An auditor most likely would extend substantive tests of payroll when:
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1 .Which of the following internal control procedures most likely addresses the completeness assertion for inventory?
A Receiving reports are prenumbered and periodically reconciled. B There is a separation of duties between payroll department and inventory accounting personnel. C Work in process account is periodically reconciled with subsidiary records. D Employees responsible for custody of finished goods do not...
2 .A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably:
A Apply gross profit tests to ascertain the reasonableness of the physical counts. B Increase the extent of tests of controls of the inventory cycle. C Insist that the client perform physical counts of inventory items several times during the year. D Request the client to schedule the physical inven...
3 .An auditor scans a client's investment records for the period just before and just after the year-end to determine that any transfers between categories of investments have been properly recorded. The primary purpose of this procedure is to obtain evidence about management's financial statement assertions of:
A Existence, and understandability and classification. B Understandability and classification, and valuation and accuracy. C Rights and obligations, and existence. D Valuation and accuracy, and rights and obligations.
4 .When a client engages in transactions involving derivatives, the auditor should:
A Notify those charged with governance about the risks involved in derivative transactions. B Confirm with the client's broker whether the derivatives are for trading purposes. C Develop an understanding of the economic substance of each derivative. D Add an explanatory paragraph to the auditor's re...
5 .An auditor's principal objective in analyzing repairs and maintenance expense accounts is to:
A Discover expenditures that were expensed but should have been capitalized. B Verify that all recorded plant and equipment assets actually exist. C Determine that all obsolete plant and equipment assets were written off before the year-end. D Identify plant and equipment assets that cannot be repai...
7 .In auditing long-term bonds payable, an auditor most likely would:
A Compare interest expense with the bond payable amount for reasonableness. B Perform analytical procedures on the bond premium and discount accounts. C Confirm the existence of individual bondholders at year-end. D Examine documentation of assets purchased with bond proceeds for liens.
8 .Which of the following procedures would an auditor ordinarily perform first in evaluating the reasonableness of management's accounting estimates?
A Obtain an understanding of how management developed its estimates. B Analyze historical data used in developing assumptions to determine whether the process is consistent. C Compare independent expectations with recorded estimates to assess management's process. D Review transactions occurring pri...
9 .Which of the following factors most likely would cause a CPA not to accept a new audit engagement?
A The indications that management has not investigated employees in key positions before hiring them. B The CPA's lack of understanding of the prospective client's operations and industry. C The prospective client's unwillingness to permit inquiry of its legal counsel. D The inability to review the ...
10 .Which of the following procedures would an auditor most likely perform regarding litigation?
A Discuss with management its policies and procedures for identifying and evaluating litigation. B Inspect the legal documents in the client's lawyer's possession regarding pending litigation. C Confirm the details of pending litigation with the client's adversaries' legal representatives. D Confirm...
