Question 1

Under the cycle approach to segmenting an audit, transactions recorded in different journals should never be combined with the general ledger balances that result from those transactions.

Accepted Answer

In the cycle approach to segmenting an audit, transactions recorded in different journals are often combined with the general ledger balances that result from those transactions to assess the overall accuracy and integrity of financial records, as they are interrelated.

Question 2

Under the cycle approach, the only accounts that have two or more cycles associated with them are cash and accounts receivable.

Accepted Answer

The cycle approach to auditing involves several cycles, such as the revenue, expenditure, and financing cycles, among others. Many accounts, not just cash and accounts receivable, can be associated with two or more cycles. For example, inventory might be involved in both the purchasing and sales cycles.

Question 3

Auditors have found that generally the most efficient and effective way to conduct audits is to:
A)obtain complete assurance about the correctness of each class of transactions affecting the account.
B)obtain some combination of assurance for each class of transactions and for the ending balance in the related accounts.
C)obtain assurance about the ending balance of the account only.
D)verify each entry that was made into an account.

Accepted Answer

Obtaining some combination of assurance for each class of transactions and for the ending balance in the related accounts is the most efficient and effective way to conduct audits. This approach allows auditors to focus on areas with the highest risk of material misstatement, while still obtaining sufficient evidence to support their conclusions. Additionally, obtaining assurance on the ending balance provides a more comprehensive view of the account's overall accuracy.

Question 4

Why does the auditor divide the financial statements into segments around the financial statement cycles?
A)Most auditors are trained to audit cycles as opposed to entire financial statements.
B)The approach aids in the assignment of tasks to different members of the audit team.
C)The cycle approach is required by auditing standards.
D)The cycle approach allows the auditor to detect illegal acts.

Accepted Answer

By dividing the financial statements into segments around the financial statement cycles, the auditor can assign tasks to different members of the audit team based on their expertise in specific cycles. This approach helps streamline the audit process and ensures that all areas of the financial statements are thoroughly reviewed. While adherence to auditing standards is important, it is not necessarily the primary reason for using this cycle approach. Detecting illegal acts is also an important aspect of an audit, but it is not directly linked to the decision to divide financial statements into segments around the financial statement cycles.

Question 5

Auditors generally use a financial statement cycle approach when performing a financial statement audit.Describe the transaction flow, using specific examples, from journals to financial statements that produce financial statements.

Accepted Answer

The answer of Auditors generally use a financial statement cycle...

Question 6

As the impact from noncompliance is further removed from affecting the financial statements, the less likely the auditor is to become aware of or recognize noncompliance when auditing the financial statements.

Accepted Answer

This statement is true as the further removed the impact from noncompliance is from the financial statements, the less likely it is that the auditor will be able to identify or recognize it during the audit process. This is why it is important for auditors to perform a thorough risk assessment and maintain a skeptical attitude throughout the audit.

Question 7

Although auditors need to consider the interrelationships between cycles, they typically treat cycles independently to the extent practical to manage complex audits effectively.

Accepted Answer

While auditors do need to consider the interrelationships between cycles, it is often necessary to treat cycles independently in order to manage the complexities of auditing effectively.

Question 8

In describing the cycle approach to segmenting an audit, which of the following statements is not true?
A)All general ledger accounts and journals are included at least once.
B)Some journals and general ledger accounts are included in more than one cycle.
C)The "capital acquisition and repayment" cycle is closely related to the "acquisition of goods and services and payment" cycle.
D)The "inventory and warehousing" cycle may be audited at any time during the engagement since it is unrelated to the other cycles.

Accepted Answer

The statement "The "inventory and warehousing" cycle may be audited at any time during the engagement since it is unrelated to the other cycles" is not true. In fact, the inventory and warehousing cycle is closely linked to the acquisition of goods and services and payment cycle, as inventory is often acquired and paid for through this cycle. Therefore, it should be included in the overall cycle approach to ensure complete coverage of related transactions.

Question 9

When examining the relationships of the five cycles and general cash, the cycles have no beginning or end except at the origin or final disposition of the company.

Accepted Answer

The five cycles (operating cycle, purchasing cycle, conversion cycle, sales cycle, and collection cycle) are continuous and do not have a specific beginning or end point, except at the start (origin) and end (final disposition) of the company's operations. Therefore, the statement is true.

Question 10

The term audit objective refers to all of the following except for:
A)transaction-related audit objectives.
B)presentation and disclosure-related audit objectives.
C)balance-related audit objectives.
D)cycle-related audit objectives.

Accepted Answer

All of the answer choices except for D (cycle-related audit objectives) are types of audit objectives. Cycle-related objectives are more broad and encompass different types of audit objectives within a specific cycle, such as inventory or accounts payable.

Question 11

When an auditor is determining what information to include in the notes to the financial statements relating to bonds payable, he is concerned with the transaction-related audit objectives.

Accepted Answer

The answer of When an auditor is determining what information...

Question 12

When using the cycle approach to segmenting the audit, the reason for treating capital acquisition and repayment separately from the acquisition of goods and services is that:
A)the transactions are related to financing a company rather than to its operations.
B)most capital acquisition and repayment cycle accounts involve few transactions, but each is often highly material and therefore should be audited extensively.
C)both A and B are correct.
D)neither A nor B is correct.

Accepted Answer

The capital acquisition and repayment cycle is distinct because it deals with financing activities rather than operational activities, and the transactions, while fewer, are often highly material, necessitating thorough auditing.

Question 13

Why does the auditor divide the financial statements into smaller segments?
A)Using the cycle approach makes the audit more manageable.
B)Most accounts have few relationships with others and so it is more efficient to break the financial statements into smaller pieces.
C)The cycle approach is used because auditing standards require it.
D)All of the above are correct.

Accepted Answer

Dividing the financial statements into smaller segments using the cycle approach makes the audit more manageable. This approach allows the auditor to focus on specific areas and accounts, making it easier to perform detailed testing and identify potential errors or fraud.

Question 14

Which of the following is not one of the three categories of assertions?
A)Assertions about classes of transactions and events for the period under audit
B)Assertions about financial statements and correspondence to GAAP
C)Assertions about account balances at period end
D)Assertions about presentation and disclosure

Accepted Answer

The three categories of assertions are assertions about classes of transactions and events for the period under audit, assertions about account balances at period end, and assertions about presentation and disclosure. Assertions about financial statements and correspondence to GAAP are not a separate category, but rather a component of the other categories.

Question 15

If a short-term note payable is included in the accounts payable balance on the financial statement, there is a violation of the:
A)completeness assertion.
B)existence assertion.
C)cutoff assertion.
D)classification assertion.

Accepted Answer

The classification assertion requires that transactions and account balances are properly classified according to defined criteria. Accounts payable and notes payable are typically classified as separate liabilities on the balance sheet, thus including a short-term note payable in the accounts payable balance would violate the classification assertion.

Question 16

The objective of the audit of financial statements by an independent auditor is to verify that the financial statements are free of misstatements and accurately represent the company's financial position and results of operations.

Accepted Answer

The answer of The objective of the audit of financial...

Question 17

Listed below are several accounts listed from a company's trial balance.Next to each account put the letter corresponding to the transaction cycle used to audit the account:
S = Sales and collection cycle I = Inventory and warehousing cycle
A = Acquisition and payment cycle C = Capital acquisition and repayment cycle
P = Payroll and personnel cycle
1.________ Sales returns and allowances 5.________ Salaries and commissions
2.________ Capital stock 6.________ Cost of goods sold
3.________ Buildings 7.________ Trade accounts receivable
4.________ Notes payable 8.________ Rent

Accepted Answer

The answer of Listed below are several accounts listed from...

Question 18

International auditing standards and U.S.GAAP classify assertions into three categories.Which of the following is not a category of assertions that management makes about the accounting information in financial statements?
A)Assertions about classes of transactions for the period under audit
B)Assertions about account balances at period end
C)Assertions about the quality of source documents used to prepare the financial statements
D)Assertions about presentation and disclosure

Accepted Answer

International auditing standards and U.S.GAAP classify assertions into three categories: assertions about classes of transactions for the period under audit, assertions about account balances at period end, and assertions about presentation and disclosure. Assertions about the quality of source documents used to prepare the financial statements is not a category of assertions.

Question 19

The most important general ledger account included in and affecting several cycles is the:
A)cash account.
B)inventory account.
C)income tax expense and liability accounts.
D)retained earnings account.

Accepted Answer

The cash account is the most important general ledger account affecting several cycles because it is involved in nearly all transactions, including receipts and disbursements, and impacts various aspects of a business, such as operating, investing, and financing activities.

Question 20

The cycle approach to auditing:
A)ties to the way transactions are recorded in journals and then summarized in the general ledger and financial statements.
B)cannot combine transactions recorded in different journals with the general ledger balances that result from those transactions.
C)is the only way of segmenting an audit.
D)assumes that each account has two or more cycles associated with it.

Accepted Answer

The cycle approach to auditing is tied to the way transactions are recorded in journals and then summarized in the general ledger and financial statements. It involves breaking the audit process into several distinct cycles, such as the revenue cycle, expenditure cycle, and conversion cycle, in order to better understand and audit each area of the financial statements.

Quiz 6: Audit Responsibilities and Objectives

Under the cycle approach to segmenting an audit, transactions recorded in different journals should never be combined with the general ledger balances that result from those transactions.

Under the cycle approach, the only accounts that have two or more cycles associated with them are cash and accounts receivable.

Auditors have found that generally the most efficient and effective way to conduct audits is to:

Why does the auditor divide the financial statements into segments around the financial statement cycles?

Auditors generally use a financial statement cycle approach when performing a financial statement audit.Describe the transaction flow, using specific examples, from journals to financial statements that produce financial statements.

As the impact from noncompliance is further removed from affecting the financial statements, the less likely the auditor is to become aware of or recognize noncompliance when auditing the financial statements.

Although auditors need to consider the interrelationships between cycles, they typically treat cycles independently to the extent practical to manage complex audits effectively.

In describing the cycle approach to segmenting an audit, which of the following statements is not true?

When examining the relationships of the five cycles and general cash, the cycles have no beginning or end except at the origin or final disposition of the company.

The term audit objective refers to all of the following except for:

When an auditor is determining what information to include in the notes to the financial statements relating to bonds payable, he is concerned with the transaction-related audit objectives.

When using the cycle approach to segmenting the audit, the reason for treating capital acquisition and repayment separately from the acquisition of goods and services is that:

Why does the auditor divide the financial statements into smaller segments?

Which of the following is not one of the three categories of assertions?

If a short-term note payable is included in the accounts payable balance on the financial statement, there is a violation of the:

The objective of the audit of financial statements by an independent auditor is to verify that the financial statements are free of misstatements and accurately represent the company's financial position and results of operations.

International auditing standards and U.S.GAAP classify assertions into three categories.Which of the following is not a category of assertions that management makes about the accounting information in financial statements?

The most important general ledger account included in and affecting several cycles is the:

The cycle approach to auditing: