AC 395 Test 1

subject Type Homework Help
subject Pages 9
subject Words 2157
subject Authors Alvin A. Arens, Mark S. Beasley, Randal J. Elder

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1) A company's internal control procedures over the acquisition cycle should prevent
the preparation of a voucher for goods that have not yet been received. Which of the
following is the best procedure to assure vouchers are not prepared for goods not
received?
A) purchase order and vendor invoice are matched to the receiving report
B) compare goods received with goods ordered
C) perform sample test counts of items when received
D) compare the requisition for goods with the purchase order
2) Match seven of the terms for documents and records (a-m) used in the acquisitions
and cash disbursement cycle with the descriptions provided below (1-7):
a.Purchase requisition
b.Purchase order
c.Receiving report
d.Acquisitions journal
e.Summary acquisitions report
f.Vendor's invoice
g.Debit memo
h.Voucher
i.Accounts payable master file
j.Accounts payable trial balance
k.Vendor's statement
l.Check
m.Cash disbursements journal
________ 1> A document indicating a reduction in the amount owed to a vendor
because of returned goods or an allowance granted.
________ 2> A document that specifies the details of an acquisition transaction and
amount of money owed to the vendor for an acquisition.
________ 3> A document prepared by the purchasing department indicating the
description, quantity, and related information for goods and services that the company
intends to purchase.
________ 4> A listing of the amount owed to each vendor at a point in time.
________ 5> A document used to establish a formal means of recording and controlling
acquisitions; it includes a cover sheet and a package of relevant documents.
________ 6> A document used to request goods and services by an authorized
employee.
________ 7> The listing or report that includes all cash payments for a given period.
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3) The type of audit evidence known as inquiry requires the auditor to obtain oral
information from the client in response to questions.
A) True
B) False
4) The erroneous inclusion of transactions that should properly be recorded as assets
into accounts such as repairs expense, lease expense, or supplies is a common client
error. The auditor is most lkely to evaluate the likelihood of these types of
misclassifications in conjunction with:
A) obtaining an understanding of internal control
B) the tests of controls
C) the tests of transactions
D) the tests of details of balances
5) If a particular internal control is not followed by the client exactly 6% of the time,
and the auditor's tests of that control find three control violations in a sample of 50, the
sample is considered to be representative.
A) True
B) False
6) All audit reports with three paragraphs mean the auditor has issued an unqualified
opinion.
A) True
B) False
7) When may the auditor refer to a specialist in the audit report?
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A)
B)
C)
D)
8) The phrase "The audit is designed to obtain reasonable assurance about whether the
statements are free of material misstatements" is included in the introductory paragraph
of an audit report.
A) True
B) False
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9) In some situations, the interpretations of the Rules of Conduct permit former partners
to have relationships with a client of the firm without affecting the firm's independence.
Which of the following situations would cause a loss of independence?
I.The former partner uses the CPA firm's office space and has significant influence over
a client.
II.The former partner severs relations with the firm and accepts employment with the
firm's client after having been retired for 18 months.
III.The former partner is held out as an associate of the firm and takes part in the firm's
business activities.
A) I and II
B) I and III
C) II and III
D) I, II and III
10) An exception in a test of control provides only an indication of the likelihood of
monetary misstatements in the financial statements because tests of controls do not
reveal whether monetary misstatements have actually occurred.
A) True
B) False
11) An auditor determines the financial statements include at least a material departure
from GAAP. Which type of opinion may be issued?
A)
B)
C)
D)
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12) In the audit of accrued property taxes, the two most important balance-related audit
objectives are completeness and accuracy.
A) True
B) False
13) List and discuss the three primary requirements to become a CPA.
14) When positive confirmations are used, auditing standards require follow-up
procedures for confirmations not returned by the customer. Which of the following
would not be considered an alternative procedure?
A) Send a second confirmation request
B) Examine subsequent cash receipts to determine if the receivable has been paid
C) Examine shipping documents to verify that the merchandise was shipped
D) Examine customer's purchase order and the duplicate sales invoice to determine that
the merchandise was ordered
15) An internal control deficiency occurs when computer personnel:
A) participate in computer software acquisition decisions
B) design flowcharts and narratives for computerized systems
C) originate changes in customer master files
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D) provide physical security over program files
16) If it is probable that the judgment of a reasonable person will be changed or
influenced by the omission or misstatement of information, then that information is, by
definition of FASB Statement No. 2:
A) material
B) insignificant
C) significant
D) relevant
17) Estimated misstatement in the population and sample size are inversely related; that
is, as estimated misstatement increases, sample size decreases.
A) True
B) False
18) General controls include all of the following except:
A) systems development
B) online security
C) processing controls
D) hardware controls
19) The primary concern in testing payroll-related liabilities is to make sure that:
A) accruals are properly valued
B) transactions are recorded in the proper period
C) there are no understated or omitted accruals
D) the accruals are not overstated
20) Which of the following is not true for nonstatistical sampling?
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A) applies mathematical rules that allows auditors to quantify sampling risk
B) auditors select items for the sample that they believe would provide them the most
information
C) reach conclusion about the population on a judgmental sample
D) often called judgmental sampling
21) LANs link equipment within a single or small cluster of buildings and are used only
for intercompany purposes.
A) True
B) False
22) Credit should be approved before a customer's order is received.
A) True
B) False
23) An auditor's decision concerning whether or not to dual date an audit report is
primarily based on the auditor's decision to:
A) extend appropriate audit procedures
B) assume responsibility for events after the date of the auditor's report
C) assume responsibility for event from fiscal year end to the date of the audit report
D) roll the dice and hope for a successful outcome
24) Before accepting a new client, most CPA firms investigate the company to
determine its acceptability. However,
A) True
B) False
25) Most auditors believe that financial statements are "presented fairly" when the
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statements are in accordance with GAAP, and that it is also necessary to:
A) determine that they are not in violation of FASB statements
B) examine the substance of transactions and balances for possible misinformation
C) review the statements using the accounting principles promulgated by the SEC
D) assure investors that net income reported this year will be exceeded in the future
26) Auditors who fail to exercise due care in their performance of professional services
may be liable for:
A) punitive liability
B) breach of contract
C) excess liability
D) criminal charges
27) Auditors primarily emphasize the understatement of liabilities in the audit of
Accounts payable because they are concerned about potential legal liability.
A) True
B) False
28) Because of its central role in auditing of accounts receivable, which of the
following would normally be one of the first items tested?
A) Accounts receivable master file
B) Customer file
C) Aged trial balance
D) Sales register
29) If acceptable audit risk is increased, acceptable risk of incorrect acceptance should
be:
A) increased
B) reduced
C) unaffected
D) modified
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30) A successor auditor may perform which of the following for a new audit client?
A)
B)
C)
D)
31) The starting point for the audit of notes payable is a schedule of notes payable and
accrued interest. Discuss the information typically included in the schedule.
32) Discuss how the integration of IT into accounting systems enhances internal
control.
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33) Explain what lapping means, and discuss the internal control deficiency that allows
it to occur. Also discuss the procedures the auditor can perform to detect lapping.
34) Who developed the WebTrust service? Briefly explain this service.
35) When a company maintains its own records of stock transactions and capital stock
outstanding its internal controls must be adequate to accomplish three objectives. List
them below.
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36) What are the three important controls over cash disbursements?

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