Auditing: fraud, controls, segregation, confirmations

1. When auditing with "fraud awareness," auditors should especially notice and follow up employee activities under which of these conditions?

A. The company always estimates the inventory but never takes a complete physical count.
B. The petty cash box is always locked in the desk of the custodian.
C. Management has published a company code of ethics and sends frequent communication newsletters about it.
D. The board of directors reviews and approves all investment transactions.

2. A CPA is reviewing controls over cash received through a bank night depository. Which controls would she find most important?

A. Responsibilities are rotated for processing night depository receipts among employees of the various departments.
B. Dual control (joint custody) is established over the contents of the night depository box from the time of removal until initial recording is completed.
C. Vacations are required for all employees engaged in night depository activities.
D. All deposit tickets related to night deposits are numbered.

3. A small business owner can best offset the lack of segregation of duties by

A. Creating an internal audit department
B. Installing the latest computer equipment and software
C. Being actively involved in the accounting process
D. Relying on the external auditor to detect errors.

4. Confirmations of accounts receivable provide the most evidence for which of the following assertions?

A. Existence.
B. Valuation or Allocation.
C. Rights and obligations.
D. Completeness.

5. In determining the adequacy of the allowance for uncollected accounts, the least valuable evidence would be obtained from

A. an aging schedule of past due accounts which the auditor has tested.
B. correspondence with the client's collection agency.
C. financial statements of individual customers.
D. no reply to negative confirmations.

6. In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?

A. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.
B. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.
C. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.
D. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.

7. In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of

A. existence or occurrence.
B. valuation or allocation.
C. completeness.
D. rights and obligations.

8. Which of the following responses to a confirmation of balances at December 31 would be most troubling to an auditor?

A. We paid this amount on December 28.
B. We received this amount on January 2.
C. We returned this amount on December 28 under our standing agreement with the company.
D. This amount isn't due until January 15.

9. When confirming accounts payable, emphasis should be put on what kind of accounts?

A. Accounts with small or zero balances.
B. All accounts should be equally emphasized.
C. Accounts with large balances.
D. Accounts listed in the accounts payable subsidiary.

10. Which of the following situations indicates a potential material weakness in internal control over acquisition and expenditure?

A. Purchase orders are not prepared for services acquired directly under authorization of department heads.
B. Voucher packages are authorized and checks are signed by the same person.
C. Unacceptable goods are not scheduled on receiving reports.
D. The same person signs checks and stamps vouchers "paid."