Choose the Correct Answer for These Audits Terms Flashcards

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers?
A) To document every test count.
B) For subsequent comparison with the completed inventory listing.
C) To document compliance with generally accepted accounting principles.
D) For use in subsequent audits.

A likely analytical procedure to test the accuracy of purchase discounts would be to compute the ratio of cash discounts earned to:
A) Accounts payable.
B) Notes payable.
C) Purchases.
D) Sales discounts.

Which of the following audit procedures is least likely to detect an unrecorded liability?
A) Analysis and recomputation of interest expense.
B) Analysis and recomputation of depreciation expense.
C) Mailing of a cash confirmation form.
D) Reading of the minutes of meetings of the board of directors.

Which statement is correct with respect to accounts payable confirmations?
A) The negative form is used in most circumstances.
B) Accounts with new suppliers are always confirmed.
C) They are a required auditing procedure.
D) They are more frequently used in situations in which some vendors don't send monthly statements.

The confirmation of accounts payable is most closely associated with:
A) Assertion risk.
B) Detection risk.
C) Inherent risk.
D) Relative risk.

Which of the following audit procedures most likely would provide assurance that a manufacturing entity's inventory valuation is proper?
A) Testing the entity's computation of standard overhead rates.
B) Obtaining confirmation of inventories pledged under loan agreements.
C) Reviewing a cutoff procedure for inventories.
D) Tracing test counts to the entity's inventory listing.

An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all:
A) Merchandise received.
B) Vendor's invoices.
C) Canceled checks.
D) Receiving reports.

Which of the following is the best control procedure to prevent the payment of an invoice twice?
A) Review of supporting documentation by the person signing the check.
B) Requiring dual signatures on checks.
C) Use of a check protector.
D) Reconciliation of vendor statements to accounts payable.

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?
A) Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the receiving reports.
B) Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving reports.
C) Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the checks.
D) Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.

Purchase cutoff procedures should be designed to test whether all inventory:
A) Owned by the company was recorded.
B) On the year end balance sheet was carried at lower of cost or market.
C) On the year end balance sheet was paid for by the company.
D) Owned by the company is in the possession of the company.

In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the:
A) Purchases journal.
B) Purchase requisitions.
C) Purchase orders.
D) Vendors' invoices.

Effective internal control for purchases generally can be achieved in a well-planned organizational structure with a separate purchasing department that has:
A) The ability to prepare payment vouchers based on the information on a vendor's invoice.
B) The responsibility of reviewing purchase orders issued by user departments.
C) The authority to make purchases of requisitioned materials and services.
D) A direct reporting responsibility to controller of the organization.

Which of the following best describes the auditors' response to a client's use of statistical sampling techniques to estimate the inventory?
A) The auditors should satisfy themselves as to the statistical validity of the technique, and the reasonableness of the allowance for sampling risk and sampling error used.
B) The auditors should qualify their opinion, because the client must perform a complete count of the inventory.
C) The auditors should increase the extent of their test counts to compensate for the use of a statistical technique.
D) The auditors should withdraw from the engagement.

The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with:
A) Purchase requisitions.
B) Receiving reports.
C) Purchase orders.
D) Vendor payments.

When the auditors discover an understatement of liabilities, they would most likely also expect to find an:
A) Understatement of assets.
B) Understatement of owners' equity.
C) Overstatement of expenses.
D) Understatement of revenues.