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Auditing and Accounting Performances Overview

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It is sometimes impossible for the auditors to use normal accounts receivable confirmation procedures.  In such situations, the best alternative procedure the auditors may resort to would be
examining subsequent receipts of year-end accounts receivable.
reviewing accounts receivable aging schedules prepared at the balance sheet date and at a subsequent date.
requesting that management increase the allowance for uncollectible accounts by an amount equal to some percentage of the balance in those accounts that cannot be confirmed.
applying analytical procedures to accounts receivable and sales on a year-to-year basis.


What type of error is the CPA most likely to discover when he examines all shipping reports dated in January, 2005, shipped FOB shipping point, which were recorded in December, 2004, as credit sales?
Accounts receivable are overstated at December 31, 2004.
Accounts receivable are understated at December 31, 2004.
Operating expenses are overstated for the twelve months ended December 31, 2004.
Sales returns and allowances are overstated at December 31, 2004.
Which of the following is consistent with effective internal control over sales transactions?
The accounting department prepares a shipping report authorizing the shipment of goods.

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The accounting department accounts for all receiving reports.
The billing department accounts for all shipping documents.
The accounts payable department annually approves the extension of credit to customers.
The auditors obtain audit evidence for accounts receivable by using positive or negative confirmation requests.  Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful?
A substantial number of accounts are in dispute.
The combination of inherent risk and control risk is high.
Client records include a large number of relatively small balances.
The auditors believe that recipients of the requests are unlikely to give them consideration.
You were surprised to note that approximately 95% of returned positive accounts receivable confirmations indicated that the customers reported that they owed a larger balance than the amount that had been printed by your client on the confirmation.  This might be explained by the fact that
the cash receipts journal was closed before year-end.
the cash receipts journal was held open after year-end.
c.    there are many unrecorded liabilities.
the sales journal was held open after year-end.
Which of the following sets of duties would ordinarily be considered to be basically incompatible in terms of good internal control?
Preparation of monthly statements to customers and maintenance of the accounts payable subsidiary ledger
Posting to the general ledger and approval of additions and terminations relating to payroll
Custody of unmailed signed checks and maintenance of the expense subsidiary ledger
Collection of receipts on account and maintaining accounts receivable records
7.    Which of the following generally provides the least evidence regarding the valuation of accounts receivable?

Reviewing an aging of accounts receivable
Examination of cash receipts subsequent to the balance sheet date
Confirming current (0-30 day) year-end accounts receivable
Reviewing credit files for selected accounts.
A CPA examines a sample of copies of December and January sales invoices for the initials of the person who verified the quantitative data.  This is an example of a
test of control.
substantive test.
c.    cutoff test.
statistical test.
(CPA, adapted)  An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the existence or occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting
opening and closing balances.
cash receipts and accounts receivable.
shipping and receiving activities.
cutoffs of sales and purchases.
(CPA, adapted)  Tracing shipping documents to prenumbered sales invoices provides evidence that
no duplicate shipments or billings occurred.
shipments to customers were properly invoiced.
all goods ordered by customers were shipped.
all prenumbered sales invoices were accounted for.
(CPA, adapted)  An auditor’s purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management’s assertions about
presentation and disclosure
existence or occurrence.
rights and obligations.
valuation or allocation.
Which of the following is true about the auditor’s observation of the client’s physical inventory?
The auditors should plan the physical inventory.
The auditors should segregate damaged and obsolete goods.
The auditors should evaluate the adequacy of the client’s counting procedures.
The auditors should supervise the client’s personnel.
Effective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has
the ability to prepare payment vouchers based on the information on a vendor’s invoice.
the responsibility of reviewing purchase orders issued by user departments.
the authority to make purchases of requisitioned materials and services.
a direct reporting responsibility to the controller of the organization.
An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise.  Which of the following procedures provides the greatest assurance that this control is operating effectively?
Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the receiving reports.
Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving reports.
Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the checks.
Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.
Which of the following is an effective control that encourages receiving department personnel to count and to inspect all merchandise received?
Quantities ordered are excluded from the receiving department copy of the purchase order.
Vouchers are prepared by the accounts payable department personnel only after they match item counts on the receiving report with the purchase order.
Receiving department personnel are expected to match and reconcile the receiving report with the purchase order.
Internal auditors periodically examine, on a surprise basis, the receiving department copies of receiving reports.
Which of the following is not a reason for the special significance attached by the auditors to the verification of inventories?
The determination of inventory valuation directly affects net income.
The existence of inventories is inherently difficult to substantiate.
c.    Special valuation problems often exist for inventories.
Inventories are often the largest current asset of an enterprise.
Which of the following is not a procedure that typically is used by the auditors in their examination of a client’s goods held in the custody of a public warehouse?
Confirmation
Obtaining reports on internal control in the warehouse
Observation
Corresponding with the state agency regarding the authenticity of the public warehouse
18. Purchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client company, if the company

has paid for the merchandise.
has physical possession of the merchandise.
holds legal title to the merchandise.
holds the shipping documents for the merchandise issued in the company’s name.
The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with
purchase requisitions.
receiving reports.
c.    purchase orders.
vendor payments.
(CPA, adapted)  An auditor performs a test to determine whether all merchandise for which the client was billed was received.  The population for this test consists of all
merchandise received.
vendors’ invoices.
canceled checks.
receiving reports.
(CPA, adapted)  A client maintains perpetual inventory records in quantities and in dollars.  If the assessed level of control risk is high, an auditor would probably
apply gross profit tests to ascertain the reasonableness of the physical counts.
increase the extent of tests of controls relevant to the inventory cycle.
request the client to schedule the physical inventory count at the end of the year.
insist that the client perform physical counts of inventory items several times during the year.
(CPA, adapted)  To measure how effectively an entity employs its resources, an auditor calculates inventory turnover by dividing average inventory into
net sales .
cost of goods sold.
operating income.
gross sales.
Which of the following is not one of the auditor’s objectives in auditing depreciation?
Establishing the reasonableness of the client’s replacement policy
Establishing that the methods used are appropriate
Establishing that the methods used are consistently applied
Establishing the reasonableness of depreciation computations

A continuing audit client’s property, plant and equipment account and its accounts receivable account have approximately the same year-end balance.  In this circumstance, when comparing to the audit of property, plant and equipment, one would normally expect the audit of accounts receivable to require
more audit time.
less audit time.
approximately the same amount of audit time.
similar confirmation procedures.

Which of the following is not a control that should be established for purchases of equipment?
Establishing a budget for capital expenditures
Requiring that the department in need of the equipment order the equipment
Requiring that the receiving department receive the equipment
Establishing an accounting policy regarding the minimum dollar amount of purchase that will be considered for capitalization
In violation of company policy, Lowell Company erroneously capitalized the cost of painting its warehouse.   The auditors examining Lowell’s financial statement would most likely detect this when
discussing capitalization policies with Lowell’s controller.
examining maintenance expense accounts.
c.    observing, during the physical inventory observation, that the warehouse had been painted.
examining the construction work orders supporting items capitalized during the year.
In the examination of property, plant, and equipment, the auditor tries to determine all the following except the
extent of the control risk.
extent of property abandoned during the year.
adequacy of replacement funds.
reasonableness of the depreciation.
28. Which of the following is not a procedure primarily used to test property, plant and equipment accounts for overstatement?

Investigation of reduction in insurance coverage.
Review of property tax bills.
Examination of retirement work orders prepared during the year.
Vouching retirement of plant and equipment.
(CPA, adapted)  A weakness in internal control over recording retirements of equipment may cause an auditor to
inspect certain items of equipment in the plant and trace those items to the accounting records.
review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.
c.    trace additions to the “other assets” account to search for equipment that is still on hand but no longer being used.
select certain items of equipment from the accounting records and locate them in the plant.
(CPA, adapted)  Determining that proper amounts of depreciation are expensed provides assurance about management’s assertions of valuation or allocation and
presentation and disclosure.
completeness.
rights and obligations.
existence or occurrence.
(CPA, adapted)  Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts?
The estimated remaining useful lives of plant assets were revised upward.
Plant assets were retired during the year.
The prior year’s depreciation expense was erroneously understated.
Overhead allocations were revised at year-end.

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Auditing and Accounting Performances Overview. (2016, Jul 08). Retrieved from https://graduateway.com/ar-nr-revenue/

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