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auditing international approach
Questions and Answers of
Auditing International Approach
The auditor gathers evidence regarding the amounts shown in a bank reconciliation. Indicate the evidence he or she would gather or examine in support ofa. The bank balance.c. Deposits in transit.b.
The standard bank confirmation provides the auditor with evidence relating to accounts other than cash. State how this is done.
What is the objective of testing interbank transfers?
Explain what is meant by "kiting."
What are some inquiries an auditor can make when examining the cash account to add value to the audit?
State the objectives in the audit of receivables.
How can analytical procedures be applied to accounts receivable?
What are "alternative procedures" and when are they performed?
List the factors an auditor would consider in evaluating the adequacy of the allowance for doubtful accounts.
Discuss the audit procedures an auditor would employ to detect liens on or pledges of receivables.
What are some inquiries an auditor can make when examining accounts receivable to add value to the audit?
State the objectives in the audit of prepayments.
Explain how internal control relating to prepayments could affect the scope of the auditor's work in that section.
What analytical procedures may an auditor apply to prepayments?
What evidence would an auditor examine in support of additions to prepaid insurance?
Why does an auditor review a client's insurance coverage?
To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except thea. Cutoff bank statement.b. General ledger.c. Year-end bank
An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this
The cashier of Rock Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town
An auditor gathers evidence regarding the validity of deposits in transit by examining thea. Bank confirmation.b. Cutoff bank statement.c. Year-end bank statement.d. Bank reconciliation.
Which of the following audit procedures is most likely to detect a cash balance that is restricted as to withdrawal?a. Review the cutoff bank statement.b. Prepare an interbank transfer schedule.c.
An auditor should trace bank transfers for the last part of the audit period and the first part of the subsequent period to detect whethera. The cash receipts journal was held open for a few days
An auditor will request a cutoff bank statement primarily toa. Verify the cash balance on the client's bank reconciliation.b. Detect lapping.c. Verify reconciling items on the client's bank
On the last day of the fiscal year, the cash disbursements clerk drew a company check on Bank A and deposited the check in the company account in Bank B to cover a previous theft of cash. The
Which of the following statements is correct concerning the use of negative confirmation requests?a. Unreturned negative confirmation requests rarely provide significant explicit evidence.b. Negative
Which of the following internal control procedures most likely would deter lapping of collections from customers?a. Independent internal verification of dates of entry in the cash receipts journal
Which of the following statements regarding the audit of negotiable notes receivable is not correct?a. Confirmation from the debtor is an acceptable alternative to inspection.b. Physical inspection
To conceal defalcations involving receivables, the auditor would expect an experienced bookkeeper to charge which of the following accounts?a. Sales returns.b. Miscellaneous income.c. Petty cash.d.
Returns of positive confirmation requests for accounts receivable were very poor. As an alternative procedure, the auditor decided to check subsequent collections. The auditor has satisfied himself
An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions abouta. Valuation or
An auditor's risk of misstatement of accounts receivable is least likely to increase if there isa. An increase in customer complaints about their accounts.b. A general slowdown in cash collections.c.
Which of the following ratios is least applicable to the audit of the valuation assertion of accounts receivable?a. Ratio of bad debt expense to sales.b. Current ratio.c. Accounts receivable turnover
When auditing prepaid insurance, an auditor discovers that the original insurance policy on plant equipment is not available for inspection.The policy's absence most likely indicates the possibility
When auditing the prepaid insurance account, which of the following procedures would generally not be performed by the auditor?a. Re compute the portion of the premium that expired during the year.b.
Items a through \(\mathrm{f}\) represent the items that an auditor ordinarily would find on a client-prepared bank reconciliation. The accompanying List of Auditing Procedures represents substantive
In your audit of Ryan Company for the year ended December 31, 19X8, you note that the bank reconciliation for the Third National Bank Account contains a large unlocated difference, as shown
The following interbank transfer schedule has been prepared in connection with the audit of Panther Creek Properties, Inc.Complete the following summary as of December 31, assuming no deposits in
During the year Wimberly Corporation began to encounter cash flow difficulties, and a cursory review by management revealed receivable collection problems. Wimberly's management engaged Starr, CPA,
Your firm has been engaged to audit the financial statements of RST Inc. for the year ending December 31. RST Inc. is a medium-sized manufacturing company that has approximately 400 trade accounts
Susan Start, a new staff assistant of a CPA firm, was -assigned to the audit team auditing the financial statements of Rel-Hep Finance Company. The senior in charge of the audit assigned Susan to the
The CPA firm of Wright \& Company is in the process of auditing William Corporation's 19X4 financial statements. The following open matter must be resolved before the audit can be completed.No audit
Chem Inc., a public company, manufactures pesticides and other chemical products and has its main manufacturing facilities in the United States. Chem does business primarily with other U.S.
You have been assigned to the audit of a medium-sized manufacturer of machine parts whose fiscal year ends October 31. You and the senior arrive on Monday, November 13, to start the fieldwork for
Taylor Wholesalers distributes golf equipment to about 100 retail sporting goods stores. At June \(30,19 \times 7\), the end of the company's fiscal year, the distribution of the accounts receivable
Mary Jones, CPA, is engaged to audit the financial statements of Cook Wholesaling for the year ended December 31, 19X8. Jones obtained and documented an understanding of internal control relating
During an audit of the financial statements of Gole Inc., Robbins, CPA, requested and received a client-prepared property casualty insurance schedule, which included appropriate premium
Listed below are misstatements that could occur in cash, accounts receivable, and prepayments. Indicate the substantive test that should provide reasonable assurance of detecting each misstatement.a.
State the objectives in the audit of inventories.
Give three examples of internal control policies and procedures that may affect the scope of substantive tests of inventories.
What analytical procedures may an auditor apply to inventories?
Discuss the auditor's responsibility for an accurate physical inventory.
How does the auditor guard against inclusion in the final inventory listing of count sheets or tags containing fictitious inventory items?
Why does an auditor record some inventory test counts?
What is the purpose of inventory cutoff tests?
What procedures can the auditor perform during the inventory observation to test for obsolete, excess, or slow-moving items?
State the general approaches to auditing job-order, process, and standard cost systems.
Describe the audit tests made of the client's inventory summary schedules.
Describe the audit procedures designed to detect liens and pledges of inventory.
What are some inquiries an auditor can make when examining inventories to add value to the audit?
How do the auditor's approach and emphasis in auditing assets differ from those in auditing liabilities?
State the objectives in the audit of current liabilities.
Describe how analytical procedures may be applied to accounts payable and accrued liabilities.
The auditor normally uses two approaches to the audit of accounts payable. What are they and why are both used?
How does the auditor select the accounts to which accounts payable confirmations will be sent? Why is this method of selection used?
What are the similarities and differences in the form of accounts receivable and parable confirmation letters?
How and for what period is the review of subsequent disbursements made?
What are some inquiries an auditor can make when examining accounts payable to add value to the audit?
Name two approaches to auditing accrued liabilities.
What is a good starting point in an auditor's search for unrecorded accrued liabilities?
Which of the following internal control procedures would most likely be used to maintain accurate perpetual inventory records?a. Independent storeroom count of goods received.b. Periodic independent
An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion ofa.
Periodic or cycle counts of selected inventory items are made at various times during the year rather than a single inventory count at year end. Which of the following is necessary if the auditor
Which of the following matters would auditors discuss with management to add value to the audit?a. Methods of measuring customer satisfaction with the client's products.b. Inventory instructions for
To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would tracea. Inventory tags noted during the auditor's observation to items
While observing a client's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client's
A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probablya. Insist that the client perform physical
A CPA is engaged in the annual audit of a client for the year ended December 31, 19X9. The client took a complete physical inventory under the CPA's observation on December 15 and adjusted its
In an audit of inventories, an auditor would least likely verify thata. All inventory owned by the client is on hand at the time of the count.b. The client has used proper inventory pricing.c. The
Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?a. Testing the entity's computation of standard overhead rates.b.
Which of the following audit procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?a. Trace test counts noted
Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion ofa.
Which of the following audit procedures is best for identifying unrecorded trade accounts payable?a. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether
To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of alla.
An auditor is performing a review of subsequent disbursements to search for unrecorded liabilities. All goods received are FOB destination. Which of the following disbursements represents an
Only one of the following four statements, which compare confirmation of accounts payable with suppliers and confirmation of accounts receivable with customers, is true. The true statement is thata.
Which of the following procedures relating to the audit of accounts payable could the auditor delegate entirely to the client's employees?a. Foot the accounts payable ledger.b. Reconcile unpaid
Which of the following best explains why accounts payable confirmation procedures are not always used?a. Accounts payable are generally insignificant and can be audited by utilizing analytical
The audit procedures applied to accrued liabilities differ from those applied to accounts payable becausea. Accrued liabilities balances are less material than accounts payable balances.b. Evidence
Match each assertion to the related audit objective. Each assertion may be used once, more than once, or not at all. Audit objective 1. To determine whether the amount shown as invento- ries in the
Audit procedures should be designed to accomplish specific audit objectives. Review the following inventory audit procedures and indicate which audit objectives are being accomplished and how.a.
Your audit client, Household Appliances, Inc., operates a retail store in the center of town. Because of lack of storage space, Household keeps inventory that is not on display in a public warehouse
Brown, CPA, is auditing the financial statements of Big Z Wholesaling, Inc., a continuing audit client, for the year ended January 31, 19X2. On January 5, 19X2, Brown observed the tagging and
To audit a company's sales and purchases cutoffs at the close of the fiscal year ended December 31, 19X1, you have compiled the data listed on the following schedule. All sales and purchases of
Late in December 19X9, your CPA firm accepted an audit engagement at Fine Jewelers, Inc., a corporation that deals largely in diamonds. The corporation has retail jewelry stores in several Eastern
Assume that a CPA's client proposes to have an independent firm that specializes in inventory taking count the merchandise rather than use their own employees. Under these conditions, would it be
You have been assigned to the audit of Hogeye Manufacturing Company as of December 31, 19X8. Hogeye maintains its raw material inventory on a FIFO basis. The balance at December \(31,19 X 8\) was
Kane, CPA, is auditing Star Wholesaling Company's financial statements and is about to perform substantive audit procedures on Star's trade accounts payable. After obtaining an understanding of
The following are situations or questions pertaining to the audit of accounts payable:a. With regard to statements requested from vendors, the auditor's memo states, "We requested statements from all
Listed below are several misstatements that could occur in the inventory, accounts payable, and accrued liabilities accounts. For each misstatement, design a substantive audit procedure that would
Billy Joe Atlas, an experienced senior with a CPA firm, was sent to the hospital with intense chest pains after watching his favorite college football team lose a bowl game on December 31. He was
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