Mod 4 Wrong Answers

Question 0

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?

Answer 0

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

Question 1

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

Answer 1

1 confirm account balance information with financial institutions

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

Question 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?

Answer 2

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

Question 3

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

Answer 3

The bank credit memo and cutoff statement

Question 4

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

Answer 4

What date cash actually arrived in the account

Question 5

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

Answer 5

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

2 is no longer available for physical examination

Question 6

AU-C 500 indicates that effective internal control…

Answer 6

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

Question 7

Reliability of audit evidence relates to…

Answer 7

The appropriateness of audit evidence

Question 8

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

Answer 8

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

Question 9

An objective of analytical procedures is identification of…4

Answer 9

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

Question 10

As higher levels of assurance are desired from analytical procedures…

Answer 10

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

Question 11

Relationships involving income statement accounts tend to be…

Answer 11

More predictable than relationships involving only balance Sheet accounts

Question 12

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

Answer 12

Generally more predictable

Question 13

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

Answer 13

Relates to the income statement and because interest expense

Is subject to only limited management discretion

Question 14

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

Answer 14

Existence of related debt

Question 15

Overall review stage of an audit consists of…2

Answer 15

1 Reading the financial statements and notes and

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

Question 16

Tests of transactions to corroborate management’s financial statement assertions are performed when…2

Answer 16

1 Considering internal control and

2 for substantive procedures of transactions

Question 17

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

Answer 17

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

Question 18

Lead schedules

Answer 18

Aggregate major components to be reported in the financial

statements

Question 19

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

Answer 19

Cash in bank and collateral for loans

Question 20

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

Answer 20

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

Question 21

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

Answer 21

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

Question 22

The auditor may analyze the completeness of sales using…

Answer 22

Cash receipts and accounts receivable

Question 23

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

Answer 23

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

To obtain an estimate of sales

Question 24

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

Answer 24

No necessary relationship to the sales figure

Question 25

Deposits in transit are...

Answer 25

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

Question 26

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

Answer 26

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

Question 27

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

Answer 27

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

Question 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

Answer 28

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

Question 29

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

Answer 29

Increase response rates

Question 30

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

Answer 30

That the account needs to be written off

Question 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...

Answer 31

Facilitate the confirmation of single transactions (individual invoices) Rather than of entire account balances

Question 32

Negative confirmations are used when...3

Answer 32

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

Question 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

Answer 33

1 Those conditions are not met 2 accounts are in dispute

Question 34

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

Answer 34

Small balances are involved and few accounts are in dispute

Question 35

Negative confirmation should not be used when...

Answer 35

A substantial number of accounts are in dispute

Question 36

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

Answer 36

Verification of sources and contents through telephone calls

Question 37

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

Answer 37

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

Question 38

Inspection of faxes is unlikely to...

Answer 38

Reveal forgeries and alterations, even when they've occurred

Question 39

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

Answer 39

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

Question 40

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

Answer 40

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

Question 41

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

Answer 41

Unlikely to lead to blank form of confirmation

Question 42

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

Answer 42

No confirmation may be necessary

Question 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?

Answer 43

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

Question 44

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

Answer 44

Does not enclose a letter requesting information be supplied

Question 45

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

Answer 45

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

Question 46

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

Answer 46

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

Question 47

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

Answer 47

Slow moving, excess, defective and obsolete items included in Inventories These items may be improperly valued

Question 48

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

Answer 48

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

Question 49

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

Answer 49

The CPA detect fraudulent securities

Question 50

Identify the best procedure for testing unrecorded retirements of equipment

Answer 50

Selecting items from accounting records and attempting to | Locate them

Question 51

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

Answer 51

Unrecorded retirements when items cannot be located

Question 52

Beginning with an item is unlikely to reveal...

Answer 52

A situation where an unrecorded retirement has occurred

Question 53

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

Answer 53

Understated income

Question 54

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

Answer 54

Overstating income

Question 55

Payables are most frequently simply valued at...

Answer 55

Cost of the related acquisition

Question 56

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

Answer 56

Included in the audit program as test of overall payroll | reasonableness

Question 57

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

Answer 57

Comparison of payroll costs with entity standards or budgets

Question 58

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

Answer 58

Only included in audit program when internal control is weak

Question 59

Dividend record books produced by investment advisory services...

Answer 59

Provide summaries of dividends paid for various services

Question 60

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

Answer 60

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

Question 61

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

Answer 61

Examining stock indentures or stock ledgers

Question 62

Materiality considerations do not apply to...4

Answer 62

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

Question 63

Materiality considerations relate to...3

Answer 63

1 losses from purchase commitments 2 compensating balances 3 obsolete inventory

Question 64

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

Answer 64

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

Question 65

A management representation letter is meant to...

Answer 65

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

Question 66

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

Answer 66

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

Question 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...

Answer 67

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

Question 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...

Answer 68

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

Question 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...

Answer 69

Notify each member of the board of directors of such refusal Auditor will take further steps to prevent future reliance on audit Report

Question 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...

Answer 70

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

Question 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...

Answer 71

All creditors will be informed

Question 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...

Answer 72

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

Question 73

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

Answer 73

Made after assessing the importance of the omitted procedures