Chapter 18
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
A) voucher.
B) purchase order.
C) receiving report.
D) purchase requisition.
A) voucher.
The primary accounting record for manufacturing equipment and other fixed assets is the
A) depreciation ledger.
B) fixed asset database.
C) asset inventory.
D) equipment roster.
B) fixed asset database.
For good system of internal control, the payroll function should be independent of the human resources department. True or false?
True
Auditors will generally send a standard inquiry to the client's attorney letter to
A) only those attorneys who have devoted substantial time to client matters during the year.
B) every attorney that the client has been involved with in the current or preceding year, plus any attorney the client engages on occasion.
C) every attorney whose legal fees for the year exceed a materiality threshold.
D) only the attorney who represents the client in proceeding where the client is defendant.
B) every attorney that the client has been involved with in the current or preceding year, plus any attorney the client engages on occasion.
The standards for preparation, compilation, and review engagements of financial statements are the
A) AICPA's Code of Professional Conduct.
B) Statements on Auditing Standards (SASs).
C) Statements of Standards on Attestation Engagements (SSAEs).
D) Statements on Standards for Accounting and Review Services (SSARS).
D) Statements on Standards for Accounting and Review Services (SSARS).
After a purchase requisition is approved, a ________ must be initiated to purchase the goods or services.
A) purchase order
B) vendor order
C) call order
D) vendor invoice
A) purchase order
Normally it may be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it would be customary to verify
A) all large transactions.
B) all unusual transactions.
C) a representative sample of typical additions.
D) all of the above.
D) all of the above.
Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions?
A) the supervising department
B) the accounting department
C) the human resources department
D) the treasurer's department
C) the human resources department
The date of the management representation letter received from the client should
A) be the date of latest subsequent event disclosed in the notes to the financial statements.
B) be dated no earlier than the date of the audit report.
C) have the same date as the date of the balance sheet.
D) have the same date as the date of the engagement letter.
B) be dated no earlier than the date of the audit report.
The statement that "We are not aware of any material modifications that should be made to the accompanying financial statements" expresses which of the following?
A) disclaimer of an opinion
B) negative assurance
C) negative confirmation
D) shared opinion
B) negative assurance
Which of the following is not a key control in the acquisition and payment cycle?
A) authorization of purchases
B) authorization of credit
C) timely recording and independent review of transactions
D) authorization of payments
B) authorization of credit
The most common audit test to verify equipment additions is to
A) examine vendors' invoices.
B) perform an inventory of the fixed assets.
C) confirm the additions with the vendors.
D) trace the vendor invoices to the cash disbursements journal.
A) examine vendors' invoices.
When examining payroll transactions, an auditor is primarily concerned with the possibility of
A) incorrect summaries of employee time records.
B) overpayments and unauthorized payments.
C) under withholding of amounts required to be withheld.
D) posting of gross payroll amounts to incorrect salary expense accounts.
B) overpayments and unauthorized payments.
When reviewing the summary of misstatements found in the audit,
A) an adjusting journal entry must be made by the auditor for all material misstatements.
B) auditors must combine individually immaterial misstatements to evaluate whether the combined amount is material.
C) the auditor is not required to consider the impact on the current financial statements of misstatements in the prior year that were not corrected.
D) auditors only need to consider the misstatements that impact the income statement.
B) auditors must combine individually immaterial misstatements to evaluate whether the combined amount is material.
External auditors would consider internal auditors effective if they
A) are independent of the operating units being evaluated.
B) are competent and well trained.
C) apply a systematic and disciplined approach, including quality control.
D) all of the above.
D) all of the above.
Vendors' statements and vendors' invoices are both relatively reliable evidence because they
A) come directly to the auditor without being in client's possession.
B) originate from a third party.
C) validate the effectiveness of the control system.
D) are compared to and reconciled with sales invoices.
B) originate from a third party.
The auditor needs to be aware that most users of financial statements rely most heavily on the ________ for making decisions.
A) balance sheet
B) income statement
C) statement of cash flows
D) statement of stockholders' equity
B) income statement
The ________ has the responsibility for approving the number of hours worked for each employee.
A) employee's supervisor
B) human resources department
C) chief financial officer
D) budgeting supervisor
A) employee's supervisor
The auditor has completed her or his assessment of subsequent events. The proper accounting for subsequent events that have a direct effect on the financial statements is to
A) adjust the financial statements for the year under audit.
B) disclose in the notes to the financial statements the amount of the adjustment.
C) duly note in the audit workpapers that next year's financial statements need to be adjusted.
D) make no adjustment of the financial statements for the year under audit.
A) adjust the financial statements for the year under audit.
The correct title of the Yellow Book is
A) Government Auditing Standards.
B) Institute of Internal Auditors (IIA) Practice Standards.
C) Statement of Responsibilities of Internal Auditing.
D) Statement of Standards on Accounting and Review Services.
A) Government Auditing Standards.
Auditors are especially concerned about the ________ and ________ balance-related audit objectives in the acquisition and payment cycle because of the potential for understatements in the account balance.
A) completeness; cutoff
B) completeness; accuracy
C) classification; realizable value
D) classification; cutoff
A) completeness; cutoff
You are auditing Manufacturing Company and testing the audit-related objective of completeness for the equipment accounts. Which of the following audit procedures is most likely to achieve your objective?
A) Examine vendor invoices and receiving reports.
B) Physically examine assets.
C) Examine vendor invoices of closely related accounts such as repairs and maintenance.
D) Trace individual acquisitions to the fixed asset database.
C) Examine vendor invoices of closely related accounts such as repairs and maintenance.
In auditing payroll, the auditor wants to determine that the individuals included in her/his sample were employees of the company for the period under review. What is the auditor's best source of evidence?
A) examination of human resource records
B) examination of the payroll database
C) examination of the payroll transaction file
D) examination of the payroll tax records
A) examination of human resource records
The auditor's subsequent events work should be extended to the date of
A) the auditor's report.
B) a post-dated footnote.
C) the next scheduled interim visit.
D) the final billing for audit services rendered.
A) the auditor's report.
Evidence for a review engagement consists primarily of what types of evidence?
Inquiry and Analytical Procedures