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    Auditing: CPA exam prep questions control, assertions, evidence

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    1. To determine whether the system of internal control operated effectively to minimize errors of failure to invoice a shipment to customers, the auditor would select a sample of transactions from the population represented by the
    A. Customer order file
    B. Bill of lading file (shipping document)
    C. Open invoice file
    D. Sales invoice file

    4. Auditors are more concerned with the COMPLETENESS assertion for expenditures than the OCCURRENCE assertion because:
    A. Clients are more likely to overstate than understate expenses
    B. Clients are more likely to understate than overstate expenses
    C. It is difficult to determine when services have been performed
    D. The reserve for warranty expenses often is understated

    5. Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the balance sheet date?
    A. Compare shipping documents with sales records
    B. Apply gross profit rates to inventory disposed of during the period
    C. Trace payments received subsequent to the balance sheet date
    D. Send accounts receivable confirmation requests

    6. Which of the following types of audit evidence is the most persuasive?
    A. Prenumbered customer invoices.
    B. Client computations for asset depreciation.
    C. Vendor confirmation of purchases.
    D. Observing client purchase requisitions.

    7. Auditors may use POSITIVE (requires a response) and/or NEGATIVE (no response is expected unless an exception is found) forms of CONFIRMATION REQUESTS for accounts receivable. To reduce risk efficiently, an auditor most likely will use
    A. The positive form to confirm all balances regardless of size
    B. A combination of the two forms, with the positive form used for large balances and the negative form used for the small balances
    C. A combination of the two forms, with the positive form used for trade receivables and the negative form for other receivables
    D. The positive form when controls related to receivables are satisfactory and the negative form when controls related to receivables are unsatisfactory

    9. To help ensure duplicate invoices are not submitted, the accounts payable department generally should:
    A. Stamp, perforate, or otherwise cancel supporting documentation after payment.
    B. Verify that requisitions have approved price, quantity, and quality by an authorized employee.
    C. Obliterate the quantity ordered on the receiving department copy of the purchase order.
    D. Match the items on the vendor's invoice with the receiving report and purchase order.

    10. Tests of accounts payable control procedures would include:
    A. Inspecting payable ledger by vendor and due date
    B. Comparing accounts payable account credits to properly cancelled voucher packages
    C. Tracing from cancelled voucher packages to cash disbursement journal entries
    D. Vouching cash disbursement journal entries back to payments after year end

    12. An auditor tests an entity's control of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of:
    A. Valuation and allocation
    B. Completeness
    C. Existence
    D. Rights and obligations

    13. Sound internal control activities dictate that defective merchandise returned by customers should be presented initially to the
    A. Accounts receivable supervisor
    B. Receiving clerk
    C. Shipping department supervisor
    D. Sales clerk

    14. For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the
    A. Receiving report and the purchase order
    B. Receiving report and the voucher
    C. Vendor's packing slip and the purchase order
    D. Vendor's packing slip and the voucher

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    Solution Preview

    1. To determine whether the system of internal control operated effectively to minimize errors of failure to invoice a shipment to customers, the auditor would select a sample of transactions from the population represented by the
    A. Customer order file
    B. Bill of lading file (shipping document)
    C. Open invoice file
    D. Sales invoice file

    B: To find a shipment that was not invoiced ("failure to invoice") you will have to trace shipments to be sure they were billed.

    4. Auditors are more concerned with the COMPLETENESS assertion for expenditures than the OCCURRENCE assertion because:
    A. Clients are more likely to overstate than understate expenses
    B. Clients are more likely to understate than overstate expenses
    C. It is difficult to determine when services have been performed
    D. The reserve for warranty expenses often is understated

    B: Understating expenses improves profits and that is usually the tendency if there is any "intentional" financial statement reporting issues.

    5. Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the balance sheet date?
    A. Compare shipping ...

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