The process which requires the calculation of an interval and then selects the items based on the size of the interval is:
a. ...
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...
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,...
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...
One cause of non-sampling risk is:
One cause of non-sampling risk is:
a. ineffective use of audit procedures.
b. ...
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...
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.
...
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
...
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. ...
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...
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?
...
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:
...
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...
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...
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?
...
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...
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...
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. ...
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?
...
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. ...
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...
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. ...
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...
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.
...
tests for omitted transactions, while __ tests for nonexistent transactions.
_______ tests for omitted transactions, while _____ tests for nonexistent transactions.
a. Tracing, vouching
...
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.
...
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...
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.
...
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...
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. ...
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:
...
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.
...
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.
...
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...
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...
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
...
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...
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.
...
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. ...
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...
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.
...
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. ...
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...
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.
...
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. ...
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. ...
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.
...
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...
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...
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...
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...
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.
...
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. ...
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.
...
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. ...
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. ...
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.
...
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 document that supports reductions in accounts receivable is the:
The document that supports reductions in accounts receivable is the:
a. bill of lading.
b. ...
The document that accompanies the customer’s payment is the:
The document that accompanies the customer’s payment is the:
a. credit memo.
b. ...
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,...
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. ...
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...
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.
...
Most companies recognize sales revenue when:
Most companies recognize sales revenue when:
a. sales are invoiced.
b. customer...
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
...
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.
...
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. ...
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.
...
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
...
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. ...
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
...
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. ...
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. ...
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
...
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...
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...
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. ...
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. ...
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...
Documentation is used in every type of test except _
Documentation is used in every type of test except ________.
a. tests of controls
b. tests...
Only __ involve physical examination and confirmation.
Only __ involve physical examination and confirmation.
a. tests of controls
b. tests...
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.
...
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. ...
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:
...
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...
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.
...
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:
...
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. ...
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...
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?
...
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.
...
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...
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. ...
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...
Tests of details of balances focus on:
Tests of details of balances focus on:
a. beginning of the year balances.
b. ...
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. ...
Many auditors perform extensive analytical procedures on audits because:
Many auditors perform extensive analytical procedures on audits because:
a. they are required by GAAS.
...
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.
...
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...
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...
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.
...
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...
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.
...
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...
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 rati...
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...
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....
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...
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...
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...
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.
...
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...
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.
...
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...
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. permi...
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 control...
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...
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....
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.
...
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 abo...
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...
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...
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.
...
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:
...
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...
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...
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...
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...
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...
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...
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’...
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...
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:
...
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 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.
...
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.
...
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...
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...
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...
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...
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...
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...
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...
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...
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...
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.
...
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...
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...
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?
...
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...
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