Kayla Harbaugh
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Auditing Chapter 11 Homework

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Kayla Harbaugh
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Auditing Chapter 11 Homework

Question 1 of 30

1

Which of the following activities is not included in the acquisition and payment cycle?

Select one of the following:

  • a. Application of cash receipts.

  • b. Approval of items for payment.

  • c. Authorized request for goods and services.

  • d. Receipt of goods and services.

Explanation

Question 2 of 30

1

Which of the following accounts is not a major account in the acquisition and payment cycle?

Select one of the following:

  • a. Inventory.

  • b. Cost of goods sold.

  • c. Accounts payable.

  • d. All of the above are major accounts.

Explanation

Question 3 of 30

1

When a purchasing agent benefits personally by accepting payment from a vendor, the purchasing agent is guilty of which of the following?

Select one of the following:

  • a. Receiving kickbacks.

  • b. Committing embezzlement.

  • c. Performing kiting.

  • d. Stealing company assets.

Explanation

Question 4 of 30

1

Which of the following is not a management assertion relevant to inventory?

Select one of the following:

  • a. Accuracy.

  • b. Rights and obligations.

  • c. Existence or occurrence.

  • d. Completeness.

Explanation

Question 5 of 30

1

Which of the following is not an indicator of fraud in the acquisition and payment cycle?

Select one of the following:

  • a. Theft of inventory by employees.

  • b. Large manual adjustments to inventory accounts.

  • c. Inventory shrinkage.

  • d. Excess inventory because of a production slowdown.

Explanation

Question 6 of 30

1

The internal control that requires that “checks are pre-numbered and accounted for” satisfies which assertion?

Select one of the following:

  • a. Existence.

  • b. Posting and summarization.

  • c. Completeness.

  • d. Accuracy.

Explanation

Question 7 of 30

1

Which of the following signals a potential fraud that may cause the overstatement of inventory accounts?

Select one of the following:

  • a. Reserves for contingencies are reducing rapidly.

  • b. Inventory amounts are growing faster than sales.

  • c. Repairs and maintenance accounts have significant credit entries.

  • d. The purchase of manufacturing equipment is occurring at a rapid rate.

Explanation

Question 8 of 30

1

Which of the following is a major factor in management's ability to overvalue inventory without rapid detection by auditors?

Select one of the following:

  • a. The limited volume of transactions in the inventory accounts.

  • b. The auditor's assessment of inventory as a low-risk area.

  • c. Consideration by the auditor of non-financial indicators of inventory fraud.

  • d. Complexity in the valuation of inventory.

Explanation

Question 9 of 30

1

Which of the following is an example of the type of analytical procedures that an auditor would use for inventory?

Select one of the following:

  • a. Inventory turnover for the previous five years.

  • b. Salaries of marketing personnel as a percent of total inventory.

  • c. Days outstanding in accounts payable.

  • d. Number of day's sales in receivables compared to industry averages.

Explanation

Question 10 of 30

1

Why should the client’s legal expenses be examined?

Select one of the following:

  • a. To determine if there is any litigation pending or threatened.

  • b. To compare with previously released attorneys’ letters.

  • c. To determine the types of fraud occurring in the organization.

  • d. To ensure proper recording of vendor payables.

Explanation

Question 11 of 30

1

Which assertion has the greatest emphasis when auditing accounts payable?

Select one of the following:

  • a. Presentation.

  • b. Obligations.

  • c. Existence.

  • d. Completeness.

Explanation

Question 12 of 30

1

Which of the following is a required disclosure for inventory?

Select one of the following:

  • a. Inventory valuation method used (FIFO, LIFO, moving average) and percentage of inventory valued under each method.

  • b. LIFO or current cost if the inventory is valued using FIFO.

  • c. Type of inventory system used (periodic or perpetual).

  • d. All of the above.

Explanation

Question 13 of 30

1

An auditor may best test commissions expense for salespeople when control risk is low by performing which of the following procedures?

Select one of the following:

  • a. Subsequent proof of cash.

  • b. Alternative procedures.

  • c. Analytical procedures.

  • d. Tagging and tracing.

Explanation

Question 14 of 30

1

A primary feature of automated control in the acquisition cycle includes which of the following?

Select one of the following:

  • a. Authorization is no longer required.

  • b. Funds transfer at the request of the controller.

  • c. Calculated order quantities based on set criteria.

  • d. Limits as to the number of items that can be received by the warehouse.

Explanation

Question 15 of 30

1

Identify the proper sequence of the acquisition and payment cycle:
1. Approval of items for payment.
2. Authorized requisition for goods or services.
3. Cash disbursements.
4. Receipt of goods and services.
5. Authorized purchase of goods or services.

Select one of the following:

  • a. 2, 4, 5, 1, 3

  • b. 2, 5, 4, 1, 3

  • c. 2, 1, 4, 5, 3

  • d. 2, 5, 1, 4, 3

Explanation

Question 16 of 30

1

Which of the following might an auditor do in testing for the existence of accounts payable?

Select one of the following:

  • a. Perform a cutoff test of purchases and cash disbursements.

  • b. Review long-term purchase commitments.

  • c. Review client’s financial statement disclosure.

  • d. Perform analytical review of related expense accounts.

Explanation

Question 17 of 30

1

Which of the following is not an inherent risk associated with inventory?

Select one of the following:

  • a. Inventory is easily transportable.

  • b. Inventory costing methods frequently change from one year to the next.

  • c. Inventory accounts typically have a high volume of activity.

  • d. Inventory may become obsolete.

Explanation

Question 18 of 30

1

Which of the following is not an element of internal control for inventory?

Select one of the following:

  • a. Perpetual inventory system.

  • b. Rapid introduction of new products without market studies.

  • c. Proper accounting for receipt of inventory.

  • d. Authorization for all purchases.

Explanation

Question 19 of 30

1

The auditor may discover that the recorded cost of inventory exceeds the designated market price when testing which assertion?

Select one of the following:

  • a. Rights.

  • b. Valuation.

  • c. Cutoff.

  • d. Existence.

Explanation

Question 20 of 30

1

Which of the following procedures will usually be performed by the auditor to determine if obsolete inventory exists?

Select one of the following:

  • a. Analysis of inventory turnover and sales reports.

  • b. Confirmation of inventory with customers.

  • c. Tracing inventory ordered by the client to receiving reports.

  • d. Footing the inventory subsidiary ledger.

Explanation

Question 21 of 30

1

A perpetual inventory system is preferable to a periodic system if adequately controlled and maintained because of which of the following?

Select one of the following:

  • a. It allows management to calculate cost of goods sold at year-end.

  • b. It provides information to management where book inventory is continuously in agreement with inventory on hand within specified time periods.

  • c. It better controls the receipt of goods.

  • d. It requires that a full inventory count be taken at year-end by all warehouse employees.

Explanation

Question 22 of 30

1

Which of the following is not a procedure that the auditor should perform related to the physical inventory count?

Select one of the following:

  • a. Document the first and last tag numbers used.

  • b. Take notations of all items that appear to be obsolete or are in questionable condition.

  • c. Make counts of all items and record the counts for subsequent tracing into the client‘s inventory compilation.

  • d. Observe whether there is any physical movement of goods during the counting of the inventory.

Explanation

Question 23 of 30

1

The principle of lower of cost or market and the potential obsolescence of inventory are concerns for the audit team because of which of the following?

Select one of the following:

  • a. They are an inherent component of complexity related to valuation.

  • b. They are uncommon and may not exist.

  • c. They are a burden to the auditor in the undue amount of work caused.

  • d. They are likely to occur in the last month of the year and cause cutoff problems.

Explanation

Question 24 of 30

1

An auditor reviews purchase contracts to assess the conditions for the return of merchandise as a test related to which management assertion?

Select one of the following:

  • a. Rights and obligations.

  • b. Existence.

  • c. Completeness.

  • d. Valuation.

Explanation

Question 25 of 30

1

Which of the following is not an item reviewed by the auditor to test the client’s assertion related to the presentation and disclosure of inventory?

Select one of the following:

  • a. The amount of obsolete inventory on hand.

  • b. The existence of contingent losses associated with long-term purchase commitments.

  • c. The classification of inventory as raw material, work in process or finished goods.

  • d. The inventory valuation methods used.

Explanation

Question 26 of 30

1

Which of the following is a procedure used in an audit where there is a heightened risk of fraud related to accounts payable and other related expense accounts?

Select one of the following:

  • a. Send blank confirmations to vendors that ask them to furnish information about all outstanding invoices, payment terms, and payment histories.

  • b. Scan journals for unusual or large year-end transactions and adjustments.

  • c. Obtain and examine documentation for payments of invoices that are for amounts just under the limit that typically requires some level of approval.

  • d. All the above.

Explanation

Question 27 of 30

1

When testing a standard cost system, the auditor does not normally make which of the following inquiries?

Select one of the following:

  • a. The method for identifying sales cutoff.

  • b. The method for developing standard costs.

  • c. The method for identifying components of overhead and of allocating overhead to products.

  • d. The method used for allocating variances to inventory and cost of goods sold.

Explanation

Question 28 of 30

1

Which of the following is not a potential fraud indicator in the acquisition and payment cycle?

Select one of the following:

  • a. Capital assets that seem to be growing faster than the business.

  • b. Unexpected increases in gross margin.

  • c. Expense accounts that have significant debit entries.

  • d. Expenses that are significantly above or below industry norms.

Explanation

Question 29 of 30

1

Which of the following is not a standard procedure that the auditor normally should follow in the observation of inventory at year-end?

Select one of the following:

  • a. Observe the client taking inventory.

  • b. Look for slow-moving, obsolete, or damaged inventory.

  • c. Review disclosure of inventory valuation.

  • d. Make selected test counts and trace into client’s inventory compilation.

Explanation

Question 30 of 30

1

Which of the following is a condition which would not create a conducive situation for a client to take a physical inventory at an interim date before year-end?

Select one of the following:

  • a. The auditor will be able to review material transactions in the roll-forward period.

  • b. The auditor can effectively test the year-end balance through a combination of analytical procedures and selective testing of transactions between the physical count and the year-end.

  • c. The auditor reviews the intervening transactions for evidence of any manipulation or unusual activity.

  • d. The control risk over inventory is high.

Explanation

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