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ACCT 431 > ACC 260 - Audit Exam 2 > Flashcards

ACC 260 - Audit Exam 2 Flashcards

1
Q

Auditors should count small petty cash funds at year end to make sure that balance is not understated on the financial statements

A

False

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2
Q

Control over the receipt of cash sales is best achieved when two or more employees participate in each transaction.

A

True

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3
Q

Mail room personnel of a company should prepare a control listing of incoming cash receipts and deposit them intact daily

A

False

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4
Q

Signed checks should be returned to the cash disbursements clerk for mailing

A

False

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5
Q

Lapping of accounts receivable by an employee is not possible when there is adequate segregation of duties with respect to cash disbursements

A

False

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6
Q

Confirmations for cash balances should be mailed only to the financial institutions with which the client has a cash balance at year end

A

False

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7
Q

A proof of cash is an audit procedure that is performed on almost every engagement

A

False

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8
Q

A compensating balance agreement generally requires that cash be reclassified as a non-current asset

A

False

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9
Q

Verification of cash and other liquid assets be verified on the same date may prevent substitution of one form of asset for another

A

True

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10
Q

For investments in securities accounted for by the equity method, the auditors are primarily concerned with verifying the market value of the investments

A

False

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11
Q

By preparing a four-column bank reconciliation at year end an auditor will generally be able to detect

A

An unrecorded deposit made at the bank at the end of the month

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12
Q

Kiting would least likely be detected by

A

Comparing customer remittance advices with recorded disbursements in the cash disbursements journal

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13
Q

Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation?

A

Receive a cutoff statement directly from the clients bank

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14
Q

An auditor may obtain information on the December 31 month end balance per bank in which of the following?

A

Standard confirmation form and January 1-10 cutoff statement

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15
Q

An auditor may obtain information on the December 31 month end balance per bank in which of the following

A

December 31 bank statement yes / schedule of bank transfer no

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16
Q

A practical and effective audit procedure for the detection of lapping is:

A

Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank

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17
Q

What is not a control that generally is established over cash transactions

A

Obtaining a receipt for every disbursement

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18
Q

What is lapping?

A

Using subsequent payments to cover accounts where payments were previously stolen

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19
Q

What is kiting?

A

Manipulations that utilize temporarily overstated bank balances to conceal cash shortage or meet short term cash needs

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20
Q

Internal control over marketable securities is enhanced when?

A

Securities are held under joint control of two or more officials

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21
Q

The auditors’ count of the clients cash should be coordinated to coincide with the?

A

Count of investment securities

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22
Q

The auditors should insist that a representative of the client be present during the physical examination of securities in order to?

A

Acknowledge the receipt of securities returned

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23
Q

Control over cash is strongest when how many people are involved

A

Two

23
Q

Control over cash is strongest when how many people are involved

A

Two

24
Q

Picking a sample and matching it shipping documents is a test of?

A

Existence

24
Q

Picking a sample and matching it shipping documents is a test of?

A

Existence

25
Q

Picking a sample of sales orders and testing to see if they are properly recorded is a test of?

A

Completeness

25
Q

Picking a sample of sales orders and testing to see if they are properly recorded is a test of?

A

Completeness

26
Q

Who should maintain perpetual record of finished goods?

A

Storekeeper

26
Q

Who should maintain perpetual record of finished goods?

A

Storekeeper

27
Q

Testing the numerical sequence of shipping documents is a test of?

A

Completeness

27
Q

Testing the numerical sequence of shipping documents is a test of?

A

Completeness

28
Q

Who should approve the write off of receivables?

A

Treasurer

28
Q

Who should approve the write off of receivables?

A

Treasurer

29
Q

Is it a good control to have the signing officer have cash handling duties?

A

No

29
Q

Is it a good control to have the signing officer have cash handling duties?

A

No

30
Q

Taking sales invoices and matching them to shipping documents is a test of?

A

Existence

30
Q

Taking sales invoices and matching them to shipping documents is a test of?

A

Existence

31
Q

What is positive confirmation?

A

Asks the customer to respond if the balance is correct or incorrect

31
Q

What is positive confirmation?

A

Asks the customer to respond if the balance is correct or incorrect

32
Q

Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for

A

Investigation of variances within a formal budgeting system.

32
Q

What is negative confirmation?

A

Asks the customer to respond only if the balance is incorrect

33
Q

When would you use a positive confirmation?

A

When the balance is larger

33
Q

When would you use a positive confirmation?

A

When the balance is larger

34
Q

When would you use a negative confirmation?

A

When inherent and control risk are low

34
Q

When would you use a negative confirmation?

A

When inherent and control risk are low

35
Q

An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly?

A

Existence

36
Q

An inventory turnover analysis is useful to the auditor because it may detect:

A

The existence of obsolete merchandise

37
Q

A major control procedure related to plant and equipment is a budget for depreciation.

A

FALSE

38
Q

Which of the following is used to obtain evidence that the client’s equipment accounts are not understated?

A

Analyzing repairs and maintenance expense accounts.

39
Q

For which of the following ledger accounts would the auditor be most likely to analyze the details to identify understatements of equipment acquisitions?

A

Repairs and expense maintenance

40
Q

Which of the following is the most important control procedure over acquisitions of property, plant, and equipment?

A

Using a budget to forecast and control acquisitions and retirements.

41
Q

Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for

A

Investigation of variances within a formal budgeting system.

42
Q

In testing for unrecorded retirements of equipment, an auditor might.

A

Select items of equipment from the accounting records and then attempt to locate them during the plant tour.

43
Q

CPAs use negative accounts receivable confirmations more frequently than positive accounts receivable confirmations.

A

False

44
Q

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Of the following, which combination is it most likely that the auditors will use?

A

The positive form used for large balances and the negative form for the small balances.

ACCT 431 (5 decks)

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