Deck 8: Audit of the Capital Acquisition, Repayment, Audit of Cash and Financial Instruments, and Completing the Audit

Question 1

The primary focuses of the audit of debt are:

A) accuracy and completeness.
B) accuracy and existence.
C) completeness and valuation.
D) accuracy and valuation.

Answer 1

accuracy and completeness.

Question 2

Which of the following accounts is not audited within the capital acquisition and repayment cycle?

A) Interest expense.
B) Accounts payable.
C) Notes payable.
D) Bonds payable.

Answer 2

Accounts payable.

Question 3

Which of the following accounts would not normally be seen in the equity section of the balance sheet?

A) Donated capital.
B) Accrued revenue.
C) Common stock.
D) Dividends declared.

Answer 3

Accrued revenue.

Question 4

Which of the following is an auditor least likely to consider in determining the appropriate tests of details of balances for notes payable?

A) Business risk.
B) Inherent risk.
C) Acceptable audit risk.
D) Results of analytical procedures.

Question 5

When there are numerous transactions involving notes payable during the year, the auditor will likely:

A) request the client to prepare a schedule of only those notes with unpaid balances at the end of the year.
B) review a schedule of notes payable and accrued interest obtained from the client.
C) perform some other procedure.
D) prepare a schedule of notes payable and accrued interest prepared.

Question 6

What type of audit test will auditors use when testing to see if existing capital stock transactions are recorded?

Question 7

What type of audit test will auditors use when testing to see if the amounts of capital stock transactions are accurately recorded?

Question 8

What is a note payable?

Question 9

Public companies whose stock is listed on a stock exchange must employ a stock transfer agent.

Question 10

Which of the following is the focus of an audit of cash for most companies?

A) Petty cash account.
B) Money market account.
C) Payroll cash account.
D) General cash account.

Question 11

Cash is important to auditors primarily because of the potential for:

A) fraud.
B) errors.
C) liquidity.
D) expenditures.

Question 12

The auditor uses a proof of cash to determine whether:

Question 13

The concern in a monthly proof of cash is with:

A) reconciling the amounts per books and bank.
B) identifying cash transfers.
C) adjusting account balances.
D) determining the month- end balance.

Question 14

If a bank does not respond to a bank confirmation request, an auditor may:

Question 15

The most important controls for petty cash relate to:

Question 16

Which of the following balance- related objectives applies to auditing the general cash account?

Question 17

What is the most important internal control over petty cash?

Question 18

Discuss the circumstances in which an auditor would prepare a proof of cash.

Question 19

Do companies usually have significant client business risks affecting cash balances?

Question 20

It is acceptable for petty cash funds to be mingled with other receipts if circumstances require it.

Question 21

When auditing the general cash account, receipt of a standard bank confirmation satisfies the completeness objective for unrecorded bank balances and loans from the bank.

Question 22

Auditors often integrate procedures for presentation and disclosure objectives with:

Question 23

Which of the following is an incorrect combination of the 'likelihood of occurrence' and financial statement treatment?

A) Probable (amount is estimable): financial statements are adjusted.
B) Remote: no disclosure.
C) Probable (amount is not estimable): footnote disclosure is required.
D) Reasonably possible (amount is estimable): financial statements are adjusted.

Question 24

Which of the following is a contingent liability with which an auditor is particularly concerned?

Question 25

Which type of subsequent event requires consideration by management and evaluation by the auditor?

Question 26

Who may identify matters to be included in a letter of inquiry sent to a client's legal counsel?

Question 27

At what stages of the audit must analytical procedures be used?

A) Testing and completion.
B) Planning and testing.
C) Planning, testing, and completion.
D) Planning and completion.

Question 28

Which of the following procedures and methods are important in assessing a company's ability to continue as a going concern?

Question 29

Inquiries of management regarding the possibility of unrecorded contingencies will be useful in uncovering:

Question 30

Which of the following items would ordinarily not be included in the standard letter of inquiry to the client's attorney?

A) A request that the attorney confirm the amount of outstanding fees which client owes for legal services.
B) A request that the attorney furnish an estimate of the amount or range of the potential loss.
C) A request that the attorney furnish information or comment about the likelihood of an unfavorable outcome of litigation.
D) A list, prepared by management, of pending threatened litigation of material amounts.

Question 31

If an auditor concludes there are contingent liabilities, then he or she must evaluate the:

Question 32

Which of the following determines the sufficiency of evidence?

A) Capital market authority regulations.
B) Adherence to the audit program.
C) Auditing standards.
D) Auditor judgment.

Question 33

If the auditor determines that a subsequent event that affects the current period financial statements occurred after field work was completed but before the audit report was issued, what date(s) may the auditor use on the report?

Question 34

Why must audit documentation be reviewed?

A) To evaluate the performance of inexperienced personnel.
B) To ensure that the audit meets the auditing firm's standard of performance.
C) To counteract bias that often enters into the auditor's judgment.
D) All of the above are reasons for review of audit documentation.

Question 35

List four contingent liabilities that auditors are concerned about in most instances.

Question 36

Characterize the auditor's role in preparing the financial statements.

Question 37

The field work for the December 31, 2012 audit of Medina Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On April 5, 2013, you discovered that, on February 16, 2013, a flood destroyed the entire uninsured inventory in one of Medina's warehouses.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required.

Question 38

The field work for the December 31, 2012 audit of Medina Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On February 17, 2013, you discovered that, on February 16, 2013, a flood destroyed the entire uninsured inventory in one of Medina's warehouses.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required.

Question 39

The field work for the December 31, 2012 audit of Medina Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On February 17, 2013, you discovered that, on November 30, 2012, a flood destroyed the entire uninsured inventory in one of Medina's warehouses.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required.

Question 40

The field work for the December 31, 2012 audit of Medina Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On April 5, 2013, you discovered that, on March 30, 2013, a fire destroyed one of Medina's 13 plants.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required.

Question 41

The field work for the December 31, 2012 audit of Medina Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On April 7, 2013, you discovered that a debtor of Schmidt went bankrupt on January 6, 2013, due to gradual declining financial health.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required.

Question 42

The field work for the December 31, 2012 audit of Alfa Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On January 16, 2013, a lawsuit was filed against Alfa for a patent infringement action that allegedly took place in early 2005. In the opinion of Alfa's attorneys, there is a reasonable (but not probable) danger of a significant loss to Alfa.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required

Question 43

The field work for the December 31, 2012 audit of Alfa Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On February 19, 2013, Alfa settled a lawsuit out of court that had originated in 2002 and is currently listed as a contingent liability.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required

Question 44

The field work for the December 31, 2012 audit of Alfa Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On March 30, 2013, Alfa settled a lawsuit out of court that had originated in 2004 and is currently listed as a contingent liability.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required

Question 45

The field work for the December 31, 2012 audit of Alfa Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On February 2, 2013, you discovered an uninsured lawsuit against Alfa that had originated on August 30, 2012.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required

Question 46

The field work for the December 31, 2012 audit of Alfa Corporation ended on March 17, 2013. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2013. In each of the material situations below, select the appropriate action.

-On April 7, 2013, you discovered that a debtor of Alfa went bankrupt on January 22, 2013, due to a major uninsured fire that occurred on January 2, 2013.

A) Adjust the December 31, 2012 financial statements.
B) Disclose the information in a footnote in the December 31, 2012 financial statements.
C) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve an adjustment to the December 31, 2012 financial statements.
D) Request the client revise and reissue the December 31, 2012 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2012 financial statements.
E) No action is required

Question 47

ISA 560 and ISA 570 directs the auditor's assessment of going- concern issues.

Question 48

Auditors are not required to evaluate the going concern assumption as part of each audit.

Question 49

If an attorney refuses to provide the auditor with information about material existing lawsuits or unasserted claims, auditing standards require that the auditor issue an adverse opinion to reflect the lack of available evidence.