Question Details

ACC 591
ASSIGNMENT
Which of the following is a true statement regarding documentation requirements for analytical procedures?
 
a.	When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document both the auditor's expectation and the factors considered in developing that expectation.
 
b.	When an analytical procedure is used during the overall review stage of the audit, the auditor is required to document the auditor's expectation and any additional procedures performed to investigate significant unexplained differences.
 
c.	When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document his or her expectation and management's concurrence with that expectation.
 
d.	When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document the reasons analytical procedures were performed instead of tests of details.
Which of the following comparisons would an auditor most likely make in evaluating an entity's costs and expenses?
 
a.	The current year's accounts receivable with the prior year's accounts receivable.
 
b.	The current year's payroll expense with the prior year's payroll expense.
 
c.	The budgeted current year's sales with the prior year's sales.
 
d.	The budgeted current year's warranty expense with the current year's contingent liabilities.
An auditor may achieve audit objectives related to particular assertions by:
 
a.	Adhering to a system of quality control.
 
b.	Performing analytical procedures.
 
c.	Preparing audit documentation.
 
d.	Increasing the level of detection risk.
An auditor's analytical procedures most likely would be facilitated if the entity:
 
a.	Corrects material weaknesses in internal control before the beginning of the audit.
 
b.	Segregates obsolete inventory before the physical inventory count.
 
c.	Uses a standard cost system that produces variance reports.
 
d.	Develops its data from sources solely within the entity.
In 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.	Rights and obligations.
 
b.	Valuation and allocation.
 
c.	Existence.
 
d.	Completeness.
Explanation
Which of the following would not be considered an analytical procedure?
 
a.	Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked.
 
b.	Computing accounts receivable turnover by dividing credit sales by the average net receivables.
 
c.	Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics.
 
d.	Developing the expected current-year sales based on the sales trend of the prior five years.
Which of the following types of audit evidence generally is the most reliable?
 
a.	Confirmation of account information.
 
b.	Analytical procedures.
 
c.	Inquiries made of management.
 
d.	Review of prior-year audit procedures.
An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that:
 
a.	The annual provision for uncollectible accounts expense was inadequate because of worsening economic conditions.
 
b.	Unrealized gains from increases in the value of available-for-sale securities were recorded in the income account for trading securities.
 
c.	Fourth quarter payroll taxes were properly accrued and recorded, but were not paid until early in the subsequent year.
 
d.	Notice of an increase in property tax rates was received by management, but was not recorded until early in the subsequent year.
being little change between the two years. 
Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client explanations would satisfy the auditor?
 
a.	The client tightened its credit policy during the current year and sold considerably less merchandise to customers with poor credit ratings.
 
b.	Internal control activities over the recording of cash receipts have been improved since the end of the prior year.
 
c.	A greater percentage of accounts receivable are listed in the "more than 120 days overdue" category than in the prior year.
 
d.	The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.
Which of the following procedures would yield the most reliable evidence?
 
a.	A scanning of trial balances.
 
b.	A recalculation of bad debt expense.
 
c.	An inquiry of client personnel.
 
d.	A comparison of beginning and ending retained earnings.
Explanation
Which of the following procedures would be most effective in reducing attestation risk?
 
a.	Examination of evidence.
 
b.	Analytical procedures.
 
c.	Discussion with responsible individuals.
 
d.	Inquiries of senior management.
Which of the following factors would most likely influence an auditor's consideration of the reliability of data when performing analytical procedures?
 
a.	Whether the data were developed under a system with adequate controls.
 
b.	Whether the data were processed in an online system or a batch entry system.
 
c.	Whether the data were developed in a computerized or a manual accounting system.
 
d.	Whether the data were prepared on the cash basis or in conformity with GAAP.
An auditor's decision whether to apply analytical procedures as substantive tests usually is determined by the:
 
a.	Number of transactions recorded just before and just after the year end.
 
b.	Precision and reliability of the data used to develop expectations.
 
c.	Availability of documentary evidence that should be verified.
 
d.	Extent of accounting estimates used in preparing the financial statements.
Auditors try to identify predictable relationships when applying analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?
 
a.	Interest expense.
 
b.	Allowance for doubtful accounts.
 
c.	Accounts payable.
 
d.	Accounts receivable.
Which of the following documents are examples of audit evidence generated by the client?
 
a.	Shipping documents and receiving reports.
 
b.	Customer purchase orders and bank statements.
 
c.	Bills of lading and accounts receivable confirmations.
 
d.	Vendor invoices and packing slips.
Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?
 
a.	Accounts payable.
 
b.	Accounts receivable.
 
c.	Travel and entertainment expense.
 
d.	Interest expense.
In determining whether transactions have been recorded, the direction of the audit testing should be from the:
 
a.	General journal entries.
 
b.	General ledger balances.
 
c.	Original source documents.
 
d.	Adjusted trial balance.
Explanation
Which of the following pairs of accounts would be analyzed together in the audit documentation?
 
a.	Notes receivable and interest income.
 
b.	Notes payable and notes receivable.
 
c.	Interest income and interest expense.
 
d.	Accrued interest receivable and accrued interest payable.
The objective of tests of details of transactions performed as substantive tests is to:
 
a.	Attain assurance about the reliability of the information system relevant to financial reporting.
 
b.	Detect material misstatements in the financial statements.
 
c.	Evaluate whether management's controls operated effectively.
 
d.	Comply with generally accepted auditing standards.
Explanation
Which of the following types of audit evidence is the most persuasive?
 
a.	Bank statements obtained from the client.
 
b.	Client work sheets supporting cost allocations.
 
c.	Client representation letter.
 
d.	Prenumbered client purchase order forms.
Explanation
Analytical procedures are most appropriate when testing which of the following types of transactions?
 
a.	Long-term debt transactions.
 
b.	Acquisitions and disposals of fixed assets.
 
c.	Operating expense transactions.
 
d.	Payroll and benefit liabilities.
Which of the following procedures would an auditor most likely perform when auditing the statement of cash flows?
 
a.	Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts.
 
b.	Confirm the amounts included in the statement of cash flows with the entity's financial institution.
 
c.	Reconcile the cutoff bank statement to the proof of cash to verify the accuracy of the year-end cash balance.
 
d.	Vouch a sample of cash receipts and disbursements for the last few days of the current year.
At the conclusion of an audit, an auditor is reviewing the evidence gathered in support of the financial statements. With regard to the valuation of inventory, the auditor concludes that the evidence obtained is not sufficient to support management's representations. Which of the following actions is the auditor most likely to take?
 
a.	Consult with the audit committee and issue a qualified opinion.
 
b.	Obtain a statement from management supporting their inventory valuation.
 
c.	Obtain additional evidence regarding the valuation of inventory.
 
d.	Consult with the audit committee and issue a disclaimer of opinion.
When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?
 
a.	Considering the pattern of several unusual changes without trying to explain what caused them.
 
b.	Comparing client data with client-determined expected results to reduce detailed tests of account balances.
 
c.	Identifying reasonable explanations for unexpected differences before talking to client management.
 
d.	Considering unaudited account balances and ratios to calculate what adjusted balances should be.
Which of the following most likely would cause an auditor to consider whether a client's financial statements contain material misstatements?
 
a.	The results of an analytical procedure disclose unexpected differences.
 
b.	Audit trails of computer-generated transactions exist only for a short time.
 
c.	The chief financial officer will not sign the management representation letter until the last day of the auditor's field work.
 
d.	Management did not disclose to the auditor that it consulted with other accountants about significant accounting matters.
Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?
 
a.	Compare the amounts included in the statement of cash flows to similar amounts in the prior year's statement of cash flows.
 
b.	Reconcile the cutoff bank statements to verify the accuracy of the year-end bank balances.
 
c.	Vouch all bank transfers for the last week of the year and first week of the subsequent year.
 
d.	Reconcile the amounts included in the statement of cash flows to the other financial statements' balances and amounts.
An auditor suspects that a client is fraudulently overstating revenue by recording fictitious sales. Which of the following audit procedures would most likely be used to identify this situation?
 
a.	Select a sample of entries in the sales journal and trace to the related sales invoices.
 
b.	Select a sample of shipping documents and trace to the related sales invoices.
 
c.	Select a sample of sales invoices and trace to the related shipping documents.
 
d.	Select a sample of sales invoices and trace into the sales journal.
Explanation
Which of the following factors would most likely influence an auditor's consideration of the reliability of data when performing analytical procedures?
 
a.	Whether the data were prepared on the cash basis or in conformity with GAAP.
 
b.	Whether the data were developed in a computerized or a manual accounting system.
 
c.	Whether the data were processed in an online system or a batch entry system.
 
d.	Whether the data were developed under a system with adequate controls.
Which of the following best explains why an analytical procedure might be used as a substantive test?
 
a.	To assist in planning the nature, timing, and extent of the auditing procedures to be performed.
 
b.	To assess the conclusions reached by staff auditors.
 
c.	To achieve audit objectives in the most effective and efficient manner possible.
 
d.	To determine the adequacy of evidence gathered in response to unusual or unexpected balances.
Which of the following would provide an auditor with the most reliable evidence regarding the existence of accounts receivable?
 
a.	An aging schedule showing the composition of the year-end accounts receivable balance.
 
b.	A copy of the customer's sales order held by the client.
 
c.	A copy of the invoice sent to the customer.
 
d.	An accounts receivable confirmation received by the auditor from the client's customer.
Explanation
evidence. 
Which of the following activities is an analytical procedure an auditor would perform in the final overall review stage of an audit to ensure that the financial statements are free from material misstatement?
 
a.	Reading the minutes of the board of directors' meetings for the year under audit.
 
b.	Ensuring that a representation letter signed by management is in the file.
 
c.	Obtaining a letter concerning potential liabilities from the client's attorney.
 
d.	Comparing the current year's financial statements with those of the prior year.
Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?
 
a.	Inquire about payroll checks that were recorded before year end but cashed after year end.
 
b.	Review tax returns prepared by management after year end.
 
c.	Determine whether inventory ordered before the year end was included in the physical count.
 
d.	Investigate changes in capital stock recorded after year end.
Explanation