A439: Advance Auditing
2007 Final exam
Directions:
ƒ The final exam consists of 30 multiple choice questions.
ƒ Ground Rules. As a take-home exam you may use notes, the internet, auditing textbooks or
other materials to answer the questions. However, it should be your own work and not that
of others (i.e., it is not appropriate to work together or to share answers).
ƒ For the multiple choice please complete the SCANTRON distributed in class, clearly mark it
as the “Final” in the Test No. space.
Due: Tuesday, May 1, 2007 by 5:45 p.m.
Multiple Choice. Please complete the provided Scantron sheet. You may keep the questions.
1. Which of the following procedures concerning accounts receivable would an auditor most
likely perform to obtain evidential matter in support of an assessed level of control risk
below the maximum level?
A. Observing an entity’s employee prepare the schedule of past due accounts receivable.
B. Sending confirmation requests to an entity’s principal customers to verify the existence
of accounts receivable.
C. Inspecting an entity’s analysis of accounts receivable for unusual balances.
D. Comparing an entity’s uncollectible accounts expense to actual uncollectible accounts
receivable.
2. For effective control internal control, the accounts payable department generally should:
A. Stamp, perforate, or otherwise cancel supporting documentation after payment is
mailed.
B. Ascertain that each requisition is approved as to price, quantity, and quality by an
authorized employee.
C. Obliterate the quantity ordered on the receiving department copy of the purchase
order.
D. Establish the agreement of the vendor’s invoice with the receiving report and purchase
order.
3. Audit documentation should:
A. Not be permitted to serve as a reference source for the client.
B. Not contain critical comment concerning management.
C. Show that the accounting records agree or reconcile with the financial statements.
D. Be considered the primary support for the financial statements being audited.
4. 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 receivable.
B. Interest expense.
C. Accounts payable.
D. Travel and entertainment expense.
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5. To gain assurance that all inventory items in a client’s inventory listing schedule are valid,
an auditor most likely would trace:
A. Inventory tags noted during the auditor’s observation to items listed in the inventorylisting schedule.
B. Inventory tags noted during the auditor’s observation to items listed in receiving reports
and vendors’ invoices.
C. Items listed in the inventory-listing schedule to inventory tags and the auditor’s
recorded count sheets.
D. Items listed in receiving reports and vendors’ invoices to the inventory-listing schedule.
6. An auditor vouched data for a sample of employees in a payroll register to approved clock
card data to provide assurance that
A. Payments to employees are computed at authorized rates.
B. Employees work the number of hours for which they are paid.
C. Segregation of duties exist between the preparation and distribution of the payroll.
D. Internal controls relating to unclaimed payroll checks are operating effectively.
7. An auditor traced a sample of purchase orders and the related receiving reports to the
purchases journal and the cash disbursements journal. The purpose of this substantive
audit procedure most likely was to
A. Identify unusually large purchases that should be investigated further.
B. Verify that cash disbursements were for goods actually received.
C. Determine that purchases were properly recorded.
D. Test whether payments were for goods actually ordered.
8. 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 assertion of
A. Rights and obligations.
B. Completeness.
C. Existence and occurrence.
D. Valuation.
9. An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in
support of the audit assertion that all
A. Noncapitalizable expenditures for repairs and maintenance have been recorded in the
proper period.
B. Expenditures for property and equipment have been recorded in the proper period.
C. Noncapitalizable expenditures for repairs and maintenance have been properly
charged to expense.
D. Expenditures for property and equipment have not been charged to expense.
10. An auditor most likely would perform substantive tests of details on payroll transactions and
balances when
A. Cutoff tests indicate a substantial amount of accrued payroll expense.
B. The assessed level of control risk relative to payroll transactions is low.
C. Analytical procedures indicate unusual fluctuations in recurring payroll entries.
D. Accrued payroll expense consists primarily of unpaid commissions.
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11. Which of the following is a substantive test that an auditor most likely would perform to
verify the existence and valuation of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that prenumbered purchase
orders are sued and accounted for
B. Receiving the client’s mail, unopened, for a reasonable period of time after year-end to
search for unrecorded vendor’s invoices.
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders
and receiving reports.
D. Confirming accounts payable balances with known suppliers who have zero balances.
12. In auditing accounts payable, an auditor’s procedures most likely would focus primarily on
management’s assertion of
A. Existence or occurrence.
B. Presentation and disclosure.
C. Completeness.
D. Valuation or allocation.
13. Which of the following procedures would an auditor most likely perform in searching for
unrecorded liabilities?
A. Trace a sample of accounts payable entries recorded just before year-end accounts
payable trial balance.
B. Compare a sample of purchase orders issued just after year-end with the year-end
accounts payable trial balance.
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports
and vendor invoices.
D. Scan the cash disbursements entries recorded just before year-end for indications of
unusual transactions.
14. When using confirmations to provide evidence about the completeness assertion for
accounts payable, the appropriate population most likely is
A. Vendors with whom the entity has previously done business.
B. Amounts recorded in the accounts payable subsidiary ledger.
C. Payees of checks drawn in the month after the year end.
D. Invoices filed in the entity’s open invoice file.
15. When auditing inventories, an auditor would least likely verify that
A. All inventory owned by the client is on hand at the time of the count.
B. The client has used proper inventory pricing.
C. The financial statement presentation of inventories is appropriate.
D. Damaged goods and obsolete items have been properly accounted for.
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16. A client maintains perpetual inventory records in quantities and in dollars. If the assessed
level of control risk is high, an auditor would probably
A. Apply gross profit tests to ascertain the reasonableness of the physical counts.
B. Increase the extent of tests of controls relevant to the inventory cycle.
C. Request the client to schedule the physical inventory count at the end of the year.
D. Insist that the client perform physical counts of inventory items several times during the
year.
17. An auditor vouched data for a sample of employees in a payroll register to approved clock
card data to provide assurance that
A. Payments to employees are computed at authorized rates.
B. Employees work the number of hours for which they are paid.
C. Segregation of duties exist between the preparation and distribution of the payroll.
D. Internal controls relating to unclaimed payroll checks are operating effectively.
18. When control risk is assessed as low for assertions related to payroll, substantive tests of
payroll balances most likely would be limited to applying analytical procedures and
A. Observing the distribution of paychecks.
B. Footing and crossfooting the payroll register.
C. Inspecting payroll tax returns.
D. Recalculating payroll accruals.
19. An auditor most likely would perform substantive tests of details on payroll transactions
and balances when
A. Cutoff tests indicate a substantial amount of accrued payroll expense.
B. The assessed level of control risk, relative to payroll transactions is low.
C. Analytical procedures indicate unusual fluctuations in recurring payroll entries.
D. Accrued payroll expense consists primarily of unpaid commissions.
20. An auditor most likely increases substantive test of payroll when
A. Payroll is extensively audited by the state government.
B. Payroll expense is substantially higher than in the prior year.
C. Overpayments are discovered in performing tests of details.
D. Employees complain to management about too much overtime.
21. Which of the following combinations of procedures would an auditor most likely perform to
obtain evidence about fixed asset additions?
A. Inspecting documents and physically examining assets.
B. Recomputing calculations and obtaining written management representations.
C. Observing operating activities and comparing balances with prior period balances.
D. Confirming ownership and corroborating transactions through inquiries of client
personnel.
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22. An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in
support of the audit assertion that all
A. Noncapitalizable expenditures for repairs and maintenance have been recorded in the
proper period.
B. Expenditures for property and equipment have been recorded in the proper period.
C. Noncapitalizable expenditures for repairs and maintenance have been properly charged
to expense.
D. Expenditures for property and equipment have not been charged to expense.
23. When an auditor concludes there is substantial doubt about a continuing audit client’s
ability to continue as a going concern for a reasonable period of time, the auditor’s
responsibility is to
A. Express a qualified or adverse opinion, depending upon materiality, due to the possible
effects on the financial statements.
B. Consider the adequacy of the disclosure about the client’s possible inability to continue
as a going concern.
C. Report to the client’s audit committee that management’s accounting estimates may
need to be adjusted.
D. Reissue the prior year’s auditor’s report and add an explanatory paragraph that
specifically refers to “substantial doubt” and “going concern.”
24. An auditor most likely would express an unqualified opinion and would not add explanatory
language to the report if the auditor
A. Wishes to emphasize that the entity had significant transactions with related parties.
B. Concurs with the entity’s change in its method of computing depreciation.
C. Discovers that supplementary information required by FASB has been omitted.
D. Believes that there is a remote likelihood of a material loss resulting from an
uncertainty.
25. Jewel, CPA, audited Infinite Co.’s prior-year financial statements. These statements re
presented with those of the current year for comparative purposes without Jewel’s auditor’s
report, which expressed a qualified opinion. In drafting the current year’s auditor’s repot,
Crain, CPA, the successor auditor, should
I.
Not name Jewel as the predecessor auditor
II.
Indicate the type of report issued by Jewel
III.
Indicate the substantive reasons for Jewel’s qualification
A. I only.
B. I and II only.
C. II and III only.
D. I, II, and III.
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26. An auditor includes a separate paragraph in an otherwise unmodified report to emphasize
that the entity being reported on had significant transactions with related parties. The
inclusion of this separate paragraph
A. Is considered an “except for” qualification of the opinion.
B. Violates generally accepted auditing standards if this information is already disclosed
in footnotes to the financial statements.
C. Necessitates a revision of the opinion paragraph to include the phrase “with the
foregoing explanation.”
D. Is appropriate and would not negate the unqualified opinion.
27. An auditor examining inventory most likely would use variables sampling rather than
attributes sampling to
A. Identify whether inventory items are properly priced.
B. Estimate whether the dollar amount of inventory is reasonable.
C. Discover whether misstatements exist in inventory records.
D. Determine whether discounts for inventory are properly recorded.
28. An advantage of statistical over nonstatistical sampling methods in tests of controls is that
the statistical methods
A. Afford greater assurance than a nonstatistical sample of equal size.
B. Provide an objective basis for quantitatively evaluating sample risks.
C. Can more easily convert the sample into a dual-purpose test useful for substantive
testing.
D. Eliminate the need to use judgment in determining appropriate sample sizes.
29. At which point in an ordinary sales transaction of a wholesaling business is a lack of
specific authorization of least concern to the auditor in the conduct of an audit.
A. Granting of credit.
B. Shipment of goods.
C. Determination of discounts.
D. Selling of goods for cash.
30. The determine whether internal control relative to the revenue cycle of a wholesaling entity
is operating effectively in minimizing the failure to prepare sales invoices, and auditor most
likely would select a sample of transactions from the population represented by the
A. Sales order file.
B. Customer order file.
C. Shipping document file.
D. Sales invoice file.
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