acyasr2 sa1

During the process of confirming receivables as of December 31, 2024, a positive confirmation was returned indicating that the "balance owed as of December 31, 2024 was paid by a customer on January 9, 2025." The auditor would most likely

• a) Examine sales invoices and shipping documents subsequent to the end of the reporting period.

• b) Examine the January 2025 bank statement to verify that the amount was received.

• c) Confirm again that the account has a zero balance at January 10, 2025.

• d) Determine whether there were changes in the account between January 1 and January 9, 2025.

b

Which of the following documents would most likely be examined by the auditor to confirm the shipping terms for goods still in transit at the end of the reporting period?

a) Official receipts.

b) Check vouchers.

c) Sales invoices.

d) Bills of lading.

d

Effective internal controls over cash management should not include

a) Investing excess cash to short-term marketable securities.

b) Ensuring cash collections are deposited at the same day.

c) Paying checks to cash.

d) Establishing a petty cash fund for small types of disbursements.

c

Which of the following most likely would be detected by an auditor's review of a client's sales cutoff?

a) Lapping of year-end accounts receivable.

b) Unrecorded sales at year-end.

c) Shipments lacking sales invoices and shipping documents.

d) Excessive write-offs of accounts receivable.

b

Which of the following is an effective internal accounting control for the client's revenue-receipt cycle?

a) Approval of accounts receivable write-offs should be assigned to the accounts receivable clerk.

b) Balances in the accounts receivable subsidiary ledger should be reconciled to the accounts receivable general ledger once a year, preferably at the end of the reporting period.

c) Employees who handle cash receipts should be responsible for the preparation of adjusting entries to the accounts receivable subsidiary ledger.

d) The billing function should be assigned to persons other than those responsible for maintaining accounts receivable subsidiary records.

d

In meeting the control objective of safeguarding cash items, which department should be responsible for (1) Distribution of paychecks? (2) Custody of unclaimed paychecks?

a) (1) Treasury department; (2) Payroll department.

b) (1) Payroll department; (2) Payroll department.

c) (1) Payroll department; (2) Treasury department.

d) (1) Treasury department; (2) Treasury department.

d

Tracing bills of lading to sales invoices provides evidence that

a) Proceeds were properly recorded as cash collections during the year.

b) Recorded sales were actually shipped.

c) Proper authorization was done for accounts receivable write-offs during the year.

d) Goods shipped were properly recorded as sales.

d

The most likely result of ineffective internal accounting controls in the revenue cycle is that

a) Fictitious transactions could be recorded, causing an understatement of revenues, and an overstatement of receivables.

b) Irregularities in recording transactions in the subsidiary accounts could result in a delay of goods shipped.

c) Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme.

d) Omission of shipping documents could go undetected, causing an understatement of inventory.

c

During the audit of accounts receivable, the auditor determines whether the board of directors approved a resolution that a certain amount of accounts receivable will be pledged as security for an outstanding loan. This audit procedure will most likely verify the management's assertion of

• a) Existence or occurrence.

• b) Valuation and allocation.

• c) Presentation and disclosure.

• d) Completeness.

c

Statement I: Counterbalancing errors may arise from the client's failure to recognize year-end deferrals and accruals in the statement of financial position.

Statement II: Non-counterbalancing errors may arise from the client's failure to update a plant asset's carrying value at the end of the reporting period.

• a) False, True.

• b) True, True.

• c) True, False.

• d) False, False.

b

Information about compensating balances that are not legally restricted as to withdrawal is important to the auditor if his/her concern is about its

a) Valuation.

b) Presentation and disclosure.

c) Completeness.

d) Rights.

b

Confirmation is most likely to be a relevant form of evidence with regard to cash in bank accounts when the auditor has concerns about its

a) Completeness.

b) Existence.

c) Presentation and disclosure.

d) Valuation.

b

A company failed to record the Year 1 amortization expense for one of its patents. However, the error was discovered by the auditor in Year 2. As a result of this error, which of the following statements is correct?

• a) Amortization expense is equal to the Year 2 expense.

• b) Net profit is decreased by the Year 1 amortization expense.

• c) Accumulated amortization is equal to the Year 2 expense.

• d) Retained earnings is decreased by the total amortization expense for Years 1 and 2.

a

When an auditor examines interbank transfers in the last few days of the current reporting period and the first few days of the succeeding reporting period, he/she is least concerned with

a) Whether kiting activities took place at the end of the reporting period.

b) Whether cash in bank are properly valued at the end of the reporting period.

c) Whether cash in bank are understated at the end of the current reporting period.

d) Whether bank reconciling items are complete at the end of the reporting period.

b

Statement I: A counterbalancing error always requires an adjusting entry.

Statement II: A non-counterbalancing error only requires an adjusting entry before the lapse of two successive reporting periods.

Statement III: Errors may arise from fraudulent financial reporting or misappropriation of assets.

• a) True, False, False.

• b) False, False, False.

• c) True, True, True.

• d) False, True, True.

b

When reviewing the client's bank reconciliation schedule, in determining whether the bank reconciling items represent valid receipts and disbursements during the month, the auditor would most likely

a) Examine subsequent bank statements for deposits credited and checks cleared.

b) Read compensating balance agreements with the bank.

c) Compute for cash turnover ratios before and after the end of the reporting period.

d) Analyze trend analysis to point out any significant increases in cash in bank balances.

a

A company failed to record the amortization of discount on its notes receivable. As a result of this error, which of the following statements is correct?

• a) Interest income is understated.

• b) Carrying value of notes receivable is overstated.

• c) Cash collected from interest is understated.

• d) Net profit is overstated.

a

Which of the following most likely would give the most assurance concerning the valuation assertion of accounts receivable?

a) Test the allowance for uncollectible accounts for reasonableness.

b) Comparing receivable turnover to industry averages to detect unusual changes.

c) Tracing amounts in the subsidiary ledger to details on shipping documents.

d) Inquiring about receivables pledged under loan agreements.

a

A company failed to recognize a sale on goods that were shipped FOB shipping point on December 29, but were still in transit as of December 31. The cost of the said goods was still included in the determination of the physical inventory at year-end. The company sells its merchandise at a markup of 25% based on the selling price. As a result of this error, which of the following statements is not correct?

• a) Retained earnings at December 31 is not affected.

• b) Cost of sales for the year is understated.

• c) Sales for the year is understated.

• d) Physical inventory at December 31 is overstated.

a

A question in the internal control questionnaire on controls related to cash receipts and disbursements states that: "Does the cashier make a daily summary of cash and checks collected?" If the client's answer is "yes", which of the following statements is correct?

• a) The risk on the said control is assessed at less than maximum level.

• b) The risk on the said control is assigned at maximum level.

• c) Treat it as a control deviation.

• d) More test of details are required for cash receipts and disbursements.

a

An employee attempts to misappropriate cash receipts from sales on account. Which of the following acts would least likely be done by the employee to prevent this defalcation from being discovered by the auditor?

a) Colluding with the employee that authorizes the write-off of accounts receivable.

b) Overstating the cash receipts journal by recording fictitious cash receipts.

c) Understating the sales journal by not recording the sales on account.

d) Approving and recording a credit write-off.

b

An auditor ordinarily sends a standard bank confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. The purpose of this procedure is to

a) Provide the data necessary to prepare a proof of cash.

b) Request the cutoff bank statement and related checks be sent to the auditor.

c) Detect kiting activities that may otherwise not be discovered.

d) Obtain information about other deposit and loan balances that come to the attention of the bank in the process of completing the confirmation.

d

In determining whether internal controls effectively minimize errors of failure to post sales invoices to the accounts receivable subsidiary ledger, the auditor should select a sample of transactions from the population represented by the

• a) Sales invoices

• b) Bills of lading

• c) Accounts receivable subsidiary ledger

• d) Customer orders

a

Which of the following controls most likely would provide reasonable assurance that all credit sales are recorded?

• a) The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

• b) The accounting department clerk independently reconciles, on a monthly basis, the accounts receivable subsidiary ledger to the accounts receivable general ledger.

• c) The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers.

• d) The billing department supervisor sends copies of approved sales orders to the credit department for comparison to the authorized credit limits and current customer account balances.

a

In a small "cash-basis only" retail store where incompatible functions are most likely to exist over the revenue-receipt cycle, which of the following procedures would most likely compensate for this inadequate segregation of duties?

a) The clerk-in-charge regularly matches sales records with entries in the cash receipts journal.

b) The owner installs a sophisticated enterprise resource system to detect material misstatements in the financial statement.

c) The clerk-in-charge brings the cash receipts box in his personal home for safety purposes.

d) The owner regularly matches sales records with deposit slips at the end of each day.

d

Which of the following is not considered an objective in the audit of cash and cash equivalents?

• a) Cash equivalents represent short-term highly liquid investments acquired within three months from its maturity.

• b) Cash on hand accounts are properly counted.

• c) Compensating balances are reported as other current assets.

• d) Foreign currency denominated cash in bank accounts are reported at its year-end exchange amount.

c

Which of the following procedures would an auditor most likely perform on year-end accounts receivable confirmations when the auditor did not receive replies to second requests?

a) Intensify the review of the internal controls related to revenue-receipt cycle.

b) Inspect the shipping records documenting the merchandise sold to customers.

c) Review the cash receipts journal for the last few days of the current year.

d) Increase the level of detection risk for the audit of accounts receivable.

b

The auditor confirms a representative number of open accounts as of December 31 and investigates the respondents' exceptions and comments. By this procedure, the auditor will most likely discover which of the following?

a) The credit manager has misappropriated remittances from customers whose accounts have been written off as delinquent.

b) One of the computer processing clerks has been removing all sales invoices under his name from the accounting system.

c) One of the cashiers has been covering a personal embezzlement by applying subsequent cash receipts to previous customers who already made a full payment.

d) One of the sales clerks has not been preparing charge slips for credit sales to family and close friends.

c

To determine whether goods that were already shipped were properly recorded as sales, in what direction should the auditor perform its inspection?

• a) From entries in the sales journal to the bills of lading.

• b) From bills of lading to entries in the sales journal.

• c) From entries in the sales journal to sales invoices.

• d) From sales invoices to entries in the sales journal.

b

A basic premise underlying analytical procedures is that

a) Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

b) The study of financial ratios can detect material fraud in the financial statements.

c) These procedures cannot provide sufficient appropriate evidence unlike substantive tests.

d) It will be able to detect all material misstatements in the financial statements.

a

To obtain evidence that uncollected items in the customers' accounts represented valid trade receivables, the auditor should select a sample of items from the population represented by the

• a) Accounts receivable subsidiary ledger.

• b) Sales invoices.

• c) Bills of lading.

• d) Customer orders.

a

Fiery Company uses its sales invoices for posting perpetual inventory records. Inadequate internal control over the invoicing function allows goods to be recorded even if they are not yet shipped. What is the effect of the control weakness on the company's total sales, total receivables, and total inventories, respectively?

a) Overstated, overstated, no effect

b) Understated, understated, no effect

c) Understated, overstated, overstated

d) Overstated, overstated, understated

d

When an auditor reviews the client's periodic accounting of the numerical sequence of sales invoices and shipping documents, he/she is addressing the management's assertion of

• a) Presentation and disclosure.

• b) Completeness.

• c) Valuation or allocation.

• d) Existence or occurrence.

b

For accounts receivable, using negative confirmation is less effective than a positive confirmation because

• a) The auditor cannot infer that all non-responses have actually verified their account information.

• b) Negative confirmations do not provide evidence that sufficient and appropriate.

• c) Some recipients may report incorrect balances that require extensive follow-up.

• d) A majority of recipients usually lack the motivation to respond objectively.

a

During the process of confirming receivables as of December 31, 2024, a positive confirmation was returned indicating the "balance owed as of December 31 was directly deposited on January 6, 2025". What would the auditor do in this scenario?

a) Examine bank credits in the January 2025 bank statement.

b) Reconfirm the zero balance on January 7, 2025.

c) Examine sales invoices for sales between December 31, 2024 and January 6, 2025.

d) Examine sales discounts slips during the month of December 2024.

a

In the planning stage of an audit engagement, the auditor is required to perform audit procedures to obtain an understanding of the entity and its environment, including its internal control. These procedures are called

• a) Risk assessment procedures

• b) Dual-purpose tests

• c) Substantive audit procedures

• d) Test of controls

a

Prior-period errors should be adjusted in the financial statements

• a) Retrospectively, net of tax, in the retained earnings balance as of the earliest period presented.

• b) Retrospectively, gross of tax, in the retained earnings balance as of the earliest period presented.

• c) Prospectively, net of tax, in the retained earnings balance as of the end of current period under audit.

• d) Prospectively, gross of tax, in the retained earnings balance as of the end of current period under audit.

a

For all audits of financial statements conducted in accordance with the PSAs, the use of analytical procedures is required during

a) Planning; substantive testing

b) Planning; substantive testing; overall review

c) Substantive testing; overall review

d) Planning; overall review

d

In designing written audit programs, an auditor should establish specific audit procedures that relate primarily to the

• a) Financial statement assertions

• b) Timing of audit procedures

• c) Cost-benefit tradeoff in gathering sufficient appropriate evidence

• d) Detection of fraud or irregularities in the financial statements

a

Statement I: Counterbalancing errors always require an adjusting entry, regardless of when discovered.

Statement II: Errors of commission involve the non-recording of doubtful accounts expense on accounts receivable at the end of the reporting period.

a) True, False

b) True, True

c) False, True

d) False, False

d

Which of the following is not an example of a self-correcting error?

• a) Failure to record sales on account during the year.

• b) Failure to record expired economic benefits derived from a plant asset during the year.

• c) Failure to record salaries incurred but remained unpaid at the end of the year.

• d) Failure to record advance payments for insurance at the end of the year.

b

All of the following are examples of substantive audit procedures to verify the valuation of net accounts receivable, except

a) Inspection of aging schedule and credit records for past due accounts.

b) Comparison of the year-end allowance for credit losses with past experience.

c) Inspection of accounts receivable for current versus non-current classification in the statement of financial position.

d) Recomputation of allowance for credit losses.

c

The purpose of proof of cash is to

a) Validate that the client's bank did not make an error during the period being audited.

b) Confirm that the client has properly segregated the custody and the recording function with respect to cash.

c) Prove that the client's year-end balance of cash is fairly stated.

d) Determine whether any unauthorized disbursements or unrecorded deposits were made for the given time period.

d

Statement I: The auditor should consider materiality when determining the nature, timing, and extent of year-end audit procedures.

Statement II: The materiality level for the financial statements as a whole, determined during the planning stage of the audit, should not be affected by changes in the circumstances of the engagement.

• a) True, True

• b) False, False

• c) True, False

• d) False, True

c

Which of the following items is not requested on a standard bank confirmation request?

a) Description of collateral for a direct liability.

b) The principal amount paid on a direct liability.

c) Maturity date of a direct liability.

d) The interest rate of a direct liability.

b

Which of these is not required to be included in an auditor’s cash count report?

A. The date and time of the count

B. That the count was made in the presence of the custodian

C. That the items counted were returned intact to the custodian

D. The audited balance of the cash account

E. All of these are required in a cash count report

d

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:

A. Provide the necessary data to prepare a proof of cash

B. Seek information about contingent liabilities and security agreements

C. Detect kiting activities that may otherwise not be discovered

D. Request a cutoff bank statement and related checks to be sent to the auditor.

b

What is the effect of not replenishing the petty cash fund at year-end and not making the appropriate adjusting entry?

A. A detailed audit is necessary.

B. The petty cash custodian should turn over the petty cash to the general cashier.

C. Cash will be overstated and expenses understated.

D. Expenses will be overstated and cash will be understated.

c

How will the auditor most likely utilize the bank reconciliation as evidence in the audit of cash?

A. The auditor tests deposits in transit and outstanding items to other corroborating evidence.

B. The auditor sends the reconciliation to the bank for independent verification.

C. The auditor performs the reconciliation for the client to record the proper cash balance.

D. The auditor traces the book balance of the reconciliation to the cutoff bank statement.

a

An auditor who is engaged to examine the financial statements of a business enterprise will request cutoff bank statement primarily in order to:

A. Verify the cash balance reported on the bank confirmation inquiry form.

B. Verify reconciling items on the client’s bank reconciliation.

C. Detect lapping.

D. Detect kiting.

b

To test the existence or occurrence assertion in audit of cash, arrange the following procedures in correct order:

I- Trace all transfers occurring between banks near year-end.

II- Perform cash count procedures for cash on hand.

III- Confirm bank balances as of balance sheet date.

IV- Obtain bank reconciliation as of the balance sheet date.

V- Obtain analysis of cash balance and reconcile to the general ledger.

A. IV, V, III, II, and I

B. II, IV, II, V, and I

C. V, III, II, IV, and I

D. III, V, IV, II, and I

E. Some other answer

c

Because cash is the most desirable asset for people to steal, it has a higher:

A. Detection risk

B. Liquidity risk

C. Inherent risk

D. Control risk

E. All of these

c

A major consideration in the audit of the general cash balance is the possibility of fraud. The auditor must extend his or her procedures in the audit of year-end cash to determine the possibility of a material fraud when there are:

A. Large cash receipts and disbursements during the year

B. Inadequate internal controls

C. Large cash balances at the end of the year

D. No imprest accounts used for payroll

b

The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of:

A. Valuation and allocation

B. Completeness

C. Existence

D. Cutoff

E. Some other answer

d

Which of the following substantive audit procedures is most likely to be performed by the auditor to gather evidence in support of the balance per bank?

A. Confirm directly with bank

B. Trace to cash receipts journal

C. Trace items on the cutoff bank statement to bank reconciliation

D. Compare to general ledger

a

Internal controls over investments in financial instruments is weakened when:

• a) Management adopts its own fair value computation for publicly-listed securities held for trading.

• b) Securities are registered under the name of the client, as an investor.

• c) Securities are held under joint control of at least two officials without any record keeping responsibilities.

• d) Securities are held by the company's treasurer.

a

When auditing intangible assets, an auditor most likely would obtain evidence of ownership or supporting documentations in support of management's financial statement assertion of:

• a) Completeness.

• b) Cutoff.

• c) Presentation and disclosure.

• d) Existence or occurrence.

d

When auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of management's financial statement assertion of:

• a) Existence or occurrence.

• b) Completeness.

• c) Rights and obligations.

• d) Valuation or allocation.

d

When a fair value measurement is based on a broker quote (whether obtained by the company or by the auditor), the relevance and reliability of the evidence provided by the broker quote depend on whether all of the following are present except:

a) The broker or dealer has a relationship with the company by which company management has the ability to directly or indirectly control or significantly influence the broker or dealer.

b) The broker quote reflects market conditions as of the financial statement date.

c) The broker or dealer making the quote is a market maker that transacts in the different type of financial instrument.

d) The broker quote is binding on the broker or dealer.

c

Which of the following is a customary audit procedure for the verification of the legal ownership of real property?

• a) Examination of corporate minutes and resolutions concerning the approval to acquire property, plant and equipment.

• b) Examination of ownership documents registered and on file at a public hall of records.

• c) Examination of deeds and title guaranty policies on hand.

• d) Examination of correspondence with the corporate counsel concerning acquisition matters.

c

Which of the following is not one of the auditors' objectives in auditing depreciation?

a) Establishing the reasonableness of the client's replacement policy.

b) Establishing that the methods are consistently applied.

c) Establishing that the methods used are appropriate.

d) Establishing the reasonableness of depreciation computations.

a

The auditor should insist that a representative of the client be present during the physical examination of securities in order to:

• a) Lend authority to the auditor's directives.

• b) Detect forged securities.

• c) Collude with the auditor about its misappropriation.

• d) Acknowledge the receipt of securities returned.

d

Which of the following audit procedures would most effectively address the completeness assertion when auditing items of property, plant and equipment?

• a) Sending confirmation requests to vendors.

• b) Examination of the details in the repairs and maintenance account.

• c) Testing reasonableness of recorded depreciation expense.

• d) Tracing additions of PPE to supporting documents.

b

The auditors are least likely to learn of retirements of equipment through which of the following?

• a) Analysis of the credits to the cost account.

• b) Analysis of the debits to the accumulated depreciation account.

• c) Review of the purchase returns and allowances account.

• d) Review of depreciation.

c

Which of the following is ordinarily the best evidence of fair value?

a) Option pricing model.

b) Discounted cash flow analysis.

c) Published price quotation of an individual asset in the active market.

d) Published price quotation of a similar asset in the active market.

c

When an auditor is unable to inspect and count the 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:

• a) Provide a list of securities added and removed from the box between the end of reporting period date and the security-count date.

• b) Confirm that there has been no access to the box between the end of reporting period date and the security-count date.

• c) Count the securities in the box so the auditor will have an independent direct verification.

• d) Verify any differences between the contents of the box and the balances in the client's subsidiary ledger.

b

Which of the following is a least likely assertion addressed by examining supporting documents to PPE addition?

• a) Existence or occurrence.

• b) Valuation or allocation.

• c) Presentation and disclosure.

  d) Rights and obligations.

c

Which of the following may be a plausible explanation as to why the ratio of depreciation over the total cost of property, plant and equipment during the current year decreased compared to the previous year?

• a) Some assets still in use in the current year had been fully depreciated at the end of the previous year.

• b) There is a considerable decrease in average residual value for PPE items during the year.

• c) The estimated average remaining useful life of the assets were revised to a shorter period.

• d) Repairs and maintenance expense related to PPE items increased during the year.

a

Ensuring that all retirements or disposal are recorded relates primary to the assertion of:

• a) Presentation and disclosure.

• b) Existence or occurrence.

• c) Rights and obligations.

• d) Completeness.

d

Audit procedures to address major encumbrances to property, plant and equipment items satisfies the management's assertion of:

• a) Presentation and disclosure.

• b) Valuation or allocation.

• c) Existence or occurrence.

• d) Completeness.

a

To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would:

• a) Obtain market quotations from financial newspapers periodicals.

• b) Review the broker's advice or canceled check for the investment's acquisition.

• c) Inspect the stock certificates evidencing the investment.

• d) Examine the audited financial statements of the investee company.

d

Which of the following best describes the auditors' typical examination of plant and equipment?

• a) The auditors should tour the production facility to identify plant assets with inadequate insurance coverage.

• b) The auditors should examine major additions to plant and equipment made during the year.

• c) The auditors should determine the accuracy of the recorded depreciation expense during the year.

• d) The auditors should observe a physical inventory of plant and equipment, quarterly.

b

As with other types of estimates, auditing the fair value of financial instruments involves performing risk assessment procedures in accordance with the risk assessment standards. The risks of material misstatement associated with the valuation of financial instruments vary depending on, among other things, the nature of the financial instruments. As part of risk assessment requires the auditor is to obtain an understanding of the nature of the financial instruments being valued, taking into account the following matters:

(i) Terms and characteristics of the financial instruments

(ii) The extent to which the fair value of the type of financial instruments is based on inputs that are observable directly or indirectly

(iii) Other factors affecting the valuation of the financial instruments, such as credit or counterparty risk, market risk, and liquidity risk.

a) I and II only.

b) I only.

c) II only.

d) I, II, and III.

d

When an audit client engages in transactions involving derivatives, the auditor should:

• a) Add an emphasis of matter paragraph in the auditor's report about the client's derivative transactions.

• b) Notify the audit committee about the risks involved when trading derivatives.

• c) Confirm with the client's broker whether the derivatives are for trading purposes.

• d) Develop an understanding of the economic substance of each derivative.

d

Verification of the legal ownership of a property relates to the assertion of:

• a) Completeness.

• b) Valuation or allocation.

• c) Rights and obligations.

• d) Presentation and disclosure.

c

Comfort on the valuation of investments is usually obtained through the performance of the following audit procedures:

I. Vouching of the year end investment balance to the year-end market value as per custodian report/bank confirmation.

II. Testing of gains and losses on fair value movements, to ensure these have been properly recorded.

III. Testing of year end market value through independent evaluation and review of similar investments on the market.

• a) II and III.

• b) I, II, and III.

• c) II only.

• d) I only.

b

In establishing the existence and ownership of a long-term investment in the form of publicly-traded shares, an auditor should inspect the securities and/or:

• a) Correspond with the investee company to verify the number of shares owned.

• b) Inspect the audited FS of the investee company.

• c) Determine that the investment is carried at the lower or cost of market.

• d) Confirm the number of shares owned that are held by an independent custodian.

d

In testing for unrecorded retirements of equipment, an auditor might:

a) Compare depreciation expense with the prior year's depreciation.

b) Scan the general journal for unusual equipment retirements.

c) Inspect supporting documents such as invoices and official receipts for proper costing.

d) Trace equipment items not seen during the plant tour to the equipment subsidiary ledger.

d

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:

• a) Vouching all charges during the year to the broker's advices and statements.

• b) Examination of paid checks issued in payment of securities purchased.

• c) Confirmation from the broker.

• d) Inspection and count of stocks and bonds.

b

*

Which of the following is not an inherent risk typically associated with dividends?

• a) Dividends are recorded before being declared.

• b) Dividends are recorded in the wrong period.

• c) Dividends are not properly amortized.

• d) Dividends have not been approved before being declared.

c