EXAM 3 CPA QUESTIONS WITH
CORRECT ANSWERS
1. The objective of tests of details of transactions performed as tests of
controls is to
A. Monitor the design and use of entity documents such as pre
numbered shipping forms
B. Determine whether controls have been implemented
C. Detect material misstatements in the account balances of the
financial statements
D. Evaluate whether controls operated effectively - ANSWER-D.
Evaluate whether controls operated effectively
2. Which of the following is the best example of a substantive procedure?
A. Examining a sample of cash disbursements to test whether
expenses have been properly approved.
B. Confirmation of balances of account receivable.
C. Comparison of signatures on checks to a list of authorized
signers.
D. Flowcharting of the client's cash receipts system. - ANSWER-B.
Confirmation of balances of account receivable. (Provide a test of
ending account balance and is therefore a detailed test of a
balance, a type of substantive procedure)
3. The objective of tests of details of transactions performed as
substantive procedures is to
A. Comply with generally accepted auditing standards.
B. Attain assurance about the reliability of the accounting system.
C. Detect material misstatements in the financial statements.
D. Evaluate whether management's policies and procedure
operated effectively. - ANSWER-C. Detect material misstatements
in the financial statements.
4. In the context of an audit of financial statements, substantive
procedures are audit procedures that
, A. May be eliminated under certain conditions.
B. Are designed to discover significant subsequent events.
C. May be either tests of transactions, direct tests of financial
balances, or analytical tests
D. Will increase proportionately with the auditor's reliance on
internal control - ANSWER-C. May be either tests of transactions,
direct tests of financial balances, or analytical tests/procedures
5. The auditor will most likely perform extensive tests for possible
understatement of
A. Revenues
B. Assets
C. Liabilities
D. Capital - ANSWER-C. Liabilities (can result in overstated profits)
6. In determining whether transactions have been recorded, the direction
of the audit should be from the
A. General ledger balances
B. Adjusted trail balance
C. Original source documents
D. General ledger entries - ANSWER-C. Original source documents
to the recorded entries
7. The audit working paper that reflects the major components of an
amount reported in the financial statements is the
A. Interbank transfer schedule
B. Carry forward schedule
C. Supporting schedule
D. Lead schedule - ANSWER-D. Lead schedule (Aggregates the
major components to be reported in the financial statements)
8. Which of the following sets of information does an auditor usually
confirm on one form?
A. Accounts payable and purchase commitments
B. Cash in bank and collateral for loans
C. Inventory on consignment and contingent liabilities
, D. Accounts receivable and accrued interest receivable - ANSWER-B.
Cash in bank and collateral for loans
9. The usefulness of the standard bank confirmation requests may be
limited because the bank employee who completes the form may
A. Not believe that the bank is obligated to verify confidential
information to a third party
B. Sign and return the form without inspecting the accuracy of the
client's bank reconciliation
C. Not have access to the client's cute of bank statement
D. Be unaware of all the financial relationships that the bank has
with the client - ANSWER-D. Be unaware of all the financial
relationships that the bank has with the client (often not have
access to all financial relationships the bank has with the client)
10. An auditor most likely would limit substantive audit tests of sales
transactions when control risk is assessed as low for the occurrence
assertion concerning sales transactions and the auditor has already
gathered evidence supporting
A. Opening and closing inventory balances
B. Cash receipts and accounts receivable
C. Shipping and receiving activities
D. Cutoffs of sales and purchases - ANSWER-B. Cash receipts and
accounts receivable (May analyze the completeness of sales
using cash receipts and A/R)
11. An auditor should trace bank transfers for the last part of the
audit period and first part of the subsequent period to detect whether
A. The cash receipts journal was held open for a few days after the
year-end
B. The last checks recorded before the year-end were actually
mailed by the year-end
C. Cash balances were overstated because of kiting
D. Any unusual payments to or receipts from related parties
occurred - ANSWER-C. Cash balances were overstated because of
kiting (use bank transfer schedule to analyze transfers so as to
detect kiting that overstates cash balances)
, 12. To gather evidence regarding the balance per bank in a bank
reconciliation, an auditor would examine all of the following excepts
A. Cutoff bank statement
B. Year end bank statement
C. Bank confirmation
D. General ledger - ANSWER-D. General ledger (contains only the
client's cash balance, not the balance per bank)
13. A cash shortage may be concealed by transporting funds from
one location to another or by converting negotiable assets to cash.
Because of this, which of the following is vital?
A. Simultaneous confirmations
B. Simultaneous bank reconciliations
C. Simultaneous verification
D. Simultaneous surprise cash count - ANSWER-C. Simultaneous
verification
14. The primary purpose of sending a standard confirmation request
to financial institutions with which the client has done business during
the year it to
A. Detect kiting activities that may otherwise not be discovered
B. Corroborate information regarding deposit and loan balances
C. Provide the data necessary to prepare a proof of cash
D. Request information about contingent liabilities and secured
transactions - ANSWER-B. Corroborate information regarding
deposit and loan balances (CPAs generally provide the account
info on the form and ask for balance corroboration)
15. An auditor observes the mailing of monthly statements to a
client's customers and reviews evidence of follow-up on errors reported
by the customers. This test of controls most likely is performed to
support management's financial statement assertion(s) of
A. Presentation and disclosure - Existence or occurrence
B. Presentation and disclosure
C. Existence or occurrence
CORRECT ANSWERS
1. The objective of tests of details of transactions performed as tests of
controls is to
A. Monitor the design and use of entity documents such as pre
numbered shipping forms
B. Determine whether controls have been implemented
C. Detect material misstatements in the account balances of the
financial statements
D. Evaluate whether controls operated effectively - ANSWER-D.
Evaluate whether controls operated effectively
2. Which of the following is the best example of a substantive procedure?
A. Examining a sample of cash disbursements to test whether
expenses have been properly approved.
B. Confirmation of balances of account receivable.
C. Comparison of signatures on checks to a list of authorized
signers.
D. Flowcharting of the client's cash receipts system. - ANSWER-B.
Confirmation of balances of account receivable. (Provide a test of
ending account balance and is therefore a detailed test of a
balance, a type of substantive procedure)
3. The objective of tests of details of transactions performed as
substantive procedures is to
A. Comply with generally accepted auditing standards.
B. Attain assurance about the reliability of the accounting system.
C. Detect material misstatements in the financial statements.
D. Evaluate whether management's policies and procedure
operated effectively. - ANSWER-C. Detect material misstatements
in the financial statements.
4. In the context of an audit of financial statements, substantive
procedures are audit procedures that
, A. May be eliminated under certain conditions.
B. Are designed to discover significant subsequent events.
C. May be either tests of transactions, direct tests of financial
balances, or analytical tests
D. Will increase proportionately with the auditor's reliance on
internal control - ANSWER-C. May be either tests of transactions,
direct tests of financial balances, or analytical tests/procedures
5. The auditor will most likely perform extensive tests for possible
understatement of
A. Revenues
B. Assets
C. Liabilities
D. Capital - ANSWER-C. Liabilities (can result in overstated profits)
6. In determining whether transactions have been recorded, the direction
of the audit should be from the
A. General ledger balances
B. Adjusted trail balance
C. Original source documents
D. General ledger entries - ANSWER-C. Original source documents
to the recorded entries
7. The audit working paper that reflects the major components of an
amount reported in the financial statements is the
A. Interbank transfer schedule
B. Carry forward schedule
C. Supporting schedule
D. Lead schedule - ANSWER-D. Lead schedule (Aggregates the
major components to be reported in the financial statements)
8. Which of the following sets of information does an auditor usually
confirm on one form?
A. Accounts payable and purchase commitments
B. Cash in bank and collateral for loans
C. Inventory on consignment and contingent liabilities
, D. Accounts receivable and accrued interest receivable - ANSWER-B.
Cash in bank and collateral for loans
9. The usefulness of the standard bank confirmation requests may be
limited because the bank employee who completes the form may
A. Not believe that the bank is obligated to verify confidential
information to a third party
B. Sign and return the form without inspecting the accuracy of the
client's bank reconciliation
C. Not have access to the client's cute of bank statement
D. Be unaware of all the financial relationships that the bank has
with the client - ANSWER-D. Be unaware of all the financial
relationships that the bank has with the client (often not have
access to all financial relationships the bank has with the client)
10. An auditor most likely would limit substantive audit tests of sales
transactions when control risk is assessed as low for the occurrence
assertion concerning sales transactions and the auditor has already
gathered evidence supporting
A. Opening and closing inventory balances
B. Cash receipts and accounts receivable
C. Shipping and receiving activities
D. Cutoffs of sales and purchases - ANSWER-B. Cash receipts and
accounts receivable (May analyze the completeness of sales
using cash receipts and A/R)
11. An auditor should trace bank transfers for the last part of the
audit period and first part of the subsequent period to detect whether
A. The cash receipts journal was held open for a few days after the
year-end
B. The last checks recorded before the year-end were actually
mailed by the year-end
C. Cash balances were overstated because of kiting
D. Any unusual payments to or receipts from related parties
occurred - ANSWER-C. Cash balances were overstated because of
kiting (use bank transfer schedule to analyze transfers so as to
detect kiting that overstates cash balances)
, 12. To gather evidence regarding the balance per bank in a bank
reconciliation, an auditor would examine all of the following excepts
A. Cutoff bank statement
B. Year end bank statement
C. Bank confirmation
D. General ledger - ANSWER-D. General ledger (contains only the
client's cash balance, not the balance per bank)
13. A cash shortage may be concealed by transporting funds from
one location to another or by converting negotiable assets to cash.
Because of this, which of the following is vital?
A. Simultaneous confirmations
B. Simultaneous bank reconciliations
C. Simultaneous verification
D. Simultaneous surprise cash count - ANSWER-C. Simultaneous
verification
14. The primary purpose of sending a standard confirmation request
to financial institutions with which the client has done business during
the year it to
A. Detect kiting activities that may otherwise not be discovered
B. Corroborate information regarding deposit and loan balances
C. Provide the data necessary to prepare a proof of cash
D. Request information about contingent liabilities and secured
transactions - ANSWER-B. Corroborate information regarding
deposit and loan balances (CPAs generally provide the account
info on the form and ask for balance corroboration)
15. An auditor observes the mailing of monthly statements to a
client's customers and reviews evidence of follow-up on errors reported
by the customers. This test of controls most likely is performed to
support management's financial statement assertion(s) of
A. Presentation and disclosure - Existence or occurrence
B. Presentation and disclosure
C. Existence or occurrence
