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Wiley CPA Examination Review Outlines And Study Guides Volume 1 - 2012-2013 39th Edition Patrick R. Delaney, O. Ray Whittington - Solutions
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
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 tests 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
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 test 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 longterm 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
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 confirmation requests are effective when detection risk is low.c. Unreturned negative confirmation
The tick mark most likely indicates that the amount was traced to thea. Deposits in transit of the applicable bank reconciliation.b. December cash receipts journal.c. January cash receipts journal.d. Year-end bank confirmations.C.2. Evidence—Receivables
The tick mark most likely indicates that the amount was traced to thea. December cash disbursements journal.b. Outstanding check list of the applicable bank reconciliation.c. January cash disbursements journal.d. Year-end bank confirmations.
An auditor observes the mailing of monthly statements to a client’s customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management’s financial statement assertion(s) of Presentation and disclosure Existence
The primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is toa. Detect kiting activities that may otherwise not be discovered.b. Corroborate information regarding deposit and loan balances.c. Provide the data
A cash shortage may be concealed by transporting funds from one location to another or by converting negotiable assets to cash. Because of this, which of the following is vital?a. Simultaneous confirmations.b. Simultaneous bank reconciliations.c. Simultaneous verification.d. Simultaneous surprise
Which of the following cash transfers results in a misstatement of cash at December 31, 2005?Bank Transfer Schedule Disbursement Receipt Transfer Recorded in books Paid by bank Recorded in books Received by banka. 12/31/05 1/4/06 12/31/05 12/31/05b. 1/4/06 1/5/06 12/31/05 1/4/06c. 12/31/05 1/5/06
To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following excepta. Cutoff bank statement.b. Year-end bank statement.c. Bank confirmation.d. General ledger.
An auditor should trace bank transfers for the last part of the audit period and first part of the subsequent period to detect whethera. The cash receipts journal was held open for a few days after the year-end.b. The last checks recorded before the year-end were actually mailed by the year-end.c.
Which of the following checks illustrate deposits/transfers in transit at December 31, 2005?a. #101 and #202.b. #101 and #303.c. #202 and #404.d. #303 and #404.
Which of the following checks might indicate kiting?a. #101 and #303.b. #202 and #404.c. #101 and #404.d. #202 and #303.
An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supportinga. Opening and closing inventory balances.b. Cash receipts and
The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form maya. Not believe that the bank is obligated to verify confidential information to a third party.b. Sign and return the form without inspecting the accuracy of the client’s
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.
Audit documentation for audits performed under the requirements of the Public Company Accounting Oversight Board should be retained fora. The shorter of five years, or the period required by law.b. Seven years.c. The longer of seven years, or the period required by law.d. Indefinitely.C.1.
Under the requirements of the PCAOB, audit documentation must contain sufficient information to allow what type of auditor to understand the nature, timing, extent, and results of procedures performed?a. An experienced audit team member.b. An experienced auditor having no previous connection with
No deletions of audit documentation are allowed after thea. Client’s year-end.b. Documentation completion date.c. Last date of significant fieldwork.d. Report release date.
Which of the following documentation is required for an audit in accordance with generally accepted auditing standards?a. A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity’s controls.b. A client engagement letter that summarizes the timing and details
The audit working paper that reflects the major components of an amount reported in the financial statements is thea. Interbank transfer schedule.b. Carryforward schedule.c. Supporting schedule.d. Lead schedule.
Which of the following factors most likely would affect an auditor’s judgment about the quantity, type, and content of the auditor’s working papers?a. The assessed level of control risk.b. The likelihood of a review by a concurring (second)partner.c. The number of personnel assigned to the
Which of the following is required documentation in an audit in accordance with generally accepted auditing standards?a. A flowchart or narrative of the accounting system describing the recording and classification of transactions for financial reporting.b. An audit program setting forth in detail
Which of the following is least likely to be a factor in the auditor’s decision about the extent of the documentation of a particular audit area?a. The risk of material misstatement.b. The extent of the judgment involved in performing the procedures.c. The nature and extent of exceptions
An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns fora. Cash flow increases and decreases.b. Audit objectives and assertions.c. Reclassifications and adjustments.d. Reconciliations and tick marks.
The permanent file of an auditor’s working papers generally would not includea. Bond indenture agreements.b. Lease agreements.c. Working trial balance.d. Flowchart of internal control.
An auditor’s working papers serve mainly toa. Provide the principal support for the auditor’s report.b. Satisfy the auditor’s responsibilities concerning the Code of Professional Conduct.c. Monitor the effectiveness of the CPA firm’s quality control procedures.d. Document the level of
Which of the following pairs of accounts would an auditor most likely analyze on the same working paper?a. Notes receivable and interest income.b. Accrued interest receivable and accrued interest payable.c. Notes payable and notes receivable.d. Interest income and interest expense.
Ignoring any particular legal or regulatory requirement, audit documentation should be retaineda. A minimum of five years.b. As long as lead schedules have relevance to forthcoming audits.c. Until 3 years after the client selects another auditor.d. Working papers must be maintained indefinitely.
Which statement is correct concerning the deletion of audit documentation?a. Superseded audit documentation should always be deleted from the audit file.b. After the audit file has been completed, the auditor should not delete or discard audit documentation.c. Auditors should use professional
In determining whether transactions have been recorded, the direction of the audit testing should be from thea. General ledger balances.b. Adjusted trial balance.c. Original source documents.d. General journal entries.B.3. Documentation
Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?a. Compare the amounts included in the statement of cash flows to similar amounts in the prior year’s statement of cash flows.b. Reconcile the cutoff bank statements to verify the
The auditor will most likely perform extensive tests for possible understatement ofa. Revenues.b. Assets.c. Liabilities.d. Capital.B.2. Preparing Substantive Test Audit Programs
In the context of an audit of financial statements, substantive tests are audit procedures thata. May be eliminated under certain conditions.b. Are designed to discover significant subsequent events.c. May be either tests of transactions, direct tests of financial balances, or analytical tests.d.
The objective of tests of details of transactions performed as substantive tests is toa. Comply with generally accepted auditing standards.b. Attain assurance about the reliability of the accounting system.c. Detect material misstatements in the financial statements.d. Evaluate whether
Which of the following is the best example of a substantive test?a. Examining a sample of cash disbursements to test whether expenses have been properly approved.b. Confirmation of balances of accounts receivable.c. Comparison of signatures on checks to a list of authorized signers.d. Flowcharting
To be effective, analytical procedures in the overall review stage of an audit engagement should be performed bya. The staff accountant who performed the substantive auditing procedures.b. The managing partner who has responsibility for all audit engagements at that practice office.c. A manager or
Which of the following comparisons would an auditor most likely make in evaluating an entity’s costs and expenses?a. The current year’s accounts receivable with the prior year’s accounts receivable.b. The current year’s payroll expense with the prior year’s payroll expense.c. The budgeted
Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate thata. Irregularities exist among the relevant account balances.b. Internal control activities are not
An auditor’s analytical procedures most likely would be facilitated if the entitya. Segregates obsolete inventory before the physical inventory count.b. Uses a standard cost system that produces variance reports.c. Corrects material weaknesses in internal control before the beginning of the
For all audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent In the planning stage As a substantive test In the review stagea. Yes No Yesb. No Yes Noc. No Yes Yesd. Yes No No
A basic premise underlying the application of analytical procedures is thata. The study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations.b. Statistical tests of financial information may lead to the discovery of material misstatements in the financial
Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests?a. Relationships involving balance sheet accounts.b. Transactions subject to management discretion.c. Relationships involving income statement accounts.d. Data subject to audit
Analytical procedures used in the overall review stage of an audit generally includea. Gathering evidence concerning account balances that have not changed from the prior year.b. Retesting control procedures that appeared to be ineffective during the assessment of control risk.c. Considering
Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?a. Accounts receivable.b. Interest expense.c. Accounts payable.d. Travel and
An entity’s income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. The auditor most likely could have detected this fraudulent financial reporting bya. Tracing a sample of journal entries
An auditor may achieve audit objectives related to particular assertions bya. Performing analytical procedures.b. Adhering to a system of quality control.c. Preparing auditor working papers.d. Increasing the level of detection risk.
What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a nonpublic entity?a. Trend analysis.b. Regression analysis.c. Ratio analysis.d. Risk analysis.
Which of the following would not be considered an analytical procedure?a. Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked.b. Projecting an error rate by comparing the results of a statistical sample with the actual
A client uses a suspense account for unresolved questions whose final accounting has not been determined. If a balance remains in the suspense account at year-end, the auditor would be most concerned abouta. Suspense debits that management believes will benefit future operations.b. Suspense debits
In testing the existence assertion for an asset, an auditor ordinarily works from thea. Financial statements to the potentially unrecorded items.b. Potentially unrecorded items to the financial statements.c. Accounting records to the supporting evidence.d. Supporting evidence to the accounting
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