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Auditing procedures during a fiscal year

1. A company has a large amount of goods returned during the last month of the fiscal year and the first month of the new fiscal year. Returns are sometimes done for exchanges. The returns were recorded when credit memos were issued usually between 6 to 8 weeks after weeks from the return of the goods. The procedure that would lead to more timely recording of the returns would include:
a. Pre-numbering receiving reports, which are separately identified for goods returned and serve as a control for issuing credit memos.
b. A reconciliation of the general ledger accounts receivable account to the detail accounts receivable to be sure they match.
c. Pre-numbering credit memos and periodically accounting for all numbers.
d. Tracing year-end sales to accounts receivable to be sure they match.

2. Assuming debt amounts are material, auditors send out confirmations for long term debt as part of their auditing procedures.
a. Sometimes
b. False
c. True

3. Which of the following consists of analytical review?
a. Calculation of ratios.
b. Reviewing samples of disbursements
c. Authorization
d. Analyzing invoices.

4. When auditing cash bank accounts, auditors always send bank confirmations even when bank balances are zero.
a. True
b. False
c. It depends on what the client requests.

5. To test the completeness of sales, the auditor would select a sample of transactions from a population represented by the:
a. Customer order file
b. Open invoice file
c. Bill of lading file
d. Sales invoice file
e. Customer purchase order file

6. Audit workpapers are a record of audit procedures, work records and conclusions reached as a result of these steps and are the property of the client.
a. True
b. False

7. The concept of reasonable assurance implies that a material misstatement could occur and the auditor would detect it.
a. True
b. False

8. Tracing debits from an expense account to receiving reports and purchase orders provides evidence that:
a. All receipts of merchandise were properly recorded.
b. Recorded expenses were received and properly authorized.
c. All vendor invoices have been properly recognized as an expense and payable.
d. Expenses are not understated.
e. Both c and d.

9. An auditor is auditing the inventory and cost of goods sold process. The auditor tests the quantity of materials charged to work in process by tracing these quantities by tracing the work in process accounts to:
a. Cost ledgers
b. Perpetual inventory records
c. Receiving reports
d. Material requisitions
e. Computerized finished inventory parts listing

10. Obtaining an attorney opinion letter is always a part of an audit engagement.
a. True
b. False
c. Only if the opinion is in accordance with SFAS 401.5a.

11. A company was in the process of being audited. The company concealed a cash shortage by transporting funds from one location to another and by converting negotiable instruments to cash. Which of the following audit procedures would be most effective in discovering the cover up?
a. Periodic review by internal audit
b. Simultaneous verification of cash and liquid assets
c. A surprise count of all cash accounts
d. Sending out positive confirmations
e. Observation, inquiry and performing a walk-thru.

12. Which of the following best describes the attest function?
a. Proving the accuracy of the books and records.
b. Providing financial statement opinions.
c. Gathering evidence of about specific and known assertions.
d. Stating that the financials were prepared in accordance with GAAP.

13. Which of the following would not indicate fixed asset impairment?
a. Significant change in planned production.
b. Unexpected permanent obsolescence.
c. Increased replacement costs.
d. Damage caused by a natural disaster.

14. In which circumstances would an auditor mostly likely issue an adverse opinion?
a. Information comes to the auditors attention that raises a substantial doubt about an entity's going concern.
b. The Chief Executive Officer refuses access to the board of director minutes.
c. Tests of controls show that the internal controls are so poor they cannot be relied upon.
d. The financial statements are not in accordance with FASB's statements regarding the capitalization of leases.
e. None of the above.

15. In which of the following situations would an auditor ordinarily issue an unqualified opinion without an explanatory paragraph?
a. The auditor wishes to emphasize that the entity had significant related party transactions.
b. The auditor decides to defer to the opinion of another auditor as basis, in part for the auditor's opinion.
c. The entity issues financial statements present statement of position and results of operations but omits the statement of cash flows.
d. The auditor has substantial doubt about an entity's ability to continue as a going concern but discloses this fact in the notes to the financial statements.
e. Only if the audit situation was in accordance with financial reporting standards SSARS 105.1.

Solution Preview

1. A company has a large amount of goods returned during the last month of the fiscal year and the first month of the new fiscal year. Returns are sometimes done for exchanges. The returns were recorded when credit memos were issued usually between 6 to 8 weeks after weeks from the return of the goods. The procedure that would lead to more timely recording of the returns would include:
a. Pre-numbering receiving reports, which are separately identified for goods returned and serve as a control for issuing credit memos.
b. A reconciliation of the general ledger accounts receivable account to the detail accounts receivable to be sure they match.
c. Pre-numbering credit memos and periodically accounting for all numbers.
d. Tracing year-end sales to accounts receivable to be sure they match.
Pre-numbering receiving reports, which are separately identified for goods returned and serve as a control for issuing credit memos.

2. Assuming debt amounts are material, auditors send out confirmations for long term debt as part of their auditing procedures.
a. Sometimes
b. False
c. True
True: This is done to confirm the debts.

3. Which of the following consists of analytical review?
a. Calculation of ratios.
b. Reviewing samples of disbursements
c. Authorization
d. Analyzing invoices.
Calculation of ratios: This is part of analytical procedures.

4. When auditing cash bank accounts, auditors always send bank confirmations even when bank balances are zero.
a. True
b. False
c. It depends on what the client requests.
True. The bank returns the confirmation after filling it up. This is done always.

5. To test the completeness of sales, the auditor would select a sample of ...

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