Cam Koogler
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Quiz on Auditing, created by Cam Koogler on 28/04/2014.

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Cam Koogler
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Auditing

Auditing

Question 1 of 31

1

For the control activities to be effective, employees maintaining the accounts receivable subsidiary ledger should not also approve:

Select one of the following:

  • Employee overtime Wages

  • Credit Granted to Customers

  • Write-Offs of customer accounts

  • Cash Disbursements

Explanation

Question 2 of 31

1

Which of the following controls is most likely to help ensure that all credit revenue transactions of an entity are recorded?

Select one of the following:

  • The billing department supervisor sends a copy of each approved sales order to the credit department for comparison to the customer's authorized credit limit and current account balance

  • The accounting department supervisor independantly reconciles the accounts receivable subsidiary ledger to the accounts receivable control account each month

  • The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers.

  • The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

Explanation

Question 3 of 31

1

Which of the following internal controls would be most likely to deter the lapping of collections from customers?

Select one of the following:

  • Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries

  • Authorization of write-offs of uncollectible accounts by a supervisor independent of the credit approval function

  • Segregation of duties between receiving cash and posting the accounts receivable ledger.

  • Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries

Explanation

Question 4 of 31

1

Smith Corporation has numerous customers. Acustomer file is maintained and includes a customer record with a name, an address, a credit limit, and an account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to:

Select one of the following:

  • Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations.

  • Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit

  • Request a printout of all account balances so that they can be individually checked against the respective credit limits.

  • Request a printout of a sample of account balances so that they can be individually checked against the respective credit limits.

Explanation

Question 5 of 31

1

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?

Select one of the following:

  • Understating the sales journal

  • Overstating the accounts receivable control account

  • Overstating the accounts receivable subsidiary ledger

  • Understating the cash receipts journal

Explanation

Question 6 of 31

1

If accounts receivable turnover (credit sales/ receivables) was 7.1 times in 2013 compared to only 5.6 time in 2014, it is possible that there are:

Select one of the following:

  • Unrecorded credit sales in 2014.

  • Unrecorded cash receipts in 2013.

  • More thorough credit investigations made by the company late in 2013.

  • Fictitious Sales in 2014.

Explanation

Question 7 of 31

1

If the number of days' sales in accounts receivable (365 days/ receivables turnover) decreases' significantly, which of the following assertions for accounts receivable most likely is violated?

Select one of the following:

  • Existence or Occurrence

  • Completeness

  • Rights and obligations

  • Classification

Explanation

Question 8 of 31

1

Which of the following is most likely to be detected by an auditor's review of an entity's sales cutoff?

Select one of the following:

  • Unrecorded sales for the year

  • Lapping of year-end accounts receivable

  • Excessive sales discounts

  • Unauthorized goods returned for credit

Explanation

Question 9 of 31

1

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because

Select one of the following:

  • A majority of recipients usually lack the willingness to respond objectively

  • Some recipients may report incorrect balances that require extensive follow-up

  • The auditor cannot infer that all non respondents have verified their account information

  • Negative confirmations do not produce evidence that is statistically quantifiable

Explanation

Question 10 of 31

1

The negative request form of accounts receivable confirmation is useful particularly when

Assessed level of control risk relating to receivables The number of small balances is Consideration by the recipient is

Select one of the following:

  • Low, High, Likely

  • Low, Low, Unlikely

  • High, low, likely

  • High, High, Likely

Explanation

Question 11 of 31

1

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when

Select one of the following:

  • No reply to a positive confirmation request is received

  • No reply to a negative confirmation request is received

  • The conductibility of the receivables is in doubt.

  • Pledging of the receivables is probable

Explanation

Question 12 of 31

1

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of

Select one of the following:

  • Existence

  • Valuation and allocation

  • Completeness

  • Rights and Obligations

Explanation

Question 13 of 31

1

the tick mark (diamond) most likely indicates that the amount was traced to the:

Select one of the following:

  • December cash disbursements journal

  • Outstanding check list of the applicable bank reconciliation

  • January cash disbursements journal

  • Year-end bank confirmations

Explanation

Question 14 of 31

1

The tick mark (triangle) most likely indicates that the amount was traced to the

Select one of the following:

  • Deposit in transit of the applicable bank reconciliation

  • December cash receipts journal

  • January cash receipts journal

  • Year-end bank confirmations

Explanation

Question 15 of 31

1

An auditor ordinarily sends a standard confirmation request to all banks with which the entity has done business during the year under audit, regardless of the year-end balance. One purpose of the procedure is to

Select one of the following:

  • Provide the data necessary to prepare a proof of cash

  • Request that a cutoff bank statemnt and related checks be sent to the auditor

  • Detect kiting activities that may otherwise not be discovered

  • Seek information about loans from the banks

Explanation

Question 16 of 31

1

The primary evidence regarding year-end bank balances is documented in the

Select one of the following:

  • Standard bank confirmations

  • Outstanding check listing

  • Interbank transfer schedule

  • Bank deposit lead schedule

Explanation

Question 17 of 31

1

On receiving the cutoff bank statement, the auditor should vouch

Select one of the following:

  • Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal.

  • Checks dated before year-end listed as outstanding on the year-end bank reconciliation to the cutoff statement

  • Deposits listed on the cutoff statement to deposits in the cash receipts journal.

  • Checks dated after year-end to outstanding checks listed on the year-end bank reconciliation and to the cutoff statment

Explanation

Question 18 of 31

1

Which of the following controls would most effectively ensure that the proper custody of assets in the investing process is maintained?

Select one of the following:

  • Direct access to securities in the safe-deposit box is limited to one corporation rate officer

  • Personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger

  • Purchase and sale of investments are executed on the specific authorization of the board of directors

  • The record balances in the investment subsidiary ledger a periodically compared with the contents of the safe-deposit box by independent personnel

Explanation

Question 19 of 31

1

An auditor testing long-term investments would ordinarily use substantive analytical procedures to ascertain the reasonableness of the:

Select one of the following:

  • Existence of unrealized gains or losses in the portfolio

  • Completeness of recorded investment income

  • Classification between current and non current portfolios

  • Valuation of marketable equity securities

Explanation

Question 20 of 31

1

To establish the existence and rights of a long-term investment in the common stock of a publicly traded company, an auditor ordinarily performs a security count or:

Select one of the following:

  • Relies on the entity's internal controls if the auditor has reasonable assurance that the control activities are being applied as prescribed

  • Confirms the number of shares owned that are held by an independent custodian

  • Determines the market price per share at the balance sheet date from published quotations

  • Confirms the number of shares owned with the issuing company

Explanation

Question 21 of 31

1

Which of the following is likely to be the most effective audit procedure for verifying dividends earned on investments in publicly traded equity securities

Select one of the following:

  • Trace deposits of dividend checks to the cash receipts book

  • Reconcile recorded earnings with the dividend earnings reported in the investment broker statement

  • Compare the amounts received with prior year dividends received

  • Recompute selected extensions and footings of dividend schedules and compare totals to the general ledger

Explanation

Question 22 of 31

1

An auditor would most likely verify the interest earned on bond investments by

Select one of the following:

  • Vouching the receipt and deposit of interest checks.

  • Confirming the bond interest rate with the issuer of the bonds.

  • Recomputing the interest earned of the basis of face amount, interest rate, and period held.

  • Testing the controls over cash receipts

Explanation

Question 23 of 31

1

The audit firm's valuation specialist would likely be brought in to assist in the audit of fair value measurements at an entity when the following is present:

Select one of the following:

  • The entity is a new audit client

  • Significant uncertainty exists in key inputs to the entity's valuation models

  • The entity has a financial instrument with a level 2 input

  • The entity owns a large and diverse portfolio of publicly traded stock

Explanation

Question 24 of 31

1

An auditor would be most likely to identify a contingent liability by obtaining a(n):

Select one of the following:

  • Accounts payable confirmation

  • Bank confirmation of the entity's cash balance

  • Letter from the entity's general legal counsel

  • List of subsequent cash receipts

Explanation

Question 25 of 31

1

An auditor should request that an audited entity send a letter of inquiry to those attorneys who have been consulted concerning litigation, claims, or assessments. The primary reason for this request is to provide:

Select one of the following:

  • The opinion of a specialist as to whether loss contingencies are possible, probable, or remote.

  • A description of litigation, claims, and assessments that have a reasonable possibility of unfavorable outcome.

  • An objective appraisal of management's policies and procedures adopted for identifying and evaluating legal matters

  • Corroboration of the information furnished by management concerning litigation, claims, and assessments

Explanation

Question 26 of 31

1

An auditor issued an audit report that was dual dated for a subsequent even occurring after the date on which the auditor has obtained sufficient appropriate audit evidence but before issuance of the financial statements. The auditor's responsibility for events occurring subsequent to the date on which the auditor has obtained sufficient appropriate evidence was

Select one of the following:

  • limited to the specific event referenced

  • extended to include all events occurring since the date on which the auditor has obtained sufficient appropriate audit evidence

  • Extended to subsequent events occurring through the date of issuance of the report

  • Limited to events occurring up to date of the last subsequent event referenced

Explanation

Question 27 of 31

1

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of any changes in internal control that might affect financial reporting between the end of the reporting period and the date of the auditor's report?

Select one of the following:

  • Review a fire insurance settlement during the subsequent period.

  • Examine relevant internal audit reports issued during the subsequent period.

  • Inquire of the entity's legal counsel concerning litigation, claims, and assessments arising after year-end

  • Confirm bank accounts established after year-end

Explanation

Question 28 of 31

1

Final analytical procedures are generally intended to:

Select one of the following:

  • Provide the auditor with a final, overall, evaluation of the relationships among financial statement balances

  • Test transactions to corroborate management's financial statement asserstions

  • Gather evidence concerning account balances that have not yet been investigated

  • Retest control activities that appeared to be ineffective during the assessment of control risk

Explanation

Question 29 of 31

1

Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Select one of the following:

  • Review compliance with the terms of debt agreements

  • Review management's plans to dispose of assets

  • Evaluate management's plans to borrow money or restructure debt

  • Consider management's plans to reduce or delay expenditures

Explanation

Question 30 of 31

1

Auditing standards primarily encourage which of the following conversations about financial reporting?

Select one of the following:

  • A conversation with those charged with governance to discuss matters pertaining to financial reporting

  • A conversation with only management to discuss matters pertaining to financial reporting

  • A conversation with the head of the entity's internal audit department and those charged with governance to discuss matters pertaining to financial reporting

  • A conversation in which those charged with governance report on management's views on matters pertaining to financial reporting

Explanation

Question 31 of 31

1

Which of the following events occuring after the issuance of a set of financial statements and the accompanying auditor's report would be most likely to cause the auditor to make further inquires about the financial statments

Select one of the following:

  • A technological development in the industry that could affect the entity's future ability to continue as a going concern

  • The entity's sale of a subsidiary that accounts for 30 percent of the entity's consolidated sales

  • The discovery of information regarding a contingency that existed before the financial statements were issued

  • The final resolution of a lawsuit explained in a separate paragraph of the auditor's report

Explanation

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