Questions and Answers of Principles of Auditing

LMN Company has a June 30 year-end and maintains three bank accounts: City Bank?Regular, City Bank?Payroll, and Metro Bank?Special. Your analysis of cash disbursements records for the period June 23
The following client prepared bank reconciliation is being examined by Kautz, CPA, during an audit of the financial statements of Cynthia Company: Required Indicate one or more auditing procedures
What information is obtained by sending a bank confirmation? Explain the importance of a bank confirmation to the audit of cash balances, including the assertions that are addressed by obtaining a
When detection risk is low, the auditor is likely to:a. Prepare the bank reconciliation using bank data in the client’s possession or audit the bank reconciliation using a cutoff bank statement
Patricia Company had poor internal control over its cash transactions. Facts about its cash position at November 30, 2022, were as follows: The cash ledger showed a balance of $18,901.62, which
Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting?a. Review authenticated deposit slips.b. Review subsequent bank statements and
If management considers a material loss contingency to be probable but an amount cannot be reasonably estimated, the proper accounting treatment is:a. Note disclosure only.b. Accrual in the financial
Answer the following questions based on the information for Cloud 9 presented in the appendix to this text, as well as the current and earlier chapters. You should also consider your answers to the
a. Gather information: What inventory items would you expect to see in MSIʼs accounts? How would the cost of each item be calculated?b. Analysis: Suggest substantive procedures for each account
Which of the following cash transfers results in a misstatement of cash at December 31, 2022? Cash Disbursement Cash Paid Cash Receipt Cash Received by the Bank per Books by the Bank 12/31/22
Which of the following audit assertions is least likely to be accomplished by vouching payroll transactions to supporting documentation (e.g., time cards and employee contracts)?a. The occurrence of
An auditor may plan to test controls in the payroll process because, among other factors:a. The chance of employee fraud is remote.b. Outside governmental auditors spend considerable time
A client just read about a business paying extraordinary sums of money to a variety of employees. How would the client company use an IT application control to prevent this type of valuation
Explain how an auditor might use ADA when auditing payroll. Explain the assertions being analyzed and what might be considered an outlier given the test that you suggest.
An inherent risk of major concern to the auditor in the payroll process is:a. The completeness of payroll.b. The occurrence assertion for payroll.c. The occurrence and cutoff assertions for
Explain a typical IT application control to prevent paying an inappropriate wage rate. Also, explain how you would test the control.
When auditing the payroll process, the auditor will normally want to understand:a. The relationship between payroll and significant customers.b. The extent to which a company is capital-intensive or
Explain a typical control preventing, or detecting and correcting, payments to a fictitious employee.
An imprest payroll bank account is:a. A bank account where a company only deposits sufficient funds to process net payroll transactions.b. A bank account that processes all payroll withholding
Assume that you are auditing a software company that has mostly salaried employees. Explain the expected flow of transactions, documents, and accounting system from hiring a new employee to paying
An auditor decided to confirm accounts payable to accomplish a low level of detection risk for the completeness assertion. Which of the following is the most reasonable sampling plan?a. Confirm
What are the greatest inherent risks in the payroll process? Explain the assertions that are at risk and the underlying drivers causing an increase in inherent risk.
Which of the following procedures is best for identifying unrecorded trade accounts payable?a. Examining unusual relationships between monthly accounts payable balances and recorded cash payments.b.
Explain how the risk of material misstatement in the payroll process is different for a manufacturer of gas and oil field equipment than it is for a university.
Assume an auditor is testing an IT application control over the accuracy of purchases. The auditor is most likely to submit test data for a:a. Voucher with different quantities than on the receiving
The following questions are included in the internal control questionnaire on control procedures for payroll transactions in the Pena Company:1. Are pay rates, payroll deductions, and terminations
The key documents involved in recording a purchase adjustment involve:a. A purchase return authorization, a shipping report, and a debit memo.b. A vendor’s invoice, a receiving report, and a credit
As part of the audit of Beach Land Construction, you are assigned to review and test the payroll transactions. Beach Land Construction is a privately owned company, which has about 30 full-time
Explain how examining subsequent payments paid after the balance sheet date (or a cutoff date) is a useful test of the completeness of purchases and payables.
An evaluated receipt system is:a. A highly automated business process between suppliers and purchasers to exchange data electronically to execute a purchase transaction.b. A highly automated business
Butler, CPA, has been engaged to audit the financial statements of Young Computer Outlets, Inc., a new client. Young is a privately owned chain of retail stores that sells a variety of software and
Explain the flow of transactions for purchase returns.
Which of the following controls would most likely prevent a vendor’s invoice from being paid twice?a. An independent bank reconciliation is prepared.b. The software application compares information
In 2003, the Securities and Exchange Commission released an Accounting and Auditing Enforcement Release (AAER) describing charges and discipline against TruServ Corporation and the company’s chief
Assume that your client is a major grocery chain that uses evaluated receipt settlement (ERS) for 75% of its purchases. Explain the flow of transactions from the purchasing of products (e.g., various
Which of the following IT application control procedures would be most effective in assuring that recorded purchases are accurately recorded for transactions that actually occurred?a. The software
Explain a typical control preventing, or detecting and correcting, payments to a fictitious vendor.
Describe the IT application control procedure that provides assurance that all the merchandise for which the client was billed was received. Assume the software application prepares an exception
Taylor, CPA, is engaged in the audit of Rex Wholesaling for the year ended December 31, 2022. Taylor performed a proper study of the internal control structure relating to the purchasing, receiving,
You were in the final stages of your audit of the financial statements of Ozine Corporation for the year ended December 31, 2022, when you were consulted by the corporation’s president, who
Explain a typical control preventing, or detecting and correcting, duplicate payment of a vendor’s invoice in a purchasing system.
Assume that your client is a private company that manufacturers wedding rings. The company’s raw materials are gold, silver, platinum, and gem stones. Explain the expected flow of transactions, the
The auditor is studying a ratio of accounts payable turnover in days. Which of the following indicates a potential risk of unrecorded liabilities?a. Accounts payable turnover in days increased from
Analysis and evaluation: Identify the control deficiencies in the payroll process for The Vane Corporation. Recommend the changes necessary to improve the control structure. Arrange your answer in
Management has requested a review of internal control over cash disbursements for parts and supplies purchased at manufacturing plants. Cash disbursements are centrally processed at corporate
If the auditor is concerned about the risk of fraud in the purchasing process, which of the following best describes the auditor’s potential fraud risk assessments?a. Fraudulent financial
The following information was taken from the accounting records for Aurora Manufacturing, Inc.: Required a. Calculate the following information and ratios for years 2, 3, 4, and 5: 1. Purchases. 2.
What are the greatest inherent risks in the purchasing process? Explain the assertions that are at risk and the underlying drivers causing an increase in inherent risk.
Explain how the risk of material misstatement in the purchasing process is different for a hotel than it is for a manufacturer of gas and oil field equipment.
a. Analysis and evaluation: What concerns, if any, are raised by the evidence noted above? Assuming that the problems found in the sample are representative of problems in the population, determine
Your client is a local independent grocer with five stores which competes with a number of large grocery chains. It purchases goods from several large grocery supply chains as well as from various
Explain the transactions in the purchasing process.
Answer the following questions based on the information for Cloud 9 presented in the appendix to this text and the current and earlier chapters. You should also consider your answers to the case
a. Analysis and evaluation: Evaluate the effectiveness of the CIRI?s control environment. You may evaluate each individual component of the control environment but then develop an overall conclusion
The purchasing process normally includes all of the following transactions:a. Purchases, inventory transactions, and cash receipts.b. Purchases on account, purchase returns, and cash receipts.c.
The following data was taken from the production and accounting records for Casuccio Manufacturing, Inc. Required a. Calculate the following ratios for 2023, 2022, and 2021: 1. Sales to total
Assume that you are preparing to confirm accounts receivable at December 31, 2022, which is one month prior to the fiscal year-end of January 31, 2023. The book value of gross accounts receivable
Jennifer Jones has been assigned to audit inventory for Consumer Home Electronics Warehouse. Consumer Home Electronics Warehouse is a retailer of a variety of home electronics and appliances (ranging
Explain the differences between an audit of internal controls as required by PCAOB AS 2201 and the testing of internal controls for the purposes of expressing an opinion on the financial statements
Explain the role of professional judgment in selecting and evaluating a sample.
Your client is a regional motel chain. It owns 27 properties in your region and manages another 40 properties for absentee owners. All the motels are located on interstate highways and achieve at
Identify a risk of fraudulent financial reporting in the revenue process. Describe a sound internal control that would detect and correct the misstatement on a timely basis.
A small manufacturing company makes only credit sales. If cash receipts from sales are misappropriated, which of the following acts would most likely conceal this fraud?a. Understating the accounts
The auditor decides which controls to test by considering:a. the points at which fraud or error can occur.b. the nature of controls implemented by management.c. the significance of each control in
Identify the eight steps performed in assessing control risk and place them in the proper order.
As an audit manager at Gung & Ho, CPAs, you have been scheduled to serve as the discussion leader for an in-office training session on consideration of the internal control structure in a
Effective internal controls at the transaction level are designed to prevent or detect and correct material misstatements that could occur within the flow of transactions. In the case study
When obtaining an understanding of internal controls, the auditor identifies important programmed application controls over the occurrence of sales. However, the auditor also has serious concerns
A software application will not allow a sale to be processed if a customer is over its credit limit. This is an example of a(n):a. Detective control.b. Preventive control.c. IT general control.d.
Explain why reconciliations, such as bank reconciliations, are classified as detective controls.
The software application compares all sales invoices with underlying shipping information on the bills of lading and packing slips with sales invoices. If differences are revealed, a report is
Which of the following represents an example of an IT application control?a. The assistant controller performs a monthly bank reconciliation and follow-up of unexpected outstanding items.b. The
Dakota Drapers supplies custom-fitted curtains and blinds to retail customers. It has recently expanded to offer a wide variety of home decorating products through its six stores across the state.
An auditor is going to test the client’s controls over bank reconciliations. The auditor will perform which of the following audit procedures for this test of controls?a. Software-based audit
The first-year auditor on the engagement has suggested that since no exceptions were detected in previous years, no work on internal controls is required because last year’s evidence will be
The lead auditor was reviewing the results of testing controls in the payroll expense area for a public company. The documentation for the testing showed that there was one instance of a part-time
Benchmarking is a process that involves:a. Comparing the effectiveness of one control with another control.b. An audit strategy that allows an auditor to rely on IT application controls if manual
If an auditor decides to assess control risk as low based on IT application control procedures, which of the following would not be part of the auditor’s strategy for testing controls?a. Testing
Identify the factors that influence sample size in a test of controls. Provide an example related to each factor in terms of how it would potentially increase the level of control testing.
If an auditor performs tests of controls and determines that the control is not effective, what should the auditor’s next step in testing controls be?a. Document the results of tests of controls
Explain the relationship between the results of tests of controls and substantive testing.
a. Information gathering: Prepare a list of questions that the auditors would ask MSI managers regarding how the impairment loss was determined.b. Analysis and evaluation: Comment on the level of
Which assertion is typically related to income statement accounts rather than balance sheet accounts or presentation and disclosure?a. Completeness.b. Accuracy.c. Rights and obligations.d. Cutoff.
Differentiate risk response at the financial statement level with risk response at the assertion level.
James and Katie will be auditing the revenue account for their retail client, Go Big Tires. They disagree about how to test the occurrence assertion for the revenue account. James thinks they should
a. Information gathering: Describe how you would gather information about the incidence of upcoding that occurred at the hospital.b. Analysis: Identify two key account balances likely to be affected
Which of the following would be the most likely reason to include more unpredictability in the selection and performance of audit procedures?a. Client has a strong internal control environment.b.
The nature of an audit procedure refers to:a. When the procedure is performed.b. The assessed level of detection risk.c. The sample size required to perform the procedure.d. Its purpose and its type.
Using the inventory trial balance as an example, explain the initial procedures that will be performed.
All of the following are initial procedures performed on an account balance except:a. Agreeing the opening balance to the audited ending balance from the prior year’s working papers.b. Footing a
Iman has the task of reviewing the evidence from substantive analytical procedures conducted by the audit associates on the audit of Smalley Services Inc. The audit associates have reported the
Which of the following situations increases the reliability of data being used for substantive analytical procedures?a. The source of the data is the client’s internal budget reports.b. During the
Develop an example of the type of substantive test an auditor might use to investigate notable items when ADA is performed as a risk assessment procedure.
When analyzing the results of substantive procedures, auditors should beware of:a. Professional skepticism.b. Audit engagement deadlines.c. Confirmation bias.d. Weak internal controls.
Does using audit data analytics remove the need to test the client’s internal controls?
Crescent City Fun Park (Crescent City), an amusement park with thrilling rides and a water park, sells tickets onsite and has a website that allows customers to purchase tickets in advance and bypass
Which of the following situations would most likely preclude an auditor from performing substantive procedures during an interim period?a. Internal controls are weak and the risk of material
What is confirmation bias? How can auditors minimize it?
Crescent City Fun Park (Crescent City), an amusement park with thrilling rides and a water park, sells tickets onsite and has a website that allows customers to purchase tickets in advance and bypass
Which of the following would not be a reason to increase the extent of a substantive test?a. The risk of material misstatement is high.b. Qualitative factors suggest there may be errors in the

Showing 200 - 300 of 980