Which of the following is an unusual procedure that may be deemed necessary to discover the

effect of a related-party transaction?

A. Inspect or confirm the transferability and value of collateral.
B. Confirm or discuss significant information with intermediaries, such as banks, guarantors, or agents.
C. Examine invoices and other pertinent documents such a receiving or shipping reports.
D. Determine whether the transaction has been approved by the board of directors or other appropriate officials

In confirming accounts receivable, an auditor decided to confirm customer’s account

balances rather than individual invoices, which of the following most likely will be
included with the client’s confirmation letter?
A. An auditor-prepared letter expleininq tiat e rtcnresl)onse rnay cause an inference that
the account balance is correct.
B' A client-prepared letter reminding the :u.;tonrer that a nonresflosrse will cause a
second request to be senr.
C. An auditor-prepared letter requesting the customer to supply rnissing and incorrect
inforrnatiorr direcfiy to *re alrriltor.
D. A client-prepared statement of accourit shcwirrg the detaiiu of the customer's account
balance.
A company has computerized sales ancl cash receipts
journals. The computer
programs
for these
journals have been properly debugged. The auditor discovered that the total of
the accounts receivable subsidiary accr:unts differs materially from the accounts receivable
control account. This discrepancy could indicate.
A. Credit memoranda being improperly recorded,
B. Lapping of receivable;s.
C. Receivables not being properly aged.
D, Statements being intercepted pr;or to mailing.
Which of the following would an auditor nnost likely use in determining the auditor's
planning
;:nateriality?
A. The anticipated sample size for slanned substantive
procedures.
B. The entity's annualized interim (i.e. qurartertry) financial statements.
C. The results of the intemai contrc!
questionttaire.
D. The contents of the management represeniation letter.
In an audit of other assets, ail of the foliowing are done except
A. Determining that the asset is written off cn a periodic basis.
B. Determining whether the asset is fairiy presented in the financial statements.
C. Confirming that the asset exicts'
D. Determining the basis of the car"r"ryinq amount of the asset'
In connection with an audit of the prepairl insurance account, which of the following
procedures is usually not perfiormerl by tire autiitor?
A. Recompute the portion of the premiilryr that expired during the year.
B. Prepare excerpts of insurance
pclici*s for audit documentation.
c. confirm
premium rates with an i*dependent insurance broker.
D. Examine support for premium payments
Based on cc,nversations with the ovJner-'manager of an audit client, the auditor
ascertained that the cornpany's prirnary moflwatisn is to arloid pi:ving irrr:o,me taxes. Based
on this motivation, which account balanc* assei'ticn fdr enrJino inventoty vrrili the auditor
be most concemed abor.rt veriffing?
A. Existence or o€curence.
B. Completeness.
C. Rights and obligations.
D. Observation.
When an outside expert (specialist) has assumed full responsihiiit'y for taking the clienYs
physical inventory reliance on the experfs report is acceptahie i'i
A. The auditor is satisfied through application of apprcprlate procedures as to the
reputation and cornpetence of the expert.
B. Circumstarrces rnade it ir"npracticable or imposslble for tire aurliter to either do the
work perconally or observe the work done by the in'ventory fin:i
C. The auditor conducted the same audit tests anrl procedures as would have been
applicable if ttre client eniployees tool( $re nhysical intertt,iry.
D. The auditor's report contains a reference ts the ass;rnpiion of fuil :esoonsiDility.
In connection with the examirration of fin.lncial statements by an independent auditor, the
client suggests that members of the internal audit staff be utilized to minimize audit costs.
Which of the foltovring tasks could most appropriately be delegated to the intemal audit
stafP
A. Selectiorr of accounts receivable fbr corrfirrnation, base.d upon the internal auditor's
judgnient as Lo how many accounts and which accounts will provide sufficient
covere{]e.
B. Preparution of schedules for negative accounts receivable responses'
C. Evaluation of the internal control for accounts receivable and sales.
D. Determination of the adequacy of the allowance for doubtful accounts'
Alfonso Company uses its sales invaices for posting
Eerpetual lnventory records.
Inadequate control activities over the lnvoicing function allow goods Eo be invoiced that
are not shipped. The inadequate control activities could cause afi
A. Understatement of revenues, receivahles, and inventory.
B" Overstatement of revenues and receivables and an undersLaternent of inventory.
C. Understatement of revenues and receivables and an overstatement of inventory.
D. Overstatement of revenues, receivables, and inventrrry
An auditor testing long-term investrnenis wo,.lld rrrdlnarlly use suLrstantive analytical
proceclures
as the pnrrrary au'Jlt eviilerr,€ lo support the reasonable:ress of the
f'. Vaiuatisn of marketable equity securities.
B. Classification of gairrs and losses on the disposal of seeurities.
C. Completeness of recorded investment income.
D. Existence and ownership of invesffirents.