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WorksheetsTrgmi.K1
Total questions: 83
Worksheet time: 42mins
Receipt of ordered materials by the receiving department will generate the completion of a form called the
A) bill of lading.
B) receiving report.
C) materials requisition.
D) inventory acquisition summary.
________ is normally characterized as a difficult and complex account to audit.
A) Property, plant and equipment
B) Cash
C) Inventory
D) Prepaid insurance
Inventory is a complex area to audit for all except which of the following reasons?
A) Inventory is often in different locations.
B) There are several acceptable valuation methods and some entities use different methods for different types of inventory.
C) Inventory is often the largest account on the balance sheet.
D) Inventory valuation includes few estimates.
In most manufacturing companies, the inventory and warehousing cycle begins with the
A) receipt of a customer's order.
B) completion of production of a customer's order.
C) initiation of production of a customer's order.
D) acquisition of raw materials for production.
________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.
A) Just-in-time production systems
B) Job cost systems
C) Process cost systems
D) Manufacturing systems
The main difference between job order and process costing systems is that
A) one accumulates costs by materials issued and the other by labor incurred.
B) one accumulates costs by individual jobs and the other by particular processes.
C) one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process.
D) one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence.
In the flow of inventory and costs, when work-in-progress is credited, ________ is (are) debited.
A) raw materials
B) cost of goods sold
C) finished goods
D) direct labor
From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories?
A) observation of physical inventory counts
B) written inventory representations from management
C) confirmation of inventories in a public warehouse
D) auditor's recomputation of inventory extensions
Which of the following audit tests would be regarded as a test of controls?
A) comparison of the inventory pricing to vendors' invoices
B) tests of the signatures on canceled checks to board of directors' authorizations
C) tests of the additions to property, plant, and equipment by physical inspections
D) review of the specific items making up the balance in a given general ledger account
Which of the following audit tests form the basis for an auditor's report on internal control over financial reporting?
A) analytical procedures
B) tests of transactions
C) tests of controls
D) tests of details of balances
One type of shipping document is the ________, which is a written contract between the carrier and the seller of the receipt and shipment of goods.
A) sales order
B) bill of lading
C) sales invoice
D) customer order
The document used to indicate to the customer the amount of a sale and payment due date is the
A) sales invoice.
B) bill of lading.
C) purchase order.
D) sales order.
Which of the following is a business function related to sales returns and allowances?
A) processing customer orders
B) writing off uncollectible accounts
C) processing and recording credit memos
D) granting credit
Which one the following procedures performed for the billing function provides evidence for the completeness assertion?
A) making sure that all shipments have been billed
B) making sure that no shipment has been billed more than twice
C) making sure that each shipment is billed at the correct amount
D) making sure that each shipment is billed to the proper customer
Which of the following test of controls is useful to test the completeness objective for cash receipts?
A) Compare shipping documents with sales records.
B) Observe endorsement of incoming checks.
C) Examine evidence that the receivable master file is reconciled to the general ledger.
D) Observe if the client reconciles the bank account.
Audit procedures designed to uncover credit sales made after the client's fiscal year-end that relate to the current year being audited provide evidence for which of the following audit objectives?
A) realizable value
B) accuracy
C) cutoff
D) existence
Cutoff misstatements occur
A) either by error or fraud.
B) by error only.
C) by fraud only.
D) randomly without causes related to errors or fraud.
How might the auditor determine whether a client has limited rights to accounts receivable?
A)
Review minutes from board of directors meetings Inquiries of the client
Yes Yes
B)
Review minutes from board of directors meetings Inquiries of the client
No No
C)
Review minutes from board of directors meetings Inquiries of the client
Yes No
D)
Review minutes from board of directors meetings Inquiries of the client
No Yes
You are reviewing sales to discover cutoff problems. If the client's policy is to record sales when title to the merchandise passes to the buyer, then the books and records would contain errors if the December 31 entries were for sales recorded
A) before the merchandise was shipped.
B) at the time the merchandise was shipped.
C) several days subsequent to shipment.
D) at a time after the point at which title passed.
The net realizable value of accounts receivable is equal to:
A) gross accounts receivable less allowance for uncollectible accounts.
B) gross accounts receivable less bad debt expense.
C) gross accounts receivable less returns and allowances.
D) gross accounts receivable less sales discounts.
What typically ends the acquisitions and payment cycle?
A) issuance of a purchase requisition or request for purchase of goods/services
B) issuance of a payment on accounts payable
C) approval of a new vendor
D) purchase requisition
When reviewing the controls and procedures in the acquisition and payment cycle,
A) companies cannot record the liability for the acquisition until the invoice is received from the vendor.
B) the purchasing department has the responsibility for verifying for appropriateness of the acquisition.
C) personnel who record the acquisitions should not have access to cash or other assets.
D) the accounts payable department should account for all receiving reports to assure that the occurrence objective is satisfied.
A written purchase order is a contractual document that is
A) an offer to buy goods or services.
B) not enforceable if it is not in writing.
C) prepared by the receiving department.
D) an acceptance of a vendor's catalog offer to sell.
Which one of the following duties should not be assigned the purchases department?
A) finding the lowest cost vendor
B) reviewing vendors' catalog descriptions and prices for standardized items
C) designing the purchase order form
D) authorizing the acquisition of goods
Cutoff procedures for inventory purchased should be designed by companies to assure that
A) inventory owned by the company has been received.
B) inventory included in the year-end inventory count has been paid.
C) inventory received before year-end was recorded before year-end.
D) inventory was correctly valued at year-end.
An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed. If the acquisition is included in accounts payable and purchases, but excluded from inventory, the result
A) is an understatement of net earnings.
B) is an overstatement of net earnings.
C) is an overstatement of working capital.
D) is an overstatement of owner's equity.
When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were
A) received prior to the balance sheet date.
B) shipped on or before the balance sheet date.
C) both shipped and received prior to the balance sheet date.
D) paid for in advance.
A common inventory observation procedure is to be alert for items that are damaged, rust- or dust-covered, or located in inappropriate places. The balance-related audit objective being achieved by this procedure is
A) classification.
B) cutoff.
C) realizable value.
D) rights.
An auditor must inquire about consigned or customer inventory included on the client's premises to satisfy the balance-related audit objective of
A) cutoff.
B) classification.
C) rights.
D) completeness.
If an auditor were concerned with obtaining evidence about the appropriateness of the value of inventory, which of the following tests would be most appropriate?
A) compilation tests
B) price tests
C) confirmation of inventory held by outside parties
D) physical examination of the inventory
The first step in verifying the valuation of purchased inventory is in determining the valuation method used by the client. The next step is
A) determining that all inventory that is purchased is expensed through cost of goods sold.
B) determining which costs should be included in the valuation of an item of inventory.
C) determining that all inventory on hand reconciles to the perpetual inventory records.
D) determining that cut-off procedures have been adhered to prior to counting inventory.
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
A) 1, 2, and 3
B) 3, 4, and 5
C) 2, 3, and 5
D) 2, 3, and 4
The purpose of tests of controls is to provide reasonable assurance that the
A) accounting treatment of transactions and balances is valid and proper.
B) internal control procedures are functioning as intended.
C) entity has complied with GAAP disclosure requirements.
D) entity has complied with requirements of quality control.
In the context of an audit of financial statements, substantive tests are audit procedures that
A) may be eliminated under certain conditions.
B) are designed to discover significant subsequent events.
C) are designed to test for dollar misstatements.
D) will increase proportionately with the auditor's reliance on internal control.
Risk assessment procedures are performed by auditors during an audit in order to
A) determine the risk of material misstatement in the financial statements.
B) determine the amount of testing of internal control.
C) determine the extent of testing of details of balances.
D) determine the extent of testing of transactions
Which of the following is an account that is not affected by the sales and collection cycle?
A) cash
B) accounts receivable
C) allowance for doubtful accounts
D) 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
A) unchanged.
B) expanded.
C) mitigated.
D) decreased.
What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?
A) determination of correct delivery address
B) credit approval
C) matching of shipping document with sales invoice
D) receipt of sales order from the customer
Before goods are shipped on account, a properly authorized person must
A) prepare the sales invoice.
B) approve the journal entry.
C) approve the customer's credit.
D) verify that the unit price is accurate.
The primary emphasis in most tests of details of balances is on the
A) balance sheet accounts.
B) revenue accounts.
C) cash flow statement accounts.
D) expense accounts.
Which of the following types of evidence is not available when using substantive tests of transactions?
A) inspection
B) confirmation
C) inquiries of the client
D) reperformance
Which of the following is not an important aspect of billing?
A) All shipments made have been billed.
B) No shipment has been billed more than once.
C) Each customer is billed for the proper amount.
D) Credit is approved to customers for sales on account.
Most companies recognize sales revenue when
A) sales are invoiced.
B) payment is received from the customer.
C) goods are shipped.
D) the customer's order is received.
The total of the individual account balances in the accounts receivable master file should equal the
A) total sales for the period.
B) balance of the sales account in the general ledger.
C) total sales less the total cash received for the period.
D) balance of the accounts receivable account in the general ledger.
A) total sales for the period.
B) balance of the sales account in the general ledger.
C) total sales less the total cash received for the period.
D) balance of the accounts receivable account in the general ledger.
To test for recorded sales for which there were no actual shipments, the auditor vouches from the
A) bill of lading to the sales journal.
B) sales journal to the shipping documents.
C) sales journal to the accounts receivable subsidiary ledger.
D) bill of lading to the supporting customer order and sales order.
An effective procedure to test for unfilled shipments is to trace from the
A) sales journal to the shipping documents.
B) shipping documents to the sales journal.
C) sales journal to the accounts receivable ledger.
D) sales journal to the general ledger sales account.
The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the
A) existence objective.
B) completeness objective.
C) ownership objective.
D) valuation objective.
The most important test of details of balances to determine the existence of recorded accounts receivable is
A) tracing details of sales invoices to shipping documents.
B) tracing the credits in accounts receivable to bank deposits.
C) tracing sales returns entries to credit memos issued and receiving room reports.
D) the confirmation of customers' balances.
Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a
A) representation letter.
B) negative confirmation.
C) bank confirmation.
D) positive confirmation.
A) representation letter.
B) negative confirmation.
C) bank confirmation.
D) positive confirmation.
The audit procedure that provides the auditor with the most appropriate evidence when performing test of details of balances for accounts receivable is
A) confirmations.
B) recalculation of the aged receivables and uncollectible accounts.
C) tracing credit memos for returned merchandise to receiving room reports.
D) tracing from shipping documents to journals to the accounts receivable ledger.
82) When should auditors not perform alternative procedures in testing the accounts receivable balance?
A) when customers do not return positive confirmation requests
B) when customers do not return negative confirmation requests
C) when confirmations are deemed to be ineffective as an audit procedure
D) when confirmations are too costly to use
A positive confirmation is more reliable evidence than a negative confirmation because
A) fewer confirmations can be sent out.
B) the auditor has a document which can be used in court.
C) the debtor's lack of response indicates agreement with the stated balance.
D) follow-up procedures are performed if a response is not received from the debtor
Which audit procedure would be used to test for the existence balance-related audit objective?
A) Trace ten accounts from the aged trial balance to the accounts receivable master file.
B) Confirm accounts receivable.
C) Review large sales returns and allowances before and after the balance sheet date.
D) Trace ten accounts from the trial balance to the accounts on the master file.
The auditor is reviewing the receivables listed on the aged trial balance for notes and related party receivables. Which balance-related audit objective is he trying to satisfy?
A) detail tie-in
B) existence
C) classification
D) all of the above
Which audit procedure would the auditor use to test for the cutoff balance-related audit objective?
A) Review minutes of the board of directors meetings.
B) Review the accounts receivable trial balance for large items.
C) Use audit software to foot and cross-foot the aged trial balance.
D) Select the last 20 sales transaction from the current year's sales journal and the first 20 from the subsequent year's and trace each to the related shipping documents.
A substantive tests of transactions for acquisitions that would be used to provide evidence regarding the occurrence assertion would be to
A) compare the classification with the chart of accounts by referring to vendors' invoices.
B) recompute the clerical accuracy on the vendors' invoice.
C) review the acquisitions journal for large or unusual amounts.
D) trace from a file of receiving reports to the acquisition journal.
When testing the controls for the completeness transaction-related audit objectives,
A) failure to record the acquisition of goods or services will generally understate net income.
B) failure to record the acquisition of goods or services has no impact on the balance sheet.
C) it is generally easy for the auditor to determine whether unrecorded transactions exist.
D) the audit time for accounts payable can be reduced if the client has effective internal controls and the auditor properly tests those controls.
Which of the following is not a key control in the acquisition and payment cycle?
A) authorization of purchases
B) authorization of credit
C) timely recording and independent review of transactions
D) authorization of payments
A key internal control over the acquisition cycle is to ensure that the company requires recording transactions as soon as possible after the goods and services have been received. This satisfies the transaction-related audit objective of
A) accuracy.
B) completeness.
C) timing.
D) occurrence.
Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather that the entity being audited satisfy the control objective that
A) acquisitions are correctly valued.
B) existing acquisitions are recorded.
C) acquisitions are correctly classified.
D) recorded acquisitions are for goods and services received.
________ is a balance-related audit objective that is not applicable to liabilities.
A) Existence
B) Accuracy
C) Detail tie-in
D) Realizable value
Which of the following is most reliable for verifying the correct balance of accounts payable?
A) vendors' invoices
B) vendors' statements
C) confirmations
D) bills of lading
Comparing the physical counts with the perpetual inventory master files satisfies the balance-related audit objective of
A) classification.
B) observation.
C) completeness.
D) accuracy.
Which of the following is an accurate statement regarding inventory and risk?
A) Inventory with a high business risk includes products with potential obsolescence.
B) Auditors often have a greater concern for misstatements when inventory is stored in one warehouse.
C) Inherent risk is generally set at low for manufacturing companies.
D) Performance materiality for inventory is determined before assessing client business risk.
The auditor's tour of the client's inventory facilities should be led by
A) a member of the audit committee.
B) the CFO.
C) a plant supervisor.
D) the company president.
Master files, spreadsheets, and reports that accumulate material, labor, and overhead as the costs are incurred are
A) accounting systems.
B) storeroom documents.
C) cost accounting records.
D) finished goods inventory records.
The inventory and warehousing cycle can be thought of as having two separate but closely related systems, one involving the actual physical flow of goods, and the other the
A) related costs.
B) storage of the goods.
C) internal control over those goods.
D) prevention of waste, obsolescence, and theft.
Auditors test the quantity of materials charged to work-in-process by tracing these quantities to
A) cost ledgers.
B) perpetual inventory records.
C) receiving reports.
D) material requisitions.
Which of the following is a continuously updated computerized record of inventory items purchased, used, sold, and on hand for merchandise, raw materials, and finished goods?
A) job cost system
B) standard cost records
C) cost accounting records
D) perpetual inventory master file
The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the
A) acquisition and payments cycle.
B) payroll and personnel cycle.
C) inventory and warehousing cycle.
D) sales and collection cycle.
Handling the receipt of ordered goods is a part of the ________ cycle.
A) purchasing
B) acquisition and payment
C) inventory
D) inventory and warehousing
Which of the following is not a function within the inventory and warehousing cycle?
A) process the goods
B) store raw materials
C) ship finished goods
D) process invoices for shipped goods
Inventory is often a significant part of a company's current assets. Because of its importance,
A) auditors are required by auditing standards to observe the client taking a physical inventory count.
B) price tests must be performed to verify whether the physical counts were correctly summarized.
C) companies are required to use perpetual inventory systems.
D) auditors are required by auditing standards to take the physical inventory for the client.
Auditor tests of the physical controls over raw materials, work in process, and finished goods are generally limited to
A) observation and confirmation.
B) observation and inquiry.
C) inquiry and reconciliation.
D) observation and reconciliation.
Almost all companies need physical controls over their assets to prevent loss. Which of the following is not an example of such a control?
A) perpetual inventory master files
B) segregated, limited-access storage areas
C) custody of assets assigned to specific responsible individuals
D) approved prenumbered documents for authorizing movement of inventory
The reliability of perpetual inventory master files affects the timing and ________ of the auditor's physical examination of inventory.
A) cutoff
B) accuracy
C) nature
D) extent
When auditing inventory cost accounting, the auditor is concerned with all of the following except for
A) net realizable value.
B) unit cost records.
C) physical controls over inventory.
D) documents and records for transferring inventory.
Auditors usually test cost accounting records as part of the
A) acquisition tests.
B) payroll tests.
C) sales tests.
D) All of the above are correct.
To ensure proper segregation of duties, who should maintain the perpetual inventory master files?
A) production personnel
B) inventory storeroom personnel
C) inventory receiving personnel
D) accounting department personnel
Which of the following audit tests both have the effect of simultaneously verifying balance sheet and income statement accounts?
A) analytical procedures and substantive tests of transactions
B) tests of controls and substantive tests of transactions
C) tests of details of balances and substantive tests of transactions
D) tests of controls and analytical procedures
The most effective and efficient audit approach in the examination of the income statement would be which of the following?
A) Examine income statement accounts concurrently with the related balance sheet accounts.
B) Compare company's components of net income to other businesses in the same industry.
C) Compare company's components of net income to the previous two years.
D) Examine changes in all balance sheet accounts.
The auditor needs to be aware that most users of financial statements rely most heavily on the ________ for making decisions.
A) balance sheet
B) income statement
C) statement of cash flows
D) statement of stockholders' equity
________ expense is rarely analyzed unless analytical procedures indicate high potential for material misstatement.
A) Repairs and maintenance
B) Legal
C) Utilities
D) Rent and lease
