Audit final | Accounting homework help

 

Date: 

ACCT 422 

Make-up Exam 

MULTIPLE CHOICE QUESTIONS. Choose the one alternative that best completes the statement or answers the question (3 points each). 

1) When an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger, purposefully enters cash received into the wrong customers account that employee may be suspected of 

A) shorting. 

B) kiting. 

C) floating. 

D) lapping. 

2) Auditors, as part of completing the audit, will request the client to send a letter of inquiry to those attorneys the company has been consulting with during the year under audit regarding legal matters of concern to the company. The primary reason the auditor requests this information is to: 

A) determine the range of probable loss for asserted claims. 

B) corroborate of information supplied by management concerning litigation, claims, and assessments. 

C) outside opinion of probability of losses in determining the proper footnote disclosure. 

D) outside opinion of probability of losses in determining accruals for contingencies. 

3) In the course of your audit over the acquisitions cycle you need to determine whether the client billings from vendors were received by the client. You have decided to perform a sample test. The population for the sample would be comprised of: 

A) Receiving reports. 

B) Vendor Invoices. 

C) Cash Disbursements. 

D) Accounts Payable Subsidiary Ledger for Vendors. 

4) There must be a periodic physical count by the client of the inventory items on hand: 

A) only if the client uses the LIFO method. 

B) regardless of the client’s inventory valuation method. 

C) only if the client uses either the LIFO or FIFO method. 

D) only if the client uses a lower-of-cost-or-market method. 

5) Assume that the client’s valuation of an inventory item is $10 per unit for 1,000 units, using first-in, first-out (FIFO). If the most recent acquisition of inventory was for 600 units at $10 per unit and the immediately preceding acquisition was for 700 units at $9 per unit, the inventory item is in error and it is: 

A) understated $300. 

B) overstated $700. 

C) understated $400. 

D) overstated $400. 2 

 

6) The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the 

A) payroll and personnel cycle. 

B) acquisition and payments cycle. 

C) inventory and warehousing cycle. 

D) sales and collection cycle. 

7) For cash receipts, the occurrence transaction-related audit objective affects which of the following balance-related audit objective? 

A) Existence 

B) Completeness 

C) Rights 

D) Detail tie-in 

8) Rodgers CPA believes that the rate of client billing errors is 4% and has established a tolerable deviation rate of 6%. In auditing client invoices Rodgers should use: 

A) stratified sampling. 

B) classical sampling. 

C) proportional sampling. 

D) attributes sampling. 

9) The risk of incorrect rejection is important only when there is a ________ cost to increasing the sample size. 

A) low 

B) marginal 

C) high 

D) moderate 

10) There must be a periodic physical count by the client of the inventory items on hand: 

A) only if the client uses either the LIFO or FIFO method. 

B) only if the client uses the LIFO method. 

C) only if the client uses a lower-of-cost-or-market method. 

D) regardless of the client’s inventory valuation method. 

11) At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the: 

A) management letter of representation. 

B) letters testamentary. 

C) management letter. 

D) letter of inquiry. 3 

 

12) Which of the following statements is most correct with respect to the evaluation of non-probabilistic sample results? 

A) It is acceptable to make non-probabilistic evaluations only if the auditor cannot quantify sampling risk. 

B) It is acceptable to make non-probabilistic evaluations only when probabilistic sample selection is used. 

C) It is never acceptable to evaluate a non-probabilistic sample using statistical methods. 

D) All of the above are correct. 

13) What type of test is used to obtain more types of evidence than any other? 

A) Tests of details 

B) Tests of controls 

C) Analytical procedures 

D) Substantive tests of transactions 

14) Which of the following is not a “cash equivalent”? 

A) Time deposits 

B) Marketable securities 

C) Certificates of deposit 

D) Money market funds 

15) Management furnishes the independent auditor with information concerning litigation, claims, and assessments. Which of the following is the auditor’s primary means of initiating action to corroborate such information? 

A) Request that client management send a letter of inquiry to those lawyers with whom management consulted concerning litigation, claims, and assessments. 

B) Request that client management engage outside attorneys to suggest wording for the text of a footnote explaining the nature and probable outcome of existing litigation, claims, and assessments. 

C) Request that client lawyers undertake a reconsideration of matters of litigation, claims, and assessments with which they were consulted during the period under examination. 

D) Request that client lawyers provide a legal opinion concerning the policies and procedures adopted by management to identify, evaluate, and account for litigation, claims, and assessments. 

16) Which of the following accounts is not associated with the acquisition and payment cycle? 

A) Property, plant and equipment 

B) Accrued property taxes 

C) Common stock 

D) Income tax expense 

17) The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is: 

A) direct. 

B) inverse. 

C) proportional. 

D) indeterminate. 4 

 

18) At what point do most companies recognize liabilities in the acquisition and payment cycle when the goods are shipped FOB Destination? 

A) receipt of goods or services 

B) receipt of acknowledgement of order by vendor 

C) the receipt of a vendor invoice 

D) the issuance of a purchase order 

19) The audit procedure that requires an auditor to “foot the acquisition schedule” relates to which balance-related audit objective? 

A) Cut-off 

B) Classification 

C) Detail tie-in 

D) Existence 

20) Which of the following best describes an audit that emphasizes how efficiently and effectively functions interact? 

A) financial 

B) organizational 

C) operational 

D) compliance 

21) Management furnishes the independent auditor with information concerning litigation, claims, and assessments. Which of the following is the auditor’s primary means of initiating action to corroborate such information? 

A) Request that client management send a letter of inquiry to those lawyers with whom management consulted concerning litigation, claims, and assessments. 

B) Request that client lawyers provide a legal opinion concerning the policies and procedures adopted by management to identify, evaluate, and account for litigation, claims, and assessments. 

C) Request that client management engage outside attorneys to suggest wording for the text of a footnote explaining the nature and probable outcome of existing litigation, claims, and assessments. 

D) Request that client lawyers undertake a reconsideration of matters of litigation, claims, and assessments with which they were consulted during the period under examination. 

22) Tolerable misstatement is often set at a(n) ________ level for notes payable. 

A) low 

B) high 

C) unknown 

D) moderate 

23) A deficiency uncovered in the audit of internal control is explained by which of the following in relation to a financial statement misstatement? 

A) the amount, likelihood, and classification of the misstatement 

B) the amount and the classification of the misstatement 

C) the likelihood of the misstatement 

D) the amount of the misstatement 5 

 

24) Which of the following statements is false? 

A) Internal controls over payroll are effective for most companies. 

B) Small companies usually have effective controls over payroll. 

C) Balance sheet accounts related to payroll are generally more significant than related transactions. 

D) The payroll cycle consists of one class of transactions. 

The following information applies to the questions below: 

Listed below are four interbank cash transfers, indicated by the numbers 1, 2, 3, and 4, of a client for late December 2007 and early January 2008: 

Bank Account One 

Disbursing Date 

(Month/Day) 

Per Bank Per Books 

1. 12/31 12/30 

2. 1/2 12/30 

3. 1/3 12/31 

4. 1/3 12/31 Bank Account Two 

Receiving Date 

(Month/Day) 

Per Bank Per Books 

12/31 12/30 

12/31 12/31 

1/2 1/2 

1/2 12/31 

25) Based on the schedule of interbank transfers above, which of the cash transfers indicates an error in cash cutoff at December 31, 2007? 

A) 1 

B) 2 

C) 3 

D) 4 

ESSAY. Write your answer in the space provided or on a separate sheet of paper (5 point each). 

26) (5 points) Given the following information about your audit client, perform analytical procedures and comment on your findings. 

2010 2011 Industry Average 

Inventory $20,000 $32,000 $25,000 

Cost of Sales $240,000 $320,000 $400,000 6 

 

27) (5 points) State three lists or requests that should be included in a standard “inquiry of attorney” letter. 7 

 

28) (15 points) Match seven of the terms (a-o) with the descriptions/definitions provided below (1-7): 

a. Compliance audit 

b. Economy and efficiency audit 

c. Effectiveness 

d. Efficiency 

e. Functional audit 

f. Government Auditing Standards 

g. Government audit 

h. Institute of Internal Auditors 

i. Operational auditing 

j. Organizational audit 

k. Program audit 

l. Single Audit Act 

m. Special assignment 

n. IIA Practice Standards 

o. Statements on Internal Auditing Standards 

________ 1. The official title of the Yellow Book. 

________ 2. A management request for an operational audit for a specific purpose, such as investigating the possibility of fraud in a division or making recommendations for reducing the cost of a manufactured product. 

________ 3. A government audit to determine whether an entity is acquiring, protecting, and using its resources economically and efficiently and whether the entity has complied with laws and regulations concerning such matters. 

________ 4. The degree to which the organization’s objectives are accomplished. 

________ 5. The review of an organization for efficiency and effectiveness. 

________ 6. Federal legislation that provides for a single coordinated audit to satisfy the audit requirements of all federal funding agencies. 

 

________ 7. Statements issued by the Internal Auditing Standards Board of the IIA to provide authoritative interpretation of the IIA Practice Standards.