Audit 4 Questions

Which of the following is not true regarding audit documentation for a specific audit? a. Audit documentation should be sufficient to enable members of the audit team with supervisory responsibilities to understand the nature, timing, extent, and results of auditing procedures performed. b. Audit documentation should indicate which member(s) of the audit team performed and reviewed the audit work. c. Audit documentation should demonstrate compliance with quality control standards. d. Audit documentation should demonstrate compliance with the standards of fieldwork .

Audit documentation serves mainly to: a. Provide the principal support for the auditor's report. b. Satisfy the auditor's responsibilities concerning the Code of Professional Conduct. c. Monitor the effectiveness of the CPA firm's quality control activities. d. Document the level of independence maintained by the auditor.

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for: a. Cash flow increases and decreases. b. Audit objectives and assertions. c. Reclassifications and adjustments. d. Reconciliations and tickmarks.

Factors affecting the nature and extent of audit documentation include:

Which of the following documentation is required for an audit in accordance with generally accepted auditing standards? a. A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity's internal control. b. A management representation letter that summarizes the timing and details of the auditor's planned fieldwork. c. An indication in the audit documentation that the accounting records agree or reconcile with the financial statements. d. A list of the procedures performed and the findings obtained.

Which of the following is not true about the report release date? a. It is defined as the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such. b. It is often the date on which the report is delivered to the client. c. It is the date on which the auditor grants the client permission to use the report. d. It is used to define the beginning of the retention period .

Which of the following statements is most accurate regarding sufficient and appropriate documentation? a. Accounting estimates are not considered sufficient and appropriate documentation. b. Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed. c. If additional evidence is required to document significant findings or issues, the original evidence is not considered sufficient and appropriate and therefore should be deleted from the working papers. d. Audit documentation is the property of the client, and sufficient and appropriate copies should be retained by the auditor for at least five years.

Which of the following comparisons would an auditor most likely make in evaluating an entity's costs and expenses? a. The current year's accounts receivable with the prior year's accounts receivable. b. The current year's payroll expense with the prior year's payroll expense. c. The budgeted current year's sales with the prior year's sales. d. The budgeted current year's warranty expense with the current year's contingent liabilities.

The objective of tests of details of transactions performed as substantive tests is to: a. Comply with generally accepted auditing standards. b. Attain assurance about the reliability of the information system relevant to financial reporting. c. Detect material misstatements in the financial statements. d. Evaluate whether management's controls operated effectively.

Which of the following would not be considered an analytical procedure? a. Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked. b. Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics. c. Computing accounts receivable turnover by dividing credit sales by the average net receivables. d. Developing the expected current-year sales based on the sales trend of the prior five years.

In determining whether transactions have been recorded, the direction of the audit testing should be from the: a. General ledger balances. b. Adjusted trial balance. c. Original source documents. d. General journal entries.

Which of the following presumptions is correct about the reliability of audit evidence? a. Information obtained indirectly from outside sources is the most reliable evidential matter. b. To be reliable, audit evidence should be conclusive rather than persuasive. c. Reliability of audit evidence refers to the amount of corroborative evidence obtained. d. An effective internal control structure provides more assurance about the reliability of audit evidence.

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? a. Accounts receivable. b. Interest expense. c. Accounts payable. d. Travel and entertainment expense.

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent: 1. as a substantive test 2. in the final review stage

Which of the following types of audit evidence generally is the most reliable? a. Inquiries made of management. b. Confirmation of account information. c. Analytical procedures. d. Review of prior-year audit procedures.

An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that: a. Fourth quarter payroll taxes were properly accrued and recorded , but were not paid until early in the subsequent year. b. Unrealized gains from increases in the value of available-for-sale securities were recorded in the income account for trading securities. c. The annual provision for uncollectible accounts expense was inadequate because of worsening economic conditions. d. Notice of an increase in property tax rates was received by management, but was not recorded until early in the subsequent year.

Which of the following procedures would yield the most reliable evidence? a. A scanning of trial balances. b. An inquiry of client personnel. c. A comparison of beginning and ending retained earnings. d. A recalculation of bad debt expense.

Which of the following procedures would be most effective in reducing attestation risk? a. Discussion with responsible individuals. b. Examination of evidence. c. Inquiries of senior management. d. Analytical procedures.

Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows? a. Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts. b. Vouch a sample of cash receipts and disbursements for the last few days of the current year. c. Reconcile the cutoff bank statement to the proof of cash to verify the accuracy of the year-end cash balance. d. Confirm the amounts included in the statement of cash flows with the entity's financial institution.

Which of the following most likely would cause an auditor to consider whether a client's financial statements contain material misstatements? a. Management did not disclose to the auditor that it consulted with other accountants about significant accounting matters. b. The chief financial officer will not sign the management representation letter until the last day of the auditor's field work. c. Audit trails of computer-generated transactions exist only for a short time. d. The results of an analytical procedure disclose unexpected differences.

Analytical procedures are most appropriate when testing which of the following types of transactions? a. Payroll and benefit liabilities. b. Acquisitions and disposals of fixed assets. c. Operating expense transactions. d. Long-term debt transactions.

When applying analytical procedures during an audit, which of the following is the best approach for developing expectations? a. Considering unaudited account balances and ratios to calculate what adjusted balances should be. b. Identifying reasonable explanations for unexpected differences before talking to client management. c. Considering the pattern of several unusual changes without trying to explain what caused them. d. Comparing client data with client-determined expected results to reduce detailed tests of account balances.

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid , the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud , the auditor most likely would select items for testing from the file of all: a. Cash disbursements. b. Approved vouchers. c. Receiving reports. d. Vendors' invoices.

Tracing shipping documents to prenumbered sales invoices provides evidence that: a. No duplicate shipments or billings occurred. b. Shipments to customers were properly invoiced. c. All goods ordered by customers were shipped. d. All prenumbered sales invoices were accounted for.

An auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing in order to: a. Verify that payroll taxes are deducted from employees' gross pay. b. Determine whether internal control activities are operating effectively. c. Uncover fictitious employees who are receiving payroll checks. d. Identify potential liabilities for unpaid payroll taxes.

An auditor discovered that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This may indicate that: a. Fictitious credit sales have been recorded during the year. b. Employees have stolen inventory just before the year-end. c. The client recently tightened its credit-granting policies. d. An employee has been lapping receivables in both years.

Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable? a. Including a list of items or invoices that constitute the account balance. b. Restricting the selection of accounts to be confirmed to those customers with relatively large balances. c. Requesting customers to respond to the confirmation requests directly to the auditor by fax or e-mail. d. Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner.

In performing a count of negotiable securities, an auditor records the details of the count on a security count worksheet. What other information is usually included on this worksheet? a. An acknowledgment by a client representative that the securities were returned intact. b. An analysis of realized gains and losses from the sale of securities during the year. c. An evaluation of the client's internal control concerning physical access to the securities. d. A description of the client's procedures that prevent the negotiation of securities by just one person.

In testing plant and equipment balances, an auditor may inspect new additions listed on the analysis of plant and equipment. This procedure is designed to obtain evidence concerning management's assertions of: 1. existence 2. understandability and classification

In auditing accounts receivable, the negative form of confirmation request most likely would be used when: a. The total recorded amount of accounts receivable is immaterial to the financial statements taken as a whole. b. Response rates in prior years to properly designed positive confirmation requests were inadequate. c. Recipients are likely to return positive confirmation requests without verifying the accuracy of the information . d. The combined assessed level of inherent risk and control risk relative to accounts receivable is low.

An auditor usually tests the reasonableness of dividend income from investments in publicly-held companies by computing the amounts that should have been received by referring to: a. Dividend record books produced by investment advisory services. b. Stock indentures published by corporate transfer agents. c. Stock ledgers maintained by independent registrars. d. Annual audited financial statements issued by the investee companies.

In determining the effectiveness of an entity's internal controls relating to the occurrence assertion for payroll transactions, an auditor most likely would inquire about and: a. Observe the segregation of duties concerning personnel responsibilities and payroll disbursement. b. Inspect evidence of accounting for prenumbered payroll checks. c. Recompute the payroll deductions for employee fringe benefits. d. Verify the preparation of the monthly payroll account bank reconciliation.

A weakness in internal control over recording retirements of equipment may cause an auditor to: a. Inspect certain items of equipment in the plant and trace those items to the accounting records. b. Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year. c. Trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used. d. Select certain items of equipment from the accounting records and locate them in the plant.

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts? a. The estimated remaining useful lives of plant assets were revised upward. b. Plant assets were retired during the year. c. The prior year's depreciation expense was erroneously understated . d. Overhead allocations were revised at year-end.

An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of completeness with respect to: a. Presentation and disclosure. b. Transactions and events. c. Account balances. d. All of the above.

In confirming with an outside agent, such as a financial institution , that the agent is holding investment securities in the client's name, an auditor most likely gathers evidence in support of management's financial statement assertions of existence and: a. Valuation and allocation. b. Rights and obligations. c. Completeness. d. Understandability and classification.

Which of the following statements is correct concerning the use of negative confirmation requests? a. Unreturned negative confirmation requests rarely provide significant explicit evidence. b. Negative confirmation requests are effective when detection risk is low. c. Unreturned negative confirmation requests indicate that alternative procedures are necessary. d. Negative confirmation requests are effective when understatements of account balances are suspected.

When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor most likely would: a. Inspect the allowance account to verify whether the accounts were subsequently written off. b. Increase the assessed level of detection risk for the valuation and completeness assertions. c. Ask the client to contact the customers to request that the confirmations be returned . d. Increase the assessed level of inherent risk for the revenue cycle.

In confirming a client's accounts receivable in prior years, an auditor found that there were many differences between the recorded account balances and the confirmation replies. These differences, which were not misstatements, required substantial time to resolve. In defining the sampling unit for the current year's audit, the auditor most likely would choose: a. Individual overdue balances. b. Individual invoices. c. Small account balances. d. Large account balances

When control risk is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying analytical procedures and: a. Observing the distribution of paychecks. b. Footing and crossfooting the payroll register. c. Inspecting payroll tax returns. d. Recalculating payroll accruals.

Which of the following questions would an auditor least likely include on an internal control questionnaire concerning the initiation and execution of equipment transactions? a. Are requests for major repairs approved at a higher level than the department initiating the request? b. Are prenumbered purchase orders used for equipment and periodically accounted for? c. Are requests for purchases of equipment reviewed for consideration of soliciting competitive bids? d. Are procedures in place to monitor and properly restrict access to equipment?

In auditing accounts receivable the negative form of confirmation request most likely would be used when: a. Recipients are likely to return positive confirmation requests without verifying the accuracy of the information . b. The combined assessed level of inherent and control risk relative to accounts receivable is low. c. A small number of accounts receivable are involved but a relatively large number of errors are expected. d. The auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high , an auditor would probably: a. Increase the extent of tests of controls of 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 several times during the year. d. Apply gross profit tests to ascertain the reasonableness of the physical counts.

In auditing long-term bonds payable, an auditor most likely would: a. Perform analytical procedures on the bond premium and discount accounts. b. Examine documentation of assets purchased with bond proceeds for liens. c. Compare interest expense with the bond payable amount for reasonableness. d. Confirm the existence of individual bondholders at year-end.

In performing tests concerning the granting of stock options, an auditor should: a. Confirm the transaction with the Secretary of State in the state of incorporation . b. Verify the existence of option holders in the entity's payroll records or stock ledgers. c. Determine that sufficient treasury stock is available to cover any new stock issued. d. Trace the authorization for the transaction to a vote of the board of directors.

An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that all: a. Noncapitalizable expenditures for repairs and maintenance have been recorded in the proper period . b. Expenditures for property and equipment have been recorded in the proper period. c. Noncapitalizable expenditures for repairs and maintenance have been properly charged to expense. d. Expenditures for property and equipment have not been charged to expense.

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the: a. Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records . b. Securities are registered in the name of the trust company, rather than the entity itself. c. Interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities. d. Trust company places the securities in a bank safe-deposit vault under the custodian's exclusive control.

During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify management's assertions related to:

On receiving a client's bank cutoff statement, an auditor most likely would trace: a. Prior-year checks listed in the cutoff statement to the year-end outstanding checklist. b. Deposits in transit listed in the cutoff statement to the year-end bank reconciliation. c. Checks dated after year-end listed in the cutoff statement to the year-end outstanding checklist. d. Deposits recorded in the cash receipts journal after year-end to the cutoff statement.

Which of the following procedures concerning accounts receivable would an auditor most likely perform to obtain audit evidence supporting the effective operation of controls? a. Observing an entity's employee prepare the schedule of past due accounts receivable. b. Sending confirmation requests to an entity's principal customers to verify the existence of accounts receivable. c. Inspecting an entity's analysis of accounts receivable for unusual balances. d. Comparing an entity's uncollectible accounts expense to actual uncollectible accounts receivable.

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also: a. Reviews the monthly bank reconciliation. b. Returns the checks to accounts payable. c. Is denied access to the supporting documents. d. Is responsible for mailing the checks.

For effective internal control, the accounts payable department generally should: a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed. b. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee. c. Obliterate the quantity ordered on the receiving department copy of the purchase order. d. Establish the agreement of the vendor's invoice with the receiving report and purchase order.

Which of the following sets of information does an auditor usually confirm on one form? a. Accounts payable and purchase commitments. b. Cash in bank and collateral for loans. c. Inventory on consignment and contingent liabilities. d. Accounts receivable and accrued interest receivable.

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? a. Vouch a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file. b. Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance. c. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor . . Invoices. d. Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions.

An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to: a. Identify unusually large purchases that should be investigated further. b. Verify that cash disbursements were for goods actually received. c. Determine that purchases were properly recorded. d. Test whether payments were for goods actually ordered.

Sound internal control dictates that, immediately upon receiving checks from customers by mail, a responsible employee should: a. Add the checks to the daily cash summary. b. Verify that each check is supported by a prenumbered sales invoice. c. Prepare a duplicate listing of checks received. d. Record the checks in the cash receipts journal.

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is: a. Supported by a vendor's invoice. b. Stamped "paid" by the check signer. c. Prenumbered and accounted for. d. Approved for authorized purchases.

In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support? a. Completeness. b. Occurrence. c. Accuracy. d. Rights and obligations.

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed? a. Scan the sales journal for sequential and unusual entries. b. Examine shipping documents for matching sales invoices. c. Compare the accounts receivable ledger to daily sales summaries. d. Inspect unused sales invoices for consecutive prenumbering.

Which of the following internal controls most likely would assure that all billed sales are correctly posted to the accounts receivable ledger? a. Daily sales summaries are compared to daily postings to the accounts receivable ledger. b. Each sales invoice is supported by a prenumbered shipping document. c. The accounts receivable ledger is reconciled daily to the control account in the general ledger. d. Each shipment on credit is supported by a prenumbered sales invoice.

Under properly designed internal control, the same employee most likely would match vendors' invoices with receiving reports and also: a. Post the detailed accounts payable records. b. Recompute the calculations on vendors' invoices. c. Reconcile the accounts payable ledger. d. Cancel vendors' invoices after payment.

An auditor tests an entity's control of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of: a. Valuation and allocation. b. Completeness. c. Existence. d. Rights and obligations.

An independent auditor asked a client's internal auditor to assist in preparing a standard financial institution confirmation request for a payroll account that had been closed during the year under audit. After the internal auditor prepared the form , the controller signed it and mailed it to the bank. What was the major flaw in this procedure?

To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor most likely would select a sample of transactions from the population represented by the: a. Sales order file . b. Customer order file . c. Shipping document file. d. Sales invoice file .

An auditor scans a client's investment records for the period just before and just after the year-end to determine that any transfers between categories of investments have been properly recorded. The primary purpose of this procedure is to obtain evidence about management's financial statement assertions of: a. Rights and obligations, and existence. b. Valuation and accuracy, and rights and obligations. c. Existence, and understandability and classification. d. Understandability and classification, and valuation and accuracy.

Which of the following procedures represents a weakness in internal controls for payroll? a. The payroll clerk distributes signed payroll checks. Undistributed checks are returned to the payroll department. b. The accounting department wires transfers funds to the payroll bank account. The transfer is based on totals from the payroll department summary. c. The payroll department prepares checks using a signature plate. The treasurer supervises the process before payroll checks are distributed. d. The payroll department prepares checks. The chief financial officer signs the payroll checks.

An auditor who uses a transaction cycle approach to assessing control risk most likely would test control activities related to transactions involving the sale of goods to customers with the: a. Collection of receivables. b. Purchase of merchandise inventory. c. Payment of accounts payable. d. Sale of long-term debt.

Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that: a. Shipments to customers were properly billed . b. Entries in the accounts receivable subsidiary ledger were for sales actually shipped. c. Sales billed to customers were actually shipped. d. No duplicate shipments to customers were made.

An auditor's inquiries of management disclosed that the entity recently invested in a series of energy derivatives to hedge against the risks associated with fluctuating oil prices. Under these circumstances, the auditor should: a. Perform analytical procedures to determine if the derivatives are properly valued. b. Examine the contracts for possible risk exposure and the need to recognize losses. c. Confirm the marketability of the derivatives with a commodity specialist. d. Document the derivatives in the auditor's communication with those charged with governance.

An auditor usually determines whether dividend income from publicly-held investments is reasonable by computing the amounts that should have been received by referring to: a. Stock ledgers maintained by independent registrars. b. Dividend records on file with the SEC. c. Records produced by investment services. d. Minutes of the in vestee's board of directors.

After making inquiries about credit granting policies, an auditor selects a sample of sales transactions and examines evidence of credit approval. This test of controls most likely supports management's financial statement assertion(s) of: 1. Rights and obligations 2. Allocation and Valuation

Which of the following strategies most likely could improve the response rate of the confirmations of accounts receivable? a. Restrict the selection of accounts to be confirmed to those customers with large balances. b. Include a list of items or invoices that constitute the customers' account balances. c. Explain to customers that discrepancies will be investigated by an independent third party. d. Ask customers to respond to the confirmation requests directly to the auditor by fax

An auditor's tests of controls for completeness for the revenue cycle usually include determining whether: a. Each receivable is collected subsequent to the year end. b. An invoice is prepared for each shipping document. c. Each invoice is supported by a customer purchase order. d. Each credit memo is properly approved.

An auditor is testing the reasonableness of dividend income from investments in publicly-held companies. The auditor most likely would compute the amount that should have been received and recorded by the client by: a. Reading the details of the board of directors' meetings. b. Confirming the details with the in vestee companies' registrars. c. Electronically accessing the details of dividend records on the Internet. d. Examining the details of the client's most recent cutoff bank statement.

In auditing an entity's computerized payroll transactions, an auditor would be least likely to use test data to test controls concerning: a. Overpayment of employees for hours not worked. b. Control and distribution of unclaimed checks. c. Withholding of taxes and Social Security contributions. d. Missing employee identification numbers.

An auditor is determining if internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely would select a sample of transactions from the population represented by the: a. Cash receipts file. b. Shipping document file. c. Customer order file . d. Sales invoice file.

Which of the following procedures would be most appropriate for testing the completeness assertion as it applies to inventory? a. Scanning perpetual inventory, production, and purchasing records. b. Examining paid vendor invoices. c. Tracing inventory items from the tag listing back to the physical inventory quantities. d. Performing cutoff procedures for shipping and receiving.

To be effective, analytical procedures in the overall review stage of an audit engagement should be performed by: a. The staff accountant who performed the substantive auditing procedures. b. The managing partner who has responsibility for all audit engagements at that practice office. c. A manager or partner who has a comprehensive knowledge of the client's business and industry. d. The CPA firm's quality control manager or partner who has responsibility for the firm's peer review program.

Analytical procedures used in the overall review stage of an audit generally include: a. Gathering evidence concerning account balances that have not changed from the prior year. b. Retesting control activities that appeared to be ineffective during the assessment of control risk. c. Considering unusual or unexpected account balances that were not previously identified. d. Performing tests of transactions to corroborate management's financial statement assertions.

Analytical procedures performed in the final review stage of an audit generally would include: a. Reassessing the factors that assisted the auditor in deciding on preliminary materiality levels and audit risk. b. Considering the adequacy of the evidence gathered in response to unexpected balances identified in planning. c. Summarizing uncorrected misstatements specifically identified through tests of details of transactions and balances. d. Calculating projected uncorrected misstatements estimated through audit sampling techniques.

An auditor finds several errors in the financial statements that the client prefers not to correct. The auditor determines that the errors are not material in the aggregate. Which of the following actions by the auditor is most appropriate? a. Document the errors in the summary of uncorrected errors, and document the conclusion that the errors do not cause the financial statements to be misstated . b. Document the conclusion that the errors do not cause the financial statements to be misstated , but do not summarize uncorrected errors in the working papers. c. Summarize the uncorrected errors in the working papers, but do not document whether the errors cause the financial statements to be misstated . d. Do not summarize the uncorrected errors in the working papers, and do not document a conclusion about whether the uncorrected errors cause the financial statements to be misstated.

Lore would use which of the following to determine the average days sales in inventory? Numerator Denominator A. 365 avg inventory B.365 inventory turnover C. avg inventory Sales/ 365 D. Sales/365 inventory turnover

In analyzing a company's financial statements, which financial statement would a potential investor primarily use to assess the company's liquidity and financial flexibility? a. Balance sheet. b. Income statement. c. Statement of retained earnings. d. Statement of cash flows.

Cash $ 300 Accounts receivable, net 1,200 Inventory 500 Prepaid expenses 100 Other assets 400 Total assets $2,500 Curry also had current liabilities of $1 ,000 at December 31 , 20X2, and net credit sales of $7,200 for the year then ended. What is Curry's acid-test ratio at December 31 , 20X2?

In a comparison of 20X2 to 20X1 , Neir Co.'s inventory turnover ratio increased substantially although sales and inventory amounts were essentially unchanged. Which of the following statements explains the increased inventory turnover ratio? a. Cost of goods sold decreased . b. Accounts receivable turnover increased. c. Total asset turnover increased . d. Gross profit percentage decreased.

An auditor discovered that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This may indicate that: a. Obsolete inventory has not yet been reduced to fair market value. b. There was an improper cutoff of sales at the end of the year. c. An unusually large receivable was written off near the end of the year. d. The aging of accounts receivable was improperly performed in both years.

Which of the following ratios would an engagement partner most likely consider in the overall review stage of an audit? a. Total liabilities/net sales. b. Accounts receivable/inventory. c. Cost of goods sold/average inventory. d. Current assets/quick assets.

The audit documentation that makes up the current file most likely would include a copy of the: a. Bank reconciliation . b. Pension plan contract. c. Articles of incorporation. d. Flowchart of the internal control.

The third standard of fieldwork states that the auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. The appropriate audit evidence required by this standard may be obtained, in part, through: a. Flowcharting the internal control structure. b. Proper planning of the audit engagement. c. Analytical procedures. d. Audit documentation .

In testing the existence assertion for an asset, an auditor ordinarily works from the: a. Financial statements to the potentially unrecorded items. b. Potentially unrecorded items to the financial statements. c. Accounting records to the supporting evidence. d. Supporting evidence to the accounting records.

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? a. Accounts payable. b. Advertising expense. c. Accounts receivable. d. Payroll expense.