Audit problems multiple choice theory PDF

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MULTIPLE CHOICE CHAPTER 2 1. A financial statement audit aims to A. present financial information about an entity for use by external users. B. determine whether financial statements presented by the management are prepared in accordance with an applicable financial reporting framework C. determine whether the entity appropriately pays its income tax due D. determine whether the entity is able to pay its maturing obligations

2. What management's assertion does the auditor address when he/she obtains evidential matter on the appropriate balance of Trade and Other Payables" that will be shown in the statement of financial position? A. Existence or occurrence B. Completeness C. Rights and obligations D. Measurement and allocation

3. What management's assertion does the auditor address when he/she reviews the classification of a tract of land acquired exclusively for capital appreciation? A Existence or occurrence B. Rights and obligations C. Measurement and allocation Đ. Presentation and disclosure

4. What management's assertion does the auditor address when he/she obtains evidence on the shipping terms of inventories in transit shipped by a vendor? A. Existence or occurrence B. Completeness C. Rights and obligations D. Measurement and allocation

5. Which of the following is the main objective of the conduct of pre engagement activities? A. to determine whether or not to accept a new client or retain B. existing client to set the amount of the audit fee to be charged to the client. C. to be familiar with the working staff of the audit client. D. to assess the likelihood of issuing an unqualified opinion,

6. What is the main purpose of an auditor in his/her evaluation of the client's internal control system? A. to properly distribute the different tasks to the members of the audit team B. to make a decision whether or not to accept a new engagement or retain an existing client C. to determine the extent of audit procedures necessary to be performed D. to gather sufficient evidential matter as basis for audit opinion.

7. Which of the following pairs of accounts would an auditor most likely analyze on the same working paper? A Notes receivable and accounts payable. B. Notes receivable and interest payable. C. Notes receivable and interest income. D. Interest income and interest expense.

8. The current file of an audit documentation most likely would include A. Bond indenture of 20-year bonds payable. B. Articles of incorporation. C. Pension plan contract D. Analysis of accounts receivable

9. An audit documentation should A.not contain comments concerning management. B. show that the accounting records agree or reconcile with the management C. be destroyed after an announcement has been made for litigation involving an audit engagement. D. be made available to others even without the consent of the audit client.

10. In which of the following circumstances would an auditor choose between issuing a qualified opinion and issuing a disclaimer of opinion on a client's financial statements? A. Departure from reporting framework B. Inadequate disclosure of accounting policies C. Inability to obtain sufficient appropriate evidence. D.Unreasonable justification for a change in accounting policy,

11. Which of the following factors are considered in the selection of audit procedures to be performed in an engagement?

I. composition of the audit team II. audit objectives III. level of audit risk IV. type of audit evidence available

A. 11, 111 and IV B. 1, II, and IV C. 1, 11, and III D. 111 and IV only

12. All of the following are normally included in the auditor's current file of audit documentation, except A. copy of prior year's financial statements. B. minutes of meetings of the board of directors during the reporting period. C. working trial balance D. A copy of the entity's organizational chart.

13 A working paper that gives the components of a line item to be presented on the face of the financial statements is called А. working trial balance. B supporting schedule C. lead schedule D. draft of financial statements

14. An auditor gathers audit documentation mainly to А. detect fraud and misstatements. B. evaluate management effectiveness C. evaluate internal control, D. form an opinion on the fairness of the financial statements.

15. Which of the following is classified as a substantive test? A. Review of payroll checks B. Reconcile disbursements per books with checks appearing in the bank statement C. Scanning of employment contracts C. D. Accounting for a sequence of issued credit memoranda.

16. Which of the following is a list of activities to be undertaken by the auditor to gather audit evidence? A. Audit documentation B. Audit plan C. Audit program D.Audit strategy

Chapter 3 1.The practice which postpones entries for the collection of receivables to conceal an existing cash shortage is referred to as A. interbank transfer B.kiting C.lapping. D. shorting. 2.The practice of intentionally transferring funds from one bank account to another without recording withdrawal from the originating bank but recording the deposit in the second bank to temporarily conceal a cash shortage is called А.interbank transfer B. kiting C. lapping D. shorting

3.Which of the following cash transfers results in misstatement of cash at December 31, 2017? Bank Transfer Schedule Disbursements Date

Receipt Date

Per books

Per Books

Per Bank

A. 12/31/2018 01/05/2019

12/31/2018

01/04/2019

B. 01/04/2019 01/11/2019

01/04/2019

01/04/2019

C. 12/31/2018 01/04/2019

12/31/2018

12/31/2018

D. 01/04/2019 01/05/2019

12/31/2018

01/04/2019

Per Bank

4. Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows? А. Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts. B. Vouch a sample of cash receipts and disbursements for the last few days of the current year, С. Reconcile the cutoff bank statement to the proof of cash to verify the accuracy of the year-end cash balance. D. Confirm the amounts included in the statement of cash flows with the entity's financial statements

5. Which of the following misstatements is most likely to be uncovered dun an audit of a client's bank reconciliation? A. Duplicate payment of a vendor's invoice. B. Failure to record collection of a customer's note by the bank on client's behalf C. Billing a customer at a price different from that indicated by company policy. D. Payment of an overtime pay of an employee in excess of what legally required

6. Which of the following cycles does not affect cash in bank? A. Financing cycle B. Inventory and warehousing cycle C. Revenue and collection cycle D. Investing and disbursement cycle

7. Which of the following is a standard internal control over disbursements? A. Making payments out of cash collected during the day. B. Checks should be signed by the controller and another employee the company

C. Checks should be sequentially numbered and the numerical sequence of the check should be accounted for by the person preparing the bank reconciliation. D. Checks should be issued directly to the payee by the person signing the check.

8. Which of the following audit procedures would most likely detect kiting? A. Review composition of authenticated deposit slips. B. Review subsequent bank statements and cancelled checks returned by the bank. C. Prepare a bank transfer schedule D. Prepare year-end bank reconciliations.

9. In most situations, the petty cash fund is reimbursed just prior to year-end to avoid A. the understatement of cash and overstatement of expenses. B. the understatement of cash and understatement of expenses. C. the overstatement of cash and understatement of expenses. D. the overstatement of cash and overstatement of expenses.

10 The general cash account is considered significant in almost all audits A. when the ending balance is material. B. when the beginning balance is material. C. when either the beginning balance or the ending balance is material. D. even when the ending balance is immaterial.

11. Which of the following would most likely be detected by preparing a proof of cash? A. A collection of an account receivable previously written off. B. An unrecorded bank deposit made at the end of the month. C. A payment of an account payable previously paid by check. D. A misappropriation of cash receipts not recorded in the cash receipts journal

12. Which of the following would most likely not be detected by preparing a proof of cash? A. A check issued but not recorded. B. Unrecorded remittances by customers deposited directly to the bank.

C. An issuance of check for payment of an account payable previously paid by check D. An unrecorded bank charge for customers' DAIF checks.

13. Which of the following audit procedures would most likely detect lapping? A. Conducting a cash count. B Confirmation of cash balance with financial institutions. C Comparing postings of cash receipts with the details of cash deposits D Preparing month-end bank reconciliations.

14. Properly designed internal control will permit the same employee to A. receive and deposit checks, and also approve write-offs of customer accounts B. approve vouchers for payment, and also receive and deposit cash C. Reconcile the bank statements, and also receive and deposit D. Sign checks, and also cancel supporting documents.

15. Which objective is most directly associated with the control procedure of separating cash handling and record keeping? A. To verify that cash receipts recorded during the period reasonable. B. To verify that cash receipts are correctly classified. C. To verify that recorded cash receipts are from legitimate company transactions. D. To verify that cash receipts are appropriately recorded.

16. Rank the following audit evidences in the order of reliability, starting with the most reliable to the least reliable. I. Cash count conducted by the audit staff II. Bank confirmation report III. Bank reconciliation prepared by the company's internal audit staff IV. Verbal communication from the manager on the petty cash replenishment procedures

A. I, II, III, IV B. II, I, , III, IV C. III, II, IV, I

D. I, II, IV, III

Ch4 1. Which of the following activities is not included in the revenue cycle?

A. Sales on account B. Collection from customers. C. Approval of sales returns and allowances. D. Purchase of merchandise.

2. Which document evidences that goods are received by the common carrie for shipment to the customer? А. Shipping report B. Receiving report C. Bill of lading D. Sales order

3. Which of the following is not a sales adjustment function? A. Recording cash collections from customers. B. Granting sales returns and allowances. C. Determining uncollectible accounts D. Granting cash discounts.

4. Which two of the following substantive procedures provide evidence over existence of trade receivables? I. agreeing a sample of shipping documents to sales invoices and to the sales ledger II. undertaking a receivables circularization. III. review of post year-end cash receipts, if these relate to year-end receivables, follow through to the sales ledger IV. recalculating the allowance for uncollectible accounts IV.

A. I AND III B. II and IV C. II and III D. I and IV

5. Which of the following strategies most likely could improve the response of the confirmations of accounts receivable? A. Restrict the selection of accounts to be confirmed to those customers with large balances B. Include a list of Items or invoices that constitute the customers' account balances C. Explain to customers that discrepancies will be investigated by an independent third party. D.Ask customers to respond to the confirmation requests directly to the auditor by fax.

6. Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should A. consider the likelihood of assessing the risk of incorrect rejection too low B. project sampling risk at the maximum for tests covering the remaining period C. ascertain that accounts receivable are immaterial to the financial statements. D. assess the difficulty in controlling the incremental audit risk.

7. Which type of accounts receivable confirmation requires a customer reply only when the amount shown in the confirmation request is incorrect?

A. Bank confirmation B. Neutral confirmation С. Positive confirmation D. Negative confirmation

8. Which test is designed to obtain reasonable assurance that cash receipts are recorded in the proper reporting period? A. Sales cutoff test B. Cash receipts cutoff test C. Inventory cutoff test

D. Vouching revenue transaction

9. An auditor may consider the confirmation of accounts receivable as not necessary in which of the following circumstances? A. The balance of accounts receivable is significant in relation to the total current assets of the company B. Environment risk is assessed as low and sufficient evidence is available from using other substantive tests C. The balance of accounts receivable is significantly composed of sales recorded near the end of the reporting period. D. The client uses computerized system in processing documents the revenue cycle.

10. Which of the following statements is valid relating to confirmation accounts receivable? A. A positive confirmation provides more reliable evidence than does the negative confirmation because the auditor can perform follow up procedures if no response is received from the debtor. B. A negative form of confirmation is preferable to use when individual account balances of customers are relatively large. C. In positive confirmation, failure to reply must be regarded as a correct response, even though the debtor may have ignored the confirmation request. D. An auditor must consider using the negative form of confirmation when there is reason to believe that there may be a substantel number of accounts in dispute or with inaccuracies or irregularities.

11. When should an auditor consider performing alternative procedures to substantiate the existence of accounts receivable? a. The client pledged most of its accounts receivable. b. The collectibility of a substantial portion of accounts receivable is in doubt C. No reply to a negative confirmation request is received. D. No reply to a positive confirmation request is received.

12 Auditors usually carry out their audit work at different stages known as the interim audit and the final audit. Which of the following statements, if any, is/are correct? I. Carrying out tests of control on the company's sales day books would normally be undertaken during an interim audit. II. Review of aged receivables ledger to identify balances requiring write down or allowance would normally be undertaken during a final audit.

A. Neither I nor II B. Both I and II C. I only D. II only

Ch5 1. At the conclusion of an audit, an auditor is reviewing the evidence gathered in support of the financial statements. With regard to the measurement of inventory, the auditor concludes that the evidence obtained is not sufficient to support management's assertions. Which of the following actions is the auditor most likely to take?

A. Consult with the audit committee and issue a disclaimer of opinion. B. Consult with the audit committee and issue a qualified opinion C. Obtain additional evidence regarding the valuation of inventory. D. Obtain additional evidence from management supporting their inventory valuation.

2 When could inventory count be made prior to yearend, from the stand point of the auditor? A. when the internal control procedures adopted by the client for the warehousing and conversion cycles are considered deficient. B. when significant amount of the client's inventories is stored in a public warehouse C. when inventories include goods that are slow moving D. when the auditor assesses that the client maintains accurate perpetual inventory records

3. Auditors conduct purchases cut off tests primarily to test whether A. all purchases made before yearend were properly recorded. B. the inventories were properly measured using the pricing policy adopted by the enterprise C. all purchases made during the reporting period have been paid by the client. D. all goods owned by the company were included in the inventory list.

4. Which of the following control procedures could detect payment of goods not received? A. counting and inspecting goods upon receipt. B. reconciling cash disbursements entries with cancelled checks returned with bank statements. C. matching purchase order, with receiving report and supplier's invoice. D. reconciling stock cards with inventory list.

5. Comparison of the result of physical counts with the perpetual inventory cords satisfies the audit objective of establishing A. accuracy B. existence C. correct classification D. completeness

6. Confirming inventory balances stored in other locations achieves the audit objective of A. accuracy B existence. C. correct classification D. completeness

7. 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? A. Completeness

B. Rights and obligations C. Allocation and valuation D. Understandability and classification

8. In the audit of inventories, the auditor is least concerned with A. Verifying that the client has properly established the selling price of B verifying that all inventory to which the client has economic control is inventories included in the inventory balance. C. verifying that inventory counted represents goods to which the client has economic control D. determining the physical quantities of inventory on hand

9.After inspecting new materials by the receiving department, the material is sent to the warehouse / stockroom and a copy of the receiving report is typically sent to A. the storeroom. B. the accounts payable accounting department. C. the purchasing department D all of the above

10. To obtain assurance that all inventory items in a client's inventory listing are valid, an auditor most likely would trace A. Inventory tags during the auditor's observation to items listed in receiving reports and vendors' invoices. B. Items listed in receiving reports and vendors' invoices to the inventory listing C. Inventory tags noted during the auditor's observation to items in the inventory listing. D. Items in the inventory listing to inventory tags and the auditor's recorded count sheets.

11. Which of the following procedures are tests of control an auditor should perform in testing the inventory cycle of their client while attending the inventory count?

I. . Observe whether the client's staff are following he inventory count instructions II. Review inventory present in the warehouse for evidence of damage or obsolescence.

III.. Obtain a sample of the last receiving report and the shipping documents and follow through to ensure inclusion in the correct accounting period IV. Inspect and review management's inventory count instructions.

A. II and III B. I and IV C. I and II D III and IV

Ch1

1.A financial statement audit aims to A. present financial information about an entity for use by external users. B. determine whether financial statements presented by the management are prepared in accordance with an appli...