Question 1

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 balances are properly classified in the financial statements. Accounts payable represent amounts owed to suppliers for goods or services received but not yet paid for. Short-term notes payable, on the other hand, represent amounts borrowed and must be classified separately from accounts payable in the financial statements. Therefore, including short-term notes payable in the accounts payable balance violates the classification assertion.

Question 2

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 based on the way transactions are recorded in journals and summarized in the general ledger and financial statements. The audit process is segmented based on these cycles, which include revenue and collection, acquisition and payment, payroll and personnel, and financing and investing. By focusing on each cycle separately, auditors can identify potential risks and control weaknesses more efficiently. Therefore, option A is the correct choice.

Question 3

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 
2.________ Capital stock 
3.________ Buildings 
4.________ Notes payable 
5.________ Salaries and commissions
6.________ Cost of goods sold
7.________ Trade accounts receivable
8.________ Rent

Accepted Answer

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

Question 4

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 answer of When using the cycle approach to segmenting...

Question 5

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 related accounts is the most efficient and effective way to conduct audits. This approach allows auditors to perform risk assessments and focus their efforts on areas of higher risk, while still obtaining a sufficient level of assurance over the financial statements. Verifying each individual entry would be impractical and time-consuming, and obtaining assurance only over the ending balance would not address the potential for misstatements in the transactions that led to that balance.

Question 6

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

Transactions from different journals should be combined with the general ledger balances that result from those transactions to form the segment related to that particular cycle.

Question 7

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

By dividing the financial statements into smaller segments, the auditor can use the cycle approach, which makes the audit more manageable. This approach involves breaking the audit into smaller and more manageable parts, such as the revenue cycle, the expenditure cycle, and the conversion cycle. This allows the auditor to focus on specific areas of the financial statements and to identify potential issues more easily. Additionally, the cycle approach helps to ensure that all areas of the financial statements are audited and that no important information is overlooked.

Question 8

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 9

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 related to the "acquisition of goods and services and payment" cycle, as it involves the receipt, storage, and issuance of goods that were acquired and paid for in the previous cycle.

Question 10

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 11

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 part of the assertions about presentation and disclosure.

Question 12

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 13

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 14

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 (production, sales, purchasing, financing, and revenue) are continuous and interconnected, with no specific starting or ending point, except for the origin and final disposition of the company. The general cash of the company is affected by all five cycles.

Question 15

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

Dividing the financial statements into segments around the financial statement cycles helps in assigning tasks to different members of the audit team based on their expertise and knowledge in that particular cycle. This approach also helps in identifying key risks associated with each cycle, which in turn helps in planning the audit procedures efficiently. While auditing standards recommend the use of the cycle approach, it is not mandatory. Detecting illegal acts is not the primary objective of the cycle approach.

Question 16

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

Auditors often break down the audit process into separate cycles (such as sales and receivables, purchases and payables, etc.) to manage the complexity of the audit. However, they still consider the interrelationships between the cycles and may adjust their procedures based on interrelated risks. So, auditors do treat cycles independently to some extent, but not completely in isolation.

Question 17

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 18

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

The term audit objective does not encompass cycle-related audit objectives. Cycle-related objectives refer to specific stages in a company's operating cycle that are audited to ensure that the company is adhering to GAAP. Transaction-related audit objectives focus on the accuracy and completeness of individual transactions, while balance-related objectives focus on ensuring the accuracy of account balances. Presentation and disclosure-related objectives are concerned with the accuracy and completeness of financial statement disclosures.

Question 19

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 is because the further removed the impact of noncompliance is from the financial statements, the less likely it is to be material enough to be detected by the auditor during the audit process. Therefore, it is important for auditors to consider the potential impact of noncompliance on the financial statements and be vigilant in their auditing procedures.

Question 20

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 made by management about the accounting information in financial statements.

Quiz 6: Audit Responsibilities and Objectives

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

The cycle approach to auditing:

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:

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

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.

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

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.

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

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

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

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.

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

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.

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

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

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.

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

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.

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?