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Flashcards in SIMs Wrong Answers Deck (56):
0

Financial statements were audited in 20X2 and reviewed in 20X3:

If the prior audit report is not reissued, there should be...

No reference to the prior year's audited financial statements in
The introductory paragraph

1

When the current period financial statements of a nonissuer have been compiled or reviewed and those of prior period have been audited, the accountant should...2

1 issue appropriate compilation or review report on current period FS

2 include as separate paragraph an appropriate description of responsibility assumed for FS of prior period

2

In a review report where should the reference to the American
Institute of Certified Public Accountants be mentioned?

Auditor's responsibility (3rd paragraph)

3

Financial statements were audited in 20X2 and reviewed in 20X3:

Where should e comparison of the scope of a review be to an audit?

Introductory (first paragraph)

4

Negative assurance, quote in report 2

"Nothing came to the accountant's attention"

"We are not aware"

5

Financial statements were audited in 20X2 and reviewed in 20X3:

Where should the type of opinion expressed on the prior year's audited financial statements be located?

In the fifth separate paragraph

6

Financial statements were audited in 20X2 and reviewed in 20X3:

Should there be a reference to updating the prior year's auditor's report for events and circumstances occurring after that date, in the fifth paragraph?

No

7

Inspection consists of...

Examining documents or records

8

Examined sales invoices to see if they were initialed by the credit manager indicating credit approval.

Inspection to test controls

9

To test controls look for a...

Yes or no answer to not a dollar value

10

Examined invoices to support additions to the fixed asset account during the year. The auditor is gathering audit evidence regarding...

Existence and completeness of fixed assets on the balance sheet

11

Agreed sales invoices to credit files to determine whether the customer had a credit file and had been approved for credit. What is the auditor doing?

Reperformance, to test controls over credit approval

12

Reperfromance

Auditor's independent execution of procedures or controls that
Were originally performed as part of entity's internal control

13

When asking the accounting manager how often cash is deposited and by whom, the auditor is determining if...

Control procedures over cash are implemented and operating effectively

14

Would a standard report state in the scope paragraph that an audit includes assessing internal control?

No

15

In a standard report an auditor's concurrence with the accounting change...

2) unless...

Need not be explicitly stated, it is implicit

2) implicit unless auditor takes exception to the change

16

Determine if following is significant or not and explain why:

Warranty expense may not be valued correctly

Accounting estimates/areas where there is measurement uncertainty
Represent significant risk

17

The risk of material misstatement of the financial statements is generally greater when account balances and transactions are...(compared to what)

Subject to estimation rather than precise measurement

18

The risk of material misstatement of the financial statements is generally greater when account balances and transactions are subject to estimation rather than precise measurement because of...

Inherent subjectivity in estimating future events

19

Determine if following is significant or not and explain why:

Trade accounts payable may not be valued correctly.

Not significant risk

Trade accounts payable is subject to systematic processing and
Recording of these transactions is routine

20

With trade accounts payable, dealing with the same provider repeatedly helps...

Uncover errors

21

Although the assertion of trade accounts payable not being valued correctly should be tested it is...

Not likely to be a significant risk

22

Determine if following is significant or not and explain why:

The company sold bonds for the first time this past year to fund expansion.

Significant risk

The accounting involved is unusual, infrequent or sizable

23

The type of change in record keeping and reporting a new bond issuance requires individuals responsible for financial reporting to...

2) what would this do?

Learn and understand bond valuation

2) significantly increase the risk that FS may be misstated

24

Determine if following is significant or not and explain why:

Travel and estimation expense increased 10% since last year, but no new employees were hired.

Not significant

Travel and entertainment is not unusual, infrequent or outside
The normal course of business for company

25

When Travel and entertainment expenses increase 10% since the last year, it is probably...2

Not material and can be explained through inquiry of management

26

Determine if following is significant or not and explain why:

Interest income has decreased significantly over the past year.

Not significant

Interest income is easily audited by comparing the company's
valuation with 1099-INT issued by bank

27

Significant decrease in interest income during the year would most likely be due to...2

1 interest rate decreases

2 increased use of cash reserves to purchase fixed assets

28

The interest income account is not subject to...

Estimation or complex calculations

29

Determine if following is significant or not and explain why:

Major construction on the company's warehouse building was completed by one of the shareholder's spouse's family members

Significant risk

Large capital expense and related party transaction

30

AU identifies significant related party transactions as...

A risk factor related to fraudulent financial reporting

31

If a risk is related to recent economic, accounting or other developments or the risk is related to judgmental matters it is...

Considered a significant risk

32

Indicators of material weaknesses in internal control include:

Identification of...

Fraud whether or not material on part of senior management

33

Indicators of material weaknesses in internal control include:

Restatement of previously issued...

Financial statements to reflect correction of material misstatement
Due to fraud of error

34

Indicators of material weaknesses in internal control include:

Identification by auditor of material misstatement of financial statements under audit in circumstances that indicate that...

Misstatement would not have been detected by entity's internal
control

35

Indicators of material weaknesses in internal control include:

In effective oversight of the entity's...

Financial reporting and internal control by those charged with governance

36

What paragraph is an accountant's lack of independence disclosed in in a compilation report?

Fourth paragraph

37

What paragraph would the statement, "a compilation is substantially less in scope than an audit be" in a compilation report?

It would not be in a compilation report, but in review report

38

Goods ordered by customers are shipped, but are not billed to anyone.

What internal control should be implemented?

Compare shipping documents with sales invoices when goods
Are shipped

39

Comparing shipping documents with sales invoices when goods are shipped should...

Prevent customers from receiving goods without being billed

40

If the shipping clerk does not have an invoice for the order about to be shipped, the shipping should be...

Delayed until the billing clerk generates an invoice

41

Goods are removed from inventory for unauthorized orders.

What internal control should be implemented?

Require approved sales orders for goods to be removed from
inventory

42

Requiring approved sales orders for goods to be removed from inventory will...

Reduce possibility of inventory taken for unauthorized purposes

43

Inventory can be stolen from a business that does not have...

Strict controls over when goods can be removed from inventory

44

Invoices are sent to allies in a fraudulent scheme and sales are recorded for fictitious transactions.

What internal control should be implemented?

Compare sales invoices with shipping documents and approved customer orders before invoices are mailed

45

Comparing sales invoices with shipping documents and approved customer orders before invoices are mailed should...

Prevent recording sales for fictitious transactions

46

Sales transactions should have...3

1 an approved sales order

2 a shipping document and

3 an invoice

47

Customers' checks are misappropriated before being forwarded to the cashier for deposit.

What internal control should be implemented?

Mail monthly statements to customers with outstanding balances

48

If checks are misappropriated before they are deposited, the customer's...

Account will not reflect the payment made

49

Different customer accounts are each credited for the same cash receipt.

What internal control should be implemented?

Comparing the total amount posted to the accounts receivable
ledger with the amount included in the bank deposit slip

50

Comparing the total amount posted to accounts receivable ledger with the amount included in the bank deposit slip will determine if...

The same payment was credited to two different customer accounts

51

Customers' checks are properly credited to customer accounts and are properly deposited, but errors are made in recording in the cash receipts journal.

What internal control should be implemented?

Employee other than the bookkeeper should prepare a bank reconciliation

52

An employee other than the bookkeeper should prepare a bank reconciliation and find the discrepancy between...

Book and bank

53

Customers' checks are misappropriated after being forwarded to the cashier for deposit.

What internal control should be implemented?

Compare total amount posted to the accounts receivable ledger
To the bank deposit slip

54

Comparing the total amount posted to the accounts receivable ledger
To the bank deposit slip will highlight...

Any failure to deposit payments

55

If duties are properly segregated, the preparation of the bank deposit is performed by a different person than the one...

Posting payments to the A/R ledger using remittance advices