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University of the Philippines Diliman ACCOUNTING 20165345 UNIT XI THE AUDIT PROGRAM AND AUDIT WORKING PAPERS 1)An audit program provides proof that a

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University of the Philippines Diliman

ACCOUNTING 20165345

UNIT XI

THE AUDIT PROGRAM AND AUDIT WORKING PAPERS

1)An audit program provides proof that

a.            Sufficient competent evidential matter was obtained.

b.            The work was adequately planned.

c.             There was compliance with generally accepted standards of reporting.

d.            There was a proper study and evaluation of internal control.

 

2.            Audit programs are modified to suit the circumstances on particular engagements. A complete audit program for an engagement generally should be developed

a.            prior to beginning the actual audit work.

b.            After the auditor has completed an evaluation of the existing internal accounting control

c.             After reviewing the client’s accounting records and procedures.

d.            When the audit engagement letter is prepared.

 

3.            What do you call that type of working paper where matters of importance are noted down for further verification?

a.            Summary sheet.

b.            Audit program.

c.             Agenda sheet.

d.            Supporting schedules.

 

4.            The permanent file portion of the auditor’s working papers generally should include

a.            A copy of the engagement letter.

b.            A copy of key customer confirmation.

c.             Names and addresses of all audit staff personnel on the engagement.

d.            Time and expense reports.

 

5.            During an audit engagement pertinent data are compile and included in the audit working papers. The working papers primarily are considered to be

a.            A client-owned record of conclusions reached by the auditors who performed the

engagement.

b.            Evidence supporting financial statements.

c.             Support for the auditor’s representations as to compliance with generally accepted auditing standards.

d.            A record to be used a basis for the following year’s engagement.

 

6.            Audit work papers are used to record the results of the auditor’s evidence gathering work.

When preparing work papers the auditor should remember that

a.            Work papers should be designed to meet the circumstances and the auditor’s needs on each engagement.

 

b.            Work papers should be kept on the client’s premises so as to provide ready access to them by the client.

c.             Work papers should access to them by the client.

d.            Work papers should be considered as a substitute for the client’s accounting records.

 

7.            Audit working papers should not

a.            Include any client-prepared papers or documents other than hose prepared by the CPA or his assistant.

b.            Be kept by the CPA after review and completion of the audit except for items required

for the income tax return or the permanent file.

c.             Be submitted to the client to support the financial statements and to provide evidence of the audit work performed.

d.            Be themselves be expected to provide sufficient support for the auditor’s opinion.

 

8.            An auditor’s working papers will generally be least likely to include documentation showing how the

a.            Client’s schedules were prepared.

b.            Engagement had been planned.

c.             Client’s system of internal control had been reviewed and evaluated.

d.            Unusual matters were resolved.

 

9.            Although the quantity, type, and content of worker paper will vary with the circumstances

, the working papers generally include the

a.            Copies of those client records examined by the auditor during the course of the engagement.

b.            Evaluation of the efficiency and competence of the audit staff assistants by the partner

responsible for the audit.

c.             Auditor’s comments concerning the efficiency and competence of client management personnel.

d.            Auditing procedures followed, and the testing performed in obtaining evidential

matter.

 

10.          Which of the following is generally included or shown in the auditor’s working papers?

a.            The procedures used by the auditor to verify the personnel financial status of members of the client’s management team.

b.            Analysis that are designed to be a part of, or a substitute for, the client’s accounting

records.

c.             Excerpts from underlying generally accepted accounting principles used in preparing the financial statements.

d.            The manner in which exceptions and unusual matters disclosed by the auditor’s

procedures were resolved or treated.

 

11.          Which of the following factors will least affect the independent auditor’s judgment as to quantity, type, and content of working papers desirable for a particular employment?

 

a.            Nature of the auditor’s report.

b.            Nature of the financial statements, schedules or other information upon which the auditor is reporting.

c.             Need for supervision and review.

d.            Number of personnel assigned to the audit.

 

12.          In planning an audit engagement, which of the following is a factor that affects the independent auditor’s judgment as to the quantity, type, and content of working papers?

a.            The estimated occurrence rate of attributes.

b.            The preliminary evaluation based upon initial substantive testing.

c.             The content of the client’s representation letter.

d.            The anticipated nature of the auditor’s report.

 

13.          Which is not one of the uses of audit working papers?

a.            To serve as the basis for the preparation of the financial statements and the audit report.

b.            To analyze and organize accounting information so that it can be audited more easily.

c.             To provide evidence of the audit work performed.

d.            To provide the independence of the auditor.

 

14.          A CPA is conducting the first examination of a nonpublic company’s financial statements The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor’s working papers. This procedure is

a.            Acceptable if the client and the predecessor auditor agree it.

b.            Acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor’s work.

c.             Required if the CPA is to render an unqualified opinion.

d.            Unaccepted because the CPA should bring an independent viewpoint to a new engagement.

 

15.          Lopez, CPA, succeeded Cruz, CPA as auditor of Moonlight Corporation. Cruz had issued an unqualified report for the calendar year 1993. What can Lopez do to establish the basis for expressing an opinion on the 1994 financial statements with regard to opening balances?

a.            Lopez may review Cruz papers and thereby reduce the scope of audit tests Lopez

would otherwise have to do it respect to opening balances.

b.            Lopez must appropriate auditing procedures to account balances at the beginning of the period so as to be satisfied that they are properly stated and may not rely on the work done by Cruz.

c.             Lopez may rely on the prior year’s financial statements since an unqualified opinion

was issued and must make reference in the auditor’s report to Cruz’s report.

d.            Lopez may rely on the prior year’s financial statements since an unqualified opinion was issued and must refer in a middle paragraph of the auditor’s report to Cruz’s report of the prior year.

 

 

16.          A CPA may reduce the audit work on a first-time audit by reviewing the working papers of the predecessor auditor. The predecessor should permit the successor to review working papers relating to matters of continuing significance such as those that relate to

a.            Extent of reliance on the work of specialists.

b.            Free arrangements and summaries of payments.

c.             Analysis of contingencies.

d.            Staff hours required to complete the engagement.

 

17.          For what minimum period should audit working papers be retained by the independent CPA?

a.            For the period during which the entity remains a client of the independent CPA.

b.            For the period during which an auditor-client relationship exists but not more than six years.

c.             For the statutory period within which legal action may be brought against the

independent CPA.

d.            For as long as the CPA is in public practice.

 

18.          A listing of all the things which the auditor will use to gather sufficient, competent evidence is the

a.            Efficiency.

b.            Effectiveness.

c.             Efficiency and effectiveness.

d.            Cost benefit ratio.

 

19.          Test of controls are directed towards the control’s

a.            Efficiency.

b.            Effectiveness.

c.             Efficiency and effectiveness.

d.            Cost benefit ratio.

 

20.          Which one of these is not a type of evidence that would be used for both obtaining an understanding of the control structure and testing the controls?

a.            Inquiries.

b.            Inspection.

c.             Observation.

d.            Reperformance.

 

21.          A procedure designed to test for peso errors or irregularities directly affecting the correctness of financial statement balances is a

a.            Substantive test.

b.            Compliance test.

c.             Test of controls.

d.            Definition of peso-unit sampling.

 

22.          Test to determine whether the accounting transactions have been properly authorized, correctly recorded and summarized in the journals, and correctly posted to subsidiary ledgers and the general ledger are

a.            Test of controls.

b.            Substantive tests of transactions.

c.             Substantive test of balances.

d.            Analytical procedures.

 

23.          Tests of controls, for efficiency, are frequently done at the same time as

a.            Analytical procedures.

b.            Compliance tests.

c.             Substantive tests of transactions.

d.            Substantive tests of balances.

 

24.          The primary emphasis in most tests of details of balances is on the

a.            Balance sheet accounts.

b.            Income statement accounts.

c.             Cash flow statement account.

d.            Three statements above.

 

25.          Analytical procedures are defined in the Statements on Auditing Standards as

a.            Compliance tests.

b.            Substantive test.

c.             Tests of controls.

d.            Helpful procedures not possessing the validity of other tests available to the auditor.

 

26.          More types of evidence are obtained by using this test than by using any other type of test.

a.            Test of controls.

b.            Tests of transactions.

c.             Tests of balances.

d.            Analytical procedures.

 

27.          This type of evidence can be gathered with every type of audit test.

a.            Inquiries of client personnel.

b.            Inspection of documents and records.

c.             Observation of application of policies and procedures.

d.            Reperformance of procedures.

 

28.          Which of the following audit tests id usually the most costly to perform?

a.            Analytical procedures.

b.            Test of controls.

c.             Test of balances.

d.            Substantive tests o transactions.

 

29.          Which of the following audit tests is usually the least costly to perform?

 

a.            Analytical procedures.

b.            Test of controls.

c.             Test of balances.

d.            Substantive tests of transactions.

 

30.          At what stage in audit are the analytical procedures performed?

a.            In the planning stage.

b.            In conjunction with tests of transactions and tests of details of balances.

c.             Near the end.

d.            During all three stages.

 

31.          When planning tests of details of balances, the auditor forecasts the results of controls, substantive tests of transactions, and analytical procedures. The prediction for these three areas is usually that there will be

a.            No exceptions.

b.            Few or no exceptions.

c.             An average number of exceptions.

d.            Many exceptions.

 

32.          Which of the following statements is not true?

a.            Tests of transactions are often performed several months prior to the balance sheet date.

b.            It is common to use analytical procedures at any time during the audit.

c.             When controls are not considered effective, or when control deviations are discovered, substantive tests will be eliminated and replaced with tests of details of balances.

d.            Tests of details of balances are normally done last.

 

33.          Auditors should request that an audit client send a letter of inquiry to those attorneys who have been consulted litigation, claims, or assessments. The primary reason for this request is to provide

a.            Information concerning the progress of cases to date.

b.            Corroborative evidential matter.

c.             An estimate of the peso amount of the probable loss.

d.            An expert opinion as to whether a loss is possible, probably, or remote.

 

34.          A written clients representation letter most likely would be an auditor’s best source of corroborative information of a client’s plans to

a.            Terminate an employee pension plan.

b.            Make a public offering of its common stock.

c.             Settle an outstanding lawsuit for an amount less than the accrued loss contingency.

d.            Discontinue a line of business.

 

35.          An auditor concludes that the omission of a substantive procedure considered necessary at the time of the examination may impair the auditor’s present ability to support the previously expressed opinion. The auditor need not apply the omitted procedures if

a.            The risk of adverse publicity or litigation is low.

b.            The results of other procedures that were applied tend to compensate for the procedure omitted.

c.             The auditor’s opinion was qualified because of a departure from generally accepted

accounting principles.

d.            The results of the subsequent period’s tests of controls make the omitted procedure less important.

 

36.          Which of the following documentation is required for an audit in accordance with generally accepted auditing standards?

a.            An internal control questionnaire.

b.            A client engagement letter.

c.             A planning memorandum or checklist.

d.            A client representation letter.

 

37.          The purpose of tests of compliance is to provide reasonable assurance that the

a.            Accounting treatment of transactions and balances is valid and proper.

b.            Accounting control procedures are functioning as intended.

c.             Entity has complied with disclosure requirements of generally accepted accounting principles.

d.            Entity has complied with requirements of quality control.

 

38.          The reliance placed on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily

a.            Parallel.

b.            Inverse.

c.             Direct.

d.            Equal.

 

39.          Which of the following ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion?

a.            The auditor program.

b.            The auditor’s judgment.

c.             Generally accepted auditing standards.

d.            The auditor’s working papers.

 

40.          After performing a study and evaluation of the client’s system of internal control an auditor has concluded that the system is well designed and is functioning as anticipated.

Under these circumstances the audit would most likely

a.            Cease to perform further substantive tests.

b.            Not increase the extent of predetermined substantive tests.

c.             Increase the extent of anticipated analytical review procedures.

 

d.            Perform all compliance tests to the extent outlined in the preplanned audit program.

 

41.          Tests of compliance are concerned primarily with each of the following questions except

a.            How were the procedures performed?

b.            Why were the procedures performed?

c.             Were the necessary procedures performed?

d.            By whom were the procedures performed?

 

42.          With respect to the auditor’s planning of a year-end examination, which of the following statements is always true?

a.            An engagement should not be accepted after the fiscal year ends.

b.            An inventory count must be observed at the balance sheet date.

c.             The client’s audit committee should not be told of the specific audit procedures which will be performed.

d.            It is an acceptable practice to carry out substantial parts of the examination at interim

dates.

 

43.          The actual operation of an internal control system may be most objectively evaluated by

a.            Completing a questionnaire and flowchart related to the accounting system in the year under audit.

b.            Review of the previous year’s audit work papers to update the report of internal

control evaluation.

c.             Selection of items processed by the system and determination of the presence of absence or errors and compliance deviations.

d.            Substantive test of accounts balances based on the auditor’s assessment of internal

control strength.

 

44.          At interim dates an auditor evaluates a client’s internal accounting control procedures and finds them to be effective. The auditor then performs a substantial part of the audit engagement on a continuous basis throughout the year. At a minimum, the auditor’s year- end audit procedures must include.

a.            Determination that the client’s internal accounting control procedures are still

effective at the year end.

b.            Confirmation of those year-end accounts that were examined at interim dates.

c.             Tests of compliance with internal control in the same manner as those tests made at the interim dates.

d.            Comparison of the responses to the auditor’s internal control questionnaire with a

detailed flowchart at year-end.

 

45.          In the context of an audit of financial statements, substantive test are audit procedures that

a.            A. may be eliminated under certain conditions.

b.            Are designed to discover significant subsequent events.

 

c.             May be either tests of transactions, direct tests of financial balances, or analytical tests.

d.            Degree of reliance on the relevant internal controls.

 

46.          Which of the following is ordinarily designed to detect possible material peso errors on the financial statements?

a.            Compliance testing.

b.            Analytical review.

c.             Computer controls.

d.            Post audit working paper review.

 

47.          Audit programs are modified to suit the circumstance on particular engagements. A complete audit program for an engagement generally should be developed.

a.            Prior to beginning the actual audit work.

b.            After the auditor has completed an evaluation of the existing internal accounting records and procedures.

c.             After reviewing the client’s accounting records and procedures.

d.            When the audit engagement letter is prepared.

 

48.          Which of the following audit test would be regarded as a test of “compliance”?

a.            Tests of the specific items making up the balance in a given general ledger account.

b.            Tests of the inventory pricing to vendor’s invoices.

c.             Tests of the signatures on canceled checks to board director’s authorizations.

d.            Tests of the additions to property, plant, and equipment by physical inspections.

 

49.          An auditor evaluates the existing system of internal control in order to

a.            Determine the extent of substantive tests which must be performed.

b.            Determine the extent of compliance tests which must be performed.

c.             Ascertain whether irregularities are probable.

d.            Ascertain whether any employees have incompatible functions.

 

50.          After finishing the review phase of the study and evaluation of internal control in an audit engagement, the auditor should perform compliance tests on

a.            Those controls that the auditor plans to rely on.

b.            Those controls in which material weaknesses were identified.

c.             Those controls that have a material effect upon the financial statement balances.

d.            A random sample of the controls that were reviewed.

 

51.          A CPA wishes to use a representation letter as substitute for performing other audit procedures. Doing so:

a.            Violates professional standards.

b.            Is acceptable, but should only be done when cost justified.

c.             Is acceptable, but for non-public clients.

d.            Is acceptable and desirable under all conditions.

 

52.          Which of the following is not a procedure that auditors typically perform to search for significant events during the subsequent period?

a.            Review minutes of board of director’s meeting.

b.            Review the latest available interim financial statements.

c.             Inquire about any unusual adjustments made subsequent to the balance sheet data.

d.            Review subsequent to the balance sheet date.

 

53.          Which of the following best describes the problem with the use of published industry averages for analytical procedures?

a.            Lack of comparability.

b.            Lack of reliability.

c.             Lack of competence.

d.            Lack of availability.

 

54.          Which of the following best describes the reason that auditors are concerned with the detection of related party transactions?

a.            A business combination with another company.

b.            Loss on the sale of a closely-held investment.

c.             Loss of plant and equipment due to a fire.

d.            Retirement of bonds payable at a loss.

 

55.          Which of the following best describes the reason that auditor are concerned with the detection of related party transactions?

a.            The financial statements must often adjusted for the effects of material related party

transactions.

b.            Material related party transactions must be disclosed in the notes to the financial statements.

c.             The substance of related party transactions will differ from their form.

d.            In a related party transaction one party has the ability to exercise significant influence over the other party.

 

56.          Which of the following is not a typical procedure for testing the general journal?

a.            Foot column totals.

b.            Scan for unusual entries.

c.             Confirm.

d.            Vouch selected entries to original documents.

 

57.          The audit time budget is an example of:

a.            A support schedule.

b.            An administrative working paper.

c.             A lead schedule.

d.            A corroborative working paper.

 

58.          A lease agreement would normally be filed in

a.            The administrative working paper file.

 

b.            The permanent working paper file.

c.             The current working paper file.

d.            The bulk working file.

 

59.          A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial balance as a single amount, is referred as a

a.            Supporting schedule.

b.            Lead schedule.

c.             Corroborating schedule.

d.            Reconciling schedule.

 

60.          Which of the following is not a function of working paper?

a.            Provide support for the auditor’s report.

b.            Aid seniors in reviewing a supervising the work of managers and partners.

c.             Aid partners in planning and conducing future audits.

d.            Document staff compliance with generally accepted audit standards.

 

61.          A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final amount that will appear in the financial statements, is referred to as a

a.            Working trial balance.

b.            Lead schedule.

c.             Summarizing schedule.

d.            Supporting schedule.

 

62.          Authorization of which of the following is least likely to be found during a review of the minutes of the board of directors?

a.            Dividends.

b.            New debt issuance.

c.             New bank accounts.

d.            Writhe-off of trade accounts receivable

 

63.          In order to determine the authorized capital structure of a corporation the auditors would review

a.            The bylaws of the corporation.

b.            The articles of incorporation.

c.             The minutes of stockholders’ meetings.

d.            The minutes of board of directors’ meetings.

 

64.          An entity’s financial statements were misstated over a period of years due to large amounts of revenue being recorded in journal entries that involved debits and would most likely have been alerted to this irregularity by

a.            Scanning the general journal for unusual entries.

b.            Performing a revenue cutoff test of year end.

c.             Tracing a sample of journal entries to the general ledger.

 

d.            Examining documentary evidence of sales returns and allowances recorded after year end.

 

65.          Which of the following is not a primary purpose of audit working papers?

a.            To coordinate the examination.

b.            To assist in preparation of the audit report.

c.             To support the financial statements.

d.            To provide evidence of the auditor work performed.

 

66.          Which of the following has the least effect on the independent auditors’ judgement as to the quantity, type, and content of audit working papers?

a.            The needs in the particular circumstances for supervisor and review of the work

performed by any assistants.

b.            The nature and condition of the client’s records and internal controls.

c.             The expertise of client personnel and their expected audit participation.

d.            The type of the financial statements, schedules, or other information upon which the auditors are reporting.

 

67.          During an audit engagement pertinent data are prepared and included in the working papers. The working papers primarily are considered to be

a.            A client-owed record of conclusions reached by the auditors who performed the

engagement.

b.            Evidence supporting financial statements.

c.             Support for the auditors’ representations as to compliance with generally accepted auditing standards.

d.            A record to be used as a basis for the following year’s engagement.

 

68.          Although the quantity, type, and content of working papers will vary with the circumstances, the working papers generally would include the

a.            Copies of those client records examined by the auditor during the course of the

engagement.

b.            Evaluation of the efficiency and competence of the audit assistants by the partner responsible of the audit.

c.             Auditor’s comments concerning the efficiency and competence of client management

personnel.

d.            Auditing procedures followed, and the testing performed in obtaining evidential matter.

 

69.          The permanent file section of the working papers that is kept for each audit client most likely contains

a.            Review notes pertaining to questions and comments regarding the audit work

performed.

b.            A schedule of time spent on the engagement by each individual auditor.

c.             Correspondence with the client’s legal counsel concerning pending litigation.

d.            Narrative descriptions of the client’s accounting procedures and internal controls.

 

 

70.          Working papers that record the procedures used by the auditor to gather evidence should be

a.            Considered the primary support for the financial statements being examined.

b.            Viewed as the connecting link between the books of account and the financial statements.

c.             Designed to meet the circumstances of the particular engagement.

d.            Destroyed when the audited entity ceases to be a client.

 

71.          In general, which of the following statements is correct with respect to ownership, possession, or access to working papers prepared by a CPA firm in connection with an audit?

a.            The working papers may be obtained by third parties where they appear to be relevant

to issues raised in litigation.

b.            The working papers are subject to the privileged communication rule which, in a majority of jurisdictions, prevents third-party access to the working papers.

c.             The working papers are the property of the client after the client pays the fee.

d.            The working papers must be retained by the CPA firm for a period of ten years.

 

72.          To ascertain the exact name of the corporate client, the auditor relies primarily on

a.            Corporate minutes.

b.            Bylaws.

c.             Articles of incorporation.

d.            Tax returns.

 

73.          Which of the following statements is not correct?

a.            Cash is important to the audit process because of its vulnerability to misappropriation, despite the fact that the balance of the balance sheet date may be immaterial.

b.            Payroll cash account balances kept on an imprest basis are more easily controlled

than others not be immaterial.

c.             Confirmation of cash should only be performed as of the balance statement date because the auditor expresses an opinion as of that date.

d.            Reviewing interbank transfers is important to be auditor because of the possibility

that the client may be engaged in kiting.

 

74.          The auditors use a bank cutoff statement to compare

a.            Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal.

b.            Checks dated prior to year-end to the outstanding checks listed on the year-end bank

reconciliation.

c.             Deposits listed on the cutoff statement to disbursements in the cash disbursements journal.

d.            Checks dated subsequent to year-end bank reconciliation.

 

75.          The most practical and effective audit procedure for the detection of lapping is

a.            Preparing an interbank transfer schedule.

 

b.            Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank.

c.             Tracing recorded cash receipts to postings in customers’ ledger cards.

d.            Preparing of proof of cash.

 

76.          Which of the following is not an internal control procedure that generally is established over cash transactions?

a.            Separating cash handing from recordkeeping.

b.            Centralizing the receipt of cash.

c.             Depositing each day’s receipts intact.

d.            Obtaining a receipt for every disbursement.

 

77.          Which of the following is not a control that generally is established over cash receipts?

a.            To prevent abstraction of cash, a control listing of cash receipts should be prepared by mailroom personnel.

b.            To insure accurate posting, the accounts receivable clerk should post the customers’

receipts from customers’ checks.

c.             To insure accuracy of the accounts receivable records, the records should be reconciled monthly to the accounts receivable controlling account.

d.            To prevent theft of cash, receipts should be deposited daily.

 

78.          Tracing recorded sales transactions in the sales journal to the shipping documents (bills of landing) provides evidence about the

a.            Completeness of recording of sales transactions.

b.            Occurrence of sales transactions.

c.             Billing of all sales transactions.

d.            Presentation of payables.

 

79.          By preparing of four column bank reconciliation (“proof of cash”) for the last month of the year, an auditor will generally be able to detect

a.            An unrecorded check written at the beginning of the month which was cashed during

the period covered by the reconciliation.

b.            A cash sale which was not recorded on the recorded on the books and was stolen by a bookkeeper.

c.             An embezzlement of unrecorded cash receipts on receivable before they had been

deposited into the bank.

d.            A credit sake before they had been recorded twice in the sales journal.

 

80.          In October, three months before year-end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to miscellaneous revenue. Select the most effective method for detecting this type of error.

a.            Foot the cash receipts journal for October.

b.            Send a bank confirmation as of year-end.

c.             Prepare a bank confirmation as of year-end.

d.            Prepare a bank transfer schedule as of year-end.

 

81.          Jones embezzled P10,000 from his company’s account in Bank A. At year-end he hid the shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not recorded the transaction on the books. This is an example of

a.            Lapping.

b.            Kiting.

c.             Effective cash management.

d.            Related party transaction.

 

82.          Jones embezzled P10,000 from his company’s account Bank A. At year-end he hid the shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not recoded the transaction on the books. Which of the following is most likely to be effective in detecting this irregularity?

a.            Bank confirmation.

b.            Bank transfer schedule prepared using only the receipts and cash disbursements journals.

c.             Comparison of bank cutoff statement to the cash receipts and disbursements records.

d.            Receivable confirmation.

 

83.          Which of the following is not a universal rule for achieving internal control over cash?

a.            Separate recordkeeping from accounting for cash to the extent possible.

b.            Deposit each day’s cash receipts intact.

c.             Separate cash handling from recordkeeping.

d.            Have monthly bank reconciliations prepared by employees not responsible for the issuance of checks.

 

84.          Which of the following is not an internal control procedure for cash disbursements?

a.            Disbursements should be made by check.

b.            A check protecting machine should be used.

c.             Documents supporting the payment of a disbursement should be canceled by the person preparing the check to prevent reuse.

d.            Voided checks should be defaced and filed with paid checks.

 

85.          Which of the following is the best audit procedure for the detection of lapping?

a.            Comparison of posting of cash receipts to accounts with the details of cash deposits.

b.            Confirmation of the cash balance.

c.             Reconciliation of the cash account balances.

d.            Preparing a proof of cash.

 

86.          Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements?

a.            Understatement of outstanding checks.

b.            Overstatement of outstanding checks.

c.             Understatement of deposits in transit.

d.            Overstatement of bank services charges.

 

87.          Which of the following is not confirmed on the standard from used for cash balances at financial institutions?

a.            Cash checking account balances.

b.            Cash saving account balances.

c.             Loans payable.

d.            Securities held for the client by the financial institution.

 

88.          Internal control over marketable securities is enhanced when

a.            Securities are held by the cashier.

b.            Securities are registered in the name of the custodian.

c.             Detailed records of securities are maintained by the custodian of the securities.

d.            Securities are held under joint control of two or more officials.

 

89.          The best audit procedure to detect the misuse of investment securities during the year and replacement of the securities prior to the audit is

a.            Vouching of purchased securities.

b.            Reconciling the subsidiary ledge of securities to the controlling account.

c.             Comparing the amount of investment revenue recorded by the client to the amount independently computed by the auditors.

d.            Confirming securities held by a custodian at year-end.

 

90.          In a manufacturing company which one of the following audit procedures would give the least assurance of the existence of the assets in the general ledger balance of investment in stocks and bonds at the audit date?

a.            Confirmation from the broker.

b.            Inspection and count of stocks and bonds.

c.             Vouching all charges during the year to brokers’ advises and statements.

d.            Examination of paid checks issued in payment of securities purchased.

 

91.          The standard Form of Confirm Account Balances with Financial Institutions includes information on all of the following except

a.            Date due of a direct liability.

b.            The principal amount paid on a direct liability.

c.             Description of collateral for a direct liability.

d.            The interest rate of a direct liability.

 

92.          The auditors should insist that a representative of the client be presented during the physical examination of securities in order to

a.            Lend authority of the auditor’s directives.

b.            Detect forged securities.

c.             Coordinate the return of all securities to proper locations.

d.            Acknowledge the receipt of securities returned.

 

93.          The auditors’ count o the client’s cash should be coordinated to coincide with the

a.            Consideration of the internal controls with respect to cash.

b.            Close of business on the balance sheet date

 

c.             Count of marketable securities.

d.            Count of inventories.

 

94.          The auditors compare information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that

a.            Recorded cash disbursement transactions are properly authorized.

b.            Proper cash purchase discounts have been recorded.

c.             Cash disbursements are for goods and services actually received.

d.            No discrepancies exist between the data on the checks and the data in the journal.

 

95.          Jones was engaged to examine the financial statements of Gamma Corporation for the year ended June 30, 199X. Having completed an examination of the investment securities, which of the following is the best method of verifying the accuracy of recorded dividend income?

a.            Tracing recorded dividend income to cash receipts records and validated deposit slips.

b.            Utilizing analytical techniques and statistical sampling.

c.             Comparing recorded dividends with amounts appearing on federal information form 1099s.

d.            Comparing recorded dividends with a standard financial reporting service’s record of

dividends.

 

96.          Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting?

a.            Review composition of authentic deposit slips.

b.            Review subsequent bank statements and canceled checks received directly from the banks.

c.             Prepare a schedule of the transfers.

d.            Prepare year-end bank reconciliations.

 

97.          Which of the following would the auditor consider to be incompatible operation if the cashier receives remittances from the mailroom?

a.            The cashier prepares the daily deposit.

b.            The cashier makes the daily deposit at a local bank.

c.             The cahier posts the receipts to the accounts receivable subsidiary ledger.

d.            The cashier endorses the checks.

 

98.          As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a confirmation request for a bank account that had been closed during the year. After the client’s treasurer has signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure?

a.            The confirmation request was signed by the treasurer.

b.            Sending the request was meaningless because the account was closed before the year end.

c.             The request was mailed by the assistant treasurer.

d.            The CPA did not sign the confirmation request before it was mailed.

 

99.          On receiving the bank cutoff statement, the auditor should trace

a.            Deposits in transit on the year-end bank reconciliation to deposits in the cash receipt journal.

b.            Checks dated prior to year-end to the outstanding checks listed on the year-end bank

reconciliation.

c.             Deposits listed on the cutoff statement to deposits in the cash receipt journal.

d.            Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation.

 

100.        To gather evidence regarding the balance per bank in a bank reconciliation, an auditor could examine all of the following except

a.            Cutoff bank statement.

b.            Year-end bank statement.

c.             Bank confirmation.

d.            General ledger.