ACCT 444 Week 5 Quiz and Homework
ACCT
444 Week 5 Quiz and Homework
ACCT
444 Week 5 Quiz
1. (TCO 6)
The auditor looks for an indication on duplicate sales invoices to see whether
the invoices have been verified. This is an example of (Points : 3)
a test
of details of balances.
a test
of control.
a
substantive test of transactions.
both a
test of control and a substantive test of transactions.
1. (TCO 6)
Tests of controls may include which of the following types of evidence? (Points
: 3)
Observation
Reperformance
Inquiries
All of
the above
1. (TCO 6)
For efficiency, tests of controls are frequently done at the same time as
(Points : 3)
analytical
procedures.
compliance
tests.
tests of
transactions.
tests of
details of balances.
2. (TCO 6)
Analytical procedures are defined in the auditing standards as (Points : 3)
compliance
tests.
substantive
tests.
tests of
controls.
helpful
procedures not possessing the validity of other tests available to the auditor.
2. (TCO 6)
Which of the following is not a direct result of performing analytical
procedures? (Points : 3)
Identify
areas of potential misstatements.
Reduce detailed
audit risk.
Understand
the client’s business.
Identify
specific errors in the accounts.
2.
(TCO 6) Analytical procedures may be classified as being
primarily (Points : 3)
tests of
controls.
substantive
tests.
tests of
ratios.
tests of
details of balances.
3. (TCO 6)
Which of the following audit tests is usually the least costly to perform?
(Points : 3)
Analytical
procedures
Tests of
controls
Tests of
balances
Substantive
tests of transactions
3. (TCO 6)
Which of the following audit tests is usually the most costly to perform?
(Points : 3)
Analytical
procedures
Tests of
controls
Tests of
balances
Substantive
tests of transactions
4. (TCO 6)
Which of the following tests commonly occur together? (Points : 3)
Substantive
tests of transactions and tests of controls
Substantive
tests of transactions and obtaining an understanding of internal controls
Analytical
procedures and tests of controls
All of
the above
4. (TCO 6)
Which of the following relationships between types of tests and audit evidence
is not correct? (Points : 3)
Tests of
details and documentation
Tests of
controls and observation
Tests of
details and observation
Substantive
tests of transactions and reperformance
5. (TCO 6)
The sequence of steps in gathering evidence as the basis of the auditor’s opinion
are (Points : 3)
substantive
tests, initial assessment of control risk, and tests of controls.
initial
assessment of control risk, substantive tests, and tests of controls.
initial
assessment of control risk, tests of controls, and substantive tests.
tests of
controls, initial assessment of control risk, and substantive tests.
5. (TCO 6)
The purpose of tests of controls is to provide reasonable assurance that the
(Points : 3)
accounting
treatment of transactions and balances is valid and proper.
internal
control procedures are functioning as intended.
entity
has complied with GAAP disclosure requirements.
entity
has complied with requirements of quality control.
6. (TCO 9)
It is important that sales be billed and recorded in the journal as soon as
possible after (Points : 3)
the
order is received.
the
order is received and credit is approved.
credit
is approved and it is verified that there is enough inventory to fill the
order.
the
shipment takes place.
6. (TCO 9)
The use of prenumbered sales invoices is meant to prevent (Points : 3)
the
failure to bill or record sales.
duplicate
billings and recording of sales.
both A
and B are correct.
neither
A nor B is correct.
6. (TCO 9)
Prenumbered documents will only be useful for control purposes if (Points : 3)
a
different numerical sequence is used for each company.
the
sequence is accounted for periodically.
employees
do not have access to the complete sequence.
All of
the above
7. (TCO 9)
Which one of the following is not an auditor’s concern about a key authorization
point in the sales or collection cycle? (Points : 3)
The
receiving room must have authorization before releasing items to inventory
control.
Credit
must be authorized before the sale.
Goods
must be shipped after the authorization.
Prices
must be authorized.
7. (TCO 9)
At which point in an ordinary sales transaction would a lack of specific
authorization be of least concern to the auditor? (Points : 3)
Granting
of credit
Shipment
of goods
Determination
of discounts
Selling
of goods for cash
8. (TCO 9)
The credit-granting functions should be separated from which of the following?
(Points : 3)
Purchasing
functions
Manufacturing
function
Sales
function
None of
the above
9. (TCO 9)
When designing substantive tests of transactions for sales, the auditor is concerned
with the possibility of several types of misstatements. Which of the following
is not one of the types of these misstatements? (Points : 3)
Sales
being included in the journal for which no shipment was made
Sales to
related parties, such as officers and subsidiaries
Sales
recorded more than once
Shipments
being made to nonexistent customers and recorded as sales
10. (TCO 9)
A key internal control in the sales and collection cycle is the separation of
duties between cash handling and record keeping. The objective most directly
associated with this control is to verify that (Points : 3)
cash
receipts recorded in the cash receipts journal are reasonable.
cash
receipts are properly classified.
recorded
cash receipts result from legitimate transactions.
existing
cash receipts are recorded.
10. (TCO 9)
Which one of the following would the auditor consider to be an incompatible
operation if the cashier receives remittances from the mailroom? (Points : 3)
The
cashier prepares the daily deposit.
The
cashier makes the deaily deposit at a local bank.
The
cashier posts the receipts to the accounts receivable subsidiary ledger cards.
The
cashier endorses the checks.
ACCT
444 Week 5 Homework
Chapter
13
13-26
(Objectives 13-1, 13-2, 13-3, 13-6) The following are audit procedures from
different transaction cycles:
1. Use
audit software to foot and cross-foot the cash disbursements journal and trace
the balance to the general ledger.
2. Select a
sample of entries in the acquisitions journal and trace each one to a related vendor’s
invoice to determine whether one exists.
3. Examine
documentation for acquisition transactions before and after the balance sheet
date to determine whether they are recorded in the proper period.
4. Inquire
of the credit manager whether each account receivable on the aged trial balance
is collectible.
5. Compute
inventory turnover for each major product and compare with previous years.
6. Confirm
a sample of notes payable balances, interest rates, and collateral with
lenders.
7. Use
audit software to foot the accounts receivable trial balance and compare the
balance with the general ledger.
Required
1. For
each audit procedure, identify the transaction cycle being audited.
2. For
each audit procedure, identify the type of evidence.
3. For
each audit procedure, identify whether it is a test of control or a substantive
test.
4. For
each substantive audit procedure, identify whether it is a substantive test of
transactions, a test of details of balances, or an analytical procedure.
5. For
each test of control or substantive test of transactions procedure, identify
the transaction-related audit objective or objectives being satisfied.
6. For
each analytical procedure or test of details of balances procedure, identify
the balance-related audit objective or objectives being satisfied.
13-30
(Objectives 13-5, 13-7) Following
are evidence decisions for the three audits described in Figure
13-3 on page
411:
Evidence
Decisions
1. The
auditor performed extensive positive confirmations at the balance sheet date.
2. The
auditor performed extensive tests of controls and minimal substantive tests.
3. The
auditor decided it was possible to assess control risk below the maximum.
4. The
auditor performed substantive tests.
5. This
audit was likely the least expensive to conduct.
6. The
auditor confirmed receivables at an interim date.
7. The
auditor identified effective controls and also identified some deficiencies in
controls.
8. The
auditor performed tests of controls.
Required
1. Explain
why Audit B represents the maximum amount of reliance that can be placed on
internal control. Why can’t all the audit assurance be obtained by tests of
controls?
.
1. Explain
why the auditor may not place the maximum extent of reliance on controls in
Audit B and Audit C.
1. For
each of the eight evidence decisions, indicate whether the evidence decision
relates to each of the audits described above. Every evidence decision relates
to at least one of the audits, and some may relate to two or all three audits.
13-33
(Objective 13-4) Kim
Bryan, a new staff auditor, is confused by the inconsistency of the three audit
partners she has been assigned to on her first three audit engagements. On the
first engagement, she spent a considerable amount of time in the audit of cash
disbursements by examining cancelled checks, electronic payments, and
supporting documentation, but almost no testing was spent in the verification
of fixed assets. On the second engagement, a different partner had her do less
intensive tests in the cash disbursements area and take smaller sample sizes
than in the first audit, even though the company was much larger. On her most
recent engagement under a third audit partner, there was a 435436thorough test
of cash disbursement transactions, far beyond that of the other two audits, and
an extensive verification of fixed assets. In fact, this partner insisted on a
complete physical examination of all fixed assets recorded on the books. The
total audit time on the most recent audit was longer than that of either of the
first two audits despite the smaller size of the company. Bryan’s conclusion is
that the amount of evidence to accumulate depends on the audit partner in
charge of the engagement.
Required
1. State
several factors that can explain the difference in the amount of evidence
accumulated in each of the three audit engagements as well as the total time
spent.
1. What
could the audit partners have done to help Bryan understand the difference in
the audit emphasis on the three audits?
1. Explain
how these three audits are useful in developing Bryan’s professional judgment.
How could the quality of her judgment have been improved on the audits?
1. Which
audit most likely represents an integrated audit of a public company’s
financial statements and internal control over financial reporting?
Chapter
14
14-25
(Objectives 14-3, 14-4, 14-5) The
following are commonly performed tests of controls and substantive tests of
transactions audit procedures in the sales and collection cycle:
1. Account
for a sequence of shipping documents and examine each one to make sure that a
duplicate sales invoice is attached.
2. Account
for a sequence of sales invoices and examine each one to make sure that a
duplicate copy of the shipping document is attached.
3. Compare
the quantity and description of items on shipping documents with the related
duplicate sales invoices.
4. Trace
recorded sales in the sales journal to the related accounts receivable master
file and compare the customer name, date, and amount for each one.
5. Examine
sales returns for approval by an authorized official.
6. Review
the prelisting of cash receipts to determine whether cash is prelisted daily.
7. Reconcile
the recorded cash receipts on the prelisting with the cash receipts journal and
the bank statement for a 1-month period.
Required
1. Identify
whether each audit procedure is a test of control or a substantive test of
transactions.
2. State
which of the six transaction-related audit objectives each of the audit
procedures fulfills.
3. Identify
the type of evidence used for each audit procedure, such as documentation and
observation.
14-26
(Objective 14-3) The
following are selected transaction-related audit objectives and audit
procedures for sales transactions:
Transaction-Related
Audit Objectives
1. Recorded
sales exist.
2. Existing
sales are recorded.
3. Sales
transactions are correctly included in the accounts receivable master file and
are correctly summarized.
Procedures
1. Trace a
sample of shipping documents to related duplicate sales invoices and the sales
journal to make sure that the shipment was billed.
2. Examine
a sample of duplicate sales invoices to determine whether each one has a
shipping document attached.
3. Examine
the sales journal for a sample of sales transactions to determine whether each
one has a posting reference in the margin indicating that it has been automatically
compared by the computer with the accounts receivable master file for customer
name, date, and amount.
4. Examine
a sample of shipping documents to determine whether each one has a duplicate
sales invoice number printed on the bottom left corner.
5. Trace a
sample of debit entries in the accounts receivable master file to the sales
journal to determine whether the date, customer name, and amount are the same.
6. Vouch a
sample of duplicate sales invoices to related shipping documents filed in the
shipping department to make sure that a shipment was made.
Required
1. For
each objective, identify at least one specific misstatement that could occur.
1. Describe
the differences between the purposes of the first and second objectives.
.
1. For
each audit procedure, identify it as a test of control or substantive test of
transactions. (There are three of each.)
1. For
each objective, identify one test of control and one substantive test of
transactions.
2. For
each test of control, state the internal control that is being tested. Also,
identify or describe a misstatement that the client is trying to prevent by use
of the control.
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