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WorksheetsSubstantive Audit Procedures (Cash, AR, Inventory, Investments)
Total questions: 90
Worksheet time: 45mins
While performing an audit of cash, an auditor begins to suspect check kiting. Which of the following is the best evidence that the auditor could obtain concerning whether kiting is taking place?
Documentary evidence obtained by vouching credits on the latest bank statement to supporting documents.
Documentary evidence obtained by vouching entries in the cash account to supporting documents.
Oral evidence obtained by discussion with controller personnel.
Evidence obtained by preparing a schedule of interbank transfers.
The primary audit objective for cash is to establish that the balance is properly stated. This involves determining:
i. That cash on hand as shown in the general ledger is represented by currency and coins on hand
ii. Ownership and proper accountabilities
iii. That cash balances are available without restrictions
Yes, No, No
Yes , Yes, Yes,
Yes, No, Yes
Yes, Yes, No
An auditor for a large service company is performing an audit of the company's cash balance. The auditor is considering the most appropriate audit procedure to use to ensure that the amount of cash is accurately recorded on the company's financial statements. The most appropriate audit procedures for the objective are
Examine bank reconciliations, confirm bank balances, and verify cut off of receipts and disbursements; foot totals of reconciliations and compare to cash account balances.
Review collection procedures and perform an analytical review of accounts receivable; confirm balances of accounts receivable; and verify the existence of appropriate procedures and facilities.
Compare cash receipt lists with the receipts journal and bank deposit slips; review the segregation of duties, observe, and test cash receipts.
Review the organizational structure and functional responsibilities; verify the existence and describe protection procedures for unused checks, including security measures.
Cash receipts should be deposited on the day of receipt or the following business day. Select the most appropriate audit procedure to determine that cash is promptly deposited.
Review the functions of cash receiving and disbursing for proper separation of duties.
Review cash register tapes prepared for each sale.
Review the functions of cash handling and maintaining accounting records for proper separation of duties.
Compare the daily cash receipts totals with the bank deposits.
Which of the following sets of information does an auditor usually confirm on one form?
Cash in bank and collateral for loans.
Accounts payable and purchase commitments.
Accounts receivable and accrued interest receivable.
Inventory on consignment and contingent liabilities.
The primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to.
Corroborate information regarding deposit and loan balances.
Provide the data necessary to prepare a proof of cash.
Detect kiting activities that may otherwise not be discovered.
Request information about contingent liabilities and secured transactions.
An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to
Request a cutoff bank statement and related checks be sent to the auditor.
Detect kiting activities that may otherwise not be discovered.
Seek information about contingent liabilities and security agreements.
Provide the data necessary to prepare a proof of cash.
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?
The CPA did not sign the confirmation request before it was mailed.
Sending the request was meaningless because the account was closed before year-end.
The confirmation request was signed by the treasurer.
The request was mailed by the assistant treasurer.
The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may
Not believe that the bank is obligated to verify confidential information to a third party.
Be unaware of all the financial relationships that the bank has with the client.
Sign and return the form without inspecting the accuracy of the client’s bank reconciliations.
Not have access to the client’s cutoff bank statement.
An auditor who is engaged to examine the financial statements of a business entity will request cutoff bank statement primarily in order to
Detect lapping.
Detect kiting.
Verify reconciling items on the client’s bank reconciliation.
Verify the cash balance reported on the bank confirmation inquiry form.
Which of the following auditing procedures would the auditor not apply to a cutoff bank statement?
Trace year end outstanding checks and deposits in transit to the cutoff bank statement.
Reconcile the bank account as of the end of the cutoff period.
Compare dates, payees and endorsements on returned checks with the cash disbursements record.
Determine that the year end deposit in transit was credited by the bank on the first working day of the following accounting period.
A client maintains two bank accounts. One of the accounts, Bank A, has an overdraft of P100,000. The other account, Bank B, has a positive balance of P50,000. To conceal the overdraft from the auditor, the client may decide to
Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record the receipt but not the disbursement and list the receipt as a deposit in transit. Record the disbursement at the beginning of the following year.
Draw a check for at least P100,000 on Bank B for deposit in Bank A. Record the receipt but not the disbursement and list the receipt as a deposit in transit. Record the disbursement at the beginning of the following year.
Draw a check for P100,000 on Bank B for deposit in Bank A. Record the disbursement but not the receipt. List the disbursement as an outstanding check, but do not list the receipt as a deposit in transit. Record the receipt at the beginning of the following period.
Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record the disbursement but not the receipt and list the disbursement as an outstanding check. Record the receipt at the beginning of the following year.
Two months before year-end, the bookkeeper erroneously recorded the receipt of a long-term bank loan by a debit to cash and a credit to sales. Which of the following is the most effective procedure for detecting this type of error?
Analyze bank confirmation information.
Analyze the notes payable journal.
Prepare year-end bank reconciliation.
Prepare a year-end bank transfer schedule.
Postdated checks received by mail in settlement of customer’s accounts should be
Returned to customer.
Stamped with restrictive endorsement.
Deposited immediately by the cashier.
Deposited the day after together with cash receipts.
The cashier of Weakness Company covered a shortage in the cash working fund with cash obtained at December 31 from a bank by cashing but not recording a check drawn on the company out of town bank. How would you as an auditor discover the manipulation?
By confirming all December 31 bank balances.
By counting the cash working fund at the close of business on December 31.
By investigating items returned with the bank cut-off statements of the succeeding month.
By preparing independent bank reconciliations as of December 31
An essential phase of the audit of the cash balance at the end of the year is the auditor's review of cutoff bank statement. This specific procedure is not useful in determining if
Kiting has occurred.
Lapping has occurred.
The cash receipts journal was held open.
Disbursements per the bank statement can be reconciled with total checks written.
A proof of cash is used by an auditor to
Prove the correctness of the cash balance in the client's year-end statement of financial position.
Prove that the client's bank did not make an error during the period under examination.
Determine if there were any unauthorized disbursements or unrecorded deposits during the reconciliation period.
Comply with Philippine Auditing Practice Statements.
Which of these is not required to be included in an auditor’ cash count report.
The audited balance of the fund.
The date and time of the count.
That the count was made in the presence of the custodian.
That the items counted were returned intact to the custodian.
The information below was taken from the bank transfer schedule prepared during the audit of Khaye Ting Company’s financial statements for the year ended December 31, 2022. Assume all checks are dated and issued on December 30, 2022. Which of the following checks might indicate kiting?
Check Nos. 101 and 103
Check Nos. 102 and 104
Check Nos. 101 and 104
Check Nos. 102 and 103
The information below was taken from the bank transfer schedule prepared during the audit of Khaye Ting Company’s financial statements for the year ended December 31, 2022. Assume all checks are dated and issued on December 30, 2022. Which of the following checks illustrate deposits/transfers in transit at December 31, 2022?
Check Nos. 101 and 102
Check Nos. 101 and 103
Check Nos. 102 and 104
Check Nos. 103 and 104
Which of the following may be considered to be a primary objective of the auditor in the examination of accounts receivable?
Determine approximate time of collectibility of receivables.
Determine the relationship of receivables to sales.
Determine the reasonableness of the sales figure.
Establish validity and collectibility of receivables.
Which of the following is not a procedure used by an auditor in the examination of accounts receivable?
Confirmation
Reconciliation
Inquiry
Physical count and inspection
In determining validity of accounts receivable, which of the following would the auditor consider most reliable?
Direct telephone communication between auditor and debtor.
Confirmation replies received directly from customers.
Credits to accounts receivable from the cash receipts book after the close of business at year end.
Documentary evidence that supports the accounts receivable balance.
Which of the following forms of evidence represents the most competent evidence that a receivable actually exists?
A positive confirmation
A sales invoice
A receiving report
A bill of lading
Confirmation, which is a specific type of inquiry, is the process of obtaining a representation of information or of an existing condition directly from a third party. Two assertions for which confirmation of accounts receivable balances provides primary evidence are
Completeness and valuation
Valuation and rights and obligations
Existence and completeness
Rights and obligations and existence
Which of the following audit objectives is not served by confirming customers' accounts receivable?
Sales and accounts receivable cutoff.
Completeness of customers represented in the accounts receivable trial balance.
Valuation of accounts receivable as of period end.
Existence of customers represented in the accounts receivable trial balance.
An auditor should perform alternative procedures to substantiate the existence of accounts receivable when
Pledging of the receivables is probable.
No reply to a negative confirmation request is received.
No reply to a positive confirmation request is received.
Collectibility of the receivables is in doubt.
Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?
Review the cash receipts journal for the month prior to year-end.
Inspect the shipping records documenting the merchandise sold to the debtors.
Intensify the study of internal control concerning the revenue cycle.
Increase the assessed level of detection risk for the existence assertion
The auditor should use positive confirmation of accounts receivable
When internal controls over the receivables process are believed to be strong.
When the possibility of disputes in the accounts is greater than usual.
For individual account balances that are immaterial in amount.
When variables estimation sampling techniques are not used.
The negative form of accounts receivable confirmation request is particularly useful except when
Individual account balances are relatively large.
Internal control surrounding accounts receivable is considered to be effective.
A large number of small balances are involved.
The auditor has reason to believe the persons receiving the request are likely to give them consideration.
Which of the following statements is correct concerning the use of negative confirmation requests?
Negative confirmation requests are effective when detection risk is low.
Negative confirmation requests are effective when understatements of account balances are suspected.
Unreturned negative confirmation requests rarely provide significant explicit evidence.
Unreturned negative confirmation requests indicate that alternative procedures are necessary.
An auditor most likely would review an entity’s periodic accounting for the numerical sequence of shipping documents and invoices to support management’s financial statement assertion of
Valuation
Completeness
Existence or occurrence
Rights and obligations
Which of the following procedures would an auditor most likely rely on to verify management's assertion of completeness?
Confirm a sample of recorded receivables by direct communication with the debtors.
Observe the client's distribution of payroll checks.
Compare a sample of shipping documents to related sales invoices.
Review standard bank confirmations for indications of kiting.
An auditor is testing sales transactions. One step is to trace a sample of debit entries from the accounts receivable subsidiary ledger back to the supporting sales invoices. What would the auditor intend to establish by this step?
Sales invoices represent bona fide sales.
Debit entries in the accounts receivable subsidiary ledger are properly supported by sales invoices.
All sales invoices have been recorded.
All sales invoices have been properly posted to customer accounts.
Tracing bills of lading to sales invoices provides evidence that
Shipments to customers were recorded as sales.
Shipments to customers were invoiced.
Recorded sales were shipped.
Invoiced sales were shipped.
When the objective of the auditor is to evaluate the appropriateness of adjustments to sales, the best available evidence would normally be
Documentary evidence obtained by inspecting documents supporting entries to adjustment accounts.
Oral evidence obtained by discussing adjustment-related procedures with controller personnel.
Analytical evidence obtained by comparing sales adjustments to gross sales for a period of time.
Physical evidence obtained by inspection of goods returned for credit.
Which source document should an auditor use to verify the correct sales date for an item sold FOB shipping point?
Customer's purchase order.
Customer's payment document
Carrier's bill of lading
Sales invoice
An auditor would primarily rely upon which type of evidential matter when evaluating the collectibility of accounts receivable?
Negative confirmation
Positive confirmation
Management's representations
Aged accounts receivable listing
An aged trial balance of accounts receivable is usually used by the auditor to
Evaluate the results of compliance tests.
Evaluate the provision for bad debt expense.
Verify the validity of recorded receivables.
Ensure that all accounts are promptly credited.
Which account balance is most likely to be misstated if an aging of accounts receivable is not performed?
Accounts receivable
Allowance for bad debts
Sales revenue
Sales returns and allowances
When auditing the allowance for uncollectible accounts, the least reliance should be placed on which of the following?
Ratios that show the past relationship of the allowance to net credit sales.
Collection experience of the client's collection agency.
The credit manager's opinion.
An aging of past due accounts.
Which of the following analytical audit findings would most likely indicate a possible problem?
A material increase in the acid test ratio.
A material increase in inventory turnover.
A material decrease in the receivables turnover.
A material decrease in days' sales outstanding.
An auditor's preliminary analysis of accounts receivable revealed the following turnover rates:
Year 3 Year 2 Year 1
4.3 6.2 7.3
Which of the following is the most likely cause of the decrease in accounts receivable turnover?
Increase in the cash discount offered.
Increased cash sales.
Liberalization of credit policy.
Shortening of due-date terms.
During a positive confirmation of accounts receivable as of the end of the reporting period, approximately 95% of the confirmation letters returned, indicated that the customer owed a smaller balance than the amount for confirmation. This might be explained by the fact that
The sales journal was closed prior to year-end.
The sales journal was held open after year-end.
There is a large number of unrecorded sales.
The cash receipts journal was held open after year-end.
The retention of cash receipts without an entry being made in the books until a subsequent cash receipt is received from which the cashier pays the preceding amount retained.
Lapping
Kiting
Cash shorting
Misappropriating
Lapping may most likely be detected by
Careful comparison of the detailed entries on remittance lists and duplicate deposit slips with the cash receipts book.
Surprise count of cash on hand.
Scrutiny of the cutoff bank balance.
A review of sales discounts.
An auditor who wishes to substantiate the gross balance of the account "Trade Notes Receivable" is considering the advisability of performing the four procedures listed below. Which pair of procedures is best suited to this objective?
I. Age the receivables.
II. Confirm the notes with the makers.
III. Inspect the notes.
IV. Trace a sample of postings from the sales journal to the notes receivable ledger.
I and III
II and III
I and IV
II and IV
Which of the following audit procedures provides the best evidence about the collectibility of notes receivable?
Examination of cash receipts records to determine promptness of interest and principal payments.
Reconciliation of the detail of notes receivable and the provision for uncollectible amounts to the general ledger control.
Confirmation of note receivable balances with the debtors.
Examination of notes for appropriate debtors' signatures.
Which of the following statements regarding the audit of negotiable notes receivable is not correct?
Materiality of the amount involved is a factor considered when selecting the accounts to be confirmed.
The auditor should confirm all notes receivable as of the end of the reporting period.
Physical inspection of a note by the auditor does not provide conclusive evidence.
Notes receivable discounted with recourse need to be confirmed.
A logical substantive test for accrued interest receivable would be to
Verify the cost, carrying value, and market value of notes receivable.
Verify the interest income by a calculation based on the face amount of notes and the nominal interest rate.
Recalculate interest earned and compare it to the amounts received.
Compare the interest income with published interest investment records.
An understatement of a purchase discount would be detected by
Comparing purchase invoice terms with disbursement records and checks.
Verifying footings and cross footings of purchases and disbursement records.
Comparing approved purchase orders to receiving reports.
Verifying the receipt of items ordered and invoiced.
What form of analytical review might uncover the existence of obsolete merchandise?
Decrease in the ratio of gross profit to sales
Ratio of inventory to accounts payable
Comparison of inventory values to purchase invoices
Inventory turnover rates
For manufactured inventories, the valuation assertion is best tested by
Tracing unit costs appearing on final inventory listings to auditor's copy of audited finished goods unit costs.
Testing for purchases and sales cutoff.
Inquiring as to inventory obsolescence.
Comparing unit prices with recent vendors' invoices.
When auditing inventories of raw materials, purchased parts, and/or merchandise inventory, the auditor's most effective means for evaluating the valuation assertion is to
Compare purchases with prior year and with industry averages and account for significant fluctuations.
Trace quantities from tags or count sheets to final inventory listings.
Examine recent invoices from vendors, along with freight bills and compare with client's unit costs, as adjusted for freight and discount.
Scan inventory listings for large extended amounts, and trace related quantities to auditor's copy of the inventory tag or listing.
Which of the following audit procedures is not designed primarily to test for the correctness of purchases and sales cutoff?
Observe shipping and receiving areas during physical inventory observation and relate goods to the last receipt and shipment for the year. Determine that these are the final entries in the purchases and sales records for the year.
Examine sales and purchases invoices for a few days before and after year end. Compare with dates of receipt and shipment and with freight terms to determine that the transactions were recorded in the proper accounting period.
Record last document numbers (sales invoice, voucher, check, receiving report) for the year and relate to goods in shipping and receiving areas at year end.
Trace client's unit costs to the auditor's copies of audited price lists.
A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk is high an auditor will probably
Increase the extent of tests of controls relevant to the inventory cycle.
Request the client to schedule the physical inventory count at the end of the year.
Insist that the client perform physical counts of inventory items several times during the year.
Apply gross profit tests to ascertain the reasonableness of the physical counts.
To ascertain whether inventories included in the statement of financial position physically exist, a CPA will ordinarily:
Obtain confirmation of pledged inventories.
Observe physical inventory counts.
Test client’s shipping cutoff procedures.
Perform an analytic review of the relationship of the inventory balance to recent sales.
When auditing merchandise inventory at year end, the auditor performs a purchase cutoff test to obtain evidence that
No goods held on consignment for customers are included in the inventory balance.
No goods observed during the physical count are pledged or sold.
All goods owned at year end are included in the inventory balance
All goods purchased before year end are received before the physical inventory count.
When inventory is material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding its existence and condition by attendance at physical inventory counting unless impracticable. Where attendance is impracticable, due to factors such as the nature and location of the inventory, the auditor should
Take or observe some physical counts on an alternative date and, when necessary, perform tests of intervening transactions.
Consider whether alternative procedures provide sufficient appropriate audit evidence of existence and condition to conclude that the auditor need not make reference to a scope limitation.
Issue qualified or disclaimer of opinion.
Issue qualified or adverse opinion.
In auditing inventories, a major objective relates to the existence assertion. Of the following audit procedures relating to inventories, which does not support the existence assertion?
The auditor reviews the client's inventory-taking instructions for such matters as proper arrangement of goods, separation of consigned goods, and limits on movements of goods during inventory.
The auditor observes the client's inventory and performs test counts as appropriate.
The auditor confirms inventories not on the premises.
The auditor performs a lower of cost or market test for major categories of inventory.
An auditor would analyze inventory turnover rates to obtain evidence concerning management’s assertion about
Completeness
Valuation and allocation
Presentation and disclosure.
Rights and obligations
Which of the following items should not be included in a physical inventory?
Materials in transit from vendors.
Goods in a private warehouse.
Goods received for repairs under warranty.
Consignment to an agent.
Which of the following is not one of the independent auditor's objectives regarding the audit of inventories?
Verifying that the client has used proper inventory pricing.
Verifying that inventory counted is owned by the client.
Verifying that all inventory owned by the client is on hand at the time of the count.
Ascertaining the physical quantities of inventory on hand.
In a manufacturing company, which one of the following audit procedures would give the least assurance of the valuation of inventory at the audit date?
Obtaining confirmation of inventories pledged under loan agreements.
Testing the computation of standard overhead rates.
Examining paid vendors' invoices.
Reviewing direct labor rates.
Which of the following is the best procedure for identifying shortages of specific items in an inventory of raw materials?
Estimates inventory quantities by using the gross profit method.
Review internal controls for the physical protection of inventories.
Compare the results of a physical inventory of raw materials with perpetual inventory records.
Compare inventory turnover rates with prevailing rates from previous years.
You were engaged to conduct an annual examination for the fiscal year ended October 31. Because of the expected holiday, you were able to convince your client to take a complete physical inventory, in which you were present on October 15. Perpetual inventory records are kept and the client considers a sale to be made in the period in which goods are shipped. You had a sales cut-off test worksheet prepared. Which item among those listed below will not require an adjusting entry to reconcile the client's detailed inventory record with the physical inventory?
Date Goods Shipped
Transaction Recorded as Sale
Date Inventory Control Credited
a.
Oct-31
Nov-02
Oct-31
b.
Nov-02
Oct-31
Oct-31
c.
Oct-14
Oct-16
Oct-16
d.
Oct-10
Oct-19
Oct-12
An auditor selected items for test counts while observing a client’s physical inventory. The auditor then traced the test counts to the client’s inventory listing. This procedures most likely obtained evidence concerning management’s assertion of
Completeness
Valuation
Rights and obligations
Existence or occurrence
Which of the following auditing procedures most likely would provide assurance about a manufacturing entity’s inventory valuation?
Tracing test counts to the entity’s inventory listing.
Testing the entity’s computation of standard overhead rates.
Obtaining confirmation of inventories pledged under loan agreements.
Reviewing shipping and receiving cutoff procedures for inventories.
An auditor most likely to inspect loan agreements under which an entity’s inventories are pledged to support management’s financial statement assertion of
Existence or occurrence
Presentation and disclosure
Valuation or allocation.
Completeness
The accuracy of perpetual inventory records may be established in part by comparing perpetual inventory records with
Purchase requisitions
Receiving reports
Purchase orders
Vendor payments.
In testing the reasonableness of interest income, an auditor could most effectively use analytical tests involving:
Documentary support of specific entries in the account.
The beginning balance in the investments account for fixed income securities.
The average monthly balance in the investments account for fixed income securities.
The ending balance in the investment's accounts for fixed income securities.
The audit procedure that will give the least assurance of the validity of the general ledger balance of investment in stocks and bonds at the audit date is
Inspection and count of stocks and bonds.
Confirmation from the broker.
Vouching all charges during the year to the broker's advices and statements.
Examination of paid checks issued in payment of securities purchased.
Of the following, which is the most efficient audit procedure for testing accrued interest earned on bond investments?
Vouching the receipt and deposit of interest checks.
Tracing interest declarations to an independent record book.
Recomputing interest earned.
Confirming interest rate with the issuer of the bonds.
The auditee has acquired another company by purchase. Which of the following would be the best audit procedure to test the appropriateness of the allocation of cost to tangible assets?
Evaluate procedures used to estimate and record fair market values for purchased assets.
Determine whether assets have been recorded at their book value at the date of purchase.
Evaluate the reasonableness of recorded values by discussion with operating personnel.
Evaluate the reasonableness of recorded values by use of replacement cost data.
Which of the following statements is the least accepted reason/purpose for acquiring long-term investments:
To yield a relatively permanent other income.
To generate cash for operating purposes.
To establish business relationships.
To create specific funds.
The auditor should insist that a representative of the client be present during the physical examination of securities in order to:
Lend authority to the auditor's directives.
Acknowledge the receipt of securities returned.
Detect forged securities.
Coordinate the return of all securities to proper locations.
An auditor testing long-term investments would ordinarily use analytical review as the primary audit procedure to ascertain the reasonableness of the:
Valuation of marketable equity securities.
Completeness of recorded invesment income.
Existence and ownership of investments.
Classification of gains and losses on the disposal of securities.
In auditing investments for proper valuation, the auditor should do all but the following:
Vouch purchases and sales of securities by tracing to broker's advices and canceled checks.
Compare cost and market by reference to year end market values for selected securities.
Confirm securities held in safekeeping off the client's premises. (security purposes)
All goods purchased before year end are received before the physical inventory count.
An auditor has set an audit objective of determining whether planned rate of return on investment in international operations has been achieved. Which of the following audit techniques will best meet this objective?
Inquiry
Observation
Analytical review
Inspection of documents
An audit procedure that provides evidence about proper valuation of trading securities arising from a short-term investment of excess cash is
Recalculation of investment carrying value by applying the equity method.
Comparison of carrying value with current market quoatations.
Confirmation of securities held by broker,
Calculation of premium or discount amortization.
In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the client’s name, an auditor most likely gathers evidence in support of management’s financial statement assertion of existence and
Valuation or allocation
Completeness
Rights and obligations
Presentation and disclosure.
Which of the following is ordinarily the best evidence of fair value?
Published price quotations in an active market.
Discounted cash flow analysis.
Comparative transaction model.
None of the above.
The auditee has just acquired another company by purchasing all its assets. As a result of the purchase, "goodwill" has been recorded on the auditee's books. Which of the following comparisons would be the most appropriate audit test for the amount of recorded goodwill?
The purchase price and the fair market value of assets purchased.
The purchase price and the book value of assets purchased.
The figure for goodwill specified in the contract for purchase.
Earnings in excess of 15% of net assets for the past five years.
To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would
Review the broker's advice pr cancelled check for the investment's acquisition.
Obtain market quotations from financial newspapers or periodicals.
Examine the audited financial statements of the investee company.
Inspect the stock certificates evidencing the investment.
In establishing the existence and ownership of a long-term investment in the form of publicly-traded shares, an auditor should inspect the securities or
Inspect the audited financial statements of the investee company.
Confirm the number of shares owned that are held by an independent custodian.
Determine that the investment is carried at the lower of cost or market.
Correspond with the investee company to verify the number of shares owned.
Which statement is incorrect regarding valuation and disclosure of long-term investments?
When long-term investments are material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding their valuation and disclosure.
Audit procedures regarding long-term investments ordinarily include considering evidence as to whether the entity has the ability to continue to hold the investments on a long-term basis
If there is an uncertainty as to whether the carrying amount will be recovered, the auditor would consider whether appropriate adjustments and/or disclosures have been made.
If market quotations exceed the carrying amounts, the auditor would consider whether a write-down is required.
Which of the following is not objective evidence of impairment of a financial asset?
Observable data, indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets although the decrease cannot yet be associated with any individual financial assets.
Significant financial difficulty of the issuer or obligor.
A breach of contract, such as a default of delinquency in interest or principal payments.
A decline in the fair value of the asset below its previous carrying amount.
When negotiable securities are of considerable volume, planning by the auditor is necessary to guard against
Substitution of securities already counted for other securities which should be on hand but are not.
Substitution of authentic securities with counterfeit securities.
Unauthorized negotiation of the securities before they are counted.
Unrecorded sales of securities after they are counted.
Which statement is correct regarding auditing fair value measurements and disclosures?
The measurement of fair value may be relatively simple for assets that are bought and sold in active and open markets.
Assumptions used in fair value measurements are different in nature to those required when developing other accounting estimates.
Underlying the concept of fair value measurements is a presumption that the entity will be liquidated.
Many measurements based on estimates, including fair value measurements, are inherently precise.
When an auditor is unable to inspect and count a client's investment securities until after the end of the reporting period, the bank where the securities are held in a safe deposit box should be asked to
Confirm that there has been no access to the box between the end of reporting period date and the security-count date.
Count the securities in the box so the auditor will have an independent direct verification.
Verify any differences between the contents of the box and the balances in the client's subsidiary ledger.
Provide a list of securities added and removed from the box between the end of reporting period date and the security-count date.
