MaoEn/USCPA_AUD_Data huggingface dataset:
Which of the following functions represents a weakness in internal control related to cash disbursements?
A.
The Treasurer receives the unpaid voucher packages and then prepares, signs, and mails the checks.
B.
Voucher packages are prepared and approved by the accounts payable department and then forwarded to the Treasurer for payment.
C.
After the checks are mailed, the Treasurer returns the voucher packages to the accounts payable department for cancellation of the voucher and filing of the documents.
D.
The general accounting department posts the payments to the general ledger after receiving the paid vouchers.,"Choice "C" is correct. This represents a weakness in internal control over cash disbursements. The accounts payable department is responsible for preparing and verifying the accuracy of supporting documents and approving the unpaid voucher. The voucher package is then forwarded to the Treasurer, who reviews the documentation, and signs and mails the checks to the vendors. The Treasurer is responsible for cancelling the voucher packages and maintaining them in a cancelled voucher package file. To have the accounts payable department cancel the voucher packages would be a weakness in internal control, as voucher packages could be resent to the Treasurer again for payment at a later date.
Choices "D", "A", and "B" are incorrect as none of these functions represent a weakness in internal control."
While auditing the client’s property, plant, and equipment presentation and disclosure, the auditor reviews the notes to the financial statements to determine if the depreciation methods and estimated useful lives used by the client have been sufficiently disclosed. Which of the following assertions would the auditor be testing?
A.
Understandability of presentation and classification.
B.
Rights and obligations, and occurrence.
C.
Completeness.
D.
Valuation, allocation, and accuracy.,"Choice "C" is correct. By ensuring that all required disclosures related to property, plant, and equipment are adequately disclosed in the footnotes, the auditor would be testing the completion assertion. A key disclosure that should be included in the notes to the financial statements is the depreciation methods used by the client and the estimated useful lives of the fixed assets.
Choice "A" is incorrect. To test the understandability of presentation and classification, the auditor would read all required disclosures for understandability and relevance.
Choice "B" is incorrect. To test the rights and obligations, and occurrence assertion, the auditor would compare the fixed asset disclosures to other audit evidence to ensure that the disclosed information pertaining to the fixed assets has occurred.
Choice "D" is incorrect. The testing of the valuation, allocation, and accuracy assertion would include the auditor verifying that the fixed assets and related information are presented at the appropriate amounts."
During the current year audit of a nonissuer, the audit team identified the same control deficiencies that were communicated during the prior year audit. These control deficiencies were not significant deficiencies or material weaknesses. Management indicated that these control deficiencies were not corrected in the current year due to cost constraints. How should the auditor communicate these control deficiencies during the current year audit?
A.
In writing.
B.
Either verbally or in writing.
C.
No communication is required.
D.
Verbally.,"Choice “C” is correct. For nonissuers, if an auditor has communicated other deficiencies in a prior period and management has chosen not to correct the deficiencies for cost or other reasons, the auditor need not repeat the communication in the current period.
Choices “A”, “D”, and “B” are incorrect, based on the above explanation."
An auditor's tests of controls for completeness for the revenue cycle usually include determining whether:
A.
Each credit memo is properly approved.
B.
An invoice is prepared for each shipping document.
C.
Each receivable is collected subsequent to the year end.
D.
Each invoice is supported by a customer purchase order.,"Choice "B" is correct. The auditor often traces a sample of shipping documents to sales invoices to test completeness of sales.
Choice "A" is incorrect. Verifying proper approval of credit memos provides evidence regarding the accuracy of receivables, not the completeness of sales.
Choice "C" is incorrect. Subsequent collections are used to verify the existence and valuation of year-end receivables.
Choice "D" is incorrect. Vouching sales orders to supporting documentation provides evidence of the existence of sales, not completeness."
An auditor that is auditing accounts receivable would least likely perform which of the following tests?
A.
Vouch cash receipts to the accounts receivables transactions.
B.
Select cash disbursements made shortly after year end and examine the supporting documentation such as receiving reports and vendor invoices.
C.
Confirm a sample of accounts receivables with the customers that owe the balances.
D.
Obtain an aged trial balance of accounts receivable and trace the total to the general ledger control account.,"Choice "B" is correct. This would be a test performed during an audit of accounts payable, not accounts receivable.
Choice "A" is incorrect. Vouching the cash receipts to the accounts receivables transactions would help to ensure that the cash receipts were properly recorded as collections of accounts.
Choice "C" is incorrect. Confirming a sample of accounts receivables with the individual customers is generally considered to be a required auditing procedure that should be performed during the audit of accounts receivables.
Choice "D" is incorrect. Tracing the detail of the accounts receivable subsidiary ledger to the general ledger would help to ensure that all amounts were properly reported."
An auditor is in the process of auditing a client’s derivative transactions. Assuming the client discloses their derivative transactions at fair value, the auditor should perform all of the following procedures with the exception of which of the following?
A.
Evaluate whether the determination of fair value is consistent with the specified valuation method.
B.
Ascertain if the applicable financial framework indicates the method used to determine fair value.
C.
Obtain an understanding of the method used by the broker-dealer to develop fair value estimates when the client obtains fair value estimates directly from a broker-dealer.
D.
Verify the proper financial statement impact by recalculating the gain or loss associated with changes in fair value for a sample of derivative transactions.,"Choice "D" is correct. This is not a required procedure that the auditor should perform on the client’s derivative transactions. Instead, the auditor should focus on whether the client specifies in their reporting framework the method used to determine fair value and should evaluate if the client’s determination of fair value is consistent with their specified valuation method. Additionally, when fair value estimates are obtained directly from a broker-dealer, the auditor should attempt to gain an understanding of the method used by the broker-dealer to determine fair value.
Choice "A" is incorrect. This represents a procedure that the auditor should perform when auditing a client’s derivative transactions.
Choice "B" is incorrect. This represents a procedure that the auditor should perform when auditing a client’s derivative transactions.
Choice "C" is incorrect. Assuming the client obtains their fair value estimates directly from a broker-dealer, this represents a procedure the auditor should perform when auditing the client’s derivative transactions."
In performing a search for unrecorded retirements of fixed assets, an auditor most likely would:
A.
Analyze the repair and maintenance account, and then tour the client's facilities.
B.
Tour the client's facilities, and then inspect the property ledger and the insurance and tax records.
C.
Inspect the property ledger and the insurance and tax records, and then tour the client's facilities.
D.
Tour the client's facilities, and then analyze the repair and maintenance account.,"Choice "C" is correct. In a search for unrecorded disposals, the auditor would vouch a sample of assets on the property ledger to those on hand in the client's facility.
Choice "A" is incorrect. Analysis of the repair and maintenance account is useful in identifying transactions that should have been capitalized versus expensed (i.e., unrecorded additions).
Choice "B" is incorrect. By touring the facility first, and then comparing assets found to those recorded on the property ledger, the auditor is testing the completeness of the property ledger, a procedure used to search for unrecorded additions.
Choice "D" is incorrect. Analysis of the repair and maintenance account is useful in identifying transactions that should have been capitalized versus expensed (i.e., unrecorded additions)."
Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance?
A.
Inventory is properly presented in the financial statements.
B.
Inventory is complete.
C.
Inventory is properly valued.
D.
The entity has rights to the inventory.,"Choice "B" is correct. In order to determine whether the actual inventory on hand is reflected in the ending inventory balance by the client, the auditor would test the completeness of inventory. This is done in conjunction with inventory observation, through testing the physical inventory report by tracing test counts to the report to verify that reported inventory is complete.
Choice "A" is incorrect. Testing for this management assertion would not satisfy the audit objective because inventory can be properly presented in the financial statements without the inventory amounts being accurate.
Choice "C" is incorrect. Testing whether management properly valued its inventory would not satisfy the audit objective, but testing for completeness would.
Choice "D" is incorrect.  The verification of legal right to the inventory is not a test that would satisfy this audit objective."
An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about:
A.
Rights and obligations.
B.
Existence.
C.
Understandability of presentation and classification.
D.
Valuation and allocation.,"Choice "D" is correct. Assertions about valuation and allocation deal with whether asset, liability, revenue, and expense components have been included in the financial statements at appropriate amounts, and any resulting valuation adjustments are appropriately recorded. For example, management asserts that trade accounts receivable included in the balance sheet are stated at net realizable value.
Choice "A" is incorrect. Assertions about rights and obligations deal with whether assets are the rights of the entity and liabilities are the obligations of the entity at a given date. Reviewing credit ratings of delinquent customers does not provide evidence about this type of assertion.
Choice "B" is incorrect. Assertions about existence deal with whether assets, liabilities, and equity interest of the entity exist at a given date. Reviewing credit ratings of delinquent customers does not provide evidence about this type of assertion.
Choice "C" is incorrect. Assertions about understandability of presentation and classification deal with whether financial information is appropriately presented and described, and disclosures are clearly expressed. Reviewing credit ratings of delinquent customers does not provide evidence about this type of assertion."
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 receiving reports and vendors' invoices.
B.
Inventory tags noted during the auditor's observation to items listed in the inventory-listing schedule.
C.
Items listed in receiving reports and vendors' invoices to the inventory-listing schedule.
D.
Items listed in the inventory-listing schedule to inventory tags and the auditor's recorded count sheets.,"Choice "D" is correct. Tracing from the inventory schedule to the inventory tags and the auditor's recorded count sheets verifies the validity (existence) of the items. Note that the correct term for the directional test for existence is "vouch." However, in practice (and on the CPA Exam), the term trace is sometime used interchangeably with the term vouch.
Choice "A" is incorrect. Tracing to receiving reports and to vendors' invoices from the inventory tags might be used to verify completeness of purchases or payables.
Choice "B" is incorrect. Tracing from inventory tags to the inventory listing schedule verifies the completeness of the schedule, not the existence (or validity) of the items.
Choice "C" is incorrect. Tracing from receiving reports and vendors' invoices to the inventory listing are cutoff procedures used to verify completeness of the inventory listing."
The most likely result of ineffective internal control policies and procedures in the revenue cycle is that:
A.
Omission of shipping documents could go undetected, causing an understatement of inventory.
B.
Fictitious transactions could be recorded, causing an understatement of revenues and overstatement of receivables.
C.
Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme.
D.
Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped.,"Choice "C" is correct. The most likely result of ineffective internal control policies and procedures in the revenue cycle is that final authorization of credit memos by personnel in the sales department could permit a salesman to sell, collect, and pocket the collection, then cover it up by issuing a credit memo. Final authorization of credit memos should be performed by an employee who is independent of the sales department such as the credit manager in the treasury department.
Choice "A" is incorrect. If shipping documents are omitted, then the inventory levels would be overstated since the reduction of inventory would not be recorded.
Choice "B" is incorrect. If fictitious transactions in the revenue cycle are recorded, then the impact on revenues and receivables would be the same; either both would be overstated (the most likely case) or both would be understated.
Choice "D" is incorrect. The shipment of goods is an activity that takes place before the transaction is recorded. Irregularities in recording transactions in the subsidiary accounts therefore would have no impact on the timeliness of the goods being shipped."
Tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion regarding:
A.
Understandability of presentation and classification.
B.
Cutoff.
C.
Accuracy.
D.
Existence.,"Choice "B" is correct. Cutoff tests are designed to determine whether transactions have been recorded in the proper period. Tests to detect credit sales made before the end of the year that have been (improperly) recorded in the subsequent year provide assurance about both cutoff and completeness (i.e., whether all current year sales have been properly included).
Choice "A" is incorrect. Cutoff tests do not determine whether the components of the financial statements are properly presented, described and disclosed (understandability of presentation and classification).
Choice "C" is incorrect. The cutoff testing described is designed to identify sales recorded in the subsequent year that more properly belong in the current year. This relates to the timing of the entry, not to its accuracy.
Choice "D" is incorrect. To test existence, the auditor would need to start with sales that were recorded in the current year, not those recorded in the subsequent year."
In testing plant and equipment balances, an auditor examines new additions listed on an analysis of plant and equipment. This procedure most likely obtains evidence concerning management's assertion of:
A.
Completeness.
B.
Existence.
C.
Understandability of presentation and classification.
D.
Valuation and allocation.,"Choice "B" is correct. By examining the assets listed as new additions on an analysis of plant and equipment, an auditor obtains evidence concerning management's assertion of existence.
Choice "A" is incorrect. Examining new additions that are already listed on the analysis does not provide evidence of completeness. The assertion of completeness relating to fixed assets might be tested by reviewing large repair and maintenance charges to determine if the cost should more properly have been capitalized (i.e., to evaluate whether fixed asset additions are complete).
Choice "C" is incorrect. Understandability of presentation and classification deals with whether the components of the financial statements are properly presented, described, and disclosed. Examination of new assets does not provide evidence regarding this assertion.
Choice "D" is incorrect. Valuation and allocation pertains to presentation of balances at their proper amounts. Examination of new assets does not provide evidence regarding this assertion."
The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to:
A.
Analytically compare the current-year inventory balance to the prior-year balance.
B.
Observe physical counts of the inventory items.
C.
Trace the total on the inventory listing to the general ledger inventory account.
D.
Obtain a confirmation from the client indicating inventory ownership.,"Choice "B" is correct. The auditor's personal observation is generally one of the most reliable forms of evidence. Observing physical inventory counts provides reliable evidence that the inventory actually exists.
Choice "A" is incorrect. Analytical comparisons of current year to prior year inventory balances might provide some evidence regarding completeness, existence, and valuation, but this is not as reliable a procedure for verifying existence as is the auditor's direct personal observation.
Choice "C" is incorrect. Tracing totals from the inventory listing to the general ledger inventory account provides evidence of completeness, not existence.
Choice "D" is incorrect. A confirmation from the client indicating ownership provides some evidence regarding rights and obligations, but does not provide evidence of existence."
Which of the following statements properly matches the financial statement assertion with the potential misstatement and relevant audit procedure?
A.
An auditor may obtain confirmations of accounts receivable in order to test the completeness assertion to ensure that the receivables have not been overstated.
B.
An auditor may observe the client’s physical count of inventory to test the rights assertion to ensure that the client owned the inventory reported at year-end.
C.
An auditor may physically examine a sample of the physical inventory count in order to test the existence assertion to ensure that the inventory amounts have not been overstated.
D.
An auditor may perform confirmations of accounts payable in order to test the existence assertion to ensure that the payables have not been understated.,"Choice "C" is correct. Inventory is an asset, thus there may be the risk of a client overstating the inventory on their financial statements. To test for this risk related to the existence assertion, the auditor may physically examine the inventory to ensure that what they have counted exists and has not been overstated.
Choice "A" is incorrect. Accounts receivable confirmation is a test of existence (overstatement), not a test of completeness (understatement).
Choice "B" is incorrect. Although the rights assertion is tested to ensure that the client owned inventory, this is generally not tested by observing a physical count of inventory, as some inventory that can be physically counted may not be owned by the provider (e.g., inventory held on consignment).
Choice "D" is incorrect. The existence assertion is generally not tested for liabilities such as accounts payable, because there is little risk that the client would overstate an item like liabilities. Confirmation is not an effective test of understatement."
In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?
A.
A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.
B.
A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.
C.
A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.
D.
A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.,"Choice "D" is correct. The use of negative confirmations most likely would be justified when there are a small number of accounts that may be in dispute and the accounts receivable balance arises from sales to many customers with small balances (e.g., utility consumer customers).
Choice "A" is incorrect. Positive (not negative) confirmations should be used when a substantial number of accounts are expected to be in dispute.
Choice "B" is incorrect. Positive (not negative) confirmations should be used when a substantial number of accounts are expected to be in dispute, or if the accounts receivable balance is comprised of accounts from a few major customers.
Choice "C" is incorrect. Positive (not negative) confirmations should be used when the accounts receivable balance is comprised of accounts from a few major customers."
Which of the following procedures best addresses the adequacy of presentation and disclosure for inventory of a nonissuer?
A.
Obtaining confirmation of inventories that are pledged under loan agreements.
B.
Examining the inventory turnover ratio and determining whether it is in line with similar companies in the industry.
C.
Observing the company's physical inventory-taking procedures.
D.
Tracing the test counts during the physical inventory to the final inventory listing.,"Choice "A" is correct. In addressing the adequacy of presentation and disclosure for inventory, the auditor should determine that inventory-related obligations, such as inventory pledged under loan agreements, have been properly disclosed.
Choice "B" is incorrect. Examining and comparing the inventory turnover ratio may be used by an auditor to better understand the performance of a company, but it would not address the adequacy of the presentation and disclosure of inventory.
Choice "C" is incorrect. Observing the physical inventory-taking procedures would better support the existence of the inventory account balance.
Choice "D" is incorrect. Tracing the test counts to the final inventory listing would better support the completeness of the inventory account balance."
Which of the following matters is an auditor not required to communicate to those charged with governance?
A.
The degree of reliance the auditor placed on the management representation letter.
B.
The basis for the auditor's conclusions about the reasonableness of management's sensitive accounting estimates.
C.
The level of responsibility assumed by the auditor under generally accepted auditing standards.
D.
Significant adjustments arising from the audit that were recorded by management.,"Choice "A" is correct. The auditor is not required to communicate to those charged with governance the degree of reliance placed on the management representation letter.
Choice "B" is incorrect. The auditor should communicate qualitative aspects of the process used by management in formulating sensitive accounting estimates, which would likely include discussion of the basis for the auditor's conclusions regarding the reasonableness of those estimates.