1.29.19 Flashcards
A purchasing agent places an order for inventory whenever a requisition is received from the warehouse. The warehouse clerk issues requisitions based on periodic physical counts because no perpetual records are maintained. Numerous duplicate orders have been placed for goods previously ordered but not received. To prevent this excess ordering, the firm should
Keep an adequate record of open purchase orders and review it before ordering.
A well-kept open purchase order file will provide information on outstanding orders and, if reviewed prior to ordering, will prevent duplicate orders.
Which of the following is usually a benefit of using electronic funds transfer for international cash transactions?
Reduction of the frequency of data entry errors.
The processing and transmission of electronic transactions, such as EFTs, virtually eliminates human interaction. This process not only helps eliminate errors but also allows for the rapid detection and recovery from errors when they do occur.
Which of the following documents the procedures that are applied and the conclusions reached in an audit engagement?
Working papers
Sufficient appropriate audit documentation (working papers) should be prepared on a timely basis. Documentation records the work performed (including the nature, timing, extent, and results of audit procedures), the audit evidence obtained, and the conclusions reached. Audit documentation should provide (1) a sufficient and appropriate record of the basis for the auditor’s report and (2) evidence that the audit was planned and performed in accordance with GAAS and legal and regulatory requirements (AU-C 230).
Before accepting an engagement to audit a new client, a CPA is required to obtain
The prospective client’s consent to make inquiries of the predecessor, if any.
The auditor should communicate with the predecessor auditor before accepting the engagement. Initiation of the communication is the responsibility of the auditor. Moreover, the auditor should seek permission from the prospective client to inquire of the predecessor before final engagement acceptance. Thus, the auditor should ask the client to authorize the predecessor to make a full response.
Which of the following items in a communication about control deficiencies in internal control over cash receipts and disbursements is least significant?
Checks are signed by one person.
The auditor should be least concerned that the checks are signed by only one person if that person is not assigned other incompatible functions, and proper documentation is required before signing.
Which of the following controls is an input control designed to ensure the reliability and accuracy of data processing?
Limit test:
Validity check test:
Yes
Yes
Edit checks are input controls that include a number of tests of transactions. These tests include field checks, financial totals, hash totals, reasonableness, limit or range checks, record counts, check digits, sequence checks, sign checks, and validity checks.
Which of the following internal control activities most likely would assure that all billed sales are correctly posted to the accounts receivable ledger?
Daily sales summaries are compared with daily postings to the accounts receivable ledger.
Daily sales summaries represent billed sales. Reconciliation with the postings to the accounts receivable ledger would provide assurance that billed sales were posted.
For an audit of a nonissuer, audit documentation does not
Provide the principal support for the financial statement assertions.
Audit documentation should provide (1) a sufficient and appropriate record of the basis for the auditor’s report and (2) evidence that the audit was planned and performed in accordance with GAAS (AU-C 230). Management is responsible for the preparation and fair presentation of the assertions in the financial statements.
`Which of the following is least likely indicative of a significant deficiency or material weakness in internal control?
A potential future internal control problem having no effect on the current period.
According to AU-C 265, the auditor should communicate material weaknesses and significant deficiencies in internal control to management and those charged with governance. A material weakness is a deficiency, or combination of deficiencies, in internal control such that a reasonable possibility exists that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. However, an auditor is not required to report a potential future internal control problem unless it affects the period under audit.
Which of the following controls is most effective in providing reasonable assurance that salary, wage, and benefit expenses are incurred only for work performed?
All time cards and reports are reviewed and approved in writing by immediate line supervisors having no responsibilities for paycheck distribution.
Review and approval of time cards by line supervisors is appropriate because these supervisors should know whether work has been performed. Also, they do not distribute paychecks, so they are not able to divert falsely authorized checks.
The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may
Be unaware of all the financial relationships that the bank has with the client.
The standard form is designed to substantiate only the information that is stated on the confirmation request. Thus, the auditor should be aware that the standard form is not intended to elicit evidence about the completeness assertion. The individual completing the form may not be aware of all the financial relationships that the bank has with the client.
An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year end?
Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year end.
If incremental RMMs can be controlled, procedures to cover the remaining period ordinarily include (1) comparing information at the interim date with information at the balance sheet date to identify and investigate unusual amounts (e.g., new large balances) and (2) other analytical procedures or tests of details.
Which of the following control activities is not usually performed with regard to vouchers payable in the accounting department?
Controlling the mailing of the check and remittance advice
The cash disbursements department, which is responsible to the CFO, has an asset custody function that should be segregated from the recording function of the accounting department. Consequently, checks for disbursements should be signed by a responsible person in that department after necessary supporting evidence has been examined. This individual also should be responsible for canceling the supporting documentation and mailing the signed checks and remittance advices. The documentation typically consists of a payment voucher, requisition, purchase order, receiving report, and vendor invoice.
Which of the following statements is true about the auditor’s communication of a material weakness in internal control?
Suggested corrective action for management’s consideration concerning a material weakness need not be communicated to the client.
Although the auditor should communicate material weaknesses to management and those charged with governance, suggested corrective action need not be communicated.
An audit client has substantial assets held in a trust that is managed by the trust department of a bank. Which of the following actions by the auditor is the most efficient way to obtain information about the trust department’s internal controls?
Rely on the trust department’s audit report on internal controls placed in operation and their operating effectiveness.
The audit client is a user entity that uses a service organization (the trust department of a bank) to provide services relevant to the user entity’s internal control over financial reporting. The user auditor could perform procedures at the service organization. But the most efficient way to obtain information about the trust department’s internal controls is to read an independent service auditor’s report. A type 1 report addresses management’s description of the service organization’s system and the suitability of the design of controls. A type 2 report addresses (1) these matters and (2) the operating effectiveness of the controls. If the user auditor’s risk assessment includes an expectation that the service organization’s controls are operating effectively, (s)he requires a type 2 report, assuming (s)he does not (1) test the service organization’s controls or (2) use another auditor to do so.
