Question 1

When auditing accounts payable, auditors are usually especially concerned about the:

Accepted Answer

A)  existence and accuracy objectives. 
B)  existence and cutoff objectives. 
C)  existence and completion objectives. 
D)  completeness and cutoff objectives. 
A)  existence and accuracy objectives. 
B)  existence and cutoff objectives. 
C)  existence and completion objectives. 
D)  completeness and cutoff objectives.

Question 2

State five specific balance- related audit objectives for inventory pricing and compilation and, for each objective, describe one common test of details of balances related to that objective.

Accepted Answer

Balance- related audit objectives for in

Question 3

When labour is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning:

Accepted Answer

A)  proper classification of transactions. 
B)  authorisation of wage rates. 
C)  fictitious employees. 
D)  completeness of recorded transactions. 
A)  proper classification of transactions. 
B)  authorisation of wage rates. 
C)  fictitious employees. 
D)  completeness of recorded transactions.

Question 4

To test for proper purchases cutoff, an auditor would obtain the number of the last shipping document (bill of lading) issued during the period under audit and verify that the item received had been included in the inventory listing.

Accepted Answer

A) True 
 B)False

Question 5

Which one of the following analytical procedures would be most helpful in alerting the auditor to the possibility of obsolete inventory?

Accepted Answer

A)  Compare current year manufacturing costs with previous years' costs. 
B)  Compare gross margin percentage with previous years' percentages. 
C)  Compare inventory turnover ratio with previous years' ratios. 
D)  Compare unit costs of inventory with previous years' costs. 
A)  Compare current year manufacturing costs with previous years' costs. 
B)  Compare gross margin percentage with previous years' percentages. 
C)  Compare inventory turnover ratio with previous years' ratios. 
D)  Compare unit costs of inventory with previous years' costs.

Question 6

A document frequently used by organisations to establish a formal means of recording the controlling acquisitions, and which usually contains a package of documents relevant to the acquisition, is the:

Accepted Answer

A)  purchase requisition. 
B)  purchase order. 
C)  voucher. 
D)  receiving report. 
A)  purchase requisition. 
B)  purchase order. 
C)  voucher. 
D)  receiving report.

Question 7

Analytical procedures and tests of details of balances are the most important means of auditing the payroll and personnel cycle.

Accepted Answer

A) True 
 B)False

Question 8

Sample size in physical observation of inventory is:

Accepted Answer

A)  impossible to specify in units because the emphasis is on observing the client's procedures. 
B)  determined using attributes sampling. 
C)  determined using dollar- unit sampling. 
D)  determined using variables sampling. 
A)  impossible to specify in units because the emphasis is on observing the client's procedures. 
B)  determined using attributes sampling. 
C)  determined using dollar- unit sampling. 
D)  determined using variables sampling.

Question 9

Which one of the following is the BEST audit procedure for the discovery of damaged merchandise in a client's ending inventory?

Accepted Answer

A)  Compare the physical quantities of slow- moving items with corresponding quantities of the prior year. 
B)  Review the management's inventory representation letter for accuracy. 
C)  Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average. 
D)  Be alert for items that are located in inappropriate places while observing the client's physical inventory count. 
A)  Compare the physical quantities of slow- moving items with corresponding quantities of the prior year. 
B)  Review the management's inventory representation letter for accuracy. 
C)  Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average. 
D)  Be alert for items that are located in inappropriate places while observing the client's physical inventory count.

Question 10

The auditor should be satisfied that acquisitions of raw materials are correctly stated at the completion of the:

Accepted Answer

A)  payroll and personnel cycle. 
B)  acquisitions and payments cycle. 
C)  cash cycle. 
D)  inventory and warehousing cycle. 
A)  payroll and personnel cycle. 
B)  acquisitions and payments cycle. 
C)  cash cycle. 
D)  inventory and warehousing cycle.

Question 11

A company failed to record an acquisition of merchandise and its attendant liability, but it was included in the physical count of ending inventory. The effect on the financial statements would be to:

Accepted Answer

A)  overstate net income and owners' equity. 
B)  understate both assets and liabilities. 
C)  understate liabilities and overstate both net income and owners' equity. 
D)  understate assets and owners' equity. 
A)  overstate net income and owners' equity. 
B)  understate both assets and liabilities. 
C)  understate liabilities and overstate both net income and owners' equity. 
D)  understate assets and owners' equity.

Question 12

For proper internal control, the person/s responsible for signing the payroll cheques should not have access to timekeeping or be otherwise involved in the preparation of payroll.

Accepted Answer

A) True 
 B)False

Question 13

From an audit perspective, transactions are far more significant than related balance sheet accounts in the payroll and personnel cycle.

Accepted Answer

A) True 
 B)False

Question 14

Comparing expenses to prior years' expenses is an effective analytical procedure for accounts payable because expenses from year to year are:

Accepted Answer

A)  variable. 
B)  dynamic. 
C)  relatively stable. 
D)  erratic. 
A)  variable. 
B)  dynamic. 
C)  relatively stable. 
D)  erratic.

Question 15

Matching the vendor's invoice, the purchase order and the receiving report normally should be the responsibility of the:

Accepted Answer

A)  accounts payable department. 
B)  warehouse receiving function. 
C)  purchasing function. 
D)  treasury function. 
A)  accounts payable department. 
B)  warehouse receiving function. 
C)  purchasing function. 
D)  treasury function.

Question 16

When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were:

Accepted Answer

A)  paid for in advance. 
B)  both shipped and received prior to the balance sheet date. 
C)  received prior to the balance sheet date. 
D)  shipped prior to the balance sheet date. 
A)  paid for in advance. 
B)  both shipped and received prior to the balance sheet date. 
C)  received prior to the balance sheet date. 
D)  shipped prior to the balance sheet date.

Question 17

To test for overstatement cutoff amounts when auditing accounts payable, the auditor should trace receiving reports issued before year- end to related vendors' invoices to make sure they are not recorded as accounts payable.

Accepted Answer

A) True 
 B)False

Question 18

The audit procedure 'Examine paid cheque for authorised signature, proper endorsement and cancellation by the bank' is used to test the existence objective for cash payments.

Accepted Answer

A) True 
 B)False

Question 19

Discuss the procedures involved in, and the purpose of, a surprise payroll audit.

Accepted Answer

A surprise payroll audit is a procedure

Question 20

The audit procedure 'Test clerical accuracy by footing the journals and tracing postings to general ledger and to accounts payable and inventory master files' is used to test the posting and summarisation objective for acquisitions.

Accepted Answer

A) True 
 B)False

When auditing accounts payable, auditors are usually especially concerned about the:

State five specific balance- related audit objectives for inventory pricing and compilation and, for each objective, describe one common test of details of balances related to that objective.

When labour is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning:

To test for proper purchases cutoff, an auditor would obtain the number of the last shipping document (bill of lading) issued during the period under audit and verify that the item received had been included in the inventory listing.

Which one of the following analytical procedures would be most helpful in alerting the auditor to the possibility of obsolete inventory?

A document frequently used by organisations to establish a formal means of recording the controlling acquisitions, and which usually contains a package of documents relevant to the acquisition, is the:

Analytical procedures and tests of details of balances are the most important means of auditing the payroll and personnel cycle.

Sample size in physical observation of inventory is:

Which one of the following is the BEST audit procedure for the discovery of damaged merchandise in a client's ending inventory?

The auditor should be satisfied that acquisitions of raw materials are correctly stated at the completion of the:

A company failed to record an acquisition of merchandise and its attendant liability, but it was included in the physical count of ending inventory. The effect on the financial statements would be to:

For proper internal control, the person/s responsible for signing the payroll cheques should not have access to timekeeping or be otherwise involved in the preparation of payroll.

From an audit perspective, transactions are far more significant than related balance sheet accounts in the payroll and personnel cycle.

Comparing expenses to prior years' expenses is an effective analytical procedure for accounts payable because expenses from year to year are:

Matching the vendor's invoice, the purchase order and the receiving report normally should be the responsibility of the:

When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were:

To test for overstatement cutoff amounts when auditing accounts payable, the auditor should trace receiving reports issued before year- end to related vendors' invoices to make sure they are not recorded as accounts payable.

The audit procedure 'Examine paid cheque for authorised signature, proper endorsement and cancellation by the bank' is used to test the existence objective for cash payments.

Discuss the procedures involved in, and the purpose of, a surprise payroll audit.

The audit procedure 'Test clerical accuracy by footing the journals and tracing postings to general ledger and to accounts payable and inventory master files' is used to test the posting and summarisation objective for acquisitions.

Demand for Audit and Assurance Services

Auditors Legal Environment

Audit Quality and Ethics

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Documentation

Materiality and Risk

Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Completing Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling

Audit of Transaction Cycles and Financial Statement Balances II

Completing the Audit

Audit Reporting

Other Auditing and Assurance Engagements

Filters

Exam 15: Audit of Transaction Cycles and Financial Statement Balances I

When auditing accounts payable, auditors are usually especially concerned about the:

State five specific balance- related audit objectives for inventory pricing and compilation and, for each objective, describe one common test of details of balances related to that objective.

When labour is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning:

To test for proper purchases cutoff, an auditor would obtain the number of the last shipping document (bill of lading) issued during the period under audit and verify that the item received had been included in the inventory listing.

Which one of the following analytical procedures would be most helpful in alerting the auditor to the possibility of obsolete inventory?

A document frequently used by organisations to establish a formal means of recording the controlling acquisitions, and which usually contains a package of documents relevant to the acquisition, is the:

Analytical procedures and tests of details of balances are the most important means of auditing the payroll and personnel cycle.

Sample size in physical observation of inventory is:

Which one of the following is the BEST audit procedure for the discovery of damaged merchandise in a client's ending inventory?

The auditor should be satisfied that acquisitions of raw materials are correctly stated at the completion of the:

A company failed to record an acquisition of merchandise and its attendant liability, but it was included in the physical count of ending inventory. The effect on the financial statements would be to:

For proper internal control, the person/s responsible for signing the payroll cheques should not have access to timekeeping or be otherwise involved in the preparation of payroll.

From an audit perspective, transactions are far more significant than related balance sheet accounts in the payroll and personnel cycle.

Comparing expenses to prior years' expenses is an effective analytical procedure for accounts payable because expenses from year to year are:

Matching the vendor's invoice, the purchase order and the receiving report normally should be the responsibility of the:

When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were:

To test for overstatement cutoff amounts when auditing accounts payable, the auditor should trace receiving reports issued before year- end to related vendors' invoices to make sure they are not recorded as accounts payable.

The audit procedure 'Examine paid cheque for authorised signature, proper endorsement and cancellation by the bank' is used to test the existence objective for cash payments.

Discuss the procedures involved in, and the purpose of, a surprise payroll audit.

The audit procedure 'Test clerical accuracy by footing the journals and tracing postings to general ledger and to accounts payable and inventory master files' is used to test the posting and summarisation objective for acquisitions.

Demand for Audit and Assurance Services

Auditors Legal Environment

Audit Quality and Ethics

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Documentation

Materiality and Risk

Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Completing Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling

Audit of Transaction Cycles and Financial Statement Balances II

Completing the Audit

Audit Reporting

Other Auditing and Assurance Engagements

Filters