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Flashcards in Mod 4 Wrong Answers Deck (74):
0

Balance per bank may be traced to a standard form used to...2

1 confirm account balance information with financial institutions

2 to cutoff statement (on which will appear beginning balance)

1

One of the deposits in transit does not appear on the cutoff bank statement (the 9/29/05 deposit for $100), accordingly what are 4 substantive procedures that should be performed?

1 deposit should be traced to cash receipts journal
2 reason for delay should be investigated
3 supporting documents should be inspected
4 deposits should be traced to and from bank reconciliation
And cutoff statement

2

One of the checks does not appear on the cutoff statement (check # 988 dated 8/31/05 for $2,200). Accordingly, what 4 substantive procedures should be performed?

1 check should be traced to cash disbursements journal
2 reason for delay should be investigated
3 supporting documents should be inspected
4 both deposits should be traced to and from bank reconciliation
And cutoff statement

3

The credit for the check that was charged by the bank for an incorrect amount should be investigated on both...

The bank credit memo and cutoff statement

4

Comparison of the details of the cash receipts journal to the details on the daily slips will reveal...

What date cash actually arrived in the account

5

Examining the major property and equipment items may identify situations in which...2

1 An item has been retired (often due to replacement) and

2 is no longer available for physical examination

6

AU-C 500 indicates that effective internal control...

Provides more assurance about the reliability of audit evidence
Than ineffective control

7

Reliability of audit evidence relates to...

The appropriateness of audit evidence

8

AU-C 500 states that the auditor concentrates on key factors and assumptions that are...5

1 deviations from historical patterns
2 significant to accounting estimate
3 sensitive to variations
4 subjective
5 susceptible to misstatement and bias

9

An objective of analytical procedures is identification of...4

1 unusual transactions and events
2 amounts
3 ratios
4 trends that might indicate misstatements

10

As higher levels of assurance are desired from analytical procedures...

More predictable relationships are required to develop he auditor's
Expectations

11

Relationships involving income statement accounts tend to be...

More predictable than relationships involving only balance Sheet accounts

12

In terms of analytical procedure relationships, relationships involving transactions not subject to management discretion are...

Generally more predictable

13

Interest expense would yield a high level of evidence through the performance of analytical procedures because interest expense...

Relates to the income statement and because interest expense
Is subject to only limited management discretion

14

Interest expense is subject to only limited management discretion due to...

Existence of related debt

15

Overall review stage of an audit consists of...2

1 Reading the financial statements and notes and

2 considering the adequacy of evidence gathered in response to unusual or unexpected balances

16

Tests of transactions to corroborate management's financial statement assertions are performed when...2

1 Considering internal control and

2 for substantive procedures of transactions

17

AU-C 520 indicates for analytical procedures that the relationships involving...

Income statement accounts tend to me more predictable than relationships involving balance sheet accounts

18

Lead schedules

Aggregate major components to be reported in the financial
statements

19

The standard form to confirm account balance information with financial institution request information on both...

Cash in bank and collateral for loans

20

What is a reason that the usefulness of the standard bank confirmation request may be limited?

Bank employee who completes the form will not have access to all
Financial relationships the bank has with the client

21

The bank employee who completes the bank confirmation form, does not need to...

Have access to client's cutoff bank statement to complete the
Confirmation

22

The auditor may analyze the completeness of sales using...

Cash receipts and accounts receivable

23

What is an example of an auditor analyzing the completeness of sales using cash receipts and accounts receivable?

Auditor may add year end receivables to cash receipts and
Subtract beginning receivables

To obtain an estimate of sales

24

While shipping as of year end will help assure an accurate cutoff of sales, the receiving activity has...

No necessary relationship to the sales figure

25

Deposits in transit are...

Those that have been sent to the bank prior to year end, but have
Not been received by the bank as of year end

26

Checks that have been disbursed per books as of year end, but have...

Not yet been received by the bank as of December 31 are deposits
In transit

27

Timing of performance of auditing procedures, involves the proper...

Synchronization of their application and thus comprehends the
Possible need for simultaneous examination

28

The timing of the performance of auditing procedures involves the proper Synchronization of their application and thus comprehends the
Possible need for simultaneous examination of, for example...4

1 cash on hand in banks
2 securities owned
3 bank loans
4 other related items

29

Asking the client to contact customers to ask that confirmation requests be returned may...

Increase response rates

30

Lack of a reply to a confirmation request does not necessarily indicate...

That the account needs to be written off

31

Misstatements may have occurred because respondents are not readily able to confirm account balances. AU-C 505 suggests that in such circumstances respondents' accounting systems may...

Facilitate the confirmation of single transactions (individual invoices)

Rather than of entire account balances

32

Negative confirmations are used when...3

1 combined assessed level of inherent and control risk is low
2 large number of small balances is involved
3 auditor has no reason to believe recipients of requests are
unlikely to give them consideration

33

1 combined assessed level of inherent and control risk is low
2 large number of small balances is involved
3 auditor has no reason to believe recipients of requests are
unlikely to give them consideration

Positive confirmations are used when...2

1 Those conditions are not met

2 accounts are in dispute

34

A negative form of confirming accounts receivable can be used when...2

Small balances are involved and few accounts are in dispute

35

Negative confirmation should not be used when...

A substantial number of accounts are in dispute

36

What procedure reduces risks associated with accepting fax responses to requests for confirmations of receivable?

Verification of sources and contents through telephone calls

37

Verification of sources and contents through telephone calls will address...

Whether the info on the fax (which may have been sent from
anywhere) is correct

38

Inspection of faxes is unlikely to...

Reveal forgeries and alterations, even when they've occurred

39

What does it mean when an auditor would use the blank form of confirmations rather than positive confirmations?

One which includes no amount and asks the respondent to
Supply the amount due

40

If a recipient simply signs a blank confirmation and returns it, the confirmation will...

Have no amount on it and the auditor will know additional
procedures are necessary

41

When the combined assessed level of inherent risk and control risk is low it is...

Unlikely to lead to blank form of confirmation

42

When risk is low and when adequate other substantive procedures of details have already occurred...

No confirmation may be necessary

43

What information would be included in a client's confirmation letter that is being used to confirm account receivable balances rather than individual invoices?

Including details of the account is likely to make it easier for
customer to respond in meaningful manner

44

In a client's confirmation letter being used to confirm accounts receivable balances rather than individual invoices, the auditor does not...

Does not enclose a letter requesting information be supplied

45

What strategy would improve the response rate for confirmation of accounts receivable?

Including list of items or invoices that constitute the account
balance makes it easier for respondent to reply

46

There is no research available on response rates to confirmations indicating that...

Requesting a fax or email reply or threatening a second request
Is likely to improve response rate

47

Analysis of inventory turnover rates will provide the auditor with evidence on...5

Slow moving, excess, defective and obsolete items included in
Inventories

These items may be improperly valued

48

Requiring a client representative acknowledge the receipt of securities will...

Eliminate any question concerning CPA's responsibility for any
Subsequent missplacement or misappropriation of securities

49

The client's representative will generally not help...

The CPA detect fraudulent securities

50

Identify the best procedure for testing unrecorded retirements of equipment

Selecting items from accounting records and attempting to
Locate them

51

Selecting items from the accounting records and attempting to locate them will reveal...

Unrecorded retirements when items cannot be located

52

Beginning with an item is unlikely to reveal...

A situation where an unrecorded retirement has occurred

53

Experience has indicated that overstated income is more of a risk than...

Understated income

54

The completeness assertion focuses on whether payables have been omitted, thereby...

Overstating income

55

Payables are most frequently simply valued at...

Cost of the related acquisition

56

Comparison of payroll costs with entity standards or budgets will generally be...

Included in the audit program as test of overall payroll
reasonableness

57

What procedure would an auditor most likely perform when auditing payroll?

Comparison of payroll costs with entity standards or budgets

58

Observing entity employees during a payroll distribution is generally...

Only included in audit program when internal control is weak

59

Dividend record books produced by investment advisory services...

Provide summaries of dividends paid for various services

60

Dividend record books produced by investment advisory services provide summaries of dividends paid for various securities, and an auditor is able to...

Compare the reasonableness of client's recorded dividend income
From investments with this information

61

Auditor's in general do not determine the reasonableness of dividend income by...

Examining stock indentures or stock ledgers

62

Materiality considerations do not apply to...4

1 management's acknowledgement of its responsibility for fair
Presentation of financial statements
2 availability of all financial records
3 completeness/availability of all minutes + meeting of
stockholders, directors
4 communication from regulatory agencies

63

Materiality considerations relate to...3

1 losses from purchase commitments

2 compensating balances

3 obsolete inventory

64

Professional standards state that management refusal to furnish written representations constitutes...

A limitation on scope of the auditor's examination sufficient to
Preclude an unqualified opinion in all cases

65

A management representation letter is meant to...

Reduce the possibility of misunderstanding concerning
Management's responsibility for financial statements

66

AU-C 501 states that an attorney may appropriately limit...

His response to matters which he has given substantive attention
In form of legal consultation or representation

67

It generally will not be possible to determine whether a particular transaction was consummated on terms equivalent to those with unrelated parties. Therefore the auditor...

May be required to express a qualified or adverse opinion
When such an unsubstantiated disclosure is included

68

Procedure auditor would perform to obtain evidence about occurrence of subsequent events:

An auditor will inquire of officers and other executives having responsibility for financial and accounting matters whether...

Any unusual adjustments have been made during the period
From the balance sheet date to the date of inquiry

69

Identify an auditor's responsibility when a client refuses to adjust recently issued financial statements for a subsequent event related to bankruptcy of entity's principal customer:

If the client refuses to make disclosures, AU-C 560 requires the auditor...

Notify each member of the board of directors of such refusal

Auditor will take further steps to prevent future reliance on audit
Report

70

Identify an auditor's responsibility when a client refuses to adjust recently issued financial statements for a subsequent event related to bankruptcy of entity's principal customer:

If the client refuses to make disclosures, AU-C 560 requires the auditor to notify each member of the board of directors of such refusal and take steps to rely on the audit report. The auditor will then...

Notify the clients and regulatory agencies that the report should
Be associated with financial statements

71

Identify an auditor's responsibility when a client refuses to adjust recently issued financial statements for a subsequent event related to bankruptcy of entity's principal customer:

It is less likely at...

All creditors will be informed

72

Identify an auditor's first responsibility upon discovering six months after completion of an audit that engagement personnel failed to confirm several of client's material accounts receivable balances:

The auditor must first...

assess importance of omitted procedures to Auditor's ability to
support previously expressed opinion

73

Considering whether anyone is relying on or is likely to rely on the unqualified opinion is...

Made after assessing the importance of the omitted procedures