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11. Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees?
A. A bank lock box system.
B. Prenumbered remittance advices.
C. Monthly bank reconciliations.
D. Daily deposit of cash receipts.
12. The least crucial element of internal control over cash is
A. Separation of cash record-keeping from custody of cash.
B. Preparation of the monthly bank reconciliation.
C. Batch processing of checks.
D. Separation of cash receipts from cash disbursements.
14. An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the
A. Check register for the last month is reviewed.
B. Cutoff bank statement is reconciled.
C. Bank confirmation is reviewed.
D. Search for unrecorded liabilities is performed.
16. An interbank transfer schedule
A. Is another name for the proof of cash.
B. Helps the auditor test for kiting.
C. Is on a standard bank confirmation.
D. Is used to examine client bank reconciliations.
17. If fraud is suspected, auditors may complete all of the following procedures except:
A. Testing for kiting.
B. Footing the bank reconciliation and the outstanding checks listing.
C. Performing a proof of cash.
D. Performing extended bank reconciliation procedures, including detailed examination of reconciling items.
19. An auditor testing long-term investments would ordinarily use substantive analytical procedures as the primary audit evidence to support the reasonableness of the
A. Valuation of marketable equity securities.
B. Classification of gains and losses on the disposal of securities.
C. Completeness of recorded investment income.
D. Existence and ownership of investments.
20. To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would
A. Inspect the stock certificates evidencing the investment.
B. Examine the audited financial statements of the investee company.
C. Review the broker's advice or canceled check for the investment's acquisition.
D. Obtain market quotations from financial newspapers or periodicals.
22. Which of the following pairs of accounts would an auditor most likely analyze on the same working paper?
A. Notes receivable and interest income.
B. Accrued interest receivable and accrued interest payable.
C. Notes payable and notes receivable.
D. Interest income and interest expense.
24. All of the following can assist the auditor in testing the existence assertion for investment securities except:
A. Physical examination.
B. Comparing fair value to cost.
C. Confirmation with the issuer.
D. Confirmation with the custodian.
25. An imprest cash account is
A. Used for investing in marketable securities.
B. The principal cash account for an entity.
C. One that contains a stipulated amount of money and is used for limited purposes.
D. The principal checking account for a branch of an entity.
27. Tracing a sample of remittance advices to entries in the cash receipts journal tests which of the following assertions for cash?
29. The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town bank. How would the auditor discover this manipulation?
A. Confirming all December 31 bank balances.
B. Counting the cash working fund at the close of business on December 31.
C. Preparing independent bank reconciliations as of December 31.
D. Preparing and detail testing a bank transfer schedule.
31. An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily to
A. Verify the cash balance reported on the bank confirmation inquiry form.
B. Verify reconciling items on the client's bank reconciliation.
C. Detect lapping.
D. Detect kiting.
33. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except the:
A. Cutoff bank statement.
B. Year-end bank statement.
C. Bank confirmation.
D. General ledger.
37. Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities?
A. An independent trust company that has no direct contact with the employees who have record keeping responsibilities has possession of the securities.
B. The internal auditor verifies the marketable securities in the entity's safe each year on the balance sheet date.
C. The independent auditor traces all purchases and sales of marketable securities through the subsidiary ledgers to the general ledger.
D. A designated member of the board of directors controls the securities in a bank safe-deposit box.
39. Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail room?
A. The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
B. The cashier makes the daily deposit at a local bank.
C. The cashier prepares the daily deposit.
D. The cashier endorses the checks.
41. Ina manufacturing company, which one of the following audit procedures would givethe least assurance for the existence of the general ledger balance ofinvestment in stocks and bonds at the audit date?
A. Confirmationfrom the broker.
B. Inspectionand count of stocks and bonds.
C. Vouchingall changes during the year to brokers' advices and statements.
D. Examination of canceledchecks issued in payment of securities purchased.
43. Whichof the following is not one of the auditor's primary objectives in anexamination of marketable securities?
A. To determine whethersecurities are authentic.
B. Todetermine whether securities are the property of the client.
C. Todetermine whether securities actually exist.
D. Todetermine whether securities are properly classified on the balance sheet.
45. Aclient has a large and active investment portfolio that is kept in a banksafe-deposit box. If the auditor is unable to examine and count the securitiesat the balance sheet date but will examine and count the securities shortlythereafter, the auditor most likely will
A. Requestthat the bank confirm to the auditor the contents of the safe-deposit box atthe balance sheet date.
B. Examinesupporting evidence for transactions occurring during the year.
C. Countthe securities at a subsequent date and confirm with the bank whethersecurities were added or removed since the balance sheet date.
D. Request that the clienthave the bank seal the safe-deposit box until the auditor can count thesecurities at a subsequent date.
47. Examiningbrokers' advices for a sample of securities purchased during the year is a testfor the assertion of
C. Valuationand allocation.
D. Rights and obligations.
49. Asone of the year-end audit procedures, the auditor instructed the client'spersonnel to prepare a standard bank confirmation request for a bank accountthat had been closed during the year. After the client's treasurer had signedthe request, it was mailed to the bank by the assistant treasurer. What is themajor flaw in this audit procedure?
A. Theconfirmation request was signed by the treasurer.
B. Sendingthe request was meaningless because the account was closed before the year-end.
C. The request was mailedby the assistant treasurer.
D. TheCPA did not sign the confirmation request before it was mailed.
51. Whichof the following control activities would an entity most likely use to assistin satisfying the completeness assertion related to long-terminvestments?
A. Seniormanagement verifies that securities in the bank safe-deposit box are registeredin the entity's name.
B. The internal auditorcompares the securities in the bank safe-deposit box with recorded investments.
C. Thetreasurer vouches the acquisition of securities by comparing brokers' adviceswith canceled checks.
D. Thecontroller compares the current market prices of recorded investments with thebrokers' advices on file.
53. Whenthere is a large number of negotiable securities in multiple locations, carefulplanning of the physical inspection and count of the securities by the auditoris necessary to guard against
A. Unauthorizednegotiation of the securities before they are counted.
B. Unrecordedsales of securities after they are counted.
C. Substitution ofsecurities already counted at one location for other securities that should beon hand at a different location but are not.
D. Substitutionof authentic securities with counterfeit securities.
55. Whichof the following would provide the best form of evidential matter pertaining tothe annual valuation of a long-term investment in which the independentauditor's client owns a 45 percent voting interest?
A. Marketquotations of the investee company's stock.
B. Thecurrent fair value of the investee company's assets.
C. Historicalcosts of the investee company's assets.
D. Audited financialstatements of the investee company.
57. Auditorswill need to perform more substantive tests than normal to obtain sufficientappropriate evidence that a financial instrument is fairly stated if which ofthe following conditions exist?
A. Managementis objective and transparent in their assumptions.
B. Management's keyassumptions are subject to volatility.
C. Theentity's portfolio is composed of only stocks issued by Fortune 100 firmstraded in an active market.
D. Theentity does not have control weaknesses in its valuation processes.
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