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    Audit questions for test of transactions

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    1. 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 in the conduct of an audit?
    A. Granting of credit.
    B. Selling of goods for cash.
    C. Shipment of goods.
    D. Determination of discounts.

    2. Which of the following is most likely to be detected by an auditor's review of the client's sales cutoff?
    A. Lapping of year-end accounts receivable.
    B. Excessive sales discounts.
    C. Unrecorded sales for the year.
    D. Unauthorized goods returned for credit.

    3. Purchase cutoff procedures should be designed to test whether or not all inventory
    A. On the year end balance sheet was carried at lower of cost or market.
    B. On the year end balance sheet was paid for by the company.
    C. Owned by the company is in the possession of the company.
    D. Purchased and received before the year end was recorded.

    4. The proper use of pre-numbered termination notice forms by the Payroll Department should provide assurance that all
    A. Un-cashed payroll checks were issued to employees who have not been terminated.
    B. Terminated employees are removed from the payroll.
    C. Personnel files are kept up to date.
    D. Employees who have not been terminated receive their payroll checks.

    5. An auditor most likely would assess control risk at the maximum if the payroll department supervisor is responsible for
    A. Authorizing payroll rate changes for all employees.
    B. Examining authorization forms for new employees.
    C. Comparing payroll registers with original batch transmittal data.
    D. Hiring all subordinate payroll department employees.

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    Solution Preview

    1. Specific authorization for the extension of credit would not be an issue when B. selling of goods for cash. My answer presumes that 'authorization' has to do with credit extension or discounts given. If not, then C. Shipment of goods would be the ...

    Solution Summary

    The five multi-choice questions address procedures encountered during a test of transactions. The responses in the solution provide an explanation to support the answer.