ACCT550 - Becker 5

Which of the following internal control procedures most likely addresses the completeness assertion for inventory?

Receiving reports are prenumbered and periodically reconciled.

The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to:

Observe physical counts of the inventory items.

Which of the following is not true about an audit of inventory?

Observing inventory counts provides evidence about rights and obligation assertion.

To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would trace:

Items listed in the inventory-listing schedule to inventory tags and the auditor's recorded count sheets.

To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would trace:

Items listed in the inventory-listing schedule to inventory tags and the auditor's recorded count sheets.

Which of the following sets of information does an auditor usually confirm on one form?

Cash in bank and collateral for loans.

Which of the following audit procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?

Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens.

For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the:

Internal auditor.

In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified?

Test the computation of standard overhead rates.

Which of the following internal controls most likely would be used to maintain accurate inventory records?

Periodic inventory counts are used to adjust the perpetual inventory records.

An auditor is in the process of performing substantive procedures over a client’s presentation and disclosure of cash. While testing the completion assertion, the auditor should ensure that certain required disclosures related to cash have been included in the footnotes to the financial statements. Which of the following is not one of these required disclosures?

A balance breakdown between petty cash and short-term cash investments.

Under which of the following conditions may an auditor's observation procedure for inventory be performed during or after the end of the period under audit?

When well-kept perpetual inventory records are checked by the client periodically by comparisons with physical counts.

Which of the following procedures would best contribute to developing a reasonable basis for an opinion about a client's cash balances?

Sending a confirmation to the client's bank

An insignificant portion of a client's inventory is in public warehouses. Evidence of the existence of this merchandise can most efficiently be acquired through which of the following methods?

Confirmation.

An auditor should trace bank transfers for the last part of the audit period and first part of the subsequent period to detect whether:

Cash balances were overstated because of kiting.

All of the following are effective ways to prevent and/or detect lapping, except for:

Preparing a bank transfer schedule.

Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees?

A bank lockbox system.

Which of the following cash transfers results in a misstatement of cash at December 31, 20X7?

Bank Transfer Schedule

Disbursement recorded in books	Deposit received in books	Paid by bank	Recorded received by bank

1/5/X8

12/31/X7

12/31/X7

1/4/X8

An auditor would be most likely to identify a contingent liability by obtaining a (an):

Standard bank confirmation.

An independent auditor asked a client's internal auditor to assist in preparing a standard financial institution confirmation request for a payroll account that had been closed during the year under audit. After the internal auditor prepared the form, the controller signed it and mailed it to the bank. What was the major flaw in this procedure?

The form was mailed by the controller.

An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using:

A bank lockbox system.

The purpose of tracing a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items:

Represented by tags were included on the listing.

Which of the following is least likely to be used as a substantive test relating to cash balances?

Verify that cash disbursements have been properly approved.

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.

Which of the following situations most likely could lead to an embezzlement scheme?

Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement.

Which of the following audit procedures would an auditor most likely perform in respect to inventory?

Select a sample of inventory items and perform test counts to ensure the accuracy.

Which of the following most likely would be an internal control procedure designed to detect errors and irregularities concerning the custody of inventory?

Independent comparisons of finished goods records with counts of goods on hand.

On receiving a client's bank cutoff statement, an auditor most likely would trace:

Prior-year checks listed in the cutoff statement to the year-end outstanding checklist.

As part of the process of observing a client's physical inventories, an auditor should be alert to:

The inclusion of any obsolete or damaged goods.

A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably:

Request the client to schedule the physical inventory count at the end of the year.

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 procedure most likely obtained evidence concerning management's assertion of:

Completeness.

Which of the following statements properly matches the financial statement assertion with the potential misstatement and relevant audit procedure?

An auditor may physically examine a sample of the physical inventory count in order to test the existence assertion to ensure that the inventory amounts have not been overstated.

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's assertions about:

Valuation and allocation.

Which of the following internal control procedures most likely would deter lapping of collections from customers?

Segregation of duties between receiving cash and posting the accounts receivable ledger.

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

Testing the entity's computation of standard overhead rates.

The auditor's inventory observation test counts are traced to the client's inventory listing to test for which of the following financial statement assertions?

Completeness.

Which is true about the auditor's observation of physical inventory counts?

I. It can provide evidence supporting the existence assertion.

II. It can provide evidence supporting the completeness assertion.

Both I and II.

In the Bank Transfer Schedule below, which of the following cash transfers results in a misstatement of cash at December 31, 20X1?

Disbursement date per books	Disbursement date per bank	Receipt date per books	Receipt date per bank

01/04/X2

01/05/X2

12/31/X1

01/04/X2

An auditor generally tests the segregation of duties related to inventory by:

Personal inquiry and observation.

While performing audit procedures to test the client’s ending inventory account balances, the auditor traces a sample of pre-numbered inventory tags to the physical inventory report sheets. Which of the following main assertions would this audit procedure most likely be testing?

Completeness.

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:

Seek information about contingent liabilities and security agreements.

The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may:

Be unaware of all the financial relationships that the bank has with the client.

Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance?

Inventory is complete.

The primary evidence regarding year-end cash balances in the financial statements is documented in the:

Bank reconciliations.

Which of the following procedures would an auditor most likely perform to obtain assurance that slow-moving and obsolete items included in inventories are properly identified?

Examining an analysis of inventory turnover.