MCQ FA1

Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests?

1.         risk assessment procedures

2.         tests of controls 

3.         substantive tests of transactions

4.         substantive analytical procedures

5.         tests of details of balances

• 1-2-3

• 3-4-5

• 2-3-5

• 2-3-4

The purpose of tests of controls is to provide reasonable assurance that the

• accounting treatment of transactions and balances is valid and proper.

• internal control procedures are functioning as intended

• entity has complied with GAAP disclosure requirements.

• entity has complied with requirements of quality control.

In the context of an audit of financial statements, substantive tests are audit procedures that

• may be eliminated under certain conditions

• are designed to discover significant subsequent events.

• are designed to test for dollar misstatements.

• will increase proportionately with the auditor's reliance on internal control

Risk assessment procedures are performed by auditors during an audit in order to

• determine the risk of material misstatement in the financial statements.

• determine the amount of testing of internal control.

• determine the extent of testing of details of balances.

• determine the extent of testing of transactions.

Which of the following is an account that is not affected by the sales and collection cycle?

• cash

• accounts receivable

• allowance for doubtful accounts

• accounts payable

The auditor's objectives for the sales and cash collections activities when the client is primarily an e-commerce business as compared to a "brick and mortar" business are

• unchanged.

• expanded.

• mitigated.

• decreased.

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?

• determination of correct delivery address

• credit approval

• matching of shipping document with sales invoice

• receipt of sales order from the customer

Before goods are shipped on account, a properly authorized person must

• prepare the sales invoice.

• approve the journal entry

• approve the customer's credit.

• verify that the unit price is accurate

Which accounts are involved in the sales class of transactions?

• accounts receivable and sales returns and allowances

• cash and allowance for uncollectible accounts

• sales allowances and accounts receivable

• accounts receivable and sales

As a test of control, the auditor examines sales invoices for supporting documents. The relevant transaction-related audit objective is

• accuracy.

• occurrence.

• classification.

• timing.