Audit Evidence - Specific Audit Areas Flashcards
Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?
A. Reconcile the amounts included in the statement of cash flows to the other financial statements’ amounts.
B. Vouch a sample of cash receipts and disbursements for the last few days of the current year.
C. Reconcile the cut-off bank statement to the proof of cash to verify the accuracy of the year-end cash balance.
D. Confirm the amounts included in the statement of cash flows with the entity’s financial institution
A - Much of the work done to audit the statement of cash flows consists of agreeing amounts included in the statement of cash flows to amounts reported in the other financial statements. This would include, for example, agreeing depreciation expense to the amount reported in the income statement
On receiving a client’s bank cut-off statement, an auditor most likely would trace
A. Prior-year checks listed in the cut-off statement to the year-end outstanding checklist.
B. Deposits in transit listed in the cut-off statement to the year-end bank reconciliation.
C. Checks dated after year end listed in the cut-off statement to the year-end outstanding checklist.
D. Deposits recorded in the cash receipts journal after year end to the cut-off statement
A - A cut-off bank statement is a regular bank statement that is prepared by the bank for a shorter period than normal. It is sent directly to (or picked up by) the auditors.
The cut-off bank statement is used by the auditors to verify the components of the client’s bank reconciliation. The correct answer is A-the auditor would trace the prior year checks clearing in the cut-off statement to the outstanding check list in the bank reconciliation as a means of verifying the completeness and accuracy of the outstanding check list
Two assertions for which confirmation of accounts receivable balances provides primary evidence are
A. Completeness and valuation.
B. Valuation and rights and obligations.
C. Rights and obligations and existence.
D. Existence and completeness.
C
An auditor’s tests of controls for completeness for the revenue cycle usually include determining whether
A. Each receivable is collected subsequent to the year end.
B. An invoice is prepared for each shipping document.
C. Each invoice is supported by a customer purchase order.
D. Each credit memo is properly approved.
B - In testing the completeness assertion (regarding omissions) related to sales and receivables, the auditor starts with a source document and agrees the item to the accounting records. Starting with a shipping document and tracing it to the sales journal (that is, to a sales invoice recorded in the sales journal) would be an appropriate test for unrecorded sales and receivables.
Which of the following procedures would be most appropriate for testing the completeness assertion as it applies to inventory?
A. Scanning perpetual inventory, production, and purchasing records.
B. Examining paid vendor’s invoices.
C. Tracing inventory items from the tag listing back to the physical inventory quantities.
D. Performing cut-off procedures for shipping and receiving
D
To obtain assurance that all inventory items in a client’s inventory listing are valid, an auditor most likely would agree
A. Inventory tags noted during the auditor’s observation to items listed in receiving reports and vendors’ invoices.
B. Items listed in receiving reports and vendor’s invoices to the inventory listing.
C. Inventory tags noted during the auditor’s observation to items in the inventory listing.
D. Items in the inventory listing to inventory tags and the auditor’s recorded count sheets
D - Validity pertains to existence—that inventory is real and exists. Agreeing items in the inventory listing (which might be thought of as the subsidiary ledger for the adjusted general ledger balance for inventory) to the underlying inventory tags and the auditor’s recorded count sheets provides support that the inventory in the listing actually exists. The direction of the test is critical to determining whether existence or completeness is most involved
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. The entity has rights to the inventory.
B. Inventory is properly valued.
C. Inventory is valid and exists.
D. Inventory is complete
D - Whether the inventory on hand is properly included in the reported ending inventory balance deals with the risk of omission, which involves the completeness assertion
Inventory turnover ratio
COGS/Average Inventory
ROE
Net Income/Average Equity
An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the following management assertions is supported by this test? A. Valuation and allocation. B. Completeness. C. Rights and obligations. D. Presentation and disclosure
B - Tracing the serial numbers on equipment to the entity’s accounting records establishes that, in fact, the assets have not been omitted. That involves the completeness assertion
Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts?
A. The estimated remaining useful lives of plant assets were revised upward.
B. Plant assets were retired during the year.
C. The prior year’s depreciation expense was erroneously understated.
D. Overhead allocations were revised at year end
B
When searching for unrecorded liabilities at year end, an auditor most likely would examine
A. Cash receipts from related parties recorded before year end.
B. Confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable.
C. Cash disbursements recorded in the period subsequent to year end.
D. Invoices dated a few days before and after year end to ascertain whether they have been properly recorded
C - A review of cash disbursements recorded in the period subsequent to year end might reveal items that should be accrued as liabilities at year end
