Wiley CPA Excel Exam Review Study Guide Auditing And Attestation 2015 14th Edition O. Ray Whittington - Solutions

Which of the following procedures is least likely to be performed before the balance sheet date?a. Testing of internal control over cash.b. Confirmation of receivables.c. Search for unrecorded liabilities.d. Observation of inventory.
Which of the following procedures would an auditor most likely perform in auditing the statement of cash ows?a. Compare the amounts included in the statement of cash ows to similar amounts in the prior year’s statement of cash ows.b. Reconcile the cutoff bank statements to verify the accuracy
Six months after issuing an unqualified opinion on audited financial statements, an auditor discovered that the engagement personnel failed to confirm several of the client’s material accounts receivable balances. The auditor should firsta. Request the permission of the client to undertake the
On March 15, 20X2, Kent, CPA, issued an unqualified opinion on a client’s audited financial statements for the year ended December 31, 20X1. On May 4, 20X2, Kent’s internal inspection program disclosed that engagement personnel failed to observe the client’s physical inventory. Omission of
An auditor is considering whether the omission of a substantive procedure considered necessary at the time of an audit may impair the auditor’s present ability to support the previously expressed opinion. The auditor need not apply the omitted procedure if thea. Financial statements and
On March 2, the CPA learned that on February 11, the entity incurred a material loss on an uncollectible trade receivable as a result of the deteriorating financial condition of the entity’s principal customer that led to the customer’s bankruptcy. Management then refused to adjust the
On February 25, a CPA issued an auditor’s report expressing an unqualified opinion on financial statements for the year ended January
Which of the following procedures should an auditor generally perform regarding subsequent events?a. Compare the latest available interim financial statements with the financial statements being audited.b. Send second requests to the client’s customers who failed to respond to initial accounts
Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?a. Confirming a sample of material accounts receivable established after year-end.b. Comparing the financial statements being reported on with those of the prior
A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the auditor’s fieldwork.The auditor shoulda. Advise management to adjust the balance sheet to re-ect the acquisition.b. Issue pro forma financial statements giving effect to the acquisition as if it
After an audit report containing an unqualified opinion on a nonissuer (nonpublic) client’s financial statements was issued, the client decided to sell the shares of a subsidiary that accounts for 30% of its revenue and 25% of its net income. The auditor shoulda. Determine whether the information
Zero Corp. suffered a loss that would have a material effect on its financial statements on an uncollectible trade account receivable due to a customer’s bankruptcy. This occurred suddenly due to a natural disaster ten days after Zero’s balance sheet date, but one month before the issuance of
Which of the following events occurring after the issuance of an auditor’s report most likely would cause the auditor to make further inquiries about the previously issued financial statements?a. An uninsured natural disaster occurs that may affect the entity’s ability to continue as a going
Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?a. Determine that changes in employee pay rates after year-end were properly authorized.b. Recompute depreciation charges for plant assets sold after year-end.c. Inquire about
An auditor most likely would modify an unqualified opinion if the entity’s financial statements include a footnote on related-party transactionsa. Disclosing loans to related parties at interest rates significantly below prevailing market rates.b. Describing an exchange of real estate for similar
Which of the following statements is correct concerning related-party transactions?a. In the absence of evidence to the contrary, relatedparty transactions should be assumed to be outside the ordinary course of business.b. An auditor should determine whether a particular transaction would have
When auditing related-party transactions, an auditor places primary emphasis ona. Ascertaining the rights and obligations of the related parties.b. Confirming the existence of the related parties.c. Verifying the valuation of the related-party transactions.d. Evaluating the disclosure of the
After determining that a related-party transaction has, in fact, occurred, an auditor shoulda. Add a separate paragraph to the auditor’s standard report to explain the transaction.b. Perform analytical procedures to verify whether similar transactions occurred, but were not recorded.c. Obtain an
Which of the following auditing procedures most likely would assist an auditor in identifying related-party transactions?a. Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.b. Vouching accounting records for recurring transactions recorded just after the
Which of the following is least likely to be an approach followed when auditing the fair values of assets and liabilities?a. Review and test management’s process of valuation.b. Confirm valuations with audit committee members.c. Independently develop an estimate of the value of the account.d.
When auditing the fair value of an asset or liability, valuation issues ordinarily arise at the point of Initial recording Subsequent to initial recordinga. Yes Yesb. Yes Noc. No Yesd. No No
Which of the following statements extracted from a client’s lawyer’s letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification?a. “I believe that the possible liability to the company is nominal in amount.”b. “I believe that the
A CPA has received an attorney’s letter in which no significant disagreements with the client’s assessments of contingent liabilities were noted. The resignation of the client’s lawyer shortly after receipt of the letter should alert the auditor thata. Undisclosed unasserted claims may have
The scope of an audit is not restricted when an attorney’s response to an auditor as a result of a client’s letter of audit inquiry limits the response toa. Matters to which the attorney has given substantive attention in the form of legal representation.b. An evaluation of the likelihood of an
Which of the following is not an audit procedure that the independent auditor would perform concerning litigation, claims, and assessments?a. Obtain assurance from management that it has disclosed all unasserted claims that the lawyer has advised are probable of assertion and must be disclosed.b.
The primary reason an auditor requests letters of inquiry be sent to a client’s attorneys is to provide the auditor witha. The probable outcome of asserted claims and pending or threatened litigation.b. Corroboration of the information furnished by management about litigation, claims, and
Which of the following is an audit procedure that an auditor most likely would perform concerning litigation, claims, and assessments?a. Request the client’s lawyer to evaluate whether the client’s pending litigation, claims, and assessments indicate a going concern problem.b. Examine the legal
The refusal of a client’s attorney to provide information requested in an inquiry letter generally is considereda. Grounds for an adverse opinion.b. A limitation on the scope of the audit.c. Reason to withdraw from the engagement.d. Equivalent to a significant deficiency.
A lawyer’s response to an auditor’s inquiry concerning litigation, claims, and assessments may be limited to matters that are considered individually or collectively material to the client’s financial statements. Which parties should reach an understanding on the limits of materiality for
“There have been no communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial statements.” The foregoing passage is most likely from aa. Report on internal control.b. Special
A purpose of a management representation letter is to reducea. Audit risk to an aggregate level of misstatement that could be considered material.b. An auditor’s responsibility to detect material misstatements only to the extent that the letter is relied on.c. The possibility of a
A limitation on the scope of the auditor’s examination sufficient to preclude an unqualified opinion will always result when managementa. Prevents the auditor from reviewing the working papers of the predecessor auditor.b. Engages the auditor after the year-end physical inventory count is
A written representation from a client’s management which, among other matters, acknowledges responsibility for the fair presentation of financial statements, should normally be signed by thea. Chief executive officer and the chief financial officer.b. Chief financial officer and the chairman of
When considering the use of management’s written representations as audit evidence about the completeness assertion, an auditor should understand that such representationsa. Complement, but do not replace, substantive procedures designed to support the assertion.b. Constitute sufficient evidence
Which of the following statements ordinarily is included among the written client representations obtained by the auditor?a. Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.b. Management acknowledges responsibility for illegal actions
ABC Company is presenting comparative financial statements on Years 1 and 2, both of which were audited by William Jones, CPA. For which year(s) should Jones obtain written representations from these two individuals?Year 1 Year 2a. No Nob. No Yesc. Yes Nod. Yes Yes
The current chief executive and financial officers have only been employed by ABC Company for the past five months of year
Which of the following matters would an auditor most likely include in a management representation letter?a. Communications with the audit committee concerning weaknesses in internal control.b. The completeness and availability of minutes of stockholders’and directors’ meetings.c. Plans to
The date of the management representation letter should coincide with the date of thea. Balance sheet.b. Latest interim financial information.c. Auditor’s report.d. Latest related-party transaction.
To which of the following matters would materiality limits not apply in obtaining written management representations?a. The availability of minutes of stockholders’ and directors’meetings.b. Losses from purchase commitments at prices in excess of market value.c. The disclosure of compensating
For which of the following matters should an auditor obtain written management representations?a. Management’s cost-benefit justifications for not correcting internal control weaknesses.b. Management’s knowledge of future plans that may affect the price of the entity’s stock.c. Management’s
Recorded entries in which of the following accounts are most likely to relate to the property, plant, and equipment completeness assertion?a. Allowance for doubtful accounts.b. Marketable securities.c. Sales.d. Repairs and maintenance expense.C.12. Client Representation Letters
An auditor most likely would perform substantive procedures of details on payroll transactions and balances whena. Cutoff tests indicate a substantial amount of accrued payroll expense.b. The assessed level of control risk relative to payroll transactions is low.c. Analytical procedures indicate
In auditing payroll, an auditor most likely woulda. Verify that checks representing unclaimed wages are mailed.b. Trace individual employee deductions to entity journal entries.c. Observe entity employees during a payroll distribution.d. Compare payroll costs with entity standards or budgets.
Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?a. There are significant unexplained variances between standard and actual labor cost.b. Payroll checks are disbursed by the same employee each payday.c. Employee time cards are
When control risk is assessed as low for assertions related to payroll, substantive procedures of payroll balances most likely would be limited to applying analytical procedures anda. Observing the distribution of paychecks.b. Footing and crossfooting the payroll register.c. Inspecting payroll tax
Which of the following accounts is the practice of“channel stuffing” for sales most likely to most directly affect, and thereby result in additional audit procedures?a. Accrued liabilities.b. Allowance for sales returns.c. Cash.d. Marketable investments.C.11. Expenses
The most likely risk involved with a bill and hold transaction at year-end is a(n)a. Accrued liability may be overstated as of year-end.b. Buyer may have made an absolute purchase commitment.c. Sale may inappropriately have been recorded as of year-end.d. Buyer may have assumed the risk and reward
An auditor usually tests the reasonableness of dividend income from investments in publicly held companies by computing the amounts that should have been received by referring toa. Dividend record books produced by investment advisory services.b. Stock indentures published by corporate transfer
An audit plan for the examination of the retained earnings account should include a step that requires verification of thea. Market value used to charge retained earnings to account for a two-for-one stock split.b. Approval of the adjustment to the beginning balance as a result of a write-down of
When a client company does not maintain its own stock records, the auditor should obtain written confirmation from the transfer agent and registrar concerninga. Restrictions on the payment of dividends.b. The number of shares issued and outstanding.c. Guarantees of preferred stock liquidation
During an audit of an entity’s stockholders’ equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify management’s assertion ofa. Existence or
In performing tests concerning the granting of stock options, an auditor shoulda. Confirm the transaction with the Secretary of State in the state of incorporation.b. Verify the existence of option holders in the entity’s payroll records or stock ledgers.c. Determine that sufficient treasury
An auditor usually obtains evidence of stockholders’equity transactions by reviewing the entity’sa. Minutes of board of directors meetings.b. Transfer agent’s records.c. Canceled stock certificates.d. Treasury stock certificate book.
The auditor can best verify a client’s bond sinking fund transactions and year-end balance bya. Confirmation with individual holders of retired bonds.b. Confirmation with the bond trustee.c. Recomputation of interest expense, interest payable, and amortization of bond discount or premium.d.
In auditing long-term bonds payable, an auditor most likely woulda. Perform analytical procedures on the bond premium and discount accounts.b. Examine documentation of assets purchased with bond proceeds for liens.c. Compare interest expense with the bond payable amount for reasonableness.d.
An auditor most likely would inspect loan agreements under which an entity’s inventories are pledged to support management’s financial statement assertion ofa. Presentation and disclosure.b. Valuation or allocation.c. Existence or occurrence.d. Completeness.
When a CPA observes that the recorded interest expense seems to be excessive in relation to the balance in the bonds payable account, the CPA might suspect thata. Discount on bonds payable is understated.b. Bonds payable are understated.c. Bonds payable are overstated.d. Premium on bonds payable is
In auditing accounts payable, an auditor’s procedures most likely would focus primarily on management’s assertion ofa. Existence.b. Presentation and disclosure.c. Completeness.d. Valuation.C.8. Evidence—Long-Term Debt
Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence and valuation of recorded accounts payable?a. Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for.b. Receiving the
Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary becausea. This is a duplication of cutoff tests.b. Accounts payable balances at the balance sheet date may not be paid before the audit is completed.c. Correspondence with the audit client’s attorney
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would bea. Vendors with whom the entity has previously done business.b. Amounts recorded in the accounts payable subsidiary ledger.c. Payees of checks drawn in
Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?a. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file.b. Compare a sample of purchase orders issued just after year-end with
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 of a(n)a. Insurance premium due but not recorded.b. Deficiency in the coinsurance provision.c.
In auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of management’s financial statement assertion ofa. Valuation or allocation.b. Existence or occurrence.c. Completeness.d. Rights and
In testing plant and equipment balances, an auditor may inspect new additions listed on the analysis of plant and equipment. This procedure is designed to obtain evidence concerning management’s assertions of Existence or occurrence Presentation and disclosurea. Yes Yesb. Yes Noc. No Yesd. No No
Treetop Corporation acquired a building and arranged mortgage financing during the year. Verification of the related mortgage acquisition costs would be least likely to include an examination of the relateda. Deed.b. Canceled checks.c. Closing statement.d. Interest expense.
The auditor is most likely to seek information from the plant manager with respect to thea. Adequacy of the provision for uncollectible accounts.b. Appropriateness of physical inventory observation procedures.c. Existence of obsolete machinery.d. Deferral of procurement of certain necessary
An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that alla. Noncapitalizable expenditures for repairs and maintenance have been recorded in the proper period.b. Expenditures for property and equipment have been recorded in the
In testing for unrecorded retirements of equipment, an auditor most likely woulda. Select items of equipment from the accounting records and then locate them during the plant tour.b. Compare depreciation journal entries with similar prior year entries in search of fully depreciated equipment.c.
Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts?a. The estimated remaining useful lives of plant assets were revised upward.b. Plant assets were retired during the year.c. The prior
Analysis of which account is least likely to reveal evidence relating to recorded retirement of equipment?a. Accumulated depreciation.b. Insurance expense.c. Property, plant, and equipment.d. Purchase returns and allowances.
In testing long-term investments, an auditor ordinarily would use analytical procedures to ascertain the reasonableness of thea. Completeness of recorded investment income.b. Classification between current and noncurrent portfolios.c. Valuation of marketable equity securities.d. Existence of
When an auditor is unable to inspect and count a client’s investment securities until after the balance sheet date, the bank where the securities are held in a safe-deposit box should be asked toa. Verify any differences between the contents of the box and the balances in the client’s
In establishing the existence and ownership of a long-term investment in the form of publicly traded stock, an auditor should inspect the securities ora. Correspond with the investee company to verify the number of shares owned.b. Inspect the audited financial statements of the investee company.c.
An auditor who physically examines securities should insist that a client representative be present in order toa. Detect fraudulent securities.b. Lend authority to the auditor’s directives.c. Acknowledge the receipt of securities returned.d. Coordinate the return of securities to the proper
When auditing inventories, an auditor would least likely verify thata. The financial statement presentation of inventories is appropriate.b. Damaged goods and obsolete items have been properly accounted for.c. All inventory owned by the client is on hand at the time of the count.d. The client has
An auditor usually examines receiving reports to support entries in thea. Voucher register and sales returns journal.b. Sales journal and sales returns journal.c. Voucher register and sales journal.d. Check register and sales journal.
An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management’s assertions abouta. Existence.b. Rights.c. Presentation.d. Valuation.
An auditor selected items for test counts while observing a client’s physical inventory. The auditor then traced the test counts to the client’s inventory listing. This procedure most likely obtained evidence concerning management’s assertion ofa. Rights.b. Completeness.c. Existence.d.
An auditor concluded that no excessive costs for idle plant were charged to inventory. This conclusion most likely related to the auditor’s objective to obtain evidence about the financial statement assertions regarding inventory, including presentation and disclosure anda. Valuation.b.
A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probablya. Increase the extent of tests of controls of the inventory cycle.b. Request the client to schedule the physical inventory count at the end of 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. Obtaining confirmation of inventories pledged under loan agreements.c. Reviewing shipping and
To measure how effectively an entity employs its resources, an auditor calculates inventory turnover by dividing average inventory intoa. Net sales.b. Cost of goods sold.c. Operating income.d. Gross sales.
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 listed in the inventory listing schedule.b. Inventory tags noted during the auditor’s observation
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 perpetual records. This situation could be the result of the client’s failure to recorda.
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. Valuation.b. Rights.c. Existence.d. Presentation.
Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?a. Including a list of items or invoices that constitute the account balance.b. Restricting the selection of accounts to be confirmed to those customers with relatively large
Which of the following statements would an auditor most likely add to the negative form of confirmations of accounts receivable to encourage timely consideration by the recipients?a. “This is not a request for payment; remittances should not be sent to our auditors in the enclosed envelope.”b.
In confirming accounts receivable, an auditor decided to confirm customers’ account balances rather than individual invoices.Which of the following most likely would be included with the client’s confirmation letter?a. An auditor-prepared letter explaining that a nonresponse may cause an
Under which of the following circumstances would the use of the blank form of confirmations of accounts receivable most likely be preferable to positive confirmations?a. The recipients are likely to sign the confirmations without devoting proper attention to them.b. Subsequent cash receipts are
In auditing accounts receivable, the negative form of confirmation request most likely would be used whena. The total recorded amount of accounts receivable is immaterial to the financial statements taken as a whole.b. Response rates in prior years to properly designed positive confirmation
To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely woulda. Examine the shipping documents that provide evidence for the existence assertion.b. Verify the sources and contents of the faxes in telephone calls to the
To reduce the risks associated with accepting e-mail responses to requests for confirmation of accounts receivable, an auditor most likely woulda. Request the senders to mail the original forms to the auditor.b. Examine subsequent cash receipts for the accounts in question.c. Consider the e-mail
In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?a. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.b. A substantial number of
Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?a. Review the cash receipts journal for the month prior to the year-end.b. Intensify the study of internal control
An auditor should perform alternative procedures to substantiate the existence of accounts receivable whena. No reply to a positive confirmation request is received.b. No reply to a negative confirmation request is received.c. Collectibility of the receivables is in doubt.d. Pledging of the
Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables’a. Valuation.b. Classification.c. Existence.d. Completeness.
In confirming a client’s accounts receivable in prior years, an auditor found that there were many differences between the recorded account balances and the confirmation replies. These differences, which were not misstatements, required substantial time to resolve. In defining the sampling unit
When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor most likely woulda. Inspect the allowance account to verify whether the accounts were subsequently written off.b. Increase the assessed level of detection risk for the valuation

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Wiley CPA Excel Exam Review Study Guide Auditing And Attestation 2015 14th Edition O. Ray Whittington - Solutions

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