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Auditing MC

To determine whether sales transactions have been recorded in the proper accounting period the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests?
A) Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period.
B) Analyze transactions occurring within a few days before and after year end.
C) Confirm yearend transactions with regular customers.
D) Examine cash receipts in the subsequent period.

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?
a. Employees responsible for authorizing sales and bad debt write-offs are denied access to cash.
b. Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.
c. Employees involved in the credit-granting function are separated from the sales function.
d. Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.

The auditor decided to test accounts payable by sending open ended (blank) confirmations to selected vendors. The auditor's best approach in selecting the vendor accounts to confirm is to
A) select vendor accounts with large balances.
B) select vendor accounts at random in order to apply a statistical sampling procedure.
C) select vendor accounts based on the number of purchases from vendors during the year.
D) select vendor accounts that are past due.

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?
A) Reconcile receiving reports with related cash payments made just prior to year-end.
B) Contrast the ratio of accounts payable to purchases with the prior year's ratio.
C) Vouch a sample of creditor balances to supporting invoices, receiving reports, and purchase orders.
D) Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.

The most effective audit procedure for determining the collectibility of an account
receivable is the
A) Review of the subsequent cash collections.
B) Examination of the related sales invoice(s).
C) Confirmation of the account.
D) Review of authorization of credit sales to the customer and the previous history of collections.

The focus of substantive tests in the finance and investment cycle is
A) reconciliation of detailed listings with general ledger amounts.
B) proper cut-off.
C) search for unrecorded items.
D) gaining an understanding and verifying amounts and calculations.

An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. The auditor most likely could have detected this irregularity by
A) Tracing a sample of journal entries to the general ledger.
B) Evaluating the effectiveness of the internal control policies and procedures.
C) Investigating the reconciliations between controlling accounts and subsidiary records.
D) Performing analytical procedures designed to disclose differences from expectations.

Subsequent to the issuance of an auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next
A) Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.
B) Request that management disclose the newly discovered information by issuing revised financial statements.
C) Issue revised pro forma financial statements taking into consideration the newly discovered information.
D) Give public notice that the auditor is no longer associated with financial statements.

Which of the following pairs of accounts would an auditor most likely analyze on the same audit documentation?
A) Notes receivable and interest income.
B) Accrued interest receivable and accrued interest payable.
C) Notes payable and notes receivable.
D) Interest income and interest expense.

When audited financial statements are presented in a client's document containing other information, the auditor should
A) perform inquiry and analytical procedures to ascertain whether the other information is reasonable.
B) add an explanatory paragraph to the auditor's report without changing the opinion on the financial statements.
C) perform the appropriate substantive audit procedures to corroborate the other information.
D) read the other information to determine that it is consistent with the audited financial statements.

According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?
A) The auditor is the officially appointed stock transfer agent of a client.
B) The auditor's checking account that is fully insured by a federal agency is held at a client financial institution.
C) The client owes the auditor fees for more than two years prior to the issuance of the audit report.
D) The client is the only tenant in a commercial building owned by the auditor.

Which of the following is required for a CPA firm to designate itself as "Members of the American Institute of Certified Public Accountants" on its letterhead?
A) All owners must be members.
B) The owners whose names appear in the firm name must be members.
C) At least one of the owners must be a member.
D) The firm must be a dues paying member.

Solution Preview

To determine whether sales transactions have been recorded in the proper accounting period the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests?

A) Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period. Remember the cutoff tests are to test if the transactions belong to the designated period.

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?
C) The employee who authorizes credit granting is different from sales function. The credit granting employee examines the record of the customer and then authorizes credit.

The auditor decided to test accounts payable by sending open ended ...

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