Which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash?
FINAL EXAM (46 QUESTIONS)
1
For audit evidence to be compelling to the auditor it must be sufficient and appropriate. Which statement below is not correct regarding the appropriateness of audit evidence?
The more effective the internal control system, the more assurance it provides the auditor about the reliability of financial reporting by the client.
An auditor’s opinion, to be economically useful and profitable to the auditing firm needs to be formed within a reasonable time and based on evidence obtained that assures profits for the auditing firm.
The independent auditor’s direct personal knowledge, obtained through inquiry, observation and inspection, is generally more persuasive than information obtained indirectly.
Evidence obtained from independent sources outside the entity is generally more reliable than evidence secured solely within the entity.
2
The final step in the evaluation of the audit results is the decision to:
project the point estimate.
determine sampling error and calculate the estimated total population error.
determine the error in each sample.
accept the population as fairly stated or to require further action.
3
The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is:
inverse.
proportional.
direct.
indeterminate.
4
The introductory paragraph of the standard audit report for a non-public company performs which functions?
I. It states the CPA has performed an audit.
II. It lists the financial statements being audited.
III. It states the financial statements are the responsibility of the auditor.
I and III
I, II and III
I and II
II and III
5
Master files, spreadsheets, and reports that accumulate material, labor, and overhead as the costs are incurred are:
finished goods inventory records.
accounting systems.
storeroom documents.
cost accounting records.
6
Which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash?
Presentation and disclosure
Cutoff
Existence
Detail tie-in
7
In addition to confirming bank balances of your audit client, a bank confirmation would normally contain:
the client’s credit history as regards to paying back loans.
the client’s managements bank account information.
the client’s bank loans with due date, interest rate, and collateral requested.
the client’s business prospects.
8
A commitment is best described as:
an agreement to commit the firm to a set of fixed conditions in the future that depends on current market conditions.
an agreement to commit the firm to a set of fixed conditions in the future.
an agreement to commit the firm to a set of fixed conditions in the future that depends on company profitability.
a potential future obligation to an outside party for an as yet to be determined amount.
9
The management’s responsibility section of the standard audit report for a non-public company states that the financial statements are:
the responsibility of management.
the joint responsibility of management and the auditor.
none of the above.
the responsibility of the auditor.
10
Which of the following audit procedures would be the most correct in determining the audit objective of existence for the equipment account in the fixed asset master file?
Review transactions near the balance sheet date.
Examine vendor invoices and receiving reports.
Examine vendor invoices for correct accounting treatment.
Recalculate vendor invoices.
11
Which of the following is not explicitly stated in the standard unqualified audit report?
The audit was conducted in accordance with generally accepted accounting principles.
The auditors believe that the audit evidence provides a reasonable basis for their opinion.
The financial statements are the responsibility of management.
An audit includes assessing the accounting estimates used.
12
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.
picking ticket
bill of lading
remittance advice
sales invoice
13
The appropriate and sufficient evidence to be obtained from tests of details must be decided on an:
none of the above.
efficiency basis.
audit objectives basis.
effectiveness basis
14
Which of the following groups has the responsibility for identifying and deciding the appropriate accounting treatment for recording or disclosing contingent liabilities?
Management and the auditors
Management
Auditors
Legal counsel
15
Which of the following business functions is not considered to be part of the acquisitions class of transactions?
Processing purchase orders
Receiving goods and services
Processing cash disbursements
Recognizing liabilities
16
When auditing the capital acquisition and repayment cycle, it is common to verify each transaction taking place in the cycle for the entire year as a part of verifying the balance sheet accounts.
False
True
17
The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the:
Accounts payable master file.
Purchase approval file.
Acquisitions transaction file.
Cash disbursements file.
18
________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.
Process cost systems
Manufacturing systems
Job order cost systems
Just-in-time production systems
19
Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle?
Insurance expense
Depreciation expense
Property tax expense
Estimated liability for warranties
20
Which of the following accounts is not associated with the acquisition and payment cycle?
Accrued property taxes
Income tax expense
Common stock
Property, plant and equipment
21
Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ________ system.
direct deposit
funds transfer
interbank transfer
lockbox
22
In most manufacturing companies, the inventory and warehousing cycle begins with the:
completion of production of a customer’s order.
receipt of a customer’s order.
acquisition of raw materials for production of an order.
initiation of production of a customer’s order.
23
You are auditing Rodgers and Company. You are aware of a potential loss due to non-compliance with environmental regulations. Management has assessed that there is a 40% chance that a $10M payment could result from the non-compliance. The appropriate financial statement treatment is to:
accrue a $4 million liability.
disclose a liability and provide a range of outcomes.
since there is less than a 50% chance of occurrence, ignore.
since there is greater that a remote chance of occurrence, accrue the $10 million.
24
The audit procedure that requires an auditor to “foot the acquisition schedule” relates to which balance-related audit objective?
Cut-off
Classification
Existence
Detail tie-in
25
The standard unqualified audit report for a non-public entity must:
include an explanatory paragraph.
be addressed to the company’s stockholders and creditors.
be dated.
have a report title that includes the word “CPA.”
26
When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to use:
poor judgment.
audit sampling.
estimation sampling.
representative sampling
27
Which of the following does not have to be considered in determining the initial sample size of a test of details?
Estimate of misstatements in the population
Acceptable risk of incorrect rejection
Tolerable misstatement
Acceptable audit risk
28
Auditors seldom learn about the capital acquisition and repayment cycle when gaining an understanding of the client’s business and industry.
False
True
29
Which of the following statements is not correct?
The sample size for any given procedure is likely to vary from audit to audit.
It is possible to vary the sample size from one unit to 100% of the items in the population.
The decision of how many items to test must be made by the auditor for each audit procedure.
The decision of how many items to test should not be influenced by the increased costs of performing the additional tests.
30
A document used by organizations to establish a formal means of recording and controlling acquisitions which usually contains a package of documents about the acquisition is the:
