1. Which of the following tests are typically not necessary when auditing a client’s schedule of recorded disposals?
Footing the schedule.
Tracing schedule totals to the general ledger.
Tracing cost and accumulated depreciation of the disposals to the property master file.
All of the above are necessary.
2. _______accumulate costs by individual jobs as material is issued into production and labor costs are incurred.
Just-in-time production systems
Job order cost systems
Process cost systems
3. 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 II
I and III
II and III
I, II and III
4. Auditors are especially concerned with three aspects of internal control for the sales and collection cycle. Which of the following is not one of their major concerns?
Controls related to the allowance for uncollectible accounts
Controls that prevent or detect embezzlements
Controls over sales discounts
Controls over cutoff
5. Which of the following accounts is not associated with the acquisition and payment cycle?
Accrued property taxes
Income tax expense
Property, plant and equipment
6. 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?
Evidence obtained from independent sources outside the entity is generally more reliable than evidence secured solely within the entity.
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.
The more effective the internal control system, the more assurance it provides the auditor about the reliability of financial reporting by the client.
7. 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:
8. 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?
Trace individual acquisitions to the fixed asset master file.
Physically examine assets.
Examine vendor invoices and receiving reports.
Examine vendor invoices of closely related accounts such as repairs and maintenance.
9. A sample in which the characteristics of the sample are the same as those of the population is a(n):
10. Which of the following business functions is not considered to be part of the acquisitions class of transactions?
Processing purchase orders
Processing cash disbursements
11. Which of the following is not explicitly stated in the standard unqualified audit report?
The auditors believe that the audit evidence provides a reasonable basis for their opinion.
The audit was conducted in accordance with generally accepted accounting principles.
An audit includes assessing the accounting estimates used.
The financial statements are the responsibility of management.
12. When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to use:
13. 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.
bill of lading
14. Which of the following is a correct statement regarding audit evidence?
A large sample of evidence provided by an independent party is always considered persuasive evidence.
A small sample of only one or two pieces of highly appropriate evidence is always considered persuasive evidence.
The auditor must obtain a sufficient amount of relevant and reliable evidence to form an opinion on the fairness of the financial statements.
Evidence is usually more reliable for balance sheet accounts when it is obtained within six months of the balance sheet date.
15. Which of the following statements is not correct?
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.
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.
16. Which of the following is not one of the business functions for the payroll and personnel cycle?
Payment of payroll
Reconciliation of payroll account
Timekeeping and payroll preparation
Human resources and employment
17. One unique characteristic of the capital acquisition and repayment cycle is that relatively few transactions affect the account balances, but each transaction is often highly material in amount.
18. The audit procedure that requires an auditor to “foot the acquisition schedule” relates to which balance-related audit objective?
19. Which of the following does not have to be considered in determining the initial sample size of a test of details?
Acceptable risk of incorrect rejection
Acceptable audit risk
Estimate of misstatements in the population
20. Because cash is the most desirable asset for people to steal, it has a higher:
21. The two primary classes of transactions in the sales and collection cycle are:
sales and cash receipts.
sales and sales returns.
sales and accounts receivable.
sales and sales discounts.
22. Master files, spreadsheets, and reports that accumulate material, labor, and overhead as the costs are incurred are:
cost accounting records
finished goods inventory records.
23. Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle?
Bad debts expense
Property tax expense.
24. Smaller privately held companies may not maintain an accounts payable master file by vendor. These companies pay on the basis of:
Vendor’s monthly statements
Individual vendor’s invoices
The account payable account in the general ledger
25. The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is:
26. Which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash?
Presentation and disclosure
27. 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.
28. The computer file used for recording payroll transactions for each employee and maintaining total wages paid for the year to date is the:
payroll transaction file.
payroll master file.
payroll bank account reconciliation.
payroll tax returns.
29. The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the:
Cash disbursements file.
Accounts payable master file.
Purchase approval file.
Acquisitions transaction file.
30. 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
31. The standard unqualified audit report for a non-public entity must:
Have a report title that includes the word "CPA."
Be addressed to the company's stockholders and creditors.
Include an explanatory paragraph
32. The appropriate and sufficient evidence to be obtained from tests of details must be decided on an:
Audit objectives basis.
None of the above
33. 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
33. To determine if a sample is truly representative of the population, an auditor would be required to:
conduct multiple samples of the same population.
never use sampling because of the expense involved.
audit the entire population.
use systematic sample selection
34. Auditors seldom learn about the capital acquisition and repayment cycle when gaining an understanding of the client’s business and industry.
35. The total of the individual employee earnings in the payroll master file should equal the total:
of the checks drawn to employees for payroll.
balance of gross payroll in general ledger accounts.
gross pay for the current week’s payroll.
gross payroll plus the total contributed by the employer for payroll taxes.
36. 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.
37. In most manufacturing companies, the inventory and warehousing cycle begins with the:
acquisition of raw materials for production of an order.
initiation of production of a customer’s order.
receipt of a customer’s order.
completion of production of a customer’s order.
38. Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ________ system.
39. A commitment is best described as:
an agreement to commit the firm to a set of fixed conditions in the future.
a potential future obligation to an outside party for an as yet to be determined amount.
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 that depends on company profitability.
40. The management’s responsibility section of the standard audit report for a non-public company states that the financial statements are:
none of the above.
the responsibility of management.
the responsibility of the auditor.
the joint responsibility of management and the auditor.
41. Which of the following is an analytical procedure to determine if there is idle equipment or equipment that was disposed of but not written off?
Compare annual repairs and maintenance accounts with previous years.
Compare gross manufacturing cost divided by some measure of production with previous years.
Compare accumulated depreciation divided by gross equipment cost with previous years.
Compare depreciation expense divided by gross equipment cost with previous years.
42. Accrued payroll taxes are normally considered to be associated with the acquisition and payment cycle.
43. Which of the following is a business function related to sales returns and allowances?
Processing customer orders
Writing off uncollectible accounts
Processing and recording credit memos
44. In addition to confirming bank balances of your audit client, a bank confirmation would normally contain:
the client’s bank loans with due date, interest rate, and collateral requested.
the client’s business prospects.
the client’s credit history as regards to paying back loans.
the client’s managements bank account information.
45. 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?
Examine vendor invoices and receiving reports.
Examine vendor invoices for correct accounting treatment.
Recalculate vendor invoices.
Review transactions near the balance sheet date.