Exam 3 CPA Questions and answers
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 - AnswerD. Evaluate whether controls operated
effectively
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. - AnswerB. 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)
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. - AnswerC. Detect
material misstatements in the financial statements.
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 - AnswerC. May be
either tests of transactions, direct tests of financial balances, or analytical tests/procedures
The auditor will most likely perform extensive tests for possible understatement of
,A. Revenues
B. Assets
C. Liabilities
D. Capital - AnswerC. Liabilities (can result in overstated profits)
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 - AnswerC. Original source documents to the recorded entries
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 - AnswerD. Lead schedule (Aggregates the major components to be reported in the
financial statements)
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 - AnswerB. Cash in bank and collateral for
loans
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 - AnswerD. 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)
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 - AnswerB. Cash receipts and accounts receivable (May analyze the
completeness of sales using cash receipts and A/R)
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 - AnswerC. Cash balances were
overstated because of kiting (use bank transfer schedule to analyze transfers so as to detect kiting
that overstates cash balances)
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 - AnswerD. General ledger (contains only the client's cash balance, not the balance
per bank)
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 - AnswerC. Simultaneous verification
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 - AnswerB. Corroborate
information regarding deposit and loan balances (CPAs generally provide the account info on the
form and ask for balance corroboration)
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
D. None - AnswerC. Existence or occurrence (observing the mailing of monthly statements and
follow-ip of errors will provide evidence to the auditor as the whether the receivable exist at a given
date)
Look at 49-50, 53, and 57- 58 in CPA Review - Answer
Which of the following statements is correct concerning the use of negative confirmation requests?
A. Unreturned negative confirmation requests rarely provide significant explicit evidence
B. Negative confirmation requests are effective when detection risk is low
C. Unreturned negative confirmation requests indicate that alternative procedures are necessary
D. Negative confirmation requests are effective when understatements of account balances are
suspected - AnswerA. Unreturned negative confirmation requests rarely provide significant explicit
evidence
When an auditor does not receive replies to positive requests for year-end accounts receivable
confirmations, the auditor most likely would
A. Inspect the allowance account to verify whether the accounts were subsequently written off
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 - AnswerD. Evaluate whether controls operated
effectively
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. - AnswerB. 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)
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. - AnswerC. Detect
material misstatements in the financial statements.
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 - AnswerC. May be
either tests of transactions, direct tests of financial balances, or analytical tests/procedures
The auditor will most likely perform extensive tests for possible understatement of
,A. Revenues
B. Assets
C. Liabilities
D. Capital - AnswerC. Liabilities (can result in overstated profits)
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 - AnswerC. Original source documents to the recorded entries
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 - AnswerD. Lead schedule (Aggregates the major components to be reported in the
financial statements)
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 - AnswerB. Cash in bank and collateral for
loans
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 - AnswerD. 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)
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 - AnswerB. Cash receipts and accounts receivable (May analyze the
completeness of sales using cash receipts and A/R)
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 - AnswerC. Cash balances were
overstated because of kiting (use bank transfer schedule to analyze transfers so as to detect kiting
that overstates cash balances)
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 - AnswerD. General ledger (contains only the client's cash balance, not the balance
per bank)
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 - AnswerC. Simultaneous verification
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 - AnswerB. Corroborate
information regarding deposit and loan balances (CPAs generally provide the account info on the
form and ask for balance corroboration)
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
D. None - AnswerC. Existence or occurrence (observing the mailing of monthly statements and
follow-ip of errors will provide evidence to the auditor as the whether the receivable exist at a given
date)
Look at 49-50, 53, and 57- 58 in CPA Review - Answer
Which of the following statements is correct concerning the use of negative confirmation requests?
A. Unreturned negative confirmation requests rarely provide significant explicit evidence
B. Negative confirmation requests are effective when detection risk is low
C. Unreturned negative confirmation requests indicate that alternative procedures are necessary
D. Negative confirmation requests are effective when understatements of account balances are
suspected - AnswerA. Unreturned negative confirmation requests rarely provide significant explicit
evidence
When an auditor does not receive replies to positive requests for year-end accounts receivable
confirmations, the auditor most likely would
A. Inspect the allowance account to verify whether the accounts were subsequently written off
