CHOOSE THE CORRECT ANSWER.

3. An auditor for a large service company is performing an audit of the companys cash balance. The auditor is considering the most appropriate audit procedure to use to ensure that the amount of cash is accurately recorded on the companys financial statements. The most appropriate audit procedures for the objectives are : A. Examine bank reconciliations, confirm bank balances and verify cut off of receipts and disbursements ; foot totals of reconciliations and compare to cash account balances B. Review collection procedures and perform an analytical review of accounts receivable; confirm balances of accounts receivable ; and verify the existence of appropriate procedures and facilities C. Compare cash receipt lists with the receipts journal and bank deposit slips ; review the segregation of duties and observe and test cash receipts D. Review the organizational structure and functional responsibilities; verify existence and describe protection procedures for unused checks, including security measures 4. The starting point for the verification of the balance in the general bank account is to obtain: A. The clients year-end bank statement B. The clients cash account from the general ledger C. A bank reconciliation from the client D. A cutoff bank statement directly form the bank 5. Which of the following substantive audit procedures is most likely to be performed by the auditor to gather evidence in support of the balance per bank ? A. Compare to general ledger B. Trace to cash receipts journal C. Confirm directly to bank D. Trace items on the cut-off bank statement to bank reconciliation 6. Which of the following may be considered to be a primary objective of the auditor in the examination of accounts receivable? A. Establish validity and collectability of receivables B. Determine the approximate time of collectability of receivables C. Determine the relationship of receivables to sales D. Determine the reasonableness of the sales amount 7. Which of the following is not a procedure used by an auditor in the examination of accounts receivable? A. Confirmation B. Reconciliation C. Inquiry D. Physical count and inspection 8. In determining validity of accounts receivable, which of the following would the auditor consider most reliable ? A. Direct telephone communication between the auditor and debtor B. Confirmation replies received directly from customers C. Credits to accounts receivable from the cash receipts book after the close of business at year end D. Documentary evidence that supports the accounts receivable balance 9. Which of the following forms of evidence represents the most competent evidence that a receivable actually exists? A. A sales invoice B. A receiving report C. A positive confirmation D. A bill of lading 10. Confirmation which is a specific type of inquiry is the process of obtaining a representation of information or of an existing condition directly from a third party. Two assertions for which confirmation of accounts receivable balances provides primary evidence are: A. Completeness and valuation B. Valuation and rights and obligations C. Existence and completeness D. Rights and obligations and existence 11. 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 procedure to A. request a cutoff bank statements and related checks be sent to the auditor B. Detect kiting activities that may otherwise not be discovered C. Seek information about contingent liabilities and security agreements D. Provide the data necessary to prepare proof of cash 12. As one of the year-end audit procedures , the auditor instructed the clients personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the clients treasurer had signed the request , it was mailed by the assistant treasurer. What is the major flaw in this audit procedure? A. The request was mailed by the assistant treasurer B. The CPA did not sign the confirmation request before it was mailed C. Sending the request was meaningless because the account was closed before year-end D. The confirmation request was signed by the treasurer 13. The usefulness of the standard bank confirmation request maybe limited because the bank employee who completes the form may : A. Not believe that the bank is obligated to verify confidential information to a third party B. Be unaware of all the financial relationships that the bank has with the client C. Sign and return the form without inspecting the accuracy of the clients bank reconciliations D. Not have access to the clients cutoff bank statement 14. An auditor who is engaged to examine the financial statements of a business entity will request cutoff bank statement primarily in order to: A. Detect lapping B. Detect kiting C. Verify reconciling items on the clients bank reconciliation D. Verify the cash balance reported on the bank confirmation inquiry form 15. Which of the following auditing procedures would the auditor not apply to a cutoff bank statement? A. Trace year end outstanding checks and deposits in transit to the cutoff bank statement B. Reconcile the bank account as of the end of the cutoff period C. Compare dates, payees and endorsements on returned checks with the cash disbursements record D. Determine that the year-end deposit in transit was credited by the bank on the first working day of the following accounting period. 16. Which of the following is not one of the independent auditors objectives regarding the audit of inventories? A. Verifying that the client has used proper inventory pricing B. Verifying the inventory counted is owned by the client C. Ascertaining the physical quantities of inventory on hand D. Verifying that all inventory owned by the client is on hand at the time of the count 17. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk is high an auditor will probably A. Increase the extent of tests of controls relevant to the inventory cycle B. Request the client to schedule the physical inventory count at the end of the year C. Insist that the client perform physical counts of inventory items during the year D. Apply gross profit tests to ascertain the reasonableness of the physical counts 18. To ascertain whether inventories included in the statement of financial position physically exist, a CPA will ordinarily: A. Obtain confirmation of pledged inventories B. Test clients shipping cutoff procedures C. Observe physical inventory counts D. Perform analytical review of the relationship of the inventory balance to recent sales 19. The procedures involve in the attendance at physical inventory counting A. May serve as test of controls or substantive procedures depending on the auditors risk assessment , planned approach and the specific procedures carried out B. Serve as risk assessment procedures C. Serve as tests of controls D. Serve as substantive procedures 20. An auditor selected items for test counts while observing a clients physical inventory. The auditor then traced the test counts to the clients inventory listing. This procedure most likely obtained evidence concerning managements assertion of : A. Valuation B. Completeness C. Rights and obligations D. Existence or occurrence