify costs of performing substantive tests.

A document used to indicate authority to write an account receivable off as uncollectible is the:

A document used to indicate authority to write an account receivable off as uncollectible is the:

    a.    credit memo.
    b.    uncollectible account authorization form.
    c.    debit memo.
    d.    none of the above.

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

    a.    Company personnel.
    b.    Temporary employees in the town where the lockbox is located.
    c.    Bank employees.
    d.    None of the above.

Proper auditing requires that an account receivable must be charged off by the client when:

Proper auditing requires that an account receivable must be charged off by the client when:

    a.    the customer files for bankruptcy.
    b.    the account is at least six months old.
    c.    a collection agency cannot inspire customer to pay the debt.
    d.    the client company concludes that an amount is no longer collectible.

Credit memos are normally issued for what purpose(s)?

Credit memos are normally issued for what purpose(s)?

    a.    To maintain control of returned merchandise.
    b.    To facilitate record keeping.
    c.    To reduce customer frustration and sales losses.
    d.    Both a and b.

When posting the sales journal, details of the journal are posted to “x” and journal totals are posted to “y.”

When posting the sales journal, details of the journal are posted to “x” and journal totals are posted to “y.”

    a.    x = the sales account. y = the general ledger.
    b.    x = the sales account.  y = the accounts receivable subsidiary ledger.
    c.    x = the accounts receivable master file.  y = the general ledger.
    d.    x = the accounts receivable account in the general ledger.  y = the sales account in the general ledger.

The document used as the basis for recording sales transactions and updating the accounts receivable master file is the:

The document used as the basis for recording sales transactions and updating the accounts receivable master file is the:

    a.    sales order.
    b.    bill of lading.
    c.    sales journal.
    d.    sales invoice.

For most firms, the function of indicating credit approval is recorded on the:

For most firms, the function of indicating credit approval is recorded on the:

    a.    sales order.
    b.    sales invoice.
    c.    customer order.
    d.    remittance advice.

In which of the following will sales return and allowances not be recorded?

In which of the following will sales return and allowances not be recorded?

    a.    Sales returns and allowances transaction file
    b.    Accounts receivable master file
    c.    Cash receipts journal
    d.    Sales returns and allowances will be recorded in all of the above

An audit procedure that compares the name, amount, and dates shown on

An audit procedure that compares the name, amount, and dates shown on remittance advices with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting:

    a.    kiting.
    b.    lapping.
    c.    illicit write-offs of customers as uncollectible accounts.
    d.    sales without proper credit authorization.

For the most part, the audit of the sales and collection cycle:

For the most part, the audit of the sales and collection cycle:

    a.    cannot be performed until the audit of cash is completed.
    b.    must be performed first so that the audit of the other cycles can rely on the data.
    c.    can be performed independently of the audit of other cycles.
    d.    must be performed simultaneously with the audit of the purchases and disbursements cycle.
   

The most important aspects of the billing function include all but which of the following?

The most important aspects of the billing function include all but which of the following?

    a.    Making sure that all shipments have been billed.
    b.    Making sure that no shipment has been billed more than twice.
    c.    Making sure that each shipment is billed at the correct amount.
    d.    All of the above are correct.

In many audits, no substantive tests of transactions are made

In many audits, no substantive tests of transactions are made for the __objective on the grounds that understatement of sales is not a concern.

    a.    accuracy
    b.    existence
    c.    completeness
    d.    none of the above

Some companies have customers send payments directly to an address maintained by a bank.

Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ___ system.

    a.    direct deposit
    b.    funds transfer
    c.    lock box
    d.    inter bank transfer

The __is a contract between a carrier (e.g., a trucking company) and the seller of goods that dictates the details surrounding the shipment of goods.

The __is a contract between a carrier (e.g., a trucking company) and the seller of goods that dictates the details surrounding the shipment of goods.

    a.    bill of lading
    b.    sales invoice
    c.    picking ticket
    d.    remittance advice

The process which postpones entries for the collection of receivables to conceal an existing cash shortage is referred to as:

The process which postpones entries for the collection of receivables to conceal an existing cash shortage is referred to as:

   a.    kiting.
    b.    lapping.
    c.    floating.
    d.    shorting.

Which of the following documents is not commonly associated with the “cash receipts” class of transactions?

Which of the following documents is not commonly associated with the “cash receipts” class of transactions?

    a.    Remittance advice.
    b.    Sales order.
    c.    Prelisting of cash receipts.
    d.    Cash receipts journal or listing.

When designing audit procedures, the direction of tests is a crucial step in satisfying the:

When designing audit procedures, the direction of tests is a crucial step in satisfying the:

    a.    valuation objective.
    b.    cutoff objective.
    c.    completeness objective.
    d.    classification objective.

A document that initiates shipment of goods and indicates the description of the merchandise

A document that initiates shipment of goods and indicates the description of the merchandise, the quantity shipped, and customer name and address is the:

    a.    bill of lading.
    b.    sales invoice.
    c.    picking ticket.
    d.    vendor invoice.

The document that supports reductions in accounts receivable is the:

The document that supports reductions in accounts receivable is the:

    a.    bill of lading.
    b.    sales invoice.
    c.    credit memo.
    d.    monthly statement.

The document that accompanies the customer’s payment is the:

The document that accompanies the customer’s payment is the:

   a.    credit memo.
    b.    remittance advice.
    c.    vendor invoice.
    d.    monthly statement.

A document sent to each customer showing his or her beginning

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the:

    a.    accounts receivable subsidiary ledger.
    b.    monthly statement.
    c.    remittance advice.
    d.    sales invoice.

A listing of amounts owed by customer which shows how long each component part has been due is the:

A listing of amounts owed by customer which shows how long each component part has been due is the:

    a.    trial balance.
    b.    working trial balance.
    c.    accounts receivable trial balance.
    d.    aged accounts receivable trial balance.

The total of the individual account balances in the accounts receivable master file equals the:

The total of the individual account balances in the accounts receivable master file equals the:

   a.    total sales for the period.
    b.    balance of the sales account in the general ledger.
    c.    total sales less the total cash received for the period.
    d.    balance of the accounts receivable account in the general ledger.

Which of the following is not a business function within the “Sales” class of transactions?

Which of the following is not a business function within the “Sales” class of transactions?

   a.    Processing customer orders.
    b.    Granting credit.
    c.    Processing and recording sales returns and allowances.
    d.    Shipping goods.

Most companies recognize sales revenue when:

Most companies recognize sales revenue when:

    a.    sales are invoiced.
    b.    customer orders are received.
    c.    goods are shipped.
    d.    customer orders are approved.

At what point in the sales and collection cycle does the company first give up assets?

At what point in the sales and collection cycle does the company first give up assets?

    a.    Sales approval
    b.    Credit approval
    c.    Cash collection
    d.    Shipment of goods

The document used to indicate to the customer the amount of a sale and payment due date is the:

The document used to indicate to the customer the amount of a sale and payment due date is the:

   a.    sales invoice.
    b.    bill of lading.
    c.    purchase order.
    d.    sales order.

A document prepared to initiate shipment of the goods sold is the:

A document prepared to initiate shipment of the goods sold is the:

   a.    sales order.
   b.    bill of lading.
    c.    sales invoice.
    d.    customer order.

Before goods are shipped on account, a properly authorized person must:

Before goods are shipped on account, a properly authorized person must:

   a.    prepare the sales invoice.
    b.    approve the journal entry.
    c.    approve the customer’s credit.
    d.    verify that the unit price is accurate.

What critical event must take place before goods can be shipped?

What critical event must take place before goods can be shipped?

   a.    Determination of correct delivery address
    b.    Credit approval
    c.    Receipt of cash
    d.    Receipt of sales order from the customer

A __is a document that communicates the description, quantity, and related information for goods ordered by a customer.

A __is a document that communicates the description, quantity, and related information for goods ordered by a customer.

    a.    sales order
    b.    customer order
    c.    vendor invoice
    d.    sales invoice

A __is a document that indicates a request for merchandise by a customer.

A __is a document that indicates a request for merchandise by a customer.

    a.    sales invoice
    b.    vendor invoice
    c.    customer order
    d.    sales order

What event initiates a transaction in the sales and collection cycle?

What event initiates a transaction in the sales and collection cycle?

    a.    Receipt of cash.
    b.    Delivery of product to a customer.
    c.    Identification of a new customer.
    d.    Customer request for goods.

Which of the following is not one of the five classes of transactions included in the sales and collection cycle?

Which of the following is not one of the five classes of transactions included in the sales and collection cycle?

    a.    Sales returns and allowances
    b.    Charge-off of uncontrollable accounts
    c.    Bad debt expense
    d.    Depreciation expense

Which of the following is not an account affected by the sales and collection cycle?

Which of the following is not an account affected by the sales and collection cycle?

    a.    Cash
    b.    Accounts receivable
    c.    Allowance for doubtful accounts
    d.    Gross margin

Which of the following ultimately determines the specific audit

Which of the following ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion?

    a.    The audit program.
    b.    The auditor’s judgment.
    c.    Generally accepted auditing standards.
    d.    The auditor’s working papers.

Which of the following is not a valid basis for omitting an audit test?

Which of the following is not a valid basis for omitting an audit test?

    a.    the difficulty and expense involved in testing a particular item.
    b.    the relative risk involved.
    c.    the degree of reliance on the relevant internal controls.
    d.    the relationship between the cost of obtaining evidence and its usefulness.

An exception in a test of control indicates the _of misstatements.

An exception in a test of control indicates the _______ of misstatements.

    a.    amount
    b.    likelihood
    c.    amount and likelihood
    d.    neither the amount nor the likelihood

Which of the following types of evidence is not available when using substantive tests of transactions?

Which of the following types of evidence is not available when using substantive tests of transactions?

    a.    Documentation.
    b.    Confirmation.
    c.    Inquiries of the client.
    d.    Re-performance.

Procedures to obtain an understanding of internal control

Procedures to obtain an understanding of internal control do not generally provide sufficient evidence that a control is operating effectively, except in the case of:

    a.    well-defined controls in low risk cycles.
    b.    cycles that contain no significant deficiencies or material weaknesses.
    c.    automated controls.
    d.    all of the above.

Documentation is used in every type of test except _

Documentation is used in every type of test except ________.

   a.    tests of controls
   b.    tests of transactions
    c.    analytical procedures
    d.    tests of details

Only __ involve physical examination and confirmation.

Only __ involve physical examination and confirmation.

   a.    tests of controls
    b.    tests of transactions
    c.    tests of balances
    d.    analytical procedures

What type of test is used to more types of evidence than any other?

What type of test is used to more types of evidence than any other?

   a.    Substantive tests of transactions.
    b.    Tests of controls.
    c.    Analytical procedures.
    d.    Tests of details.

Which of the following is ordinarily designed to detect possible material dollar errors on the financial statements?

Which of the following is ordinarily designed to detect possible material dollar errors on the financial statements?

    a.    Tests of controls.
    b.    Analytical review procedures.
    c.    Computer controls.
    d.    None of the above.

The reliance placed on substantive tests in relation to the

The reliance placed on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily:

    a.    parallel.
    b.    inverse.
    c.    direct.
    d.    equal.

Which of the following is/are performed in an audit of internal control over financial reporting?

Which of the following is/are performed in an audit of internal control over financial reporting?

    a.    Procedures to obtain an understanding of internal control
    b.    Tests of controls
    c.    Both a and b
    d.    Either a or b, but not both

At what point in the audit are tests of details most appropriately designed?

At what point in the audit are tests of details most appropriately designed?

    a.    Engagement evaluation.
    b.    Planning.
    c.    Testing.
    d.    Any of the above.

After finishing the review phase of the study and evaluation

After finishing the review phase of the study and evaluation of internal control in an audit, the auditor should perform tests of controls on:

    a.    those controls that the auditor wants and plans to rely upon.
    b.    those controls in which material weaknesses were identified.
    c.    those controls that have a material effect upon the financial statement balances.
    d.    a random sample of the controls that were reviewed.

Which of the following tests form the basis for an auditor’s report on internal control over financial reporting?

Which of the following tests form the basis for an auditor’s report on internal control over financial reporting?

    a.    Analytical procedures
    b.    Tests of transactions
    c.    Tests of controls
    d.    Tests of details of balances

Which of the following audit tests would be regarded as a test of controls?

Which of the following audit tests would be regarded as a test of controls?

    a.    Comparison of the inventory pricing to vendors’ invoices.
    b.    Tests of the signatures on canceled checks to board of directors’ authorizations.
    c.    Tests of the additions to property, plant, and equipment by physical inspections.
    d.    Review of the specific items making up the balance in a given general ledger account.

Tests of controls address each of the following questions except:

Tests of controls address each of the following questions except:

    a.    How were the procedures performed?
    b.    Why were the procedures performed?
    c.    Were the necessary procedures performed?
    d.    Who performed the procedures?

When controls are deemed ineffective and assessed control risk

When controls are deemed ineffective and assessed control risk is high for a private company, there will be ______ emphasis placed on tests of controls.

    a.    no
    b.    relatively little
    c.    moderate
    d.    heavy

If the results of the tests of controls, substantive tests of transactions

If the results of the tests of controls, substantive tests of transactions, and analytical procedures are not consistent with the predictions, tests of details of balances will be:

    a.    eliminated.
    b.    increased.
    c.    unaffected.
    d.    changed.

When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement, the auditor may:

When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement, the auditor may:

    a.    perform additional analytical procedures.
    b.    decide to modify tests of details of balances.
    c.    either a or b.
    d.    neither a nor b.

Auditors who test manual controls that rely on IT-generated reports must consider:

Auditors who test manual controls that rely on IT-generated reports must consider:

    a.    the benefits of relying on IT-generated reports.
    b.    the effectiveness of management’s review.
    c.    the controls related to the accuracy of the information in the report.
    d.    both b and c.

Tests of details of balances focus on:

Tests of details of balances focus on:

    a.    beginning of the year balances.
    b.    end of the year balances.
    c.    transaction details for the period under audit.
    d.    all of the above.

Which of the following types of procedures will be performed in an audit of internal control over financial reporting?

Which of the following types of procedures will be performed in an audit of internal control over financial reporting?

    a.    Procedures to obtain an understanding of internal control
    b.    Tests of controls
    c.    Both a and b
    d.    Either a or b, but not both

Many auditors perform extensive analytical procedures on audits because:

Many auditors perform extensive analytical procedures on audits because:

    a.    they are required by GAAS.
    b.    they pinpoint errors in accounts.
    c.    they indicate areas of potential risk and misstatement.
    d.    all of the above.

An increased extent of tests of controls is most likely to occur when:

An increased extent of tests of controls is most likely to occur when:

    a.    it is a first-year audit.
    b.    the auditor is doing a “fraud audit.”
    c.    controls are effective and the preliminary control risk assessment is low.
    d.    controls are ineffective and the preliminary control risk assessment is high.

Tests of controls are generally viewed as less expensive than tests of details.

Tests of controls are generally viewed as less expensive than tests of details. Which of the following is not a reason that tests of controls are less expensive?

    a.    Auditors generally make inquiries and observations of the client resulting in little auditor time being invested.
    b.    Tests of controls are often done on a large number of items in a very short period of time.
    c.    Audit software often makes testing controls very easy and fast.
    d.    All of the above are reasons that tests of controls are less expensive than tests of details.

Which of the following relationships between types of tests and audit evidence is not correct?

Which of the following relationships between types of tests and audit evidence is not correct?

    a.    Tests of details and documentation.
    b.    Tests of controls and observation.
    c.    Tests of details and observation.
    d.    Substantive tests of transactions and reperformance

Which of the following tests commonly occur together?

Which of the following tests commonly occur together?

     a.    Substantive tests of transactions and tests of controls.
     b.    Substantive tests of transactions and obtaining an understanding of internal controls.
     c.    Analytical procedures and tests of controls.
     d.    All of the above commonly occur together.

Analytical procedures must be performed in:

Analytical procedures must be performed in:

a. the planning and testing stages.
b. conjunction with tests of transactions and tests of details of balances.
c. the planning and completion stages.
d. the planning, testing and completion stages.

Audit tests is usually the least costly to perform

Which of the following audit tests is usually the least costly to perform?

a. Analytical procedures.
b. Tests of controls.
c. Tests of balances.
d. Substantive tests of transactions.

Which of the following statements is not true?

Which of the following statements is not true?

a. Analytical procedures emphasize the overall reasonableness of transactions and balances.
b. Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.
c. Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger.
d. Tests of details of balances emphasize the ending balances in the general ledger.

Tests of controls are directed toward the control’s:

Tests of controls are directed toward the control’s:

a. efficiency.
b. effectiveness.
c. efficiency and effectiveness.
d. cost benefit ratio.

The most important consideration in developing the audit plan and audit program is the:

The most important consideration in developing the audit plan and audit program is the:

a. client’s size.
b. client’s industry.
c. audit firm’s available personnel.
d. the audit risk model used in its planning form.

Tests of transactions are used to determine whether __have been satisfied.

Tests of transactions are used to determine whether __have been satisfied.

a. compliance test requirements.
b. balance coverage requirements.
c. transaction-related audit objectives.
d. any of the above

Analytical procedures are defined in the auditing standards as:

Analytical procedures are defined in the auditing standards as:

a. compliance tests.
b. substantive tests.
c. tests of controls.
d. helpful procedures not possessing the validity of other tests available to the auditor.

The primary emphasis in most tests of details of balances is on the:

The primary emphasis in most tests of details of balances is on the:

a. balance sheet accounts.
b. income statement accounts.
c. cash flow statement account.
d. all of the above.

If no material differences are found using analytical procedures and the auditor concludes that misstatements are not likely to have occurred:

If no material differences are found using analytical procedures and the auditor concludes that misstatements are not likely to have occurred:

a. other tests may be reduced.
b. it will be necessary to increase the tests of balances.
c. it will not be necessary to perform tests of balances.
d. it will be necessary to increase the tests of transactions.

Which of the following is not a direct result of performing analytical procedures?

Which of the following is not a direct result of performing analytical procedures?

        a. Identify areas of potential misstatements.
b. Reduce detailed audit tests.
c. Understand the client’s business.
d. Identify specific errors in the accounts.

Which of the following is not appropriate for purposes of testing the effectiveness of controls?

Which of the following is not appropriate for purposes of testing the effectiveness of controls? 

a. Make inquiries of client personnel.
b. Evaluate prior experience with the client.
c. Observe control-related activities.
d. Reperform client procedures.

A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a

A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a:

a. test of controls.
b. substantive test.
c. test of attributes.
d. monetary-unit sampling test.

When the auditor finds that there are missing controls in an area

When the auditor finds that there are missing controls in an area of the accounting system, the audit program in that area would be modified in such a way as to:

a. increase the amount of tests of controls.
b. increase the reliance on tests of controls.
c. cause the issuance of a qualified or adverse opinion.
d. eliminate the need for a test of controls.

PCAOB Standard 2 _the auditor to perform walkthroughs of significant processes.

PCAOB Standard 2 _______ the auditor to perform walkthroughs of significant processes.

a. encourages
b. requires
c. does not allow
d. permits

A system walkthrough is used to:

A system walkthrough is used to:

a. test balances.
b. test details of transactions.
c. gain an understanding of internal controls.

Which of the following is not useful for obtaining an understanding of internal controls?

Which of the following is not useful for obtaining an understanding of internal controls?

a. Make inquiries of the client’s personnel.
b. Examine documents and records.
c. Read industry trade magazines.
d. Observe client activities and operations.

In the context of an audit of financial statements, substantive tests are audit procedures that:

In the context of an audit of financial statements, substantive tests are audit procedures that:

a. may be eliminated under certain conditions.
b. are designed to discover significant subsequent events.
c. may be either tests of transactions, tests of balances, or analytical tests.
d. will increase proportionately with the auditor’s reliance on internal control.

The purpose of tests of controls is to provide reasonable assurance that the:

The purpose of tests of controls is to provide reasonable assurance that the:

a. accounting treatment of transactions and balances is valid and proper.
b. internal control procedures are functioning as intended.
c. entity has complied with GAAP disclosure requirements.
d. entity has complied with requirements of quality control.

Tests of controls may include which of the following types of evidence?

Tests of controls may include which of the following types of evidence?

a. Observation
b. Reperformance
c. Observation
d. All of the above

In which stage(s) of an audit can analytical procedures be performed?

In which stage(s) of an audit can analytical procedures be performed?

a. In the planning stage.
b. In conjunction with tests of transactions and tests of details of balances.
c. In the completion stage.
d. During all three stages.

Which of the following procedures are frequently performed in response to the auditor’s assessment of the risk of material misstatement?

Which of the following procedures are frequently performed in response to the auditor’s assessment of the risk of material misstatement?

a. Analytical procedures
b. Tests of transactions
c. Tests of details of balances
d. All of the above

For efficiency, tests of controls are frequently done at the same time as:

For efficiency, tests of controls are frequently done at the same time as:

a. analytical procedures.
b. compliance tests.
c. tests of transactions.
d. tests of details of balances.

Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor’s:

Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor’s:

a. audit strategy.
b. tests of controls.
c. risk assessment procedures.
d. tests of transactions.

Which auditors use to determine whether financial statements are fairly stated.

Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests?

1. procedures to obtain an understanding of internal control
2. tests of controls
3. tests of transactions
4. analytical procedures
5. tests of details of balances


        a. 1, 2, and 3.
b. 3, 4, and 5.
c. 2, 3, and 5.
d. 2, 3, and 4.

A listing of all the things which the auditor will do to gather sufficient, competent evidence is the:

A listing of all the things which the auditor will do to gather sufficient, competent evidence is the:

a. audit strategy.
b. audit program.
c. audit procedure.
d. audit risk model.

Matching the supplier’s invoice, the purchase order

Matching the supplier’s invoice, the purchase order, and the receiving report normally should be the responsibility of the: 

a. warehouse receiving function.
b. purchasing function.
c. general accounting function.
d. treasury function.

An auditor performs a test to determine whether all

An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all:

a. merchandise received.
b. vendors’ invoices.
c. canceled checks.
d. receiving reports.

For effective internal control purposes, the vouchers payable department generally should:

For effective internal control purposes, the vouchers payable department generally should:

a. obliterate the quantity ordered on the receiving department copy of the purchase order.
b. stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.
c. establish the agreement of the vendor’s invoice with the receiving report and purchase order.
d. ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee.

When goods are received, the receiving clerk should match the goods with the:

When goods are received, the receiving clerk should match the goods with the:

a. purchase order and the requisition form.
b. vendor’s invoice and the receiving report.
c. vendor’s shipping document and the purchase order.
d. receiving report and the vendor’s shipping document.

Which of the following documents is best for verifying the correct balance in accounts payable?

Which of the following documents is best for verifying the correct balance in accounts payable?

a. Bills of lading.
b. Confirmations.
c. Vendors’ invoices.
d. Vendors’ statements.

The auditor gets highly reliable evidence about individual transactions by examining:

The auditor gets highly reliable evidence about individual transactions by examining:

a. vendors’ invoices.
b. vendors’ statements.
c. confirmations of accounts payable balances.
d. all of the above.

When an acquisition is on an FOB origin basis

When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were:

a. received prior to the balance sheet date.
b. shipped prior to the balance sheet date.
c. both shipped and received prior to the balance sheet date.
d. paid for in advance.

An inventory acquisition is received late in the afternoon of

An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed. If the acquisition is included in accounts payable and purchases, but excluded from inventory, the result:

a. is an understatement of net earnings.
b. is an overstatement of net earnings.
c. does not affect earnings.
d. is indeterminable from the information given.

In determining that the accounts payable cutoff is correct, it is essential that the cutoff tests be coordinated with the:

In determining that the accounts payable cutoff is correct, it is essential that the cutoff tests be coordinated with the:

a. confirmation of payables.
b. tests on long-term liabilities.
c. observation of inventory.
d. cash count.

To test for overstatement cutoff errors in liabilities, the auditor should trace, to vendors’ invoices, the receiving reports issued:

To test for overstatement cutoff errors in liabilities, the auditor should trace, to vendors’ invoices, the receiving reports issued:

a. after year-end.
b. before year-end.
c. the last day of the fiscal year.
d. both before and after year-end.

The purpose of the audit procedure to “examine underlying documentation for subsequent cash disbursements” is to:

The purpose of the audit procedure to “examine underlying documentation for subsequent cash disbursements” is to:

a. uncover liabilities on the balance sheet which should not have been recorded until a subsequent period.
b. find the documentation relating to a cash disbursement.
c. uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date.
d. uncover cash disbursements recorded in a subsequent accounting period which should be recorded in this period.

The test of transactions which requires one to

The test of transactions which requires one to “reconcile recorded cash disbursements with the cash disbursements on the bank statement” satisfies the objective of:

a. occurrence.
b. completeness.
c. accuracy.
d. posting and summarization.

A company failed to record an acquisition of merchandise

A company failed to record an acquisition of merchandise and its related liability, but the merchandise was included in ending inventory. The effect on the financial statements was to:

a. understate both assets and liabilities.
b. overstate net income and owners’ equity.
c. understate assets and owners’ equity.
d. understate liabilities, and overstate both net income and owners’ equity.

Internal controls that are likely to prevent the client from

Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather than the entity being audited satisfy the control objective that: 

a. acquisitions are correctly valued.
b. existing acquisitions are recorded.
c. acquisitions are correctly classified.
d. recorded acquisitions are for goods and services received.

When assets are being verified, auditors focus much of their

When assets are being verified, auditors focus much of their attention on making sure that the accounts are not overstated. Alternatively, auditors focus their efforts on understatement when auditing liabilities. What is the primary reason for this difference in focus?

a. Auditors’ legal liability.
b. GAAP.
c. GAAS requirements.
d. All of the above.

Which of the following is an effective internal accounting control over cash payments?

Which of the following is an effective internal accounting control over cash payments?

a. Signed checks should be mailed under the supervision of the check signer.
b. Spoiled checks that have been voided should be disposed of immediately.
c. Checks should be prepared only by persons responsible for cash receipts and disbursements.
d. A check-signing machine with two signatures should be used.

Which of the following should sign checks under conditions of effective internal control?

Which of the following should sign checks under conditions of effective internal control?

a. Treasurer.
b. Purchasing agent.
c. Accounts payable clerk.
d. Person preparing the checks.

Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the:

Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the:

a. department that initiated the requisition.
b. receiving department.
c. purchasing agent.
d. accounts payable department.

Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors?

Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors?

a. Internal accounting control over accounts payable is adequate, and there is sufficient evidence on hand to minimize the risk of a material misstatement.
b. Confirmation response is expected to be favorable, and accounts payable balances are of immaterial amounts.
c. Creditor statements are not available and internal control over payables is unsatisfactory.
d. The majority of accounts payable balances are with associated companies.

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because:

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because:

a. this is a duplication of cutoff tests.
b. there is likely to be other reliable external evidence available to support the balances.
c. accounts payable balances at the balance sheet date may not be paid before the audit is completed.
d. correspondence with the audit client’s attorney will reveal all legal action by vendors for nonpayment.

Assume that during cutoff testing you determined that the last

Assume that during cutoff testing you determined that the last receiving report number for inventory was 24986. Which of the following receiving report numbers would you not expect to be included in inventory and accounts payable at year-end?

a. 24980
b. 19773
c. 23019
d. 24990

Cutoff information for acquisitions should be obtained during:

Cutoff information for acquisitions should be obtained during:

a. the interim period prior to year-end.
b. the interim period immediately following year-end.
c. the physical observation of inventory.
d. any of the above times.

Which of the following is the most effective control procedure

Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received?

a. Count goods upon receipt in storeroom.
b. Match purchase order, receiving report, and vendor’s invoice for each voucher in accounts payable department.
c. Compare goods received with goods requisitioned in receiving department.
d. Verify vouchers for accuracy and approval in internal audit department.

For effective internal control, the accounts payable department should compare the information on each vendor’s invoice with the:

For effective internal control, the accounts payable department should compare the information on each vendor’s invoice with the:

a. receiving report and the voucher.
b. vendor’s packing slip and the voucher.
c. receiving report and the purchase order.
d. vendor’s packing slip and the purchase order.