Audit Final Exam 2023--Practice
Student name:__________
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
1) Scanning sales invoices for missing numbers in the sequence would be an activity intended to
satisfy what assertion?
1) ______
A) Completeness.
B) Accuracy.
C) Occurrence.
D) Classification.
2) An auditor confirms a representative number of open accounts receivable as of December 31
and investigates respondents' exceptions and comments. By this procedure, the auditor would
be most likely to learn of which of the following?
2) ______
A) One of the cashiers B) One of the sales
has been covering a clerks has not been
personal
preparing charge
embezzlement by
slips for credit sales
lapping.
to family and
friends.
C) One of the IT
control clerks has been
removing all sales
invoices applicable to
his account from the
data file.
D) The credit manager has
misappropriated remittances
from customers whose
accounts have been written
off.
3) Which of the following internal control activities most likely would ensure that all billed
sales are correctly posted to the accounts receivable ledger?
A) Daily sales
summaries are
compared to daily
postings to the accounts
receivable ledger.
B) Each sales invoice
is supported by a
prenumbered shipping
document.
C) The accounts
receivable ledger is
reconciled daily to the
control account in the
general ledger.
3) ______
D) Each shipment on
credit is supported by a
prenumbered sales
invoice.
4) Elm Tree Inc. has a December 31 year end. On October 15, the auditor evaluated and tested
Elm Tree's internal control procedures over the sales recording process and finds the controls
to be effective. At a minimum, the auditor's year-end procedures for testing internal control
procedures must include:
4) ______
A) confirmations of B) tests the client's
year-end accounts
internal control
that were examined procedures from
on October 15.
October 15 through
the year end.
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C) tests of compliance
with internal control for
a random sample of
transactions throughout
the audit period.
D) a comparison of the
responses to the auditor's
internal control questionnaire
with a detailed flowchart of
control procedures at year
end.
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Audit Final Exam 2023--Practice
5) Which of the following would be the best protection for a company that wishes to prevent the
"lapping" of trade accounts receivable?
A) Separate duties so
that the bookkeeper in
charge of the general
ledger has no access to
incoming mail.
5) ______
B) Separate duties so
C) Have customers D) Request that
that no employee has
send payments
customer's payment
access to both checks
directly to the
checks be made payable
from customers and
company's
to the company and
currency from daily cash depository bank.
addressed to the
receipts.
treasurer.
6) Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in
the ratio of gross profit to sales may suggest which of the following possibilities?
A) Unrecorded
purchases.
B) Unrecorded
sales.
6) ______
C) Merchandise purchases being charged D) Fictitious
to selling and general expense.
sales.
7) A client has a separate sales group for its largest "preferred" customers. This is a select group
of customers that normally make purchases in excess of $250,000 and often have accounts
receivable balances in excess of $1 million. Which of the following audit procedures would
the auditor most likely perform?
7) ______
A) Prepare a
schedule of purchases
and payments for
these customers.
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B) Send out negative
confirmations on a large
sample of these
customers.
C) Inquire of the
sales manager
regarding the
accounts receivable
terms.
D) Send out positive
confirmations on a large
sample of these
customers.
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Audit Final Exam 2023--Practice
8) The negative request form of accounts receivable confirmation is useful particularly when
the:
Assessed Level of Risk
of Material
Misstatement Relating
to Receivables Is
A. Low
Number of
Small
Balances Is
Proper Consideration
by the Recipient Is
Many
Likely
B. Low
Few
Unlikely
C. High
Few
Likely
D. High
Many
Likely
A) Option A
B) Option B
C) Option C
8) ______
D) Option D
9) The financial records of the Movitz Company show that Mr. Dennis owes $4,100 on an
account receivable. An independent audit is being carried out and the auditors send a positive
confirmation to Mr. Dennis. What is the most likely reason as to why a positive confirmation
rather than a negative confirmation was used here?
9) ______
A) Control risk was
particularly low for
accounts receivable.
B) Inherent risk was
particularly high for
accounts receivable.
C) Mr. Dennis's
account was not
yet due.
D) Mr. Dennis's
account was not with
a related party.
10) Favorite Soda Company distributes beverages in the Portland, Oregon area. Which of the
following would be the test to determine that shipments made were actual sales?
A) Trace bills of B) Vouch entries
lading to the sales made in the sales
journal.
journal to the bills of
lading.
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10) ______
C) Trace entries in the sales D) Vouch bills of lading
journal to accounts
to the customer order
receivable subsidiary ledger. documents.
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Audit Final Exam 2023--Practice
11) An auditor traced a sample of purchase orders and the related receiving reports to the
purchases journal. The purpose of this substantive audit procedure most likely was to
11) ______
A) identify usually large B) verify that cash
purchases that should be disbursements were for
investigated further.
goods actually received.
C) determine that
purchases were
properly recorded.
D) test whether
payments were for
goods actually
ordered.
12) Purchase cutoff procedures should be designed to produce evidence of whether merchandise
is included in the inventory of the client company if the company
A) has paid for the B) has physical
merchandise.
possession of the
merchandise.
12) ______
C) holds legal title D) holds the shipping
to the merchandise. documents for the merchandise
issued in the company's name.
13) An auditor wishes to perform tests of controls on a client's purchasing procedures. If the
control activities leave no audit trail of documentary evidence, the auditor most likely will
test the procedures by
13) ______
A) confirmation and
observation.
B) observation and C) analytical procedures
inquiry.
and confirmation.
D) inquiry and
analytical procedures.
14) In performing a search for unrecorded retirements of fixed assets, an auditor most likely
would
A) inspect the property B) tour the client's
ledger and the
facilities, and then
insurance and tax
inspect the property
records, and then tour ledger, and the
the client's facilities.
insurance and tax
records.
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14) ______
C) analyze the repair D) tour the client's
and maintenance
facilities, and then
account, and then tour analyze the repair and
the client's facilities.
maintenance account.
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Audit Final Exam 2023--Practice
15) A furniture company ordered 84 tables from a supplier. The supplier accidentally sent only
48 tables, but the receiving department at the furniture company accepted the tables. The
invoice was eventually received but was for the 84 tables ordered. The furniture company
paid the entire amount. Which of the following controls would have been least likely to have
prevented this erroneous payment?
15) ______
A) The copy of the B) Personnel in the
purchase order sent to furniture company's
the furniture
accounts payable
company's receiving department should
department should
compare the receiving
not have shown an
report to the purchase
expected quantity.
invoice before creation
of the voucher.
C) Personnel in the
D) Personnel in the
furniture company's cash furniture company's
disbursements department purchasing
should compare the check department should
that is prepared to all of the compare the
backup documentation.
purchase requisition
to the purchase order.
16) An audit team would most likely examine the detail support for which of the following
charges?
A) Payroll expense
B) Cost of goods sold
C) Supplies expense
16) ______
D) Legal expense.
17) A CPA learns that his client has paid a vendor twice for the same shipment; once based upon
the original invoice and once based upon the monthly statement sent from the vendor. A
control procedure that should have prevented this duplicate payment is
17) ______
A) prenumbering of
disbursement
vouchers.
B) attachment of the
receiving report to the
disbursement report.
C) use of a limit or
reasonableness test.
D) prenumbering of
receiving reports.
18) When auditing liabilities account balances, auditors are most concerned with management'
assertion about
A) existence.
B) rights and obligations.
C) completeness.
18) ______
D) valuation and allocation.
19) Which of the following would not overstate current-period net income?
A) Capitalizing an
expenditure that should
be expensed
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B) Failing to record a C) Failing to record a
liability for an
check paying an item in
expenditure
vouchers payable.
19) ______
D) All of these
would overstate net
income
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Audit Final Exam 2023--Practice
20) Which of the following is an internal control activity that could prevent a paid disbursement
voucher from being presented for payment a second time?
20) ______
A) Vouchers should B) Disbursement
C) The date on a
D) The official who
be prepared by
vouchers should be
disbursement voucher signs the check should
individuals who are
approved by at least should be within a few compare the check with
responsible for signing two responsible
days of the date the
the voucher and should
disbursement checks. management officials. voucher is presented for stamp PAID on the
payment.
voucher documents.
21) L. Martinez, CPA, was auditing a client, Marvelous Retail Company and selected a sample of
inventory items from the perpetual records and vouched additions to receiving reports. This
procedure was intended to satisfy which PCAOB assertion?
21) ______
A) Rights and
obligations.
B) Completeness.
C) Existence or
occurrence.
D) Valuation or
allocation.
22) Your client plans to count inventory at several locations on the same day. No location is
material in amount, but the total of inventory is quite material. How is an auditor likely to
plan to observe?
22) ______
A) Observe all counts at B) Insist the inventory be
all locations by using the counted on separate days so
required number of
the auditor can be present at
auditors.
all locations.
C) Work with the
client to determine
which locations to
observe.
D) Observe a
sample of
locations on a
surprise basis.
23) An auditor will usually trace the details of the test counts made during the observation of
physical inventory counts to a final inventory compilation. This audit procedure is
undertaken to provide evidence that items physically present and observed by the auditor at
the time of the physical inventory count are
23) ______
A) owned by B) not
the client.
obsolete.
C) physically present at the time of the
D) included in the final
preparation of the final inventory schedule. inventory schedule.
24) An auditor selected items for test counts while observing a client's physical inventory. The
auditor then traced the test counts to the client's inventory listing. This procedure most likely
obtained evidence concerning management's balance assertion of
24) ______
A) rights and obligations.
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B) completeness.
C) existence.
D) accuracy and valuation.
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Audit Final Exam 2023--Practice
25) When testing a company's cost accounting system, the auditor uses procedures that are
primarily designed to determine that
A) quantities on hand have
been computed based on
acceptable cost accounting
techniques that reasonably
approximate actual quantities
on hand.
B) physical
inventories agree
substantially with
book inventories.
C) the system is in
accordance with
generally accepted
accounting principles
and is functioning as
planned.
25) ______
D) costs have been
properly assigned to
finished goods,
work-in-process,
and cost of goods
sold.
26) An auditor is examining a nonpublic company's inventory procurement system and has
decided to perform tests of controls. Under which of the following conditions should the
auditor perform tests of controls?
26) ______
A) Significant
weaknesses were
found in the
company's internal
control.
B) The auditor hopes C) The auditor believes
to reduce the amount that testing the controls
of work to be done in could lead to a reduction
assessing inherent risk. in overall audit time and
cost.
D) Tests of controls are
always performed when
the auditor begins to
assess control risk.
27) An auditor most likely would make inquiries of production and sales personnel concerning
possible obsolete or slow-moving inventory to support management's financial statement
(PCAOB) assertion of
27) ______
A) valuation or
allocation.
B) rights and
obligations.
C) existence or
occurrence.
D) presentation and
disclosure.
28) An auditor reviews job cost sheets to test which transaction assertion?
A) Occurrence.
B) Completeness.
C) Accuracy.
28) ______
D) Classification.
29) From the auditors' point of view, inventory counts are more acceptable prior to the year end
when
A) internal
control is
weak.
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B) accurate perpetual
inventory records are
maintained.
C) inventory is
slow moving.
29) ______
D) significant amounts of
inventory are held on a
consignment basis.
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Audit Final Exam 2023--Practice
30) An auditor most likely would analyze inventory turnover rates to obtain evidence concerning
management's balance assertions about
A) existence.
B) rights and obligations.
30) ______
D) accuracy and valuation.
C) completeness.
31) The decision of a company to have a transfer agent handle exchanges of shares is related
primarily to which of the functional responsibilities?
A) Rights and obligations
B) Custody
C) Record keeping
31) ______
D) Periodic reconciliation
32) The decision of a company to have a transfer agent handle exchanges of shares is related
primarily to which of the functional responsibilities?
A) Rights and obligations
B) Custody
C) Record keeping
32) ______
D) Periodic reconciliation
33) "Are interest payments and accruals monitored for due dates and financial statement dates?"
is an internal control questionnaire item that is related to the ASB transaction assertion of:
33) ______
A) occurrence.
B) completeness.
C) cutoff.
D) accuracy.
34) Which of the following controls would be most effective in ensuring that the proper custody
of assets in the investing cycle is maintained?
A) Direct access
to securities in the
safety deposit box
is limited to only
one corporate
officer.
B) Personnel who post
investment transactions
to the general ledger are
not permitted to update
the investment
subsidiary ledger.
34) ______
C) The purchase and
D) Independent personnel
sale of investments are periodically compare the
executed on the specific recorded balances in the
authorization of the
investment subsidiary
board of directors.
ledger with the contents of
the safety deposit box.
35) In confirming with an outside agent, such as a financial institution, that the agent is holding
investment securities in the client's name, an auditor most likely gathers evidence in support
of ASB balance assertion of existence and:
35) ______
A) valuation.
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B) rights and obligations.
C) completeness.
D) accuracy.
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Audit Final Exam 2023--Practice
36) Loan covenants are used for which of the following reasons?
A) To protect the lender
from the borrower
substantially weakening the
borrower's financial position.
B) To protect the C) To protect the
borrower from the auditors from false
lender calling the information by the
loan early.
borrower.
36) ______
D) To protect
shareholders from
management taking on
too much debt.
37) Jones was engaged to examine the financial statements of Gamma Corporation for the year
ended June 30. Having completed an examination of the investment securities, which of the
following is the best method of verifying the accuracy of recorded dividend income?
37) ______
A) Tracing recorded B) Performing
dividend income to
analytical
cash receipts records procedures and
and validated deposit statistical sampling
slips
C) Comparing recorded D) Comparing recorded
dividends with amounts dividends with a standard
appearing on federal
financial reporting
information Form 1099 service's record of
dividends
38) In connection with the audit of an issue of long-term bonds payable, the audit team should:
38) ______
A) determine whether
B) calculate the effective C) decide whether D) ascertain that the
bondholders are persons
interest rate to see if it is the bond issue was client has obtained
other than owners, directors, substantially the same as made without
the opinion of
or officers of the company the rates for similar
violating state or counsel on the
issuing the bond.
issues.
local law.
legality of the issue.
39) If the auditors discover that the carrying amount of a client's investments is overstated
because of a loss in value that is other than a temporary decline in market value, they should
insist that:
39) ______
A) the approximate
market value of the
investments be shown in
parentheses on the face of
the balance sheet.
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B) the investments be
classified as long term for
balance-sheet purposes
with full disclosure in the
footnotes.
C) the loss in
value be
recognized in the
financial
statements.
D) the equity section
of the balance sheet
separately show a
charge equal to the
amount of the loss.
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Audit Final Exam 2023--Practice
40) An audit plan for the examination of the retained earnings account should include a step that
requires verification of the:
40) ______
A) market value used B) approval of the adjustment C) authorization for D) dividends
to charge retained
to the beginning balance as a both cash and stock received from
earnings to account for result of a write-down of
dividends.
investments.
a 2-for-1 stock split.
account receivables.
41) Which of the following is the most effective method of identifying potential earnings
management attempts?
A) Analytical
procedures.
B) Detailed
substantive
procedures.
C) Inquiry of client
management and key financial
personnel.
41) ______
D) Scanning accounts
for unusual items.
42) Which of the following items would appear in written representations in the audit of a public
entity but not a nonpublic entity?
42) ______
A) Statements related B) Statements related to C) An indication D) Management's
to management's
management's
that all subsequent opinion as to the
responsibility for the
responsibility for
events have been effectiveness of its
entity's financial
designing internal control disclosed to the
internal control over
statements.
to prevent and detect
auditors.
financial reporting.
fraud.
43) If auditors are appointed on January 3, 2020, the date of the financial statements is December
31, 2020, the date of the auditors' report is February 7, 2021, and the audit report release date
is March 3, 2021, what is the appropriate date of the written representations?
43) ______
A) January 3, 2020
B) December 31, 2020
C) February 7, 2021
D) March 3, 2021
44) Which of the following subsequent events would represent an event that provides
information about conditions that arose following the date of the financial statements?
44) ______
A) Settlement of long B) Collection of a past C) Loss of inventory D) An additional tax
outstanding litigation. due accounts receivable. as a result of a flood. assessment on prior
income.
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Audit Final Exam 2023--Practice
45) On March 15, 2021, Kent, CPA, issued an unqualified opinion on a client's audited financial
statements for the year ended December 31, 2020. On May 4, 2021, Kent's internal
inspection program disclosed that engagement personnel failed to observe the client's
physical inventory. Omission of this procedure impairs Kent's present ability to support the
unqualified opinion. If the stockholders are currently relying on the opinion, Kent should first
45) ______
A) advise management B) undertake to
to disclose to the
apply alternative
stockholders that Kent's procedures that
unqualified opinion
would provide a
should not be relied on. satisfactory basis for
the opinion.
C) reissue the auditors'
reports and add an
explanatory paragraph
describing the departure
from generally accepted
auditing standards.
D) compensate for the
omitted procedure by
performing tests of
controls to reduce audit
risk to a sufficiently low
level.
46) Which of the following best describes auditors' responsibilities with respect to evaluating the
going-concern status of the entity?
A) Auditors are
required to
specifically gather
evidence with respect
to going-concern
status and separately
report on the entity's
ability to continue as
a going concern.
B) Auditors are
required to
specifically gather
evidence with respect
to going-concern
status and modify
their report on the
financial statements if
substantial doubts
exist.
C) Auditors are required
to consider evidence
obtained during the audit
that may provide
information with respect
to going-concern status
and separately report on
the entity's ability to
continue as a going
concern.
46) ______
D) Auditors are required
to consider evidence
obtained during the audit
that may provide
information with respect
to going-concern status
and modify their report
on the financial
statements if substantial
doubts exist.
47) What course of action should auditors take if, after evaluating management's plan to mitigate
the effect of factors that suggest going-concern uncertainties, they believe that substantial
doubt about going concern does not exist?
47) ______
A) Modify their report
on the financial
statements to describe
management's plan to
mitigate going-concern
uncertainties, the
procedures performed by
the auditors, and indicate
that substantial doubt
about going concern does
not exist.
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B) Prepare a separate
report that describes
management's plan to
mitigate going-concern
uncertainties, the
procedures performed
by the auditors, and
indicate that substantial
doubt about going
concern does not exist.
C) Require financial
statement disclosure of
management's plan to
mitigate going-concern
uncertainties with no
modification to the
auditors' report on the
financial statements or
no separate report on
going concern.
D) Conclude that
substantial doubt
about going concern
does not exist and
not require financial
statement disclosure
or modification of
the auditors' report.
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Audit Final Exam 2023--Practice
48) Assume that Rory is auditing the financial statements of Augusta, Inc. Rory completes his
fieldwork on February 25 and his report (along with Augusta's financial statements) is issued
on March 1. On March 3, a hurricane destroys a warehouse that contains a significant amount
of uninsured inventory. Which of the following best describes Rory's responsibility with
respect to the effects of this hurricane on Augusta's financial statements?
48) ______
A) Because the
B) Because the
inventory was included hurricane occurred
in the financial
after the date of Rory's
statements audited by report, he has no
Rory, he is required to responsibility to
perform additional
perform additional
procedures and reissue procedures or reissue
his report on the revised his report.
financial statements.
C) Because the
hurricane occurred
prior to the next fiscal
quarter, Rory is
required to perform
additional procedures
and reissue his report
on the revised
financial statements.
D) Because the
hurricane occurred after
the release of the
financial statements and
Rory's report, he has no
responsibility to perform
additional procedures or
reissue his report.
49) Which of the following auditing procedures most likely would assist auditors in identifying
conditions and events that may indicate substantial doubt about an entity's ability to continue
as a going concern?
49) ______
A) Inspecting title
documents to verify
whether any assets
are pledged as
collateral.
B) Confirming with
third parties the details
of arrangements to
maintain financial
support.
C) Reconciling the
D) Comparing the
client's cash balance with entity's depreciation and
the cut-off bank
asset capitalization
statement and the bank policies to other entities
confirmation.
in the industry.
50) Select the appropriate term to which it is most likely related. Each term is associated with
only one statement.
Includes statements regarding auditors' judgment of the quality of the client's accounting
principles.
50) ______
A) Written
representations.
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B) Engagement C)
quality review. Management
letter.
D)
Interim
audit
work.
E) Communication
with individuals
charged with
governance.
F)
Attorney
letters.
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Audit Final Exam 2023--Practice
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
51) The following questions appeared on an internal control questionnaire for sales. Next to each
of the questions indicate the related assertion.
A
B
C
D
E
F
G
H
I
J
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Are sales invoice blanks prenumbered?
Are all credit sales approved by the credit
department prior to shipment?
Are invoice quantities compared to shipped
quantities?
Are summary journal entries approved before
posting?
Are sales prices and terms based on approved
standards?
Is access to sales invoice blanks restricted?
Does the accounting manual contain instructions
to date sales invoices on the shipment date?
Are returned sales credits supported by
documentation?
•Are prenumbered bills of lading prepared in
the shipping department?
•Are periodic sales data reported directly to
general ledger accounting independent of
accounts receivable accounting?
A _______
B _______
C _______
D _______
E _______
F _______
G _______
H _______
I _______
J _______
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Audit Final Exam 2023--Practice
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
52) When performing procedures in a search of unrecorded liabilities, auditors can utilize various
sources of evidence/information (e.g., documents, files, management and clerical personnel).
Required:
List at least five, but not more than seven, sources of evidence/information for the search for
unrecorded liabilities.
(Do not write procedures. Do not take time to write about particular evidence that can be
obtained or reasons for using the sources.)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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Audit Final Exam 2023--Practice
53) Audit planning requires that the auditor consider possible inventory errors or frauds that
might occur that could affect the financial statements. For each of the types of inventory
errors listed in the following table, indicate what would be the possible effect in the inventory
and cost of sales accounts: overstated, understated, or no effect.
Effect on Account
Inventory Error
Inventory
Cost of Sale
1.
Unrecorded Receipt of Inventory
1.
_______
1.
_______
2.
December sales recorded in January
2.
_______
2.
_______
3.
December purchase recorded in January
3.
_______
3.
_______
4.
Inventory omitted during physical count
4.
_______
4.
_______
5.
Consigned out inventory omitted during physical 5.
count
Unrecorded shipment of inventory
6.
_______
5.
_______
_______
6.
_______
6.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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Audit Final Exam 2023--Practice
54) For each of the internal control questions for notes payable, indicate by letter the related ASB
transaction assertion. Answers may be used more than once.
A. Valuation or allocation
B. Occurrence
C. Completeness
D. Rights
_______
1.
Are paid notes canceled, stamped PAID, and filed?
_______
2.
Are bank due notices compared with records of unpaid liabilities?
_______
3.
Are notes payable kept by someone who cannot sign notes or checks?
_______
4.
Is all borrowing authorization by the directors checked to determine whether
all notes payable are recorded?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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Audit Final Exam 2023--Practice
55) Indicate, using the letters C (client), A (auditors), and AT (attorney) which party is
responsible for each of the following duties relating to letters of inquiry of attorneys. Each
statement is associated with only one party.
___ 1. Respond directly to auditors' initial inquiries regarding
litigation, claims, and assessments.
___ 2. Initiate request for attorney letter.
___ 3. Respond to attorney letter.
___ 4. Provide initial description and evaluation of litigation,
claims, and assessments.
___ 5. Request attorney letter.
___ 6. Perform various procedures relating to litigation, claims,
and assessments.
___ 7. Identify whether client's views expressed in the attorney
letter are appropriate.
___ 8. Party the attorney informs if an unasserted claim must be
disclosed.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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Audit Final Exam 2023--Practice
Answer Key
Test name: 2023 Audit Final Exam
1)
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A
A
A
B
C
B
D
A
B
D
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C
B
A
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B
C
C
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C
D
D
B
D
C
A
C
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D
B
B
C
D
B
A
D
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Audit Final Exam 2023--Practice
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D
C
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C
C
B
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B
E
Essay
a. Completeness, b. Accuracy, c. Accuracy, d. Accuracy, e. Accuracy, f. Occurrence, g. Cutoff,
h. Occurrence, i. Completeness, j. Accuracy
52) Essay
Inquiry of client personnel, open purchase order file, unmatched vendor invoices listing, the
unmatched receiving reports, and cash disbursements from the accounting period following the
balance-sheet date. Other possible sources are vendor statements or confirmations.
53) Essay
Inventory
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2.
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6.
Understated
No effect
Understated
Understated
Understated
Overstated
Cost of Sale
No effect (a)
No effect (d)
No effect (a)
Overstated (b)
Overstated (b)
Understated (c)
a. If book inventory is adjusted to agree with the physical inventory, the effect in inventory
would be "no effect" and the cost of goods sold would be "understated."b. The assumption is that
the book inventory is adjusted to agree with the physical inventory.c. If book inventory is
adjusted to agree with the physical inventory with the adjustment debit going to cost of sales, the
result is "no effect" on both accounts.d. Both are "no effect." The cost is transferred from
inventory to cost of sales, but the sales and receivables are both understated.
54) Essay
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Audit Final Exam 2023--Practice
1. B; 2. A; 3. B; 4. C
55) Essay
1. C, 2. A, 3. AT, 4. C, 5. C, 6. A, 7. AT, 8. C
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