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CASH AND CASH EQUIVALENTS

1. An auditor would consider a cashier’s job description to contain compatible duties if the cashier
receives remittance from the mailroom and also prepares the
a. Daily deposit slip. c. Remittance advices.
b. Prelist of individual checks. d. Monthly bank reconciliation.
2. Which of the following internal control procedures will most likely prevent the concealment of a
cash shortage resulting from improper write-off of a trade account receivable?
a. Write-offs must be supported by an aging schedule showing that only receivables overdue
for several months have been written off.
b. Write-offs must be approved by the cashier who is in a position to know if the receivables
have, in fact, been collected.
c. Write-offs must be approved by a responsible officer after review of credit department
recommendations and supporting evidence.
d. Write-offs must be authorized by company field sales employees who are in a position to
determine the financial standing of the customers.
3. An entity’s internal control structure requires every check request that there be an approved
voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To
determine whether checks are being issued for unauthorized expenditures, an auditor most
likely would select items for testing from the population of all
a. Cancelled checks. c. Purchase orders.
b. Approved vouchers. d. Receiving reports
4. Which of the following auditing procedures would the auditor not apply to a cutoff bank
statement?
a. Trace year end outstanding checks and deposits in transit to the cutoff bank statement.
b. Reconcile the bank account as of the end of the cutoff period.
c. Compare dates, payees and endorsements on returned checks with the cash disbursements
record.
d. Determine that the year end deposit in transit was credited by the bank on the first working
day of the following accounting period.
5. A client maintains two bank accounts. One of the accounts, Bank A, has an overdraft
of P100,000. The other account, Bank B, has a positive balance of P50,000. To conceal the
overdraft from the auditor, the client may decide to
a. Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record the receipt but
not the disbursement and list the receipt as a deposit in transit. Record the disbursement at
the beginning of the following year.
b. Draw a check for at least P100,000 on Bank B for deposit in Bank A. Record the receipt but
not the disbursement and list the receipt as a deposit in transit. Record the disbursement at
the beginning of the following year.
c. Draw a check for P100,000 on Bank B for deposit in Bank A. Record the disbursement but
not the receipt. List the disbursement as an outstanding check, but do not list the receipt
as a deposit in transit. Record the receipt at the beginning of the following period.
d. Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record
the disbursement but not the receipt and list the disbursement as an outstanding
check. Record the receipt at the beginning of the following year.
6. While performing an audit of cash, an auditor begins to suspect check kiting. Which of the
following is the best evidence that the auditor could obtain concerning whether kiting is taking
place?
a. Documentary evidence obtained by vouching credits on the latest bank statement to
supporting documents.
b. Documentary evidence obtained by vouching entries in the cash account to supporting
documents.
c. Oral evidence obtained by discussion with controller personnel.
d. Evidence obtained by preparing a schedule of interbank transfers.
7. Two months before year-end, the bookkeeper erroneously recorded the receipt of a long-term
bank loan by a debit to cash and a credit to sales. Which of the following is the most
effective procedure for detecting this type of error?
a. Analyze bank confirmation information.
b. Analyze the notes payable journal.
c. Prepare year-end bank reconciliation.
d. Prepare a year-end bank transfer schedule.
8. Postdated checks received by mail in settlement of customer’s accounts should be
a. Returned to customer.
b. Stamped with restrictive endorsement.
c. Deposited immediately by the cashier.
d. Deposited the day after together with cash receipts.
9. The cashier of Milady Jewelries covered a shortage in the cash working fund with cash obtained at
December 31 from a bank by cashing but not recording a check drawn on the company out of
town bank. How would you as an auditor discover the manipulation?
a. By confirming all December 31 bank balances.
b. By counting the cash working fund at the close of business on December 31.
c. By investigating items returned with the bank cut-off statements of the succeeding month. d.
By preparing independent bank reconciliations as of December 31
10. An essential phase of the audit of the cash balance at the end of the year is the auditor's review of
cutoff bank statement. This specific procedure is not useful in determining if
a. Kiting has occurred.
b. Lapping has occurred.
c. The cash receipts journal was held open.
d. Disbursements per the bank statement can be reconciled with total checks written.

ACCOUNTS RECEIVABLES

1. In the audit of which of the following general ledger accounts will tests of controls be particularly
appropriate?
a. Equipment b. Bonds payable c. Bank charges d. Sales
2. An auditor most likely would review an entity’s periodic accounting for the numerical sequence of
shipping documents and invoices to support management’s financial statement assertion of
a. Existence or occurrence c. Valuation
b. Rights and obligations d. Completeness
3. Which of the following might be detected by an auditor’s review of the client’s sales cut-off?
a. Excessive goods returned for credit
b. Unrecorded sales discounts
c. Lapping of year-end accounts receivable
d. Inflated sales for the year
4. Cut-off tests designed to detect credit sales made before the end of the year that have been recorded
in the subsequent year provide assurance about management’s assertion of
a. Presentation b. Completeness c. Rights d. Existence
5. The auditor finds situation in which one person has the ability to collect receivables, make deposits, issue
credit memos and record receipt of payments. The auditor suspects the individual may be stealing
from cash receipts. Which of the following audit procedures would be most effective in discovering
fraud in this scenario?
a. Send positive confirmations to a random selection of customers.
b. Send negative confirmations to all outstanding accounts receivable customers.
c. Perform a detailed review of debits to customer discounts, sales returns, or other debit accounts,
excluding cash posted to the cash receipts journal.
d. Take a sample of bank deposits and trace the detail in each bank deposit back to the entry in the
cash receipts journal.
6. Which of the following most likely would give the most assurance concerning the valuation assertion of
accounts receivable?
a. Vouching amounts in the subsidiary ledger to details on shipping documents.
b. Comparing receivable turnover ratios with industry statistics for reasonableness.
c. Inquiring about receivables pledged under loan agreements.
d. Assessing the allowance for uncollectible accounts for reasonableness.
7. In confirming accounts receivable, an auditor decided to confirm customers’ account balances
rather than individual invoices. Which of the following most likely would be included with the
client’s confirmation letter?
a. An auditor prepared letter explaining that a non-response may cause an inference that
the account balance is correct.
b. A client prepared letter reminding the customer that a non-response will cause a second
request to be sent.
c. An auditor prepared letter requesting the customer to supply missing and incorrect
information directly to the auditor.
d. A client prepared statement of account showing the details of the customer’s account
balance.
8. Which of the following statements would an auditor most likely to add to the negative form of
confirmations of accounts receivable to encourage timely consideration by the recipient?
a. “This is not a request for payment; remittances should not be sent to our auditors; in the
enclosed envelope”
b. “Report any difference on the enclosed statement directly to our auditors; no reply is
necessary if this amount agrees with your records.”
c. “If you do not report any difference within 15 days, it will be assumed that this statement is correct.”
d. “The following invoices have been selected for confirmation and represent amounts that
are overdue.”
9. Auditing standards define a confirmation as “the process of obtaining and evaluating a direct
communication from a third party in response to a request for information about a particular item
affecting financial statement assertions” Two assertions for which confirmation of accounts
receivable balances provides primary evidence are
a. Completeness and valuation c. Rights and obligations and existence
b. Valuation and rights and obligations d. Existence and completeness
10. Auditor may use positive or negative forms of confirmations requests for accounts receivable. An
auditor most likely will use
a. The positive form to confirm all balances regardless of the size.
b. A combination of the two forms, with the positive form used for large balances and the negative for
the small balances
c. A combination of the two forms, with the positive form used for trade receivables and the negative
form for other receivables.
d. The positive form when the combined assessed level of inherent and control risk for assertions
related to receivables is acceptably low, and the negative form when it is unacceptably high.
11. The negative request form of accounts receivable confirmation may be used when the
a. Low Many Likely
b. Low Few Unlikely
c. High Few Likely
d. High Many Likely
12. In the confirmation of accounts receivable, the auditor would most likely
a. Request confirmation of a sample of the inactive accounts
b. Seek to obtain positive confirmations for at least 50% of the total dollar amount of the
receivables.
c. Require confirmation of all receivables from agencies of the federal government.
d. Require that confirmation requests be sent within 1 month of the fiscal year-end.
13. Negative confirmations of accounts receivable is less effective than positive confirmation of accounts
receivable because
a. A majority of recipients usually lack the willingness to respond objectively.
b. Some recipients may report incorrect balances that require extensive follow-up.
c. The auditor cannot infer that all non-respondents have verified their account information.
d. Negative confirmations do not produce evidence that is statistically quantifiable.
14. To reduce the risks associated with accepting fax responses to request for confirmation of accounts
receivable, an auditor most likely would
a. Examine the shipping documents that provide evidence for the existence assertion.
b. Verify the sources and contents of the faxes in telephone calls to the senders.
c. Consider faxes to the non-responses and evaluate them as unadjusted differences.
d. Inspect the faxes for forgeries or alterations and consider them to be acceptable if none are noted.
15. An auditor confirms a representative number of open accounts receivable as of December
31 and investigates respondents’ exceptions and comments. By this procedure, the
auditor is most likely to learn of which of the following?
a. One of the cashiers has been covering a personal embezzlement by lapping.
b. One of the sales clerks has not been preparing charge slips for credit sales to family and friends.
c. One of the computer processing control has been removing all sales invoices
applicable to this account from the data file.
d. The credit manager has misappropriated remittances from customers whose accounts have been
written off.
16. An auditor who has confirmed accounts receivable may discover that the sales journal was held open
past year-end if
a. Positive confirmations sent to debtors are not returned
b. Negative confirmations sent to debtors are not returned
c. Most of the returned negative confirmations indicate that the debtor owes a larger balance
that the amount being confirmed.
d. Most of the returned positive confirmations indicate that the debtor owes a smaller balance
than the amount being confirmed.
17. During the process of confirming accounts receivable as of December 31, 2005 a positive confirmation
was returned indicating the “balance owed as of December 31, 2005 was paid on January 9, 2006”. The
auditor will most likely
a. Determine whether there were any changes in the account between January 1 and
January 9, 2006.
b. Determine whether a customary trade discount was taken by the customer.
c. Reconfirm the zero balances as of January 10, 2006.
d. Verify that the amount was received.
18. Confirmation of accounts receivable is a generally accepted auditing procedure. The presumption
that an auditor will confirm accounts receivable is not overcome if
a. Based on prior’s years’ audit experience response rates will be inadequate.
b. Based on experience with similar engagements, responses are expected to be unreliable.
c. The accounts receivable are immaterial.
d. The combined assessed level of inherent and control risk is high.
19. A company has computerized sales and cash receipts journals. The computer programs for these
journals have been properly debugged. The auditor discovered that the total of the accounts
receivables subsidiary accounts differs materially from the accounts receivable control account.
This discrepancy could indicate
a. Credit memoranda being improperly recorded.
b. Lapping of receivables
c. Receivables not being properly aged.
d. Statements being intercepted prior to mailing
20.Which of the following procedures would an auditor most likely perform for year-end accounts
receivable confirmations when the auditor did not receive replies to second requests?

a. An investee company declared and paid a stock dividend on December 15. The stock
certificate for the additional shares was received directly by the treasurer who made no record of the
receipt and embezzled the shares.
b. The treasurer embezzled and sold securities on April 4. She speculated successfully with
the proceeds and replaced the securities on December 29.
c. The treasurer borrowed securities on July 15 to use as collateral for a personal loan. He
repaid the loan and returned the securities on December 2.
d. The treasurer embezzled interest receipts from bonds by having the payments mailed directly
to him.
21.Which of the following is the greatest drawback of using subsequent collections evidenced only by a
deposit slip as an alternative procedure when responses to positive accounts receivable confirmations
are not received?
a. Checking of subsequent collections can never be used as an alternative auditing procedure.
b. By examining a deposit slip only, the auditor does not know whether the payment is for the receivable
at the balance sheet date or a subsequent transaction.
c. A deposit slip is not received directly by the auditor.
d. A customer may not have made a payment on a timely basis.
22.The CPA learns that collections of accounts receivable during the last 10 days of
December were not recorded. The effect will be to
a. Leave both working capital and the current ratio unchanged at December 31.
b. Overstate both working capital and the current ratio at December 31.
c. Overstate working capital with no effect on the current ratio at December 31.
d. Overstate the current ratio with no effect on working capital at December 31.
23.All of the following are examples of substantive tests to verify valuation of net accounts receivable except
the
a. Re-computation of the allowance for bad debts.
b. Inspection of accounts for current versus non-current status in the statement of financial
position.
c. Inspection of the aging schedule and credit records of past due accounts.
d. Comparison of the allowance for bad debts with past records.
24.Once a CPA has determined that the accounts receivable have increased because of slow collections in a
tight money environment, the CPA is likely to
a. Increase the balance in the allowance for bad debts account
b. Review the going concern ramifications.
c. Review the credit and collection policy.
d. Expand tests of collectibility.
25.An auditor reconciles the total of the accounts receivables subsidiary ledger to the general ledger
control account as of October 31. By this procedure, the auditor is most likely to learn of which of the
following?
a. An October invoice was improperly computed.
b. An October check from a customer was posted in error to the account of another customer with a
similar name.
c. An opening balance is a subsidiary ledger account was improperly carried forward from the previous
accounting period.
d. An account balance is past due and should be written off.

INVESTMENTS

1. A client has a large and active investment portfolio that is kept in a bank safe-deposit box. If the auditor
is unable to count the securities at the balance sheet date, the auditor most likely will
a. Request the bank to confirm to the auditor the contents of the safe deposit box at the balance sheet
date.
b. Examine supporting evidence for transactions occurring during the year.
c. Count the securities at a subsequent date and confirm with bank whether securities were added or
removed since the balance sheet date.
d. Request the client to have a bank seal the safe-deposit box until the auditor can count the
securities at a subsequent date.
2. When an auditor is unable to inspect and count a client’s investment securities until after the
balance sheet date, the bank where the securities are held in a safe deposit box should be asked to
a. Verify any differences between the contents of the box and the balances in the
client’s subsidiary ledger.
b. Provide a list of securities added and removed from the box between the balance sheet date and the
security count date.
c. Count the securities in the box so that the auditor will have an independent direct verification.
d. Confirm that there has been no access to the box between the balance- sheet date and the security-
count date.
3. Which of the following is not one of the auditor’s primary objectives in an audit of
trading securities?
a. To determine whether securities are authentic.
b. To determine whether securities are the property of the client. c. To
determine whether securities actually exist.
d. To determine whether securities are properly classified on the balance sheet date.
4. Apol Boba, CPA, observes the count of securities on December 31. She records the serial numbers of
the securities and reconciles them and the number of shares with company records. Which fraud
should be detected by this procedure?
a. Review the cash receipts journal for the month prior to year-end.
b. Intensify the study of internal control concerning the revenue cycle.
c. Increase the assessed level of detection risk for the existence assertion
d. Inspect the shipping records documenting the merchandise sold to the debtors.
5. Which of the following is the least effective audit procedure regarding the existence assertion for
the securities held by the auditee?
a. Examination of paid checks issued in payment of securities purchased.
b. Vouching all changes during the year to supporting documents.
c. Simultaneous count of liquid assets.
d. Confirmation from the custodian.
6. An auditee is holding equity securities as collateral for a debt. The auditor should
a. Determine from data published in the financial press that the auditee has recorded dividend income
from the collateral.
b. Ascertain the value of the securities.
c. Ascertain that the amount recorded for the collateral in the investment account is equal to its fair
value at the balance sheet date.
d. Verify that the client has taken title to the securities.
7. Which of the following is the most effective audit procedure for verification of dividends earned on
investments in equity securities?
a. Tracing deposited dividend checks to the cash receipts book.
b. Reconciling amount received with published dividend records.
c. Comparing the amounts received with preceding year dividends received.
d. Recomputing selected extensions and footings of dividend schedules and comparing totals
to the general ledger.
8. In confirming with an outside agent, such as a financial institution, that the agent is holding
investment securities in the client’s name an auditor most likely gathers evidence in support of
management’s financial statement assertions of existence and
a. Valuation c. Completeness
b. Rights and obligations d. Presentation and disclosure
9. In establishing the existence and ownership of an investment held by a corporation in the form of publicity
traded stock and auditor should inspect the securities or
a. Obtain written representations from management confirming that the securities are properly classified
as trading securities.
b. Inspect the audited financial statements of the investee company.
c. Confirm the number of shares held by an independent custodian.
d. Determine that the investment is carried at the lower of cost or market.
10.An auditor most likely to verify the interest earned on bond investment by
a. Verifying the receipt and deposit of interest checks.
b. Confirming the bond interest rate with the issuer of the bonds.
c. Recomputing the interest earned on the basis of face amount, interest rate, and period held.
d. Testing controls relevant to cash receipts.
11.Which of the following provides the best form of evidence pertaining to the annual valuation of an
investment in which the independent auditor’s client owns a 30% voting interest?
a. Market quotations of the investee company’s stock.
b. Current fair value of the investee company’s assets.
c. Historical cost of the investee company’s assets.
d. Audited financial statements of the investee company.
12.In verifying the amount of goodwill recorded by a client, the most convincing evidence an auditor can obtain
is by comparing the recorded value of assets acquired with the
a. Assessed value as evidenced by tax bills.
b. Seller’s book value as evidenced by financial statements.
c. Insured value as evidenced by insurance policies.
d. Appraised value as evidenced by independent appraisals.
13.The auditor can best verify a client’s bond sinking-fund transactions and year-end balance by
a. Confirmation with individual holders of retired bonds.
b. Confirmation with the bond trustee.
c. Recomputation of interest expense, interest payable, and amortization of bond discount or
premium.
d. Examination and count of the bonds retired during the year.
14.An auditor who physically examines securities should insist that a client representative be present in order
to
a. Detect fraudulent securities.
b. Lend authority to the auditor’s directives.
c. Coordinate the return of securities to the proper locations.
d. Acknowledge the receipt of securities returned.
15.In testing long-term investments, an auditor ordinarily would use analytical procedures to ascertain the
reasonableness of the
a. Classification between current and noncurrent portfolios. b.
Valuation of marketable equity securities.
c. Existence of unrealized gains or losses in the portfolio.
d. Completeness of recorded investment income.
16. In performing tests of the carrying value of trading securities, the
auditor would usually:
a. Ask management to estimate the market value of the securities.
b. Refer to the quoted market prices of the securities.
c. Value the securities at cost regardless of their market prices.
d. Count the securities.
17.Which of the following statements is the least accepted reason/purpose for acquiring long-term investments:
a. To create specific funds.
b. To yield a relatively permanent other income.
c. To generate cash for operating purposes.
d. To establish business relationships.

INVENTORIES

1. Which of the following audit procedures probably provides the most reliable evidence
concerning the entity’s assertion of rights and obligations related to inventories?
a. Trace test counts noted during the entity’s physical count to the entity’s
summarization of quantities.
b. Inspect agreements to determine whether any inventory is pledged as collateral or subject to any
liens.
c. Select the last few shipping advices used before the physical count and determine whether
shipments were recorded as sales.
d. Inspect the open purchase order file for significant commitments that should be considered for
disclosure.
2. An auditor most likely to inspect loan agreements under which an entity’s inventories
are pledged to support management’s financial statement assertion of
a. Existence or occurrence. c. Presentation and disclosure.
b. Completeness. d. Valuation or allocation.
3. An auditor selected items for test counts while observing a client’s physical inventory.
The auditor then traced the test counts to the client’s inventory listing. This procedure
most likely obtained evidence concerning
a. Existence or occurrence. c. Rights and obligations.
b. Completeness. d. Valuation.
4. Periodic cycle counts of selected inventory items are made at various times during the year rather than a
single inventory count at year-end. Which of the following is necessary if the auditor plans to observe
inventories at interim dates?
a. Complete recounts by independent teams are performed.
b. Perpetual inventory records are maintained.
c. Unit cost records are integrated with production accounting records.
d. Inventory balances are rarely at low levels.
5. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of
control risk is high an auditor will probably
a. Apply gross profit tests to ascertain the reasonableness of the physical counts.
b. Increase the extent of tests of controls relevant to the inventory cycle.
c. Request the client to schedule the physical inventory count at the end of the year.
d. Insist that the client perform physical counts of inventory items several times during the year.
6. After accounting for a sequential of inventory tags, an auditor traces a sample of tags to the physical
inventory listing to obtain evidence that all items
a. Included in the listing have been counted.
b. Represented by inventory tags are included in the listing.
c. Included in the listing are represented by inventory tags
d. Represented by inventory tags are bona fide.
7. If the perpetual inventory records show lower quantities of inventory that the physical count an explanation
of the difference might be unrecorded
a. Sales. c. Purchases.
b. Purchase returns. d. Purchase discounts.
8. The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of
the following could explain the difference?
a. Inventory item has been counted but the tags placed on the items had not been taken off the
items and added to the inventory accumulation sheets.
b. Credit memos for several items returned by customers had not been recorded.
c. No journal entry had been made on the retailer’s books for several items returned to
d. An item purchased “FOB shipping point” had not arrived at the date of the inventory
count and had not been reflected in the perpetual records.
9. An auditor is most likely to learn of slow-moving inventory through a. Inquiry
of sales personnel
b. Inquiry of warehouse personnel
c. Physical observation of inventory
d. Review of perpetual inventory records.
10.Purchase cut-off procedures should be designed to test whether all inventory a. Purchased
and received before year-end was paid for.
b. Ordered before year-end was received.
c. Purchased and received before year-end was recorded.
d. Owned by the company is in the possession of the company at year-end.
11.The audit of year-end inventories should include steps to verify that the client’s purchases and
sales cutoffs were adequate. This audit steps should be designed to detect whether merchandise
included in the physical count at year-end was not recorded as a
a. Sale in the subsequent period
b. Purchase in the current period
c. Sale in the current period
d. Purchase in the subsequent period
12.An auditor’s observation of physical inventories at the main plant at year-end provides direct evidence to
support which of the following objectives?
a. Accuracy of the priced-out inventory.
b. Evaluation of lower of cost or market test.
c. Identification of obsolete or damaged merchandise to evaluate allowance (reserve)
for obsolescence.
d. Determination of goods on consignment at another location.

LIABILITIES

1. In auditing accounts payable, an auditor’s procedures most likely will focus primarily on management’s
assertion of
a. Existence or occurrence c. Completeness
b. Presentation and disclosure d. Valuation or allocation
2. An auditor performs a test to determine whether all merchandise for which the client was billed was
received. The population for this test consists of all
a. Merchandise received c. Canceled checks
b. Vendors’ invoices d. Receiving reports
3. The primary audit test to determine if accounts payable are valued properly is a.
Confirmation of accounts payable
b. Vouching accounts payable to supporting documentation
c. An analytical procedure
d. Verification that accounts payable was reported as a current liability in the balance
sheet.
4. Which of the following procedures is least likely to be performed before the balance sheet date?
a. Observation of inventory c. Search for unrecorded liabilities
b. Testing of internal control over cash d. Confirmation of receivables
5. An audit assistant found a purchase order for a regular supplier in the amount of P5,500.
The purchase order was dated after receipt of goods. The purchasing agent had forgotten to
issue purchase order. Also a disbursement of P450 for materials did not have
a receiving report. The assistant wanted to select additional purchase orders for
investigation but was unconcerned about lack of receiving report. The audit director should
a. Agree with the assistant because the amount of the purchase order exception was
considerably larger than the receiving report exception
b. Agree with the assistant because the cash disbursement clerk had been assured by the receiving
clerk that the failure to fill out a report didn’t happen very often.
c. Disagree with the assistant because two problems have an equal risk of loss
associated with them.
d. Disagree with the assistant because the lack of a receiving report has a greater risk of loss
associated with it.
6. When using confirmation to provide evidence about completeness assertion for accounts payable, the
appropriate population most likely is
its suppliers.
a. Vendors with whom the entity has previously done business.
b. Amounts recorded in the accounts payable subsidiary ledger.
c. Payees of checks drawn in the month after the year end.
d. Invoices filed in the entity’s open invoice file.
7. Which of the following is a substantive test that an auditor is most likely to perform to verify the
existence and valuation of recorded accounts payable?
a. Investigating the open purchase order file to ascertain that pre-numbered purchase
orders are used and accounted for.
b. Receiving the client’s mail, unopened, for a reasonable period of time after year end to search for
unrecorded vendor’s invoices.
c. Vouching selected entries in the accounts payable subsidiary ledger to purchase
orders and receiving reports.
d. Confirming accounts payable balances with known suppliers who have zero balances.
8. Only one of the following four statements, which compare confirmation of accounts payable with
suppliers and confirmation of accounts receivable with debtors is false. The false statement is that
a. Confirmation of accounts receivable with debtors is a more widely accepted auditing procedures
than is confirmation of accounts payable with suppliers.
b. Statistical sampling techniques are more widely accepted in the confirmation of accounts
payable than in the confirmation of accounts receivable.
c. As compared with the confirmation of accounts receivable, the confirmation of accounts
payable will tend to emphasize accounts with zero balances at the balance sheet date.
d. It is less likely that the confirmation request sent to the supplier will show the amount
owed than that request sent to the debtor will show the amount due.
9. When title to merchandise in transit has passed to the audit client the auditor engaged in the
performance of a purchase cut-off will encounter the greatest difficulty in gaining assurance with
respect to the
a. Quantity b. Quality c. Price d. Terms
10. Which of the following audit procedures is least likely to detect an unrecorded liability?
a. Analysis and recomputation of interest expense.
b. Analysis and recomputation of depreciation expense. c.
Mailing of standard bank confirmation forms.
d. Reading of the minutes of meetings of the board directors.
11. Unrecorded liabilities are most likely to be found during the review of which of the following
documents?
a. Unpaid bills c. Bills of lading
b. Shipping records d. Unmatched sales invoices
12. Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
a. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine
whether the related payables apply to the prior period.
b. Investigating payables recorded just prior to and just subsequent to the balance sheet
date to determine whether they are supported by receiving reports.
c. Examining unusual relationships between monthly accounts payable balances and
recorded cash payments.
d. Reconciling vendors’ statement to the file of receiving reports to identify items received
just prior to the balance sheet date.
13. In verifying debits to perpetual inventory records of a nonmanufacturing firm, the auditor is most
interested in examining the purchase
a. Journal b. Requisitions c. Orders d. Invoices
14. Which of the following procedures relating to the examination of accounts payable could the auditor
delegate entirely to the client’s employees?
a. Test footings in the accounts payable ledger
b. Reconcile unpaid invoices to vendors statements
c. Prepare a schedule of accounts payable
d. Mail confirmations for selected account balances
15. An auditor’s purpose in reviewing the renewal of a note payable shortly after the balance sheet date
most likely is to obtain evidence concerning management’s assertions about
a. Existence or occurrence c. Completeness
b. Presentation and disclosure d. Valuation or allocation.
16. An auditor’s program to audit long term debt should include steps that require
a. Examining bond trust indentures
b. Inspecting the accounts payable subsidiary ledger.
c. Investigating credits to the bond interest income account.
d. Verifying the existence of the bondholders.
17. In an audit of bonds payable, an auditor expects the trust indenture to include the
a. Auditee’s debt-to-equity ratio at the time of issuance.
b. Effective yield of the bonds issued.
c. Subscription list.
d. Description of the collateral
18. In auditing long-term bonds payable, an auditor most likely will
a. Perform analytical procedures on the bond premium and discount accounts.
b. Examine documentation of assets purchased with bond proceeds or liens
c. Compare interest with the bond payable amount for reasonableness.
d. Confirm the existence of individual bondholders at year-end.
19. The audit procedures used to verify accrued liabilities differ from those employed for the verification of
accounts payable because
a. Accrued liabilities usually pertain to services of a continuing nature while accounts payable are
the result of completed transactions
b. Accrued liability balances are less material than accounts payable balances.
c. Evidence supporting accrued liabilities in nonexistence while evidence supporting accounts
payable is readily available.
d. Accrued liabilities at year-end will become accounts payable during the following
year.
20. The auditor is most likely to verify accrued commissions payable in conjunction with the
a. Sales cutoff test
b. Verification of contingent liabilities
c. Review of post balance sheet date disbursements d.
Examination of trade accounts payable
SHE

1. In an examination of shareholder’s equity, an auditor is most concerned that


a. Capital stock transactions are properly authorized.
b. Stock splits are capitalized at par or stated value on the dividend declaration date. c. Dividends
during the year under audit were approved by the shareholders.
d. Changes in the accounts are verified by a bank serving as a registrar and stock transfer agent.
2. In audit of a medium-sized manufacturing concern, which one of the following areas can be expected to
require the least amount of audit time?
a. Owner’s equity b. Assets c. Revenue d. Liabilities
3. When a corporate client maintains its own stock records, the auditor primarily will rely upon
a. Confirmation with the company secretary of shares outstanding at year-end. b. Review of
the corporate minutes for data as to shares outstanding.
c. Confirmation of the number of shares outstanding at year-end with the appropriate state official.
d. Inspection of the stock book at year-end and accounting for all certificate numbers.
4. When a client company does not maintain its own stock records, the auditor should obtain written
confirmation from the transfer agent and registrar concerning
a. Restrictions on the payment of dividends.
b. The number of shares issued and outstanding. c.
Guarantees of preferred stock liquidation value.
d. The number of shares subject to agreement to repurchase
5. The auditor is concerned with establishing that dividends are paid to client corporation
shareholders owning stock as of the
a. Issue date c. Record date
b. Declaration date d. Payment date
6. An audit program for the retained earnings account should include a step that requires verification
of the
a. Fair value used to charge retained earnings to account for a two-for-one-stock split.
b. Approval of the adjustment to the beginning balance as a result of a write-down of an account
receivable.
c. Authorization for both cash and stock dividends.
d. Gain or loss resulting from disposition of treasury shares.
7. During an audit of an entity’s shareholders’ equity accounts, the auditor determines whether there are
restrictions on retained earnings resulting from loans, agreements, or law. This audit procedure most
likely is intended to verify management’s assertion of
a. Existence c. Valuation
b. Completeness d. Presentation and disclosure
8. If the auditee has a material amount of treasury stock on hand at year-end, the auditor should
a. Count the certificates at the same time other securities are counted.
b. Count the certificates only if the company had treasury stock transactions during the year.
c. No count the certificates if treasury stock is a deduction from shareholders’ equity.
d. Count the certificates only if the company classifies treasury stock with other
assets.
9. In performing tests concerning the granting of stock options, an auditor should a. Confirm
the transaction with the Securities and Exchange Commission.
b. Verify the existence of option holders in the entity’s payroll records or stock ledgers.
c. Determine that sufficient treasury stock is available to cover any new stock issued.
d. Trace the authorization for the transaction to a vote of the board of directors.
10. The auditor would not expect the client to debit retained earnings for which of the following
transactions?
a. A 4-for 1 stock split.
b. "Loss" resulting from disposition of treasury shares.
c. A 1-for 10 stock dividend.
d. Correction of error affecting prior year's earnin

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