Exam 16: Audit of Transaction Cycles and Financial Statement Balances II

The failure to capitalise a permanent asset, or the recording of an asset acquisition at the improper amount, affects the income statement:

The auditor recalculates approximate interest expense, using overall monthly installments payable and average interest rates, to test for:

If internal controls over cash- related transactions are operating effectively, control risk is increased.

The transfer of money from one bank account to another and improperly recording the transfer so that the amount is recorded as an asset in both accounts is referred to as lapping.

When the results of analytical procedures for loans payable are favourable, tests of details for the related interest expense and accrued interest can frequently be eliminated.

Examining company policies is an example of an audit procedure in auditing accrued liabilities.

The starting point for the audit of loans payable is a schedule of loans payable and accrued interest. Discuss the information typically included in the schedule.

Which of the following types of owners' equity transactions would NOT require authorisation by the board of directors?

The primary documents used to test the existence of current year acquisitions of property, plant and equipment are vendors' invoices and receiving reports.

In deciding on the reasonableness of the useful lives assigned to newly acquired assets, the auditor must consider which of the following factors?

The three most important balance- related audit objectives for loans payable are existence, realisable value and accuracy.

Kiting involves transferring money from one bank to another and incorrectly recording the transaction.

Cash account is primarily affected by which transactions in the payroll and personnel cycle?

General ledger accounts commonly used in PPE are:

The audit procedure 'Examine loans paid after year- end to determine whether they were liabilities at the balance sheet date' is performed when verifying the completeness objective for loans payable.

It is not difficult to be sure that each intercompany transfer is correctly handled.

Which of the following is NOT a 'cash equivalent'?

In the audit of loans payable, it is common to include tests of principal and interest payments as a part of the audit of the acquisitions and payment cycle because the payments are in the cash payments journal that is being sampled. It is also normal to test these transactions as part of the capital acquisitions and repayment cycle because:

A major consideration in the audit of the general cash balance is the possibility of fraud. The auditor must extend his or her procedures in the audit of year- end cash to determine the possibility of a material fraud when there are:

Which of the following misstatements would normally be discovered as part of the audit of the bank reconciliation?