This is a non-interactive preview of the quiz content. Show 1. 1 point When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs: Tests of controls and extensive tests of property and equipment balances at the end of the year Analytical procedures for current year property and equipment transactions. Tests of controls and limited tests of current year property and equipment transactions. Analytical procedures for property and equipment balances at the end of the year. 2. 1 point Changes in capital stock accounts should normally be approved by The board of directors. The audit committee The stockholders The president 3. 1 point Which of the following is not a control that should be established for purchases of equipment? Establishing a budget for capital acquisitions Requiring that the department in need of the equipment order the equipment. Requiring that the receiving department receive the equipment. Establishing an accounting policy regarding the minimum dollar amount of purchase that will be considered for capitalization. 4. 1 point Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed? Scan the sales journal for sequential and unusual entries Examine shipping documents for matching sales invoices. Compare the accounts receivable ledger to daily sales summaries. Inspect unused sales invoices for consecutive pre-numbering. 5. 1 point Which of the following statements is correct regarding accounts payable and the auditor's procedures? Because it is generally more difficult to discover a transaction that has not been recorded than to discover one that has been recorded incorrectly, the audit objective of completeness drives many of the substantive procedures applied to these balances. A judgment whether an unrecorded payable should be recorded before the financial statements are prepared depends entirely upon the source of the payable. The confirmation of accounts payable selected from the year-end trial balance of such accounts is most effective in discovering unrecorded liabilities. Unrecorded payables are often discovered through examining vouchers payable entered into the voucher register prior to the balance sheet date. 6. 1 point A continuing audit client's property, plant and equipment and accounts receivable accounts have approximately the same year-end balance. In this circumstance, when compared to property, plant and equipment one would normally expect the audit of accounts receivable to require: More audit time Less audit time. Approximately the same amount of audit time. Similar confirmation procedures. 7. 1 point Which of the following is not a test primarily used to test property, plant and equipment accounts for overstatement? Investigation of reductions in insurance coverage. Review of property tax bills. Examination of retirement work orders prepared during the year. Vouching retirements of plant and equipment. 8. 1 point Which of the following best describes the auditors' approach to the audit of the ending balance of property, plant and equipment for a continuing nonpublic client? Direct audit of the ending balance Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts Audit of changes in the accounts since inception of the company Audit of selected purchases and retirements for the last few years. 9. 1 point In which of the following accounts would one expect a related party transaction to be easiest to detect? Accounts receivable Accounts payable Notes payable Cash 10. 1 point Which of the following is used to obtain evidence that the client's equipment accounts are not understated? Analyzing repairs and maintenance expense accounts. Vouching purchases of plant and equipment. Recomputing depreciation expense. Analyzing the miscellaneous revenue account. 11. 1 point A plant manager would be most likely to provide information on which of the following? Adequacy of the provision for uncollectible accounts Appropriateness of physical inventory valuation techniques. Existence of obsolete inventory. Deferral of certain purchases of office supplies. 12. 1 point The auditors may expect a proper debit to goodwill due to: Purchase of a trademark. Establishment of an extraordinarily profitable product. A business combination. Capitalization of human resources. 13. 1 point The confirmation of accounts payable is most closely associated with Assertion Risk Detection Risk Inherent Risk Relative Risk 14. 1 point In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the: Extent of the control risk Extent of property abandoned during the year Adequacy of replacement funds Reasonableness of the depreciation 15. 1 point A likely analytical procedure to test the accuracy of purchase discounts would be to compute the ratio of cash discounts earned to Accounts payable Notes payable Purchases Sales discount 16. 1 point Which of the following best describes the specific accounts payable that are selected for confirmation? Accounts with large balances Accounts with zero balances. Accounts with a large amount of activity regardless of their balance. Accounts for which vendor statements are available. 17. 1 point The most likely technique for the current year audit of goodwill which was acquired three years ago by a continuing audit client Confirmation Observation Recomputation Inquiry 18. 1 point When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited? Accounts Receivable. Accrued liabilities. Cash Cost of goods sold. 19. 1 point Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for Investigation of variances within a formal budgeting system Review and approval of the monthly depreciation entry by the plant supervisor Segregation of duties of employees in the accounts payable department Examination by the internal auditors of vendor invoices and canceled checks for property acquisitions. 20. 1 point Which of the following best describes the auditors' typical observation of plant and equipment? The auditors observe a physical inventory of plant and equipment, annually The auditors observe all additions to plant and equipment made during the year. The auditors observe all major plant and equipment items in the clients' accounts each year. The auditors observe major additions to plant and equipment made during the year. 21. 1 point Which of the following assertions is of principle concern to the auditors in the examination of accounts payable? Exsistence Completeness Valuation Authorization 22. 1 point In violation of company policy, Lowell Company erroneously capitalized the cost of painting its warehouse. The auditors examining Lowell's financial statements would most likely detect this when Discussing capitalization policies with Lowell's controller. Examining maintenance expense accounts Observing, during the physical inventory observation, that the warehouse had been painted Examining the construction work orders supporting items capitalized during the year 23. 1 point For which of the following ledger accounts would the auditor be most likely to analyze the details to identify understatements of equipment acquisitions? Service Revenue. Sales Repairs and maintenance expense Sales salaries expense 24. 1 point The auditors are least likely to learn of retirements of equipment through which of the following? Review of the purchase returns and allowances account Review of depreciation Analysis of the debits to the accumulated depreciation account Review of insurance policy riders. 25. 1 point An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of: Purchase orders. Canceled checks. Receiving reports. Approved vouchers. 26. 1 point Auditors may choose not to confirm accounts payable because: Confirmation obtains evidence identical to that obtained by cutoff tests. Other reliable external evidence to support the balances is likely to be available. A reading of the corporate minutes reveals that confirmation is unnecessary. The balances due will have changed between the year-end and the date of confirmation. 27. 1 point Which of the following audit procedures is best for identifying unrecorded trade accounts payable? Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. Examining unusual relationships between monthly accounts payable balances and recorded cash payments. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. 28. 1 point For audit purposes, a corporation's articles of incorporation are normally Copied and placed on the owners' equity lead schedule Copied and placed in the permanent file Confirmed with the transfer agent Ignored since they are not normally considered to be related to the internal control structure 29. 1 point In testing for unrecorded retirements of equipment, an auditor might Select items of equipment from the accounting records and then attempt to locate them during the plant tour Compare depreciation expense with the prior year's depreciation expense. Trace equipment items observed during the plant tour to the equipment subsidiary ledger. Scan the general journal for unusual equipment retirements. 30. 1 point The assertion most directly addressed when performing the search for unrecorded liabilities is: Completeness Existence Presentation Rights 31. 1 point Which of the following best describes the auditors' approach to the audit of accrued liabilities? Test computations Confirmation Observation. A low planned assessed level of control risk 32. 1 point Which of the following best describes the independent auditors' approach to obtaining satisfaction concerning depreciation expense in the income statement? Verify the mathematical accuracy of the amounts charged to income as a result of depreciation expense Determine the method for computing depreciation expense and ascertain that is in accordance with generally accepted accounting principles Reconcile the amount of depreciation expense to those amounts credited to accumulated depreciation accounts Establish the basis for depreciable assets and verify the depreciation expense. 33. 1 point Which of the following would be least likely to address control over the initiation and execution of equipment transactions? Requests for major repairs are approved by a higher level than the department initiating the request. Prenumbered purchase orders are used for equipment and periodically accounted for. Requests for purchases of equipment are reviewed for consideration of soliciting competitive bids. Procedures exist to restrict access to equipment 34. 1 point Which of the following manipulations would understate accounts payable on the financial statements? Overstatement of purchases Closing the cash disbursements journal prior to year-end Leaving the cash receipts journal open after year-end Overstating purchase returns. 35. 1 point Which of the following is a customary audit procedure for the verification of the legal ownership of real property? Examination of correspondence with the corporate counsel concerning acquisition matters Examination of ownership documents registered and on file at a public hall of records. Examination of corporate minutes and resolutions concerning the approval to acquire property, plant and equipment Examination of deeds and title guaranty policies on hand. 36. 1 point A client recorded a payable for a large purchase twice. Which of the following controls would be most
likely to detect this error in a timely and efficient manner? Footing the purchases journal. Reconciling vendors' monthly statements with subsidiary payable ledger accounts. Tracing totals from the purchases journal to the ledger accounts. Sending written quarterly confirmations to all vendors. 37. 1 point For a large publicly traded client the auditors' examination of capital stock accounts will not normally include: Analysis of capital stock accounts. Confirmation of shares issued with the independent registrar. Accounting for the proceeds of major stock issues. Reconciliation of a stock certificate book with the general ledger 38. 1 point An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the following is most likely? The estimated remaining useful lives of equipment were increased. Plant assets were retired during the year The prior year's deprecation expense was erroneously understated. Overhead allocations were revised at year-end. 39. 1 point When performing an audit of the property, plant and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles? Repairs have been capitalized to repair equipment that had broken down. Interest has been capitalized for self-constructed assets. Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statements. The cost of freight-in on an acquisition has been capitalized 40. 1 point When comparing an initial audit with a subsequent year audit for a particular client, the scope of audit procedures for which of the following accounts would be expected to decrease the most? Accounts receivable. Cash Marketable securities Property, plant and equipment 41. 1 point Which of the following is an example of an accrued liability? Accounts Payable Notes Payable Prepaid Insurance Product Warranty Liability 42. 1 point The audit approach for acquired treasury stock will normally include: Confirmation with shareholders. Inspection of certificates Inspection of cash receipts entries Recomputation of all gains and losses 43. 1 point Which of the following is not one of the auditors' objectives in auditing depreciation? Establishing the reasonableness of the client's replacement policy. Establishing that the methods used are appropriate Establishing that the methods are consistently applied. Establishing the reasonableness of depreciation computations. 44. 1 point Which of the following best describes a voucher prepared under good internal control? A document prepared by Stores that indicates amount to be purchased. A document prepared by Receiving that indicates the quantity received and approves payment. A document prepared by Accounts Payable authorizing a cash disbursement. A document received by Purchasing, from a supplier, indicating quantity of goods purchased and amount due. 45. 1 point Which statement is correct with respect to accounts payable confirmations? The negative form is used in most circumstances Accounts with new suppliers are always confirmed They are a required auditing procedure They are more frequently used in situations in which some vendors don't send monthly statements. 46. 1 point For which of the following accounts is it most likely that most of the audit work can be performed in advance of the balance sheet date? Accounts receivable Cash Current marketable securities Property plant and equipment 47. 1 point Which of the following audit procedures is aimed most directly at testing the completeness assertion for accounts payable Footing the list of accounts payable. Examining underlying documentation for cash disbursements in the period after year-end. Tracing shipping reports issued on or before year-end to related customer purchase orders and invoices. Tracing shipping reports after year-end to related customer purchase orders and invoices. 48. 1 point Which of the following is the best evidence of continuous ownership of property? Examination of the deed. Examination of rent receipts from lessees of the property. Examination of the title policy. Examination of canceled check in payment for the property. 49. 1 point An auditor wishes to perform tests of controls on a client's cash disbursements relating to accounts payable. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by Confirmation and observation Observation and inquiry Analytical procedures and confirmation. Inquiry and analytical procedures. 50. 1 point Which of the following is the most important control procedure over acquisitions of property, plant, and equipment? Establishing a written company policy distinguishing between capital and revenue expenditures. Using a budget to forecast and control acquisitions and retirements Analyzing monthly variances between authorized expenditures and actual costs Requiring acquisitions to be made by user departments Which assertion is tested in a search for unrecorded liabilities?The primary test to confirm the completeness assertion for accounts payable and other liabilities is to perform a “search for unrecorded liabilities”. Basically, the audit team obtains a listing of all cash disbursements made for a period of time after year-end.
How does an auditor perform search for unrecorded liabilities?Search for unrecorded liabilities involves reviewing payment vouchers issued after year-end and unpaid supplier invoices as at the date of audit to check that all material liabilities relating to the financial year have been recorded as at year-end.
What is the purpose of search for unrecorded liabilities?Search for unrecorded liabilities is the audit testing procedure that auditors perform to verify if they are understated by completely not recording them. Auditors perform such tests of the search for unrecorded liabilities to give an appropriate response to assess the risk of understatement of liabilities.
Which of the following audit procedures is best for identifying unrecorded?Which of the following audit procedures is best for identifying unrecorded trade accounts payable? Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.
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The assertion most directly addressed when performing the search for unrecorded liabilities is:
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