Exam 6: Audit Responsibilities and Objectives

The most important general ledger account included in and affecting several cycles is the

________ deals with potential overstatement and ________ deals with understatements (unrecorded transactions).

Below are five audit procedures, all of which are tests of transactions associated with the audit of the sales and collection cycle. Also, below are the six general transaction-related audit objectives and the five management assertions. For each audit procedure, indicate (1) its audit objective, and (2) the management assertion being tested. 1. Vouch recorded sales from the sales journal to the file of bills of lading. (1) ________ (2) ________ 2. Compare dates on the bill of lading, sales invoices, and sales journal to test for delays in recording sales transactions. (1) ________ (2) ________ 3. Account for the sequence of prenumbered bills of lading and sales invoices. (1) ________ (2) ________ 4. Trace from a sample of prelistings of cash receipts to the cash receipts journal, testing for names, amounts, and dates. (1) ________ (2) ________ 5. Examine customer order forms for credit approval by the credit manager. (1) ________ (2) ________

The Sarbanes-Oxley Act requires the auditor to certify the quarterly and the annual financial statements required to be filed by publicly listed firms with the Securities and Exchange Commission.

For publicly listed companies, the auditor also issues which of the following reports in addition to a report containing the auditor's opinion?

Balance-related audit objectives

Direct, written communication with the client's customers to identify whether a receivable exists is an example of a(n)

An audit generally provides no assurance that illegal acts that do not have a direct effect on the financial statements will be detected.

Below are five audit procedures, all of which are tests of balances associated with the audit of accounts receivable. Also, below are the eight general balance-related audit objectives and the four management assertions. For each audit procedure, indicate (1) its audit objective, and (2) the management assertion being tested. 1. Obtain an aged listing of accounts receivable. For a sample of individual customers on the listing, agree the customer's name, amount, and other information with the corresponding information in the accounts receivable master file. (1) ________ (2) ________ 2. Examine details of sales for five days before and five days after year-end to determine whether sales have been recorded in the proper period. (1) ________ (2) ________ 3. Assess the reasonableness of the balance in the allowance for doubtful accounts. (1) ________ (2) ________ 4. Inquire as to whether any accounts receivable have been factored or sold during the period. (1) ________ (2) ________ 5. Inquire as to whether there are any receivables from related parties. (1) ________ (2) ________

Which of the following statements is not true?

Other than inquiring of management about policies they have established to prevent illegal acts and whether management knows of any laws or regulations that the company has violated, the auditor should not search for illegal acts that do not have a direct effect on the financial statements unless there is reason to believe they may exist.

It is not difficult for the auditor to quantify a measure of materiality while performing the audit.

The annual reports of many public companies include a statement about management's responsibilities and relationship with the CPA firm.

Which of the following statements is true of a public company's financial statements?

The profession has developed professional judgment frameworks that illustrate an effective decision-making process.

Management makes the following assertions about account balances:

Which of the following management assertions is not associated with classes of transactions and events?

The presentation and disclosure-related audit objectives are identical to the management assertions for presentation and disclosure.

Rights and obligations are the only balance-related assertion without a similar transaction-related assertion.

When developing the audit objectives, the first step is to divide the financial statements into cycles.