Accounting 492 Final Exam

1. The cash disbursements journal also is called the
a) Voucher register.
b) Purchases journal.
c) Check register.
d) Accounts payable subsidiary ledger.

2. 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) Existence or occurrence.
c) Valuation or allocation.
d) Rights and obligations.

3. An important purpose of the auditor's review of the client's procurement system should be to determine the effectiveness of the procedures to protect against
a) Improper materials handling.
b) Unauthorized persons issuing purchase orders.
c) Mispostings of purchase returns.
d) Excessive shrinkage or spoilage.

4. A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner?
a) Footing the purchases journal.
b) Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
c) Tracing totals from the purchases journal to the ledger accounts.
d) Sending written quarterly confirmation to all vendors.

5. Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?
a) Personnel.
b) Treasurer.
c) Controller.
d) Payroll.

6. Possible misstatements related to the validity internal control objective for payroll transactions include all of the following except
a) Payments to fictitious employees.
b) Payments to terminated employees.
c) Payments to valid employees who have not worked.
d) Payment to valid employees at a rate in excess of the authorized amount.

7. When examining payroll transactions, an auditor is primarily concerned with the possibility of
a) Posting of gross payroll amounts to incorrect salary expense accounts.
b) Overpayments and unauthorized payments.
c) Misfootings of employee time records.
d) Excess withholding of amounts required to be withheld.

8. An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that
a) Payments to employees are computed at authorized rates.
b) Internal controls relating to unclaimed payroll checks are operating effectively.
c) Segregation of duties exist between the preparation and distribution of the payroll.
d) Employees work the number of hours for which they are paid.

9. Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?
a) Payrolls checks are disbursed be the same employee each payday.
b) There are significant unexplained variances between standard and actual labor cost.
c) Employee time cards are approved by individual departmental supervisors.
d) A separate payroll bank account is maintained on an imprest basis.

10. If preparation of a periodic scrap report is essential in order to maintain adequate control over the manufacturing process, the data for this report should be accumulated in the
a) Production Department.
b) Accounting Department.
c) Warehousing Department.
d) Budget Department.

11. Which of the following departments typically approves purchase requisitions?
a) Raw materials stores.
b) Cost accounting.
c) IT.
d) Inventory management.

12. Which of the following best describes the validity audit objectives for inventory?
a) Purchase requisitions initiated by authorized personnel.
b) Recorded inventory actually exists.
c) Inventory properly accumulated from journals and ledgers.
d) All inventory is recorded.

13. Auditors are most likely to ensure that no production activity is scheduled prior to
a) Determining standard costs.
b) Observing physical inventory.
c) Completing the book to physical adjustment.
d) Determining the amount of consigned inventory.

14. Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?
a) Inventory cutoff errors.
b) Misapplication of LIFO.
c) Unreported scrap or spoilage.
d) Theft.

15. The auditor is most likely t seek information from the plant manager with respect to the
a) Adequacy of the provision for uncollectible accounts.
b) Appropriateness of physical inventory observation procedures.
c) Existence of obsolete machinery.
d) Deferral or procurement of certain necessary insurance coverage.

16. In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the
a) Adequacy of internal controls.
b) Extent of property abandoned during the year.
c) Adequacy of replacement funds.
d) Reasonableness of the depreciation.

17. The auditor may conclude that depreciation charges are insufficient by noting
a) Insured values greatly in excess of book values.
b) Large amounts of fully depreciated assts.
c) Continuous trade-in s of relatively new assets.
d) Excessive recurring losses on assets retired.

18. Which of the following accounts should be reviewed by the auditor to gain reasonable assurance that additions to property, plant, and equipment are not understated?
a) Depreciation expense.
b) Accounts payable.
c) Cash.
d) Repairs and maintenance.
19. In auditing intangible assets, an auditor most likely would review or recomputed amortization and determine whether the amortization period is reasonable in support of management's financial statement assertion of
a) Valuation or allocation.
b) Existence or occurrence.
c) Completeness.
d) Rights and obligations.

20. Several years ago, Conway, Inc. secured a conventional real estate mortgage loan. Which of the following audit procedures would be least likely to be performed by an auditor examining the mortgage balance?
a) Examine the current year's canceled checks.
b) Review the mortgage amortization schedule.
c) Inspect public records of lien balances.
d) Re-compute mortgage interest expense.

21. An internal control that ensures that long-term borrowing is properly initiated by appropriate individuals addresses the internal control objective of
a) Validity.
b) Authorization.
c) Completeness.
d) Ownership.

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. Valuation is most likely an issue for long-term debt if
a) Bonds are sold on the open market.
b) Bonds are issued at a discount or premium.
c) The loans are from banks.
d) The company has many short-term leases.

24. A substantive strategy is typically used to audit stockholders' equity because
a) The number of transactions is small.
b) Controls over stockholders' equity transactions typically are weak.
c) A reliance strategy is most efficient.
d) A substantive strategy likely was used in prior years.

25. The least crucial element of internal control over cash is
a) Separation of cash record-keeping from custody of cash.
b) Preparation of the monthly bank reconciliation.
c) Batch processing of checks.
d) Separation of cash receipts from cash disbursements.

26. Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting between inter-company banks?
a) Review the composition of authenticated deposit slips.
b) Review subsequent bank statements received directly from the banks.
c) Prepare a schedule of bank transfers.
d) Prepare year-end bank reconciliations.
27. An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the
a) Check register for the last month is reviewed.
b) Cutoff bank statement is reconciled.
c) Bank confirmation is reviewed.
d) Search for unrecorded liabilities is preformed.

28. Which of the following audit procedures is the most appropriate when internal control over cash is weak or when a client requests an investigation of cash transactions?
a) Proof of cash.
b) Bank reconciliation.
c) Cash confirmation.
d) Evaluate ratio of cash to current liabilities.

29. Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees?
a) A bank lockbox system.
b) Pre-numbered remittance advices.
c) Monthly bank reconciliation.
d) Daily deposit of cash receipts.
30. When auditing contingent liabilities, which of the following procedures would be least effective?
a) Reading the minutes of the board of directors.
b) Reviewing the bank confirmation letter.
c) Examining customer confirmation replies.
d) Examining invoices for professional services.

31. The auditor's primary means of obtaining corroboration of management's information concerning litigation is a
a) Letter of audit 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 an officer of the court presiding over the litigation.

32. 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 dollar amount of contingent liabilities.
d) Identify possible unasserted litigation, claims, and assessments.

33. If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should
a) Honor the confidentiality of the client-lawyer relationship.
b) Consider the refusal to be tantamount to a scope limitation.
c) Seek to obtain the corroborating information from management.
d) Disclose this fact in a footnote to the financial statements.

34. Which of the following situations would require adjustment to or disclosure in the financial statements?
a) a merger discussion.
b) The application for a patent on a new production process.
c) Discussions with a customer that could lead to a 40 percent increase in the client's sales.
d) The bankruptcy of a customer who regularly purchased 30 of the company's output.

35. Which of the following parties is responsible for the fairness of the representations made in financial statements?
a) Client's management.
b) Independent auditor.
c) Audit committee.
d) AICPA.

36. Which of the following situations will not result in modification of the auditor's report because of a scope limitation?
a) Restriction imposed by the client.
b) Reliance placed on the report of another auditor.
c) Inability to obtain sufficient competent evidential matter.
d) Inadequacy in the accounting records.

37. Management believes, and the auditor is satisfied, that a material loss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of the potential loss, but fully discloses the situation in the notes to the financial statements. If management does not make an accrual in the financial statements, the auditor should express a/an
a) Qualified opinion due to a scope limitation.
b) Qualified opinion due to a departure from GAAP.
c) Unqualified opinion with an explanatory paragraph.
d) Unqualified opinion in a standard auditor's report.

38. When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of contrary information concerning the entity's alternative means for maintaining adequate cash flow. An example of such a factor is the
a) Possibility of purchasing certain assets rather than leasing them.
b) Capability of extending the due dates of existing loans.
c) Feasibility of operating at increased levels of production.
d) Marketability of property and equipment that management plans to keep.

39. An auditor issued an audit report that was dual dated for a subsequent event occurring after the completion of fieldwork but before issuance of the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of fieldwork was
a) Limited to include only events occurring up to the date of the last subsequent event referenced.
b) Limited to the specific event referenced.
c) Extended to subsequent events occurring through the date of issuance of the report.
d) Extended to include all events occurring since the completion f fieldwork.

40. With respect to ethics, the theory of rights
a) Suggests that auditors should always verify ownership of a client's material tangible assets.
b) Is primarily concerned with equity and impartiality.
c) Suggests that an individual's actions should not violate the liberties of any individual.
d) Recognizes that decisions involve trade-offs between costs and benefits.

41. In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor f a brokerage firm
a) Which owes the CPA audit fees for more than one year.
b) In which the CPA has a large active margin account.
c) In which the CPA's brother is the controller.
d) Which owes the CPA audit fees for current year services and has just filed a petition for bankruptcy.

42. A CPA, while performing an audit, strives to achieve independence in appearance in order to
a) Reduce risk and liability.
b) Comply with the generally accepted standards of fieldwork.
c) Become independent in face.
d) Maintain public confidence in the profession.

43. Which of the following is not a principle of professional conduct as defined by the Code of Professional Conduct?
a) Integrity.
b) Due care.
c) Reporting.
d) Scope and nature of services.

44. According to the profession's standards, which of the following is not required of a CPA performing a consulting engagement?
a) Complying with Statements on Standards for Consulting Services.
b) Obtaining an understanding of the nature, scope, and limitations of the engagement.
c) Supervising staff who are assigned to the engagement.
d) Maintaining independence from the client.

45. According to the ethical standards of the profession, which of the following acts is generally prohibited?
a) Issuing a modified report explaining a failure to follow a governmental regulatory agency's standards when conducting an attest service for a client.
b) Revealing confidential client information during a quality review of a professional practice by a team from the state CPA society.
c) Accepting a contingent fee for representing a client in an examination of the client's federal tax return by an IRS agent.
d) Retaining client records after an engagement is terminated prior to completion and the client has demanded their return.

46. An auditor, using the same degree of due care as other members of the profession, fails to create an adequate allowance for bad debts. This occurrence is an example of
a) Negligence.
b) Fraud.
c) An error in judgment.
d) Constructive negligence.

47. Which of the following is the best statement of the general standard of performance owed by an accountant in his or her professional work?
a) To do the job correctly and discover all irregularities.
b) To follow generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS).
c) To act as a professional and not commit fraud.
d) To exercise the skill and care of the ordinarily prudent accountant in the same circumstances.
48. Which of the following is not within the class of foreseen users of an accountant's work product?
a) A shareholder of the client.
b) A lender bank when the accountant knows only that the client will use the financial statements to obtain a loan from an unspecified source.
c) A bank when the accountant knows the client will rely on the financial statements as the basis for a loan from the bank.
d) An investor if the accountant knows that the client is seeking capital from a select group of investors.

49. Which of the following statements is correct with respect to ownership, possession, or access to a CPA firm's audit work-papers?
a) Work-papers are subject to the privileged communication rule, which, in most jurisdictions, prevents any third-party access to the work-papers.
b) Work-papers may never be obtained by a third-party unless the client consents.
c) Work-papers are the client's exclusive property.
d) Work-papers are not transferable to a purchaser of a CPA practice unless the client consents.

50. At which point in an ordinary sales transaction of a wholesaling business would a lack of specific authorization be of least concern to the auditor?
a) Granting of credit.
b) Shipment f goods.
c) Determination of discounts.
d) Selling of goods for cash

Solution Summary

The solution answer multiple choice Accounting 492 Final Exam questions, related to accounting,auditors, cpa etc.