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WorksheetsSubstantive Test
Total questions: 50
Worksheet time: 14mins
1. As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client’s treasurer had signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure?
A. The confirmation request was signed by the treasurer.
B. Sending the request was meaningless because the account was closed.
C. The request was mailed by the assistant treasurer.
D. The CPA did not sign the confirmation request before it was mailed.
2. A proof of cash is normally used
A. for all engagements
B. to test the transactions process when controls over cash are weak.
C. when control risk for cash is low.
D. when lapping is suspected.
3. To gather evidence regarding the balance per bank in a bank reconciliation, an author would examine all of the following except:
A. cutoff bank statement
B. year-end bank statement.
C. bank confirmation.
D. general ledger.
4. An auditor requests a cutoff procedures bank statement primarily to:
A. verify the cash balance reported on the bank confirmation.
B. verify reconciling items on the client’s bank reconciliation
C. detect lapping.
D. detect kiting.
5. An auditor gathers evidence regarding the validity of deposits in transit by examining the
A. bank confirmation
B. cutoff bank statement.
C. year-end bank statement.
D. bank reconciliation.
6. Which of the following audit procedures is most likely to detect a cash balance that is restricted as to withdrawal?
A. Review the cutoff bank transfer schedule.
B. Prepare an interbank transfer schedule.
C. Make inquiries of management.
D. Compare cash balance with cash budget.
7. An auditor should trace bank transfer for the last part of the audit period and the first part of the subsequent period to detect whether
A. the cash receipts journal was held open for a few days after the year-end.
B. cash balances were overstated because of kitting.
C. the last checks recorded before the year-end were actually mailed by the year-end
D. any unusual payments to or receipts from related parties occurred.
8. An unrecorded check used during the last week of the year would most likely be discovered by the author 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.
9. An auditor compares information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that
A. recorded cash disbursement transactions are properly authorized.
B. proper cash purchase discounts have been recorded.
C. cash disbursements are for goods and services actually received.
D. no discrepancies exist between the date on the checks and the data in the journal.
10. Working papers ordinarily would not include
A. Initials of the in-charge auditor indicating a review of the staff assistants’ work.
B. Cut-off bank statements received directly from the banks.
C. A memo describing the preliminary review of the internal control structure.
D. Copies of the client’s inventory count sheets.
11. Which of the following auditing procedures would the auditor not apply to a cutoff bank statement?
A. Trace year-end outstanding checks and deposits in transit to the cutoff bank statement.
B. Compare dates, payees and endorsements on returned checks with the cash disbursements record.
C. Determine that the year end deposit in transit was credited by the bank on the first working day of the following accounting period.
D. reconcile the bank account at the end of the cutoff period.
12. Which of the following would be the most appropriate audit procedure to test the processing of interbank transfer?
A. Analyze a sample of interbank transfer throughout the period including period-end reconciliations.
B. Obtain cutoff bank statements for each bank account and reconcile them to accounting records.
C. Send a bank confirmation request to each bank in which accounts are maintained and reconcile the completed forms to accounting records.
D. Trace all bank deposits recorded in the accounting records near the end of the fiscal period to
13. While performing an audit of cash, an auditor begins to suspect kiting. Which of the following is the best evidence that the auditor could obtain concerning whether kiting is kiting place?
A. Documentary evidence obtained by vouching entries in the cash account to supporting documents.
B. Documentary evidence obtained by vouching credits on the latest bank statement to supporting documents.
C. Evidence obtained by preparing a schedule of interbank transfer.
D. Oral evidence obtained through discussions with the controller personnel.
14. . The auditor uses cutoff bank statements to compare.
A. deposit in transit on the year-end book bank reconciliation to deposits in the cash receipts journal.
B. checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.
C. deposit listed on the cutoff statement to disbursement in the cash disbursement journal.
D. checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation.
15. . An auditor who examines check disbursement discovers a missing check number. Upon inquiry the person responsible for disbursement and reconciliation of the cash account, he is told that the check number is missing because the check was voided. What is the auditor’s next step?
A. Prepare a bank transfer schedule to identify the check.
B. Examine the bank confirmation to determine whether the check cleared.
C. Since the person responsible for disbursement also reconciles the account, no additional procedures are necessary.
D. Examine the voided checks file to determine whether the check is in the file.
16. Of the following which procedure or document is most effective for detecting
A. A bank cut-off statement.
B. A bank statement.
C. A bank kiting statement
D. Confirmation of bank balance.
17. Which of the following is confirmed on the standard from used for cash balances assets to prevent
A. Factored accounts receivable.
B. Loss contingencies
C. Loans payable
D. Safe deposit boxes controlled by the entity.
18. When accounting cash on hand, the auditor must exercise control over all cash and other negotiable assets to prevent
A. theft
B. irregular endorsement
C. substitution.
D. deposits a transit.
19. Which of the following is not a primary objective of the auditor in the tests of accounts receivable?
A. Determining the approximate realizable value.
B. Determining the adequacy of internal control.
C. Establishing the validity of receivable.
D. Determining the approximate time of collectability of the receivable.
20. The negative form of accounts receivable confirmation request is particularly useful except when
A. control producers surrounding accounts receivable are considered to be effective.
B. a large number of small balances are involved.
C. the auditor has reason to believe the person receiving the requests are likely to give them consideration.
D. individual account balances are relatively large.
21. A sales cutoff test compliment tests of
A. sales return.
B. Cash
C. accounts receivable
22. Most part of the audit of sales and collection cycle
A. cannot be performed until the audit cash is completed.
B. can be performed independently of the audit of other cycle.
C. must be performed simultaneously with the audit of the purchases and disbursement cycle.
D. must be performed first so that the audit of the other cycles can rely on the data.
23. The audit objective: “The accounts receivable balance represents gross claims on customers and agrees with the sum of the accounts receivable subsidiary ledger” is derived from the assertion of
A. presentation and disclosure.
B. completeness.
C. valuation and allocation.
D. existence.
24. A shipping document used in vouching will primarily meet the:
A. completeness assertion.
B. valuation or allocation assertion.
C. rights and obligations assertion.
D. occurrence assertion.
25. A shipping documents used in tracing will primarily meet the:
A. completeness assertion.
B. valuation or allocation assertion.
C. rights and obligations assertion.
D. occurrence assertion.
26. An auditor is examining accounts receivable. Which one is the most competent type of evidence in this situation?
A. Interviewing the personnel who record accounts receivable.
B. Verifying that postings to the receivable account from journals have been made.
C. Receipt by the auditor for a positive confirmation.
D. No response received for a request for a negative confirmation.
27. Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because
A. a majority of recipients usually lack the willingness to respond objectively.
B. some recipients may report incorrect balances that require extensive follow-up.
C. the auditor can not infer that all man respondents have verified their account information.
D. negative confirmations do not produce evidential matter that is statistically quantifiable.
28. Although most substantive testing is performed during the final audit , some substantive tests may be done during the interim period. Which of the following statements concerning the timing of substantive tests is true?
A. When internal control is weak, extensive substantive testing should be performed during the interim audit.
B. Substantive testing should be performed during the interim audit only under conditions of excellent internal control.
C. As a general rule, the auditor performs substantive test of balances as of the balance sheet date and tests of transactions during the interim as well as the year-end audit.
D. If internal control is weak , the auditor should confirm accounts receivable as of a point in time at least one month prior to the client’s fiscal year-end.
29. Before applying principal substantive tests to the details of asset and liability accounts at an interim date, the auditor should
A. assess the difficulty in controlling incremental audit risk.
B. investigate significant fluctuation that have occurred in the asset and liability accounts since the previous balance sheet date.
C. select only those accounts which can effectively be sampled during year-end audit work.
D. consider the control tests that must be applied at balance sheet date to extend the audit conclusion reached at the interim date.
30. Confirming accounts receivable is required whenever.
A. they are material and it is practicable and reasonable to do so.
B. they are material in amount.
C. it is practicable to do so.
D. it is reasonable to do so.
31. In the processing of accounts receivable confirmation, the auditor would not normally be expected to:
A. reconcile the information to the corresponding customer’s account.
B. personally deposit the request in the mail.
C. include his own return address envelope.
D. personally prepare the confirmation letter.
32. The auditor should ordinarily mail confirmation request to all banks with which the client has conducted any business during the year, regardless of the year-end balance, since
A. the confirmation form also seek information about indebtedness to the bank.
B. this procedure will detect kiting activities which would otherwise not be detected.
C. the mailing of confirmation forms to all the client’s depository banks is required by the Philippines standards auditing.
D. this procedure relieves the auditor of any responsibility with respect to non-detection of forged checks.
33. An analysis of aged accounts receivables is most directly related to which substantive test objective?
A. Existence and occurrence.
B. Presentation and disclosure.
C. Rights and obligations.
D. Valuation.
34. The test balances to evaluate the adequacy of the allowance for uncollectible accounts do not involve which of the following?
A. Considering the evidence concerning the collectability of past due amounts.
B. Testing the aging of the amounts shown in the aging categories on the aged trial balance
C. Considering the evidence concerning the collectability of current amounts.
D. Assessing the reasonableness of the percentages.
35. When scheduling audit work., the auditors are most likely to confirm accounts receivable balances at an interim date id:
A. negative confirmations are being used.
B. internal control is weak.
C. internal control is strong.
D. there is simultaneous examination of cash and accounts payable.
36. Which of the following is the best argument against the use of negative accounts receivable confirmations?
A. The cost-per-response is excessively high.
B. There is no way of knowing if the intended recipients actually receive them.
C. The recipients are likely to feel that in reality the confirmation is a subtle request for payment.
D. The interference drawn from receiving no reply may not be correct.
37. Which of the following procedures least likely helps the auditors to assess the adequacy of management’s accounting estimate of the allowance for doubtful accounts?
A. Investigate confirmation exceptions for any indication of amounts in dispute.
B. Review the accounts which have been written off as uncollectible prior to year-end.
C. Investigate credit ratings for large accounts receivable.
D. Discuss with the credit manager the current status of doubtful accounts.
38. Which of the following is a proper alternative audit procedure for no responses to positive accounts receivable confirmation requests?
A. Examination of subsequent cash receipts in payment of the receivable.
B. Mailing negative confirmation request to nonrespondents.
C. Expansion of the sample by the number of nonrespondents.
D. Reduction of the accounts receivable by the amount of the nonresponses.
39. Which of the following might be detected by an auditor’s review of the client’s sales cut-off?
A. Excessive goods returned for credit.
B. Unrecorded sales discounts.
C. Lapping of year-end accounts receivable.
D. Inflated sales for the year.
40. During the process of confirming receivables as of December 31, 2009, a positive confirmation was returned indicating that the “balance owed as of December 31 was paid by a customer on January 9. 2010.” The auditor would most likely
A. determine whether there were any changes in the account between January 1 and January 9, 2010.
B. determine whether a customary trade discount was taken by the customer.
C. reconfirm the zero balance as of January 10, 2010.
D. verify that the amount was received
41. Which of the following analytical audit findings would most likely indicate a possible problem?
A. A material decrease in the receivable turnover.
B. A material increases in inventory turnover.
C. A material decrease in days’ sales outstanding.
D. A material increase in the acid test ratio.
42. When the objective of the auditor is to evaluate the appropriateness of adjustments to sales, the best available evidence would normally be
A. oral evidence obtained by discussing adjustment-related procedures with controller personnel.
B. analytical evidence obtained by comparing sales adjustments to gross sales for a period of time.
C. physical evidence obtained by inspection of goods returned for credit.
D. documentary evidence obtained by inspecting documents supporting entries to adjustment accounts.
43. two types of accounts receivable confirmation requests are used in practice – positive and negative. Negative confirmations may be used
A. when internal control over sales and accounts receivable is weak.
B. only when auditor has assessed inherent risk and control risk as low, the auditor has assessed inherent risk as low, the auditor believes that the recipients will review the request, and a large number of small balances are involved.
C. only when internal control over sales and accounts receivable is strong.
D. only when the auditor has assessed inherent risk and control risk as low, the suditor believes that the recipients will review the request, and small number of large balances are involved.
44. . In which type of evidential matter would an auditor primarily rely upon when evaluating the collectability of accounts is receivable?
A. Positive confirmation.
B. Negative confirmation.
C. Aged accounts receivable listing.
D. Management representations.
45. . A client who wishes to initiate earning decides to hold the sales record open beyond year-end and record open beyond year-end and record 2011 sales in 2010. Although the invoices are dates as of year-end, the shipment were made in the following period. Moreover: the goods were included in the endig inventory of the period under audit. Which of the following auditing procedures would not assist in detecting this form of fraudulent financial reporting?
A. The auditor confirms account receivable on a positive basis as of year-end
B. The auditor examines shipping documents relating to sales recorded during the last few days of the year
C. The auditor examines shipping documents relating to sales recorded during the first few days of the year following the period under audit.
D. The auditor applies analytical procedure provides the best evidence about the completeness of recorded revenue?
46. Which of the following substantive field work procedures provides the best evidence about the completeness of recorded revenues?
A. Reconciling the sales journal to the general ledger control account.
B. Vouching charges made to the accounts receivable subsidiary ledger to supporting shipping records.
C. Vouching shipping records to the customer order files.
D. Reconciling shipping records to recorded sales.
47. Which source document should an auditor use to verify the correct sales date for an item sold FOB shipping point?
A. Carrier’s bill lading.
B. Customer’s payment document.
C. Customer’s purchase order.
D. Sales invoice
48. . Which of the following procedures would an auditor most likely rely on to verify management’s assertion of completeness?
A. Review standard bank confirmations for indications of kiting.
B. Compare a sample of shipping documents to related sales invoice.
C. Observe the client’s distribution of payroll checks.
D. Confirm a sample of recorded receivables by direct communication with the deptors.
49. . Which account balance is most likely to be misstated if an aging of accounts receivable is not performed?
A. Sales revenue.
B. Sales returns and allowances.
C. Accounts receivable.
D. Allowance for bad debts.
50. Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables’
A. valuation.
B. classification.
C. existence.
D. completeness.
