Question 1

In auditing the retained earnings balance for the year, the auditor traces the entry in retained earnings to the net earnings shown in the balance sheet.

Accepted Answer

A) True 
 B)False

Question 2

Banks are responsible for searching their records for bank balances or loans beyond those included on the confirmation form.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Information typically confirmed on liabilities to the bank includes the:

Accepted Answer

A)  interest rate. 
B)  existence of security. 
C)  amount of the loan. 
D)  all of the above

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

The audit of the bank reconciliation will normally lead to the discovery of theft of cash by interception of cash receipts from customers before they are recorded, with the account written off as a bad debt.

Accepted Answer

A) True 
 B)False

Question 7

It should ordinarily be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it is normal to verify:

Accepted Answer

A)  all large transactions. 
B)  all unusual transactions. 
C)  a representative sample of typical additions. 
D)  all of the above

Question 8

The most important objective for depreciation expense is:

Accepted Answer

A)  accuracy. 
B)  classification. 
C)  cutoff. 
D)  disclosure.

Question 9

Depreciation expense is one of the few expense accounts that is NOT verified as a part of:

Accepted Answer

A)  substantive tests of transactions. 
B)  tests of controls. 
C)  both A and B 
D)  analytical procedures.

Question 10

Which one of the following transaction-related objectives is NOT important when auditing dividends?

Accepted Answer

A)  accuracy 
B)  completeness 
C)  existence 
D)  posting and summarisation

Question 11

The most important audit objective for depreciation expense is completeness.

Accepted Answer

A) True 
 B)False

Question 12

Identify three analytical procedures commonly performed for loans payable.

Accepted Answer

The answer of Identify three analytical procedures commonly performed for...

Question 13

Property, plant, and equipment are assets that:

Accepted Answer

A)  have expected lives of more than one year. 
B)  are used in the business. 
C)  are not acquired for resale. 
D)  all of the above

Question 14

In verifying accumulated depreciation, the credits to accumulated depreciation are verified as part of the audit of depreciation expense, whereas the debits are normally tested as a part of the audit of:

Accepted Answer

A)  asset acquisitions. 
B)  disposal of assets. 
C)  capital acquisitions. 
D)  accumulated depreciation.

Question 15

Deposits recorded as cash receipts near the end of the year, deposited in the bank in the same month and included in the bank reconciliation as a deposit in transit, are a type of misstatement in cash that will not normally be discovered as part of the audit of tests of a bank reconciliation.

Accepted Answer

A) True 
 B)False

Question 16

Discuss what is meant by kiting, and discuss how it is performed.

Accepted Answer

The answer of Discuss what is meant by kiting, and...

Question 17

Typically, bank confirmations in the audit verify:

Accepted Answer

A)  actual cash balance. 
B)  loan information. 
C)  both A and B 
D)  none of the above

Question 18

When auditing owners' equity, the realisable value objective is not applicable.

Accepted Answer

A) True 
 B)False

Question 19

The most important objective for depreciation is accuracy.One aspect of this objective is the consistency of depreciation policy.The four considerations in determining this do NOT include:

Accepted Answer

A)  the method of depreciation. 
B)  the policy of depreciating assets in the year of acquisition and disposition. 
C)  the estimated residual value. 
D)  what accounting standards must be used.

Question 20

Who should prepare the bank reconciliation?

Accepted Answer

A)  someone independent of handling or recording cash receipts 
B)  someone independent of handling cash receipts and cash payments 
C)  the finance manager 
D)  someone independent of the finance manager

Exam 16: Audit of transaction cycles and financial statement balances II

In auditing the retained earnings balance for the year, the auditor traces the entry in retained earnings to the net earnings shown in the balance sheet.

Banks are responsible for searching their records for bank balances or loans beyond those included on the confirmation form.

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

Information typically confirmed on liabilities to the bank includes the:

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.

The audit of the bank reconciliation will normally lead to the discovery of theft of cash by interception of cash receipts from customers before they are recorded, with the account written off as a bad debt.

It should ordinarily be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it is normal to verify:

The most important objective for depreciation expense is:

Depreciation expense is one of the few expense accounts that is NOT verified as a part of:

Which one of the following transaction-related objectives is NOT important when auditing dividends?

The most important audit objective for depreciation expense is completeness.

Identify three analytical procedures commonly performed for loans payable.

Property, plant, and equipment are assets that:

In verifying accumulated depreciation, the credits to accumulated depreciation are verified as part of the audit of depreciation expense, whereas the debits are normally tested as a part of the audit of:

Deposits recorded as cash receipts near the end of the year, deposited in the bank in the same month and included in the bank reconciliation as a deposit in transit, are a type of misstatement in cash that will not normally be discovered as part of the audit of tests of a bank reconciliation.

Discuss what is meant by kiting, and discuss how it is performed.

Typically, bank confirmations in the audit verify:

When auditing owners' equity, the realisable value objective is not applicable.

The most important objective for depreciation is accuracy.One aspect of this objective is the consistency of depreciation policy.The four considerations in determining this do NOT include:

Who should prepare the bank reconciliation?