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Audit Final - 54-80

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Midterm Audit Quiz on Audit Final - 54-80, created by Andrew Knifer on 19/05/2016.
Andrew Knifer
Quiz by Andrew Knifer, updated more than 1 year ago
Andrew Knifer
Created by Andrew Knifer almost 8 years ago
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Resource summary

Question 1

Question
A proof of cash includes a reconciliation of cash receipts deposited in the bank with the cash disbursements records for a given period.
Answer
  • True
  • False

Question 2

Question
Which of the following items would not normally appear on bank reconciliations?
Answer
  • Balance per bank
  • List of deposits in transit
  • Outstanding deposits
  • Outstanding checks

Question 3

Question
Which of the following procedures might be useful in discovering a contingent liability for a lawsuit that management is intentionally neglecting to disclose?
Answer
  • Inquiries (orally and in writing) of management.
  • Analyzing legal expense and review invoices and statements from outside legal counsel.
  • Reviewing current and previous years’ internal revenue agent reports.
  • Obtaining a letter of representation from management that it is aware of no undisclosed contingent liabilities.

Question 4

Question
When using nonstatistical sampling, the larger the sample size, the greater the auditor’s confidence that the point estimate is close to the true population value.
Answer
  • True
  • False

Question 5

Question
The standard letter of inquiry to the client’s legal counsel should be prepared on:
Answer
  • plain paper (no letterhead) and be unsigned.
  • lawyer’s stationery and signed by the lawyer.
  • auditor’s stationery and signed by an audit partner.
  • client’s stationery and signed by a company official

Question 6

Question
Which of the following items would ordinarily not be included in the standard letter of inquiry to the client’s attorney?
Answer
  • A list, prepared by management, of pending threatened litigation of material amounts.
  • A request that the attorney furnish information or comment about the likelihood of an unfavorable outcome of litigation.
  • A request that the attorney furnish an estimate of the amount or range of the potential loss.
  • A request that the attorney confirm the amount of outstanding fees which client owes for legal services.

Question 7

Question
The failure to capitalize a permanent asset, or the recording of an asset acquisition at the improper amount, affects the balance sheet:
Answer
  • forever.
  • for the current period.
  • for the depreciable life of the asset.
  • until the firm disposes of the asset.

Question 8

Question
The reason for testing the client’s bank reconciliation is to verify whether the client’s recorded bank balance is the same amount as the actual cash in bank, except for deposits in transit, checks outstanding, and other reconciling items. The information needed to complete the tests of the reconciliation are provided by the:
Answer
  • client’s records and ledgers for the year under audit.
  • cutoff bank statement.
  • client’s records and ledgers for the subsequent year.
  • canceled checks for the year under audit.

Question 9

Question
Imprest accounts usually carry a significant balance.
Answer
  • True
  • False

Question 10

Question
Analytical procedures are substantive tests and, if the results of the analytical procedures are favorable, the auditor will:
Answer
  • reduce the extent of tests of details of balances.
  • reduce the extent of tests of controls.
  • reduce the tests of transactions.
  • reduce all of the other tests.

Question 11

Question
Auditors of public companies must obtain certain representations from management regarding internal control over financial reporting.
Answer
  • True
  • False

Question 12

Question
Which of the following is likely to be determined first when performing tests of details for accounts receivable?
Answer
  • Recorded accounts receivable exist.
  • Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger.
  • Accounts receivable are owned.
  • Existing accounts receivable are included.

Question 13

Question
Controls over the acquisition and recording of insurance are a part of the ________.
Answer
  • inventory and warehousing cycle
  • capitalization cycle
  • treasury cycle
  • acquisition and payment cycle

Question 14

Question
When auditors evaluate sales returns and allowances, a primary emphasis is on the objective of occurrence.
Answer
  • True
  • False

Question 15

Question
Blank confirmations are considered less reliable than standard positive confirmations.
Answer
  • True
  • False

Question 16

Question
A bill of lading is a special type of sales invoice used when goods are shipped interstate.
Answer
  • True
  • False

Question 17

Question
A bill of lading is a written contract between the seller and the buyer.
Answer
  • True
  • False

Question 18

Question
Monetary unit sampling is also referred to as all of the following except:
Answer
  • attribute sampling.
  • dollar unit sampling.
  • cumulative monetary amount sampling.
  • sampling with probability proportional to size.

Question 19

Question
At the completion of the audit, management is typically asked to make a written statement as a part of the engagement letter that it is aware of no undisclosed contingent liabilities.
Answer
  • True
  • False

Question 20

Question
Which of the following is not required to be communicated to the audit committee or similarly designated body under auditing standards?
Answer
  • All material frauds and illegal acts of a material nature.
  • Disagreements with management about the scope of the audit, applicability of accounting principles, or wording of the audit report.
  • Difficulties encountered in performing the audit, such as lack of availability of client personnel and failure to provide necessary information.
  • Auditor’s responsibilities under generally accepted auditing standards, including responsibility for evaluating internal control and the concept of reasonable rather than absolute assurance.

Question 21

Question
Many of the auditor’s audit procedures in the audit of cash center around the client’s bank confirmations.
Answer
  • True
  • False

Question 22

Question
An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the:
Answer
  • sales register to the accounts receivable ledger.
  • sales register to the meter department records.
  • accounts receivable ledger to the sales register.
  • meter department records to the sales register.

Question 23

Question
A proof of cash is effective at identifying which of the following misstatements?
Answer
  • Checks written for incorrect amounts.
  • Checks issued to invalid vendors.
  • Fraudulent checks.
  • Checks recorded by the books for an amount different than the check.

Question 24

Question
For good internal control, the credit-granting function should be separate from the sales function.
Answer
  • True
  • False

Question 25

Question
There is very little opportunity for confirmation from third parties of balance sheet accounts related to the payroll and personnel cycle.
Answer
  • True
  • False

Question 26

Question
Which of the following audit procedures would be least likely to lead the auditor to find an unrecorded fixed asset disposal?
Answer
  • Examination of insurance policies.
  • Review of repairs and maintenance expense.
  • Review of property tax files.
  • Scanning of invoices for fixed asset additions.

Question 27

Question
The most important test of details of balances to determine the existence of recorded accounts receivable is:
Answer
  • tracing details of sales invoices to shipping documents.
  • tracing the credits in accounts receivable to bank deposits.
  • tracing sales returns entries to credit memos issued and receiving room reports.
  • the confirmation of customers’ balances.
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