ACCY 131 - FINAL EXAM UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
Question:
1. On receiving a client's bank cut-off statement, an auditor
most likely would trace
Deposits in transit listed in the cut-off statement to the
year-end bank reconciliation.
Checks dated after year end listed in the cut-off
statement to the year-end outstanding checklist.
Prior-year checks listed in the cut-off statement to the
year-end outstanding checklist.
Deposits recorded in the cash receipts journal after
year end to the cut-off statement.
Answer:
Prior-year checks listed in the cut-off statement to the year-end outstanding
checklist.
Question:
2. Which of the following is one of the better auditing
techniques that might be used by an auditor to detect
kiting?
Review subsequent bank statements and canceled
checks received directly from the bank.
Prepare a schedule of bank transfers from the client's
books.
Prepare year-end bank reconciliation.
Review authenticated deposit slips.
Answer:
Prepare a schedule of bank transfers from the client's books.
Question:
3. Cash receipts and disbursement transactions _______.
should be recorded weekly by the client
are subject to minimal inherent risk
are subject to increased inherent risk
should be approved by the bank before recording in
the ledger
Answer:
are subject to increased inherent risk
,Question:
4. The most important control over the existence,
completeness, and valuation of cash balances _______.
is to defer cash collection for as long as possible
is written representation by senior management with
respect to the accuracy of the cash balance
is an independent bank reconciliation
is immediate collection of cash by companies
Answer:
is an independent bank reconciliation
Question:
5. Tests of cash balances focus on the account balance
assertions of _______.
completeness, right and obligations, and valuation
completeness, right and obligations, and disclosure
existence, cutoff, and valuation
cutoff, existence, going concern
Answer:
completeness, right and obligations, and valuation
Question:
6. The primary purpose of sending a standard confirmation
request to financial institutions with which the client has
done business during the year is to
Provide the data necessary to prepare a proof of cash.
Corroborate information regarding deposit and loan
balances.
Detect kiting activities that may otherwise not be
discovered.
Request information about contingent liabilities and
secured transactions.
Answer:
Corroborate information regarding deposit and loan balances.
,Question:
7. When detection risk is low, the auditor is likely to:
scan bank reconciliations and test items on bank
reconciliations on a sample basis.
confirm bank balances with the Federal Deposit
Insurance Corporation.
prepare the bank reconciliation using bank data in the
client's possession or audit the bank reconciliation using a
cutoff bank statement obtained from the bank.
test the client's internal controls over the preparation of
bank reconciliations.
Answer:
prepare the bank reconciliation using bank data in the client's possession or
audit the bank reconciliation using a cutoff bank statement obtained from the
bank.
Question:
8. Management's operating, investing, and financing
decisions and strategies _______.
have relatively little effect on cash balances
should be approved by the client's vendors before
implementation
significantly affect cash balances
have no bearing on cash balances
Answer:
significantly affect cash balances
Question:
9. Controls over cash receipts and cash disbursements
_______.
are usually tested as part of testing controls in the
revenue process and the purchasing process
are usually tested as part of testing controls in the
financing process and the purchasing process
receive relatively little auditor attention due to their
low inherent risk
should not be tested as part of the external audit
Answer:
are usually tested as part of testing controls in the revenue process and the
purchasing process
, Question:
10. When an auditor is auditing a client's inventory accounts,
the primary focus is on the assertions of _______.
rights and obligations, existence and occurrence,
disclosure
completeness, existence, valuation and allocation, and
rights and obligations
cutoff, accuracy, and completeness
completeness, verifiability, valuation and allocation,
and rights and obligations
Answer:
completeness, existence, valuation and allocation, and rights and obligations
Question:
11. If the financial statements show a trend of increased
profit margin combined with an increase in the number of
inventory turnover in days, _______.
inventory may be understated
inventory may be becoming obsolete
inventory may be overstated
inventory turnover to payables should increase also
Answer:
inventory may be overstated
Question:
12. An important rights and obligations issue _______.
involves consignment inventory
deals with senior managements potential ownership of
inventory
deals with the valuation of inventory on the income
statement
deals with inventory that has been sold in the normal
course of business
Answer:
involves consignment inventory
QUESTIONS AND CORRECT ANSWERS
Question:
1. On receiving a client's bank cut-off statement, an auditor
most likely would trace
Deposits in transit listed in the cut-off statement to the
year-end bank reconciliation.
Checks dated after year end listed in the cut-off
statement to the year-end outstanding checklist.
Prior-year checks listed in the cut-off statement to the
year-end outstanding checklist.
Deposits recorded in the cash receipts journal after
year end to the cut-off statement.
Answer:
Prior-year checks listed in the cut-off statement to the year-end outstanding
checklist.
Question:
2. Which of the following is one of the better auditing
techniques that might be used by an auditor to detect
kiting?
Review subsequent bank statements and canceled
checks received directly from the bank.
Prepare a schedule of bank transfers from the client's
books.
Prepare year-end bank reconciliation.
Review authenticated deposit slips.
Answer:
Prepare a schedule of bank transfers from the client's books.
Question:
3. Cash receipts and disbursement transactions _______.
should be recorded weekly by the client
are subject to minimal inherent risk
are subject to increased inherent risk
should be approved by the bank before recording in
the ledger
Answer:
are subject to increased inherent risk
,Question:
4. The most important control over the existence,
completeness, and valuation of cash balances _______.
is to defer cash collection for as long as possible
is written representation by senior management with
respect to the accuracy of the cash balance
is an independent bank reconciliation
is immediate collection of cash by companies
Answer:
is an independent bank reconciliation
Question:
5. Tests of cash balances focus on the account balance
assertions of _______.
completeness, right and obligations, and valuation
completeness, right and obligations, and disclosure
existence, cutoff, and valuation
cutoff, existence, going concern
Answer:
completeness, right and obligations, and valuation
Question:
6. The primary purpose of sending a standard confirmation
request to financial institutions with which the client has
done business during the year is to
Provide the data necessary to prepare a proof of cash.
Corroborate information regarding deposit and loan
balances.
Detect kiting activities that may otherwise not be
discovered.
Request information about contingent liabilities and
secured transactions.
Answer:
Corroborate information regarding deposit and loan balances.
,Question:
7. When detection risk is low, the auditor is likely to:
scan bank reconciliations and test items on bank
reconciliations on a sample basis.
confirm bank balances with the Federal Deposit
Insurance Corporation.
prepare the bank reconciliation using bank data in the
client's possession or audit the bank reconciliation using a
cutoff bank statement obtained from the bank.
test the client's internal controls over the preparation of
bank reconciliations.
Answer:
prepare the bank reconciliation using bank data in the client's possession or
audit the bank reconciliation using a cutoff bank statement obtained from the
bank.
Question:
8. Management's operating, investing, and financing
decisions and strategies _______.
have relatively little effect on cash balances
should be approved by the client's vendors before
implementation
significantly affect cash balances
have no bearing on cash balances
Answer:
significantly affect cash balances
Question:
9. Controls over cash receipts and cash disbursements
_______.
are usually tested as part of testing controls in the
revenue process and the purchasing process
are usually tested as part of testing controls in the
financing process and the purchasing process
receive relatively little auditor attention due to their
low inherent risk
should not be tested as part of the external audit
Answer:
are usually tested as part of testing controls in the revenue process and the
purchasing process
, Question:
10. When an auditor is auditing a client's inventory accounts,
the primary focus is on the assertions of _______.
rights and obligations, existence and occurrence,
disclosure
completeness, existence, valuation and allocation, and
rights and obligations
cutoff, accuracy, and completeness
completeness, verifiability, valuation and allocation,
and rights and obligations
Answer:
completeness, existence, valuation and allocation, and rights and obligations
Question:
11. If the financial statements show a trend of increased
profit margin combined with an increase in the number of
inventory turnover in days, _______.
inventory may be understated
inventory may be becoming obsolete
inventory may be overstated
inventory turnover to payables should increase also
Answer:
inventory may be overstated
Question:
12. An important rights and obligations issue _______.
involves consignment inventory
deals with senior managements potential ownership of
inventory
deals with the valuation of inventory on the income
statement
deals with inventory that has been sold in the normal
course of business
Answer:
involves consignment inventory
