Chapter 10
A remittance advice is used to track purchases.
TRUE/FALSE
FALSE
The accounts payable department is responsible for ensuring that all vendor invoices, cash disbursements, and adjustments are recorded in the accounts payable records.
TRUE/FALSE
TRUE
It is generally more efficient to follow a substantive strategy for auditing investments.
TRUE/FALSE
TRUE
A letter of audit inquiry sent to the entity's attorneys will include an evaluation all contingent liabilities of the company.
TRUE/FALSE
FALSE
Confirmation is least likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables:
A. valuation
B. classification
C. existence
D. completeness
B. Classification
As an in-charge auditor, you are reviewing a summary of control weaknesses in cash dibursement procedures. Which one of the following weaknesses, standing alone, should cause you the least concern?
A. checks are signed by only one person
B. Signed checks are distributed by the controller to approved payees.
C. Treasurer fails to establish validity of names and addresses of check payees
D. Cash disbursements are made directly out of cash receipts.
A. Checks are signed by only one person.
An imprest cash account is:
A. Used for investing in marketable securities
B. the Principal cash account for an entity.
C. one that contains a stipulated amount of money and is used for limited purposes.
D. the principal checking account for a branch of an entity.
C. One that contains a stipulated amount of money and is used for limited purposes.
The date of the management representation letter generally coincides with the:
A. date of the latest subsequent event referred to in the notes to the financial statements.
B. balance sheet date
C. date of the auditor's report
D. date of the engagement agreement
C. date of the auditor's report
Upon receipt of customers checks in the mailroom, a responsible employee should prepare a control listing. A copy of the listing should be sent to the
A. internal auditor to investigate the listing for unusual transactions.
B. treasurer to compare the listing with the monthly bank statement.
C. accounts receivable bookkeeper to update the subsidiary accounts receivable records.
D. entity's bank to compare the listing with the deposit slip.
C. accounts receivable bookkeeper to update the subsidiary accounts receivable records
In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?
A. completeness
B. occurrence
C. accuracy
D. classification
B. occurrence
Tracing a sample of remittance advices to entries in the cash receipts journal tests which of the following assertions for cash?
A. occurrence
B. completeness
C. presentation
D. cutoff
B. completeness
Which of the following ratios is least likely to assist the auditor in determining whether the entity is experiencing financial difficulties?
A. net worth/total liabilities
B. cash/total assets
C. total liabilities/total assets
D. net income before taxes/ net sales
B. cash/total assets
To reduce the risks associated with accepting electronic responses to requests for confirmation of accounts receivable, an auditor most likely would:
A. validate the sender of electronic information
B. examine subsequent cash receipts for the accounts in question
C. consider the electronic responses to the confirmation to be exceptions.
D. mail second requests to the electronic respondents.
A. validate the sender of electronic information
The existence assertion for accounts payable includes
A. determining whether all accounts payable are recorded
B. determining whether all accounts payable actually are liabilities.
C. determining whether all accounts payable are recorded in the proper period.
D. determining whether all accounts payable are properly classified in the financial statements.
B. determining whether all accounts payable actually are liabilities.
A primary purpose of the proof of cash is to:
A. prevent fraud
B. reconcile actual cash receipts an disbursements to budgeted receipts and disbursements.
C. investigate variances from expected cash balances.
D. ensure that all cash receipts recorded in the cash receipts journal were deposited in the bank account.
D. ensure that all cash receipts recorded in the cash receipts journal were deposited in the bank account.
Subsequent events for which the auditor has a responsibility to actively search are defined as events that occur subsequent to the:
A. balance sheet date
B. date of the auditors report
C. balance sheet date but prior to the issuance of the financial statements.
D. date of the auditor's report and concern contingencies that are not reflected in the financial statements.
C. balance sheet date but prior to the issuance of the financial statements.
Once an auditor has determined that the accounts receivable account balance has increased because of slow collection in a "tight money" environment, the auditor would be likely to:
A. increase the balance in the allowance for bad debts account.
B. review the going concern ramifications
C. require the entity to tighten its credit policy.
D. expand tests regarding the collectability of receivables.
D. expand tests regarding the collectability of receivables.
The accounts payable department receives the purchase order form to accomplish all of the following except to:
A. compare invoice price to purchase order price.
B. ensure that the purchase had been properly authorized
c. ensure that the goods had been received by the party requesting the goods
D. compare quantity ordered to quantity purchased.
c. ensure that the goods had been received by the party requesting the goods
An auditor who is engaged to examine the financial statements of a business entrerprise will request a cutoff bank statement primarily to:
A. verify the cash balance reported on the bank confirmation inquiry form.
B. verify reconciling items on the entity's bank reconciliation.
C. detect lapping
D. detect kiting
B. verify reconciling items on the entity's bank reconciliation.
Communication between the auditor and those charged with governance should include all of the following except:
A. a summary of specific audit procedures used.
B. a summary of uncorrected misstatements
C. consultations with other accountants
D. major issues discussed with management before the auditor was retained.
A. a summary of specific audit procedures used.