Multiple Choice Questions
1. The best evidence regarding year-end bank balances is documented in the
a. Cutoff bank statement.
b. Bank reconciliations.
c. Interbank transfer schedule.
d. Bank deposit lead schedule.
2. Which of the following sets of information does an auditor usually confirm on one form?
a. Accounts payable and purchase commitments.
b. Cash in bank and collateral for loans.
c. Inventory on consignment and contingent liabilities.
d. Accounts receivable and accrued interest receivable.
3. An auditor should test bank transfers for the last part of the audit period and first part of the subsequent period to detect whether
a. The cash receipts journal was held open for a few days after year-end.
b. The last checks recorded before year-end were actually mailed by year-end.
c. Cash balances were overstated because cash was included in two accounts at year-end.
d. Any unusual payment to or receipts from related parties occurred.
4. On receiving a client's bank cutoff statement, an auditor most likely will trace
a. Prior-year checks listed in the cutoff statement to the year-end outstanding check list.
b. Deposits in transit listed in the cutoff statement to the year-end bank reconciliation.
c. Checks dated after year-end listed in the cutoff statement to the year-end out standing check list.
d. Deposits recorded in the cash receipts journal after year-end to the cutoff statement.
5. A client has a large and active investment portfolio that is kept in a bank safe deposit box. If the auditor is unable to count the securities at the balance sheet date, the auditor most likely will
a. Request the bank to confirm to the auditor the contents of the safe-deposit box at the balance sheet date.
b. Examine supporting evidence for transactions occurring during the year.
c. Count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance sheet date.
d. Request the client to have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.
6. Which of the following is the most effective audit procedure for verification of dividends earned on investment in equity securities?
a. Tracing deposited dividend checks to the cash receipts book.
b. Reconciling amounts received with published dividend records.
c. Comparing the amounts received with preceding year dividends received.
d. Recomputing selected extensions and footings of dividend schedules and com paring totals to the general ledger.
7. A company makes a practice of investing excess short-term cash in trading securi ties that are traded regularly on national exchanges. A reliable test of the valuation of these securities is
a. Consideration of current market quotations.
b. Confirmation of securities held by the broker.
c. Recalculation of investment value using a valuation model.
d. Calculation of premium or discount amortization.
8. The auditor is most likely to verify the interest earned on bond investments by
a. Verifying the receipt and deposit of interest checks.
b. Confirming bond interest rate with the issuer of the bonds.
c. Recomputing the interest earned on the basis of face amount, interest rate, and period held.
d. Testing controls relevant to cash receipts.
9. Which of the following is not one of the auditor's primary objectives in an audit of trading securities?
a. To determine whether securities are authentic.
b. To determine whether securities are the property of the client.
c. To determine whether securities actually exist.
d. To determine whether securities are properly classified on the balance sheet.
10. In establishing the existence and ownership of an investment held by a corporation in the form of publicly traded stock, an auditor should inspect the securities or
a. Obtain written representations from management confirming that the securities are properly classified as trading securities.
b. Inspect the auditor's financial statements of the investee company.
c. Confirm the number of shares owned that are held by an independent custodian.
d. Determine that the investment is carried at the lower of cost of market.