ACCT 444 Week 5 Quiz and Homework


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ACCT 444 Week 5 Quiz and Homework

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ACCT 444 Week 5 Quiz and Homework

 

 

ACCT 444 Week 5 Quiz

 

  1. (TCO 6) The auditor looks for an indication on duplicate sales invoices to see whether the invoices have been verified. This is an example of (Points : 3)

a test of details of balances.

a test of control.

a substantive test of transactions.

both a test of control and a substantive test of transactions.

 

  1. (TCO 6) Tests of controls may include which of the following types of evidence? (Points : 3)

Observation

Reperformance

Inquiries

All of the above

 

  1. (TCO 6) For efficiency, tests of controls are frequently done at the same time as (Points : 3)

analytical procedures.

compliance tests.

tests of transactions.

tests of details of balances.

 

  1. (TCO 6) Analytical procedures are defined in the auditing standards as (Points : 3)

compliance tests.

substantive tests.

tests of controls.

helpful procedures not possessing the validity of other tests available to the auditor.

 

  1. (TCO 6) Which of the following is not a direct result of performing analytical procedures? (Points : 3)

Identify areas of potential misstatements.

Reduce detailed audit risk.

Understand the client’s business.

Identify specific errors in the accounts.

 

  1. (TCO 6) Analytical procedures may be classified as being primarily (Points : 3)

tests of controls.

substantive tests.

tests of ratios.

tests of details of balances.

 

  1. (TCO 6) Which of the following audit tests is usually the least costly to perform? (Points : 3)

Analytical procedures

Tests of controls

Tests of balances

Substantive tests of transactions

 

  1. (TCO 6) Which of the following audit tests is usually the most costly to perform? (Points : 3)

Analytical procedures

Tests of controls

Tests of balances

Substantive tests of transactions

 

  1. (TCO 6) Which of the following tests commonly occur together? (Points : 3)

Substantive tests of transactions and tests of controls

Substantive tests of transactions and obtaining an understanding of internal controls

Analytical procedures and tests of controls

All of the above

 

  1. (TCO 6) Which of the following relationships between types of tests and audit evidence is not correct? (Points : 3)

Tests of details and documentation

Tests of controls and observation

Tests of details and observation

Substantive tests of transactions and reperformance

 

  1. (TCO 6) The sequence of steps in gathering evidence as the basis of the auditor’s opinion are (Points : 3)

substantive tests, initial assessment of control risk, and tests of controls.

initial assessment of control risk, substantive tests, and tests of controls.

initial assessment of control risk, tests of controls, and substantive tests.

tests of controls, initial assessment of control risk, and substantive tests.

 

  1. (TCO 6) The purpose of tests of controls is to provide reasonable assurance that the (Points : 3)

accounting treatment of transactions and balances is valid and proper.

internal control procedures are functioning as intended.

entity has complied with GAAP disclosure requirements.

entity has complied with requirements of quality control.

 

  1. (TCO 9) It is important that sales be billed and recorded in the journal as soon as possible after (Points : 3)

the order is received.

the order is received and credit is approved.

credit is approved and it is verified that there is enough inventory to fill the order.

the shipment takes place.

 

  1. (TCO 9) The use of prenumbered sales invoices is meant to prevent (Points : 3)

the failure to bill or record sales.

duplicate billings and recording of sales.

both A and B are correct.

neither A nor B is correct.

 

  1. (TCO 9) Prenumbered documents will only be useful for control purposes if (Points : 3)

a different numerical sequence is used for each company.

the sequence is accounted for periodically.

employees do not have access to the complete sequence.

All of the above

 

  1. (TCO 9) Which one of the following is not an auditor’s concern about a key authorization point in the sales or collection cycle? (Points : 3)

The receiving room must have authorization before releasing items to inventory control.

Credit must be authorized before the sale.

Goods must be shipped after the authorization.

Prices must be authorized.

 

  1. (TCO 9) At which point in an ordinary sales transaction would a lack of specific authorization be of least concern to the auditor? (Points : 3)

Granting of credit

Shipment of goods

Determination of discounts

Selling of goods for cash

 

  1. (TCO 9) The credit-granting functions should be separated from which of the following? (Points : 3)

Purchasing functions

Manufacturing function

Sales function

None of the above

  1. (TCO 9) When designing substantive tests of transactions for sales, the auditor is concerned with the possibility of several types of misstatements. Which of the following is not one of the types of these misstatements? (Points : 3)

Sales being included in the journal for which no shipment was made

Sales to related parties, such as officers and subsidiaries

Sales recorded more than once

Shipments being made to nonexistent customers and recorded as sales

 

  1. (TCO 9) A key internal control in the sales and collection cycle is the separation of duties between cash handling and record keeping. The objective most directly associated with this control is to verify that (Points : 3)

cash receipts recorded in the cash receipts journal are reasonable.

cash receipts are properly classified.

recorded cash receipts result from legitimate transactions.

existing cash receipts are recorded.

 

  1. (TCO 9) Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom? (Points : 3)

The cashier prepares the daily deposit.

The cashier makes the deaily deposit at a local bank.

The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

The cashier endorses the checks.

 

ACCT 444 Week 5 Homework

 

Chapter 13

13-26 (Objectives 13-1, 13-2, 13-3, 13-6) The following are audit procedures from different transaction cycles:

  1. Use audit software to foot and cross-foot the cash disbursements journal and trace the balance to the general ledger.
  2. Select a sample of entries in the acquisitions journal and trace each one to a related vendor’s invoice to determine whether one exists.
  3. Examine documentation for acquisition transactions before and after the balance sheet date to determine whether they are recorded in the proper period.
  4. Inquire of the credit manager whether each account receivable on the aged trial balance is collectible.
  5. Compute inventory turnover for each major product and compare with previous years.
  6. Confirm a sample of notes payable balances, interest rates, and collateral with lenders.
  7. Use audit software to foot the accounts receivable trial balance and compare the balance with the general ledger.

Required

  1. For each audit procedure, identify the transaction cycle being audited.
  2. For each audit procedure, identify the type of evidence.
  3. For each audit procedure, identify whether it is a test of control or a substantive test.
  4. For each substantive audit procedure, identify whether it is a substantive test of transactions, a test of details of balances, or an analytical procedure.
  5. For each test of control or substantive test of transactions procedure, identify the transaction-related audit objective or objectives being satisfied.
  6. For each analytical procedure or test of details of balances procedure, identify the balance-related audit objective or objectives being satisfied.

 

13-30 (Objectives 13-5, 13-7) Following are evidence decisions for the three audits described in Figure 13-3on page 411:

Evidence Decisions

  1. The auditor performed extensive positive confirmations at the balance sheet date.
  2. The auditor performed extensive tests of controls and minimal substantive tests.
  3. The auditor decided it was possible to assess control risk below the maximum.
  4. The auditor performed substantive tests.
  5. This audit was likely the least expensive to conduct.
  6. The auditor confirmed receivables at an interim date.
  7. The auditor identified effective controls and also identified some deficiencies in controls.
  8. The auditor performed tests of controls.

Required

  1. Explain why Audit B represents the maximum amount of reliance that can be placed on internal control. Why can’t all the audit assurance be obtained by tests of controls?

.

 

  1. Explain why the auditor may not place the maximum extent of reliance on controls in Audit B and Audit C.

 

  1. For each of the eight evidence decisions, indicate whether the evidence decision relates to each of the audits described above. Every evidence decision relates to at least one of the audits, and some may relate to two or all three audits.

 

 

 

 

13-33 (Objective 13-4) Kim Bryan, a new staff auditor, is confused by the inconsistency of the three audit partners she has been assigned to on her first three audit engagements. On the first engagement, she spent a considerable amount of time in the audit of cash disbursements by examining cancelled checks, electronic payments, and supporting documentation, but almost no testing was spent in the verification of fixed assets. On the second engagement, a different partner had her do less intensive tests in the cash disbursements area and take smaller sample sizes than in the first audit, even though the company was much larger. On her most recent engagement under a third audit partner, there was a 435436thorough test of cash disbursement transactions, far beyond that of the other two audits, and an extensive verification of fixed assets. In fact, this partner insisted on a complete physical examination of all fixed assets recorded on the books. The total audit time on the most recent audit was longer than that of either of the first two audits despite the smaller size of the company. Bryan’s conclusion is that the amount of evidence to accumulate depends on the audit partner in charge of the engagement.

Required

  1. State several factors that can explain the difference in the amount of evidence accumulated in each of the three audit engagements as well as the total time spent.

 

  1. What could the audit partners have done to help Bryan understand the difference in the audit emphasis on the three audits?

 

  1. Explain how these three audits are useful in developing Bryan’s professional judgment. How could the quality of her judgment have been improved on the audits?

 

  1. Which audit most likely represents an integrated audit of a public company’s financial statements and internal control over financial reporting?

 

 

Chapter 14

14-25 (Objectives 14-3, 14-4, 14-5) The following are commonly performed tests of controls and substantive tests of transactions audit procedures in the sales and collection cycle:

  1. Account for a sequence of shipping documents and examine each one to make sure that a duplicate sales invoice is attached.
  2. Account for a sequence of sales invoices and examine each one to make sure that a duplicate copy of the shipping document is attached.
  3. Compare the quantity and description of items on shipping documents with the related duplicate sales invoices.
  4. Trace recorded sales in the sales journal to the related accounts receivable master file and compare the customer name, date, and amount for each one.
  5. Examine sales returns for approval by an authorized official.
  6. Review the prelisting of cash receipts to determine whether cash is prelisted daily.
  7. Reconcile the recorded cash receipts on the prelisting with the cash receipts journal and the bank statement for a 1-month period.

Required

  1. Identify whether each audit procedure is a test of control or a substantive test of transactions.
  2. State which of the six transaction-related audit objectives each of the audit procedures fulfills.
  3. Identify the type of evidence used for each audit procedure, such as documentation and observation.

 

 

14-26 (Objective 14-3) The following are selected transaction-related audit objectives and audit procedures for sales transactions:

Transaction-Related Audit Objectives

  1. Recorded sales exist.
  2. Existing sales are recorded.
  3. Sales transactions are correctly included in the accounts receivable master file and are correctly summarized.

Procedures

  1. Trace a sample of shipping documents to related duplicate sales invoices and the sales journal to make sure that the shipment was billed.
  2. Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached.
  3. Examine the sales journal for a sample of sales transactions to determine whether each one has a posting reference in the margin indicating that it has been automatically compared by the computer with the accounts receivable master file for customer name, date, and amount.
  4. Examine a sample of shipping documents to determine whether each one has a duplicate sales invoice number printed on the bottom left corner.
  5. Trace a sample of debit entries in the accounts receivable master file to the sales journal to determine whether the date, customer name, and amount are the same.
  6. Vouch a sample of duplicate sales invoices to related shipping documents filed in the shipping department to make sure that a shipment was made.

Required

  1. For each objective, identify at least one specific misstatement that could occur.

 

  1. Describe the differences between the purposes of the first and second objectives.

.

 

  1. For each audit procedure, identify it as a test of control or substantive test of transactions. (There are three of each.)

 

  1. For each objective, identify one test of control and one substantive test of transactions.
  2. For each test of control, state the internal control that is being tested. Also, identify or describe a misstatement that the client is trying to prevent by use of the control.

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