AUDIT FINAL
Audit Final Exam Quiz
Test your knowledge of auditing practices with our comprehensive quiz designed for students and professionals alike. This quiz covers essential topics from substantive tests to cash management, ensuring you're well-prepared for any auditing challenges.
- 50 multiple-choice questions
- Covers key auditing concepts
- Designed for self-assessment
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
1. Risk assessment procedures
2. Tests of controls
3. Substantive tests of transactions
4. Substantive analytical procedures
5. Tests of details of balances
1, 2, and 3
3, 4, and 5
2, 3, and 5
2, 3, and 4
The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements?
Control tests
Substantive analytical procedures
Risk assessment procedures
Tests of operating effectiveness of controls over revenue and cash
The purpose of tests of controls is to provide reasonable assurance that the
Accounting treatment of transactions and balances is valid and proper.
Internal control procedures are functioning as intended.
Entity has complied with GAAP disclosure requirements.
Entity has complied with requirements of quality control.
Analytical procedures
Focus on the ending balances for income statement accounts.
Are only performed during the planning stage of the audit.
Are required to be performed when auditing an account balance.
Provide substantive evidence.
An exception or deficiency found in a test of controls
Indicates a financial statement misstatement.
Indicates the likelihood of a misstatement.
Indicates that the financial statements are fairly stated.
Indicates that an adverse opinion is warranted on the audit of internal control.
A deficiency uncovered in the audit of internal control is explained by which of the following in relation to a financial statement misstatement?
The amount of the misstatement
The likelihood of the misstatement
The amount, likelihood, and classification of the misstatement
The amount and the classification of the misstatement
Which phase(s) of the audit uses inquiries of clients as a type of evidence?
Plan and design
Tests of controls and substantive tests of transactions
Completion of the audit and issuance of the audit report
All of the above
Which of the following audit tests would be regarded as a test of controls?
Comparison of the inventory pricing to vendors' invoices
Tests of the signatures on canceled checks to board of directors' authorizations
Tests of the additions to property, plant, and equipment by physical inspections
Review of the specific items making up the balance in a given general ledger account
One of the causes of nonsampling risk is
Choosing the wrong sample size.
Ineffective audit procedures.
Inadequate sample size.
Exceptions being found in the sample.
Which of the following statements is most correct?
A sample of all items of a population will eliminate sampling risk, but increase nonsampling risk.
The use of an appropriate sample selection technique ensures a representative sample.
The auditor's failure to recognize an exception is a significant cause of sampling risk.
The use of inappropriate audit procedures is a significant cause of nonsampling risk.
What is the purpose of applying stratified sampling to a population?
To avoid items that may To emphasize certain items
contain misstatements and deemphasize others
Yes Yes
No No
Yes No
No Yes
Which of the following is not a "cash equivalent"?
Time deposits
Certificates of deposit
Money market funds
Marketable securities
Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation?
Duplicate payment of a vendor's invoice
Billing a customer at a lower price than indicated by company policy
Failure to record a collection of a note receivable by the bank on the client's behalf
Payment to an employee for more than the hours actually worked
Which of the following is likely to be detected as part of the audit of the bank reconciliation?
Failure to bill a customer
Duplicate payment of a vendor invoice
Cash received by the client after year-end, but included in cash receipts in the current year
An embezzlement of cash by intercepting cash receipts from customers before they are recorded
Which of the following would normally be discovered as part of the audit of the bank reconciliation?
Failure to bill a customer
Failure to include a deposit in transit on the bank reconciliation
duplicate payment of a vendor's invoice
Payment to an employee for more hours than she worked
Because cash is the most desirable asset for people to steal, it has a higher
Control risk.
Inherent risk.
Detection risk.
Liquidity risk.
If a bank does not respond to a bank confirmation request, the auditor would most likely
Perform Send a Ask the client to communicate with
Alternative Second the bank to ask them to complete
Procedures Request and return the confirmation
No Yes Yes
No No Yes
Yes No Yes
Yes Yes No
When assessing risks affecting cash,
If a business defers preparing bank reconciliations for long periods, the value of the control is reduced and may affect the auditor's assessment of control risk for cash.
Most companies are likely to have significant client business risks affecting their cash balances
There is a low inherent risk for the existence and completeness objectives for cash.
All of the above are accurate statements.
Listed below are four interbank cash transfers, indicated by the numbers 1, 2, 3, and 4, of a client for late December 2015 and early January 2016:
Bank Account One Bank Account Two
Disbursing Date Receiving Date
(Month/Day) (Month/Day)
Per Bank Per Books Per Bank Per Books
1. 12/31 12/30 12/31 12/30
2. 1/2 12/30 12/31 12/31
3. 1/3 12/31 1/2 1/2
4. 1/3 12/31 1/2 12/31
Bank Account One Bank Account Two
Disbursing Date Receiving Date
(Month/Day) (Month/Day)
Per Bank Per Books Per Bank Per Books
1. 12/31 12/30 12/31 12/30
2. 1/2 12/30 12/31 12/31
3. 1/3 12/31 1/2 1/2
4. 1/3 12/31 1/2 12/31
Based on the schedule of interbank transfers above, which of the cash transfers indicates an error in cash cutoff at December 31, 2015?
1
2
3
4
When assessing risks affecting cash,
If a business defers preparing bank reconciliations for long periods, the value of the control is reduced and may affect the auditor's assessment of control risk for cash.
Most companies are likely to have significant client business risks affecting their cash balances.
There is a low inherent risk for the existence and completeness objectives for cash.
All of the above are accurate statements.
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?
Job cost system
Standard cost records
Cost accounting records
Perpetual inventory master file
To ensure proper segregation of duties, who should maintain the perpetual inventory master files?
Production personnel
Inventory storeroom personnel
Inventory receiving personnel
Accounting department personnel
Master files, spreadsheets, and reports that accumulate material, labor, and overhead as the costs are incurred are
Accounting systems
Storeroom documents
Cost accounting records
Finished goods inventory records
Auditors usually test cost accounting records as part of the
Acquisition tests.
Payroll tests.
Sales tests.
All of the above are correct.
________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.
Just-in-time production systems
Job cost systems
Process cost systems
Manufacturing systems
Inventory is often a significant part of a company's current assets. Because of its importance,
Auditors are required by auditing standards to observe the client taking a physical inventory count.
Price tests must be performed to verify whether the physical counts were correctly summarized.
Companies are required to use perpetual inventory systems.
Auditors are required by auditing standards to take the physical inventory for the client.
When auditing inventory cost accounting, the auditor is concerned with all of the following except for
Net realizable value.
Unit cost records.
Physical controls over inventory.
Documents and records for transferring inventory.
Direct labor costs.
Raw material costs.
Manufacturing overhead costs.
Period costs.
Which one of the following substantive analytical procedures would be most useful in alerting the auditor to the possibility of obsolete inventory?
Compare gross margin percentage with that of previous years.
Compare unit costs of inventory with previous years.
Compare inventory turnover ratio with previous years.
Compare current year manufacturing costs with previous years.
Which one of the following substantive analytical procedures would be most useful in alerting the auditor to the possibility inventory and cost of goods sold being overstated or understated?
Compare extended inventory value with that of previous years.
Compare unit costs of inventory with previous years.
Compare inventory turnover ratio with previous years.
Compare current year manufacturing costs with previous years.
When auditors observe the client counting inventory, they should be careful to do all of the following except
Inquire about items that are likely to be obsolete or damaged.
Calculate the unit cost of the inventory items.
Discuss with management the reasons for excluding any material items.
Observe the counting of the most significant items.
When determining the sample size for the number of items the auditor should count during the physical inventory,
It is easy to quantify the number of items based on a formula developed by the AICPA.
One of the key determinants that must be considered is internal control over the physical count.
One of the key determinants that must be considered is the cost involved.
Generally accepted auditing standards require that at least 80% of the dollar value of the inventory should be included in the sample.
It is frequently possible to test the physical inventory prior to the balance sheet date when
The perpetual inventory records are accurate and related controls operate effectively.
Year-end sales are small.
The internal control system is no better at year-end than at an earlier point in time.
The client counts inventory at interim dates.
If a client intends to count inventory at an interim date, the auditor should expect there to be all of the following except
Controls over the preparation and maintenance of perpetual inventory records.
Competent personnel assigned to count the inventory.
Third-party inventory counting specialists.
An adequately designed plan to count the inventory.
The physical counting of inventory may be performed at which of the following times?
Interim Dates On a cycle basis during the year
Yes Yes
No No
Yes No
No Yes
When may auditors observe the physical inventory count?
At an interim date At year-end
Yes Yes
No No
Yes No
No Yes
Which of the following is an accurate statement regarding inventory and risk?
Inventory with a high business risk includes products with potential obsolescence.
Auditors often have a greater concern for misstatements when inventory is stored in one warehouse.
Inherent risk is generally set at low for manufacturing companies.
Performance materiality for inventory is determined before assessing client business risk.
What event initiates a transaction in the sales and collection cycle?
Receipt of cash
Delivery of product to a customer
Identification of a new customer
Customer request for goods or services
Which of the following is an account that is not affected by the sales and collection cycle?
Cash
Accounts receivable
Allowance for doubtful accounts
Accounts payable
Which of the following is not one of the five classes of transactions included in the sales and collection cycle?
Sales returns and allowances
Write-off of uncollectible accounts
Bad debt expense
Interest income
For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents?
Sales order
Sales invoice
Customer order
Remittance advice
A ________ is a document that indicates a request for merchandise by a customer.
Sales invoice
Vendor invoice
Customer order
Sales order
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.
Sales order
Bill of lading
Sales invoice
Customer order
Which of the following is a correct statement regarding the shipment of goods?
The shipping document must be in paper form.
The shipping document is used to update the perpetual inventory records.
Only one copy of the shipping document is needed.
All of the above are correct statements.
The document used to indicate to the customer the amount of a sale and payment due date is the
Sales invoice.
Bill of lading.
Purchase order.
Sales order.
Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ________ system.
Direct deposit
Funds transfer
Lockbox
Interbank transfer
When designing audit procedures, tracing of source documents to the customers subsidiary ledger and subsequently to the general ledger is done to satisfy what assertion?
Valuation
Cutoff
Completeness
Classification
Which one the following procedures performed for the billing function provides evidence for the completeness assertion?
Making sure that all shipments have been billed
Making sure that no shipment has been billed more than twice
Making sure that each shipment is billed at the correct amount
Making sure that each shipment is billed to the proper customer
Which of the following is an accurate statement relating to separation of duties?
Management should deny cash access to anyone responsible for entering sales and cash receipts transaction information into the computer.
All disagreements on the monthly statements should be directed to a designated person who has no responsibility for handling cash or recording sales or accounts receivable.
The credit granting function should be separate from the sales function.
All of the above are accurate statements.
Prenumbered documents are intended to help
Prevent the failure to Prevent duplicate billings
bill or record sales or recordings of sales
Yes Yes
No No
Yes No
No Yes
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