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University of the Philippines Diliman ACCOUNTING 20165345 1)Which of the following best explains why accounts payable confirmation procedures are not always used? a

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University of the Philippines Diliman

ACCOUNTING 20165345

1)Which of the following best explains why accounts payable confirmation procedures are not always used?

a.            Inclusion of accounts payable balances on the liability representations completed by

the client allows the auditor to refrain from using confirmation procedures.

b.            Accept payable generally are insignificant and cane be audited by utilizing analytical procedures.

c.             The auditor may feel certain that the creditors will press for payment.

d.            Reliable externally generated evidence supporting accounts payable balances in generally available for audit inspection on the client’s premises.

 

2.            Internal control over accounts payable is improved when

a.            Purchase orders show approved prices.

b.            Informal bids are obtained.

c.             Annual trial balance of accounts payable subsidiary ledgers is required.

d.            Payment is made upon approval of the purchasing agent.

 

3.            In a properly designed internal control structure, the same employee should not be permitted to

a.            Sign checks and cancel supporting documents.

b.            Receive merchandise and prepare a receiving report.

c.             Prepare disbursement vouchers and sign checks.

d.            Initiate a request to order merchandise and approve merchandise received.

 

4.            Unrecorded liabilities are most likely to be found during the review of which of the following documents?

a.            Unpaid bills.

b.            Shipping records.

c.             Bills of lading.

d.            Unmatched sales invoice.

 

5.            Which of the following procedures is least likely to be completed before the balance sheet date?

a.            Observation of inventory.

b.            Review of internal control over cash disbursements.

c.             Search for unrecorded liabilities.

d.            Confirmation of receivables.

6.            Which of the following audit procedures is least likely to detect an unrecorded liability?

a.            Analysis and recomputation of interest expense.

b.            Analysis and recomputation of depreciation expense.

c.             Mailing of a cash confirmation form.

d.            Reading of the minutes of meetings of the board of directors.

 

7.            The auditor will most likely perform extensive tests for possible understatement of

a.            Revenues.

b.            Assets.

c.             Liabilities.

d.            Capital.

 

8.            Internal control over bonds payable is best when

a.            The company utilizes the services of a bond trustee.

b.            The company segregates approval from issuance of the bonds.

c.             Bonds are countersigned by two officers.

d.            Bonds are serially numbers.

 

9.            Which of the following is not a procedure that is designed to provide evidence about the existence of loss contingencies?

a.            Obtaining a lawyers’ letter.

b.            Confirming accounts payable.

c.             Reviewing the minutes of board of directors’ meetings.

d.            Review correspondence with banks.

 

10.          Which of the following types of matters do not generally disclosure in the financial statements?

a.            General risk contingencies.

b.            Commitments.

c.             Loss contingencies.

d.            Liabilities to related parties.

 

 

11.          In which of the following accounts would one expect a related party transaction to be easiest to detect?

a.            Accounts receivable.

b.            Accounts payable.

c.             Notes payable.

d.            Cash.

 

12.          For audit purposes, a corporation’s articles of incorporation are normally

a.            Copied and places on the owners’ equity lead schedule.

b.            Copied and placed in the permanent file.

c.             Confirmed with the transfer agent.

d.            Ignored since they are not normally considered to be related to the internal control structure.

13.          The audit approach for acquired treasury stock will normally include

a.            Confirmation with shareholders.

b.            Inspection of certificates.

c.             Inspection of cash receipts entries.

d.            Recomputation of all gains and losses.

 

14.          Material loss contingencies should be recorded in the financial statements if available information indicates it is probable that a loss had been sustained prior to the balance sheet date and the amount of such loss can be reasonably estimated. These considerations will affect the audit report as follows:

a.            If a loss has been recorded in accordance with these criteria, the auditor may issue an

unqualified opinion but is required to point out the contingency in an explanatory paragraph of the report.

b.            If a loss meets these criteria but is disclosed in the financial statement notes rather

than being recorded therein, the auditor may issue an unqualified opinion, but is required to point out the contingency in a explanatory paragraph of the report.

c.             If a loss meets these criteria but is disclosed in the financial statements notes rather

than being recorded therein, the auditor may issue an unqualified opinion, but is required to pint out the contingency in a explanatory paragraph of the report.

d.            If a loss is probable but the amount cannot be reasonably estimated and is disclosed in

the notes to the financial statements rather than being recorded therein, the auditor may issue an unqualified opinion, but is required to point out the contingency in an explanatory paragraph of the report.

 

15.          A refusal by a lawyer to furnish information related to litigation included in the letter of inquiry is likely to result in

a.            Confirmation of related lawsuits with the claimants.

b.            Qualification of the audit report.

c.             An assessment that loss of the litigation is probable.

 

d.            An adverse opinion.

 

16.          Changes in capital stock accounts should normally be approved by

a.            The board of directors.

b.            The audit committee.

c.             The stockholders.

d.            The president.

 

17.          For a large publicly traded client the auditors’ examination of capital stock accounts will not normally include

a.            Analysis of capital stock accounts.

b.            Confirmation of shares issued with the independent registrar.

c.             Accounting for the proceeds of major stock issues.

d.            Reconciliation of a stock certificate book with the general ledger.

 

18.          For a corporation that does not utilize the services of an independent registrar and stock transfer agent, which of the following represents a weakness in internal control over stock issuance?

a.            Stock certificates are prenumbered.

b.            Stock certificates are signed immediately upon receipt from the printer.

c.             Stock certificates are in the exclusive custody of a responsible officer.

d.            Stock certificates require the signature of two officers.

 

19.          The auditors’ program for the examination of long-term debt should include steps require the

a.            Verification of the existence of the bondholders.

b.            Examination of any bond trust indenture.

c.             Inspection of the accounts payable subsidiary ledger.

d.            Investigation of credits to the bond interest income accounts.

 

20.          During an examination of a publicly-held company, the auditors should obtain written confirmation regarding debenture transactions from the

a.            Debenture holders.

b.            Client’s attorney.

c.             Internal auditors.

d.            Trustee.

 

21.          Auditors often request that audit client send a letter of inquiry to those attorneys who have been consulted with respect of litigation, claims, or assessments. The primary reason for this request is to provide the auditor with

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

b.            An expert opinion as to whether a loss is possible, probable or remote.

c.             Information concerning the progress of cases to date.

d.            Corroborative evidential matter.

 

22.          The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial statements is to

a.            Evaluate internal control over securities.

b.            Determine the validity of prepaid interest expense.

c.             Ascertain the reasonableness of imputed interest.

d.            Detect unrecorded liabilities.

 

23.          An audit program for the examination of the retained earnings account should include a step that requires verification of the

a.            Market value used to charge retained earnings to account for a two-for-one stock

split.

b.            Approval of the adjustment to the beginning balance as a result of a write-down of an account receivable

c.             Authorization for both cash stock dividends.

d.            Gain or loss resulting from disposition of treasury shares.

 

24.          During its fiscal year, a company issued, at a discount, a substantial amount of first-mortgage bonds. When performing independent auditor should

a.            Confirm the existence of the bondholders.

b.            Review the minutes for authorization.

c.             Trace the net cash received from the issuance to the bond payable account.

d.            Inspect the records maintained by the bond trustee.

 

25.          When no independent stock transfer agent is employed and the corporation issues its own stock and maintains stock records, canceled stock certificates should

a.            Be defaced to prevent reissuance and attached to their corresponding stubs.

b.            Not be defaced but segregated from other stock

c.             Be destroyed to prevent fraudulent reissuance.

d.            Be defaced and sent to the Secretary of state.

 

26.          The auditor’s primary means of obtaining corroboration of management’s information concerning litigation is a

a.            Letter of auditor inquiry to the client’s lawyer.

b.            Letter of corroboration from the auditor’s lawyer upon review of the legal documentation.

c.             Confirmation of claims and assessments from the other parties to the litigation.

d.            Confirmation of claims and assessments from n officer of the court presiding over the litigation.

27.          Which of the following ledger accounts would probably not be analyzed by the auditors?

a.            Miscellaneous revenue.

b.            Professional fees.

c.             Travel expense.

 

d.            Repairs and maintenance.

 

28.          An example of an internal control weakness is to assign the payroll department the responsibility for

a.            Preparing the payroll expense distribution.

b.            Preparing the payroll checks.

c.             Authorizing deductions from pay.

d.            Interviewing employees for jobs.

 

29.          An example of an internal control weakness is to assign the personnel department responsibility for

a.            Distribution of paychecks

b.            Hiring personnel.

c.             Authorizing deductions from pay.

d.            Interviewing employees for jobs.

 

30.          The review of audit working papers by the audit partner is normally competed

a.            Prior to year-end.

b.            Immediately as each working paper is completed.

c.             Near the completion of field work.

d.            After issuance of the audit report, but prior to required subsequent event review procedures.

 

31.          The audit of which of the following balance sheet accounts does not normally result in verification of an income statement accounts?

a.            Cash.

b.            Accounts receivable.

c.             Property, plant and equipment.

d.            Intangible assets.

 

32.          Which of the following audit procedures is aimed at determining whether every name of the company payroll is a bona-fide employee on the job?

a.            A surprise observation of a paycheck distribution.

b.            A test of payroll extensions.

c.             Analytical comparisons of budgeted to actual payroll expense.

d.            Comparison of payee names on canceled payroll checks with the payroll register.

 

33.          Which of the following is not a procedure performed by auditors on segment information?

a.            Evaluate reasonableness of management’s methods of compiling the information.

b.            Apply analytical procedures to test its reasonableness.

c.             Confirm major segments with appropriate creditors.

d.            Evaluate the reasonableness of methods of allocating operating expense among segments.

 

34.          Which of the following is not a procedure normally performed while completing the audit?

a.            Obtain a lawyer’s letter.

b.            Obtain a representations letter.

c.             Perform an overall review using analytical procedures.

d.            Obtain confirmation of capital stockholdings from shareholders.

 

35.          Auditors must communicate internal control “reportable conditions” to

a.            The audit committee.

b.            The shareholders.

c.             The SEC.

d.            The Federal Trade Commission.

 

36.          Which of the following procedures is not a procedure that is completed near the end of the engagement?

a.            Review cash transactions.

b.            Review to identify subsequent events.

c.             Obtain the lawyer’s letter.

d.            Obtain the letter of representations.

 

37.          Which of the following information must be reported on in the auditors’ report?

a.            FASB-required supplementary information.

b.            Other information in client-prepared documents.

c.             Information accompanying financial statements in auditor-submitted documents.

d.            GASB-required supplementary information.

 

38.          In evaluating whether there is a sufficiently low probability of material misstatement in the financial statements, the auditors accumulate.

a.            Likely misstatements in the financial statements.

b.            Known misstatements in the financial statements.

c.             Known and likely misstatements in the financial statements.

d.            Known, likely and potential misstatements in the financial statements in the financial statements.

39.          If would be appropriate for the payroll accounting department to be responsible for which of the following functions?

a.            Approval of records of employee time records.

b.            Maintenance of records of employment, discharges, and pay increases.

c.             Preparation of periodic governmental reports as to employees’ earnings and withholding taxes.

d.            Distribution of paychecks to employees.

 

40.          One reason why the independent auditors perform analytical procedures on the client’s operations is to identify

a.            Weakness of a material nature in internal control.

 

b.            Non-compliance with prescribed control procedures.

c.             Improper separation of accounting and other financial duties.

d.            Unusual transactions.

 

41.          Which of the following is the best reason why the auditors should consider observing a client’s distribution of regular payroll checks?

a.            Separation of payroll duties is less than adequate for effective internal control.

b.            Total payroll costs are a significant part of total operating costs.

c.             The auditors did not observe the distribution of the entire regular payroll during the audit in the prior year.

d.            Employee turnover is excessive.

 

42.          To minimize the opportunities for fraud, unclaimed cash payroll should be

a.            Deposited in a safe deposit box.

b.            Held by the payroll custodian.

c.             Deposited in a special bank account.

d.            Held by the controller.

 

43.          Which of the following auditing procedures is ordinarily performed last?

a.            Reading of the minutes of the directors’ meetings.

b.            Confirming accounts payable.

c.             Obtaining a management representation letter.

d.            Testing of the purchasing function.

 

44.          The purpose of segregating the duties of distributing payroll checks and hiring personnel is to

a.            Separate the custody of assets from the accounting for the assets.

b.            Established clear lines of authority and responsibility.

c.             Separate duties within the accounting function.

d.            Separate the authority and responsibility.

 

45.          The auditors’ best course of action with respect to “other financial information “ included in a client prepared annual report containing the auditors’ report is to

a.            Indicate in the auditors’ report, that the “other financial information” is unaudited.

b.            Consider whether the “other financial information” is accurate by performing a limited review.

c.             Obtain written representations from management as to the material accuracy of the

“other financial information”.

d.            Read and consider the manner of presentation of the “other financial information”.

 

46.          In the course of the examination of financial statements for the purpose of expressing an opinion thereon, the auditors will normally prepare a schedule of unadjusted differences for which the auditors did not propose adjustment when they were uncovered. What is the primary purpose served by this schedule?

 

a.            To point out to the responsible client officials the errors made by various company personnel.

b.            To summarize the adjustments that must be made before the company can prepare and

submit its federal tax return.

c.             To identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered.

d.            To summarize the errors made by the company so that corrections can be made after

the audited financial statement are released.

 

47.          A CPA reviews a client’s payroll procedures. The CPA would consider internal control to be less than effective if a payroll department supervisor was assigned the responsibility for

a.            Reviewing and approving time reports for subordinate employees.

b.            Distributing payroll checks to employees.

c.             Hiring subordinate employees.

d.            Initiating requests for salary adjustments for subordinate employees.

 

48.          A common audit procedure in the audit of payroll transactions involves tracing selected items from the payroll journal to employee time cards that have been approved by supervisor personnel. This procedure is designed to provide evidence in support of the audit proposition that

a.            Only bona-fide employees worked and their pay was properly computed.

b.            Jobs on which employees worked were charged with the appropriate labor cost.

c.             Internal controls relating to payroll disbursements are operating effectively.

d.            All employees worked the number of hours for which their pay was computed.

 

49.          Which of the following analytical procedures should be applied to the income statement?

a.            Select sales and expense items and trace amounts to related supporting documents.

b.            Ascertain that the net income amount in the statement of cash flows agrees with the net income amount in the income statement.

c.             Obtain from the proper client representatives, the beginning and ending inventory

amounts that were used to determine costs of sales.

d.            Compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences.

 

50.          An auditor will ordinarily examine invoices from lawyers primarily in order to

a.            Substantiate accruals.

b.            Assess the legal ramifications of litigation in progress.

c.             Estimate the peso amount of contingent liabilities.

d.            Identify possible unasserted, claims and assessments.

 

51.          A financial forecast is based on

a.            One or more hypothetical assumptions.

b.            Assumptions about expected conditions and expended courses of action.

 

c.             Multiple projections.

d.            Expressing a condition and course of action the issuer expects could take place.

 

52.          Clients can establish the nature and scope of forecasts and projections. In such engagements, all of the following conditions must be present, except

a.            The users of the statements and report must take responsibility for the adequacy of the

agreed-upon procedures for their purpose.

b.            The report is to be restricted to these users.

c.             The prospective statements must contain a summary of significant assumptions.

d.            The report would not express any type of opinion.

 

53.          An adverse opinion is given on prospective financial statements when

a.            The forecast or projection omits some information required to be presented by PICPA guidelines.

b.            The prospective results were not achieved.

c.             The presentation fails to disclose significant assumptions.

d.            Necessary examination procedures are not performed.

 

54.          Examination reposts on prospective financial statements would not

a.            Express conclusions about presentation.

b.            Express conclusions about the reasonableness of the assumptions.

c.             Refer to procedures considered necessary to evaluate the assumptions.

d.            Attest to the achievability of the prospective results.

 

55.          The “Big GAAS-Little GAAS” question illustrated the need for standards for

a.            Accounting and review services.

b.            Forecasts and projections.

c.             Current value financial statements.

d.            Personal financial statements.

 

56.          The accountant’s standard report for a review service would not include a statement that

a.            Service was performed in accordance with Statements on Standards for Accounting

and Review Services.

b.            All information included is the representation of the management of the business.

c.             A review service is substantially less in scope than an audit, and an opinion on financial statements is not expressed.

d.            The accountant is not aware of any material modification that should be made from

GAAP.

 

57.          The accountant’s standard report for a compilation service would not include a statement that

a.            A compilation service has been performed in accordance with standards established

by the PICPA.

b.            Financial statement information is the representation of the owners of the business.

 

c.             Compilation service consists primarily of inquiries of company personnel and analytical procedures applied to financial data.

d.            Financial statements have not been audited or reviewed and the accountant does not

express an opinion or any other form of assurance.

 

58.          In reporting on comparative financial statements the combination of prior year/current year order of same or higher level of service would not include

a.            Compilation followed by compilation

b.            Compilation followed by review.

c.             Review followed by compilation.

d.            Review followed by review

 

59.          When current year service being performed is a lower level of service, the accountant can describe the predecessor report in a paragraph that would include all of the following except

a.            Describes the type of service previously rendered.

b.            States the procedures performed after the prior year service.

c.             Explains any modifications or opinion qualifications expressed last year.

d.            States that prior year financial statements were reviewed or audited by the same or predecessor accountant.

60.          When inquiries are going to be made between successor and predecessor auditors client permission is necessary when

a.            Successor does not know much about the new client.

b.            Problems may have existed between client and predecessor.

c.             Client changes accountants frequently.

d.            Predecessor is asked to disclose confidential information.