Question 1

An auditor analyses the repairs and maintenance expense account primarily to obtain evidence that:
A)expenditures for property, plant and equipment have been recorded in the proper period.
B)non-capitalisable expenditures for repairs and maintenance have been recorded in the proper period.
C)expenditures for property, plant and equipment have not been charged to expenses.
D)non-capitalisable expenditures for repairs and maintenance have been properly charged to expenses.

Accepted Answer

The auditor analyzes the repairs and maintenance expense account to ensure that expenditures for property, plant, and equipment are not incorrectly charged as expenses, which would understate assets and overstate expenses.

Question 2

One of the primary reasons for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial report is to:
A)ascertain the reasonableness of accrued interest.
B)detect unrecorded liabilities.
C)determine the validity of prepaid interest expense.
D)assess control risk for securities.

Accepted Answer

The answer of One of the primary reasons for preparing...

Question 3

Auditors often make use of computer programs that perform routine processing functions such as sorting and merging.These programs are made available by IT companies and others and are specifically referred to as:
A)user programs.
B)utility programs.
C)supervisory programs.
D)compiler programs.

Accepted Answer

Utility programs are specifically designed to perform routine processing functions, such as sorting and merging, which are commonly used by auditors. These programs are often made available by IT companies and other vendors. Other choices do not accurately describe the specific programs used by auditors for routine processing functions.

Question 4

Which of the following is an exception report that the auditor would generate using generalised audit software in order to test the valuation and allocation assertion for accounts receivable?
A)Adding the accounts receivable ledger, and checking the total to the accounts receivable balance in the general ledger.
B)A sequence check looking for missing sales invoice numbers.
C)A report outlining those balances that are greater than three months overdue.
D)A sample of debtors to be confirmed by positive debtors' confirmation procedures.

Accepted Answer

This report outlines those balances that are greater than three months overdue, which is an exception to the normal accounts receivable balances that would be expected. This report would help the auditor test the valuation and allocation assertion for accounts receivable by identifying balances that may be overstated or allocated to the wrong period. The other options listed are not exception reports specific to testing the valuation and allocation assertion for accounts receivable.

Question 5

The auditor is most likely to verify the liability account 'accrued comissions payable' in conjunction with the:
A)verification of contingent liabilities.
B)review of sales transactions.
C)examination of trade accounts payable.
D)review of disbursements after year-end.

Accepted Answer

Accrued commissions payable is a liability account related to sales transactions. Therefore, the auditor is most likely to verify this account in conjunction with the review of sales transactions. A is incorrect because contingent liabilities are not related to this account. C is incorrect because trade accounts payable are a different type of liability account that is not related to commissions. D is incorrect because disbursements after year-end are not relevant to verifying this account.

Question 6

The auditor is least likely to use generalised audit software to:
A)access information stored on the client's IT files.
B)perform analytical procedures on the client's data.
C)test the accuracy of the client's computations.
D)identify weaknesses in the client's IT controls.

Accepted Answer

Generalised audit software is primarily used for accessing client data, performing analytical procedures, and testing the accuracy of computations. It is not specifically designed to identify weaknesses in a client's IT controls; this task typically requires a different approach, such as manual inspection or specialized IT audit software.

Question 7

Which of the following audit procedures is least likely to detect an unrecorded liability?
A)Analysis and re-computation of depreciation expense.
B)Analysis and re-computation of interest expense.
C)Reading of the minutes of meetings of the board of directors.
D)Analysis of response to a bank confirmation request.

Accepted Answer

Analysis and re-computation of depreciation expense is primarily concerned with the allocation of the cost of tangible assets over their useful lives, rather than the identification of unrecorded liabilities.

Question 8

When a client company does not maintain its own share records, the auditor should obtain written confirmation from the share registrar concerning:
A)the number of shares subject to agreements to repurchase.
B)guarantees of preferred share liquidation value.
C)restrictions on the payment of dividends.
D)the number of shares issued and outstanding.

Accepted Answer

When a company does not maintain its own share records, the auditor should obtain written confirmation from the share registrar concerning the number of shares issued and outstanding. This information is essential to confirm the accuracy of the company's financial statements and disclosures related to share capital. Therefore, option D is the correct choice. Options A, B, and C may also be relevant, but they are not directly related to the verification of share capital in the absence of share records.

Question 9

Which of the following analytical procedures should be applied to the income statement?
A)Ascertain that the net income amount in the statement of cash flow agrees with the net income amount in the income statement.
B)Select sales and expense items and trace amounts to related supporting documents.
C)Compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences.
D)Obtain from the proper client representatives the beginning and ending inventory amounts that were used to determine costs of sales.

Accepted Answer

Comparing actual revenues and expenses with the corresponding figures of the previous year and investigating significant differences is a common analytical procedure applied to the income statement. This helps to identify any potential issues or changes in the company's performance that should be investigated further.

Option A is incorrect because it pertains to comparing the income statement with the statement of cash flow, which is a separate financial statement.

Option B is incorrect because it pertains to verifying the accuracy of individual transactions, rather than analyzing the overall performance of the income statement.

Option D is incorrect because it pertains to obtaining information about inventory, which is not directly related to the income statement.

Question 10

In the audit of Cassie Ltd, a medium-sized manufacturing company, which one of the following areas would be expected to require the least amount of audit time?
A)Revenue.
B)Owners' equity.
C)Liabilities.
D)Assets.

Accepted Answer

Owners' equity is typically a straightforward area that requires relatively little audit time compared to areas such as revenue, liabilities, and assets, which involve more complex transactions and require closer scrutiny by auditors.

Question 11

Which of the following is the most effective audit procedure for verification of dividends earned on investments in marketable equity securities?
A)Tracing deposits of dividend cheques to the cash receipts book.
B)Comparing the amounts received with dividends received in the preceding year.
C)Reconciling amounts received with published dividend records.
D)Re-computing selected extensions and footings of dividend schedules and comparing totals to the general ledger.

Accepted Answer

Reconciling amounts received with published dividend records is the most effective audit procedure for verification of dividends earned on investments in marketable equity securities. This procedure involves comparing the amount of dividend received by the client with the published dividend rates and records, which provides a higher level of assurance regarding the accuracy of the recorded dividend income. Tracing deposits and comparing with the previous year's dividend earned do not provide strong evidence that the dividend income recorded is accurate. Re-computing selected extensions and footings of dividend schedules and comparing totals to the general ledger also do not provide strong evidence of the accuracy of the recorded dividend income.

Question 12

Substantive testing is typically used to audit shareholders' equity because:
A)the number of transactions is small.
B)controls over shareholders' equity transactions are typically weak.
C)a reliance strategy is most efficient.
D)the control environment over shareholders equity transactions is usually strong.

Accepted Answer

Substantive testing is often used for auditing shareholders' equity due to the relatively small number of transactions involved, making it more efficient to directly test these transactions rather than rely heavily on the assessment of controls.

Question 13

An auditor using audit software would probably be least interested in which of the following fields in a computerised perpetual inventory file?
A)Quantity sold.
B)Date of last purchase.
C)Warehouse location.
D)Economic order quantity.

Accepted Answer

An auditor using audit software would be least interested in the economic order quantity field in a computerised perpetual inventory file, as this field pertains to the optimal amount of inventory to order, rather than actual inventory levels or transactions. The other three fields (quantity sold, date of last purchase, and warehouse location) are all pertinent to monitoring and verifying inventory levels and transactions.

Question 14

Which of the following is necessary to audit balances in an on-line IT system in an environment where updated information is written over existing information?
A)A utility program which reconciles the subsidiary ledgers with the general ledger.
B)Periodic dumping of transaction files.
C)A well-documented audit trail.
D)An integrated test facility.

Accepted Answer

A well-documented audit trail is necessary to track changes to the information in an on-line IT system where updated information is written over existing information. This will help auditors trace any discrepancies and perform an accurate audit. Options A, B, and D can also be helpful in auditing on-line IT systems, but they are not necessary in this scenario.

Question 15

Reviewing interest expense to identify payments to debt-holders not listed on the debt analysis schedule is a procedure that can be used to provide evidence for which audit assertion for loans payable:
A)existence.
B)completeness.
C)cut-off.
D)accuracy.

Accepted Answer

Reviewing interest expense to identify payments to debt-holders not listed on the debt analysis schedule is a procedure that can provide evidence for the completeness assertion for loans payable, since it helps to ensure that all debt obligations have been included in the financial statements.

Question 16

For which of the following tests would the auditor use generalised audit softwareto test the completeness assertion of inventory?
A)Identification of inventory items which haven't been sold for three months.
B)A sequence check looking for missing purchase invoice numbers.
C)A sequence check looking for duplicate purchase invoice numbers.
D)Selecting items from the inventory records in order to trace back to physical inventory counts.

Accepted Answer

Generalised audit software can be used for a sequence check to identify missing purchase invoice numbers, which helps in testing the completeness assertion by ensuring all inventory purchases are recorded.

Question 17

The auditor is least likely to use generalised audit software to:
A)access information stored on the client's IT files.
B)perform analytical procedures on the client's data.
C)test the accuracy of the client's computations.
D)directly test weaknesses in the client's programmed controls.

Accepted Answer

Generalised audit software is typically not used to directly test weaknesses in the client's programmed controls. This is usually done by specialised audit software or by manual testing methods. However, generalised audit software can be used for the other options listed, such as accessing information stored on the client's IT files, performing analytical procedures on the client's data, and testing the accuracy of the client's computations.

Question 18

Which of the following pairs of accounts would an auditor most likely analyse on the same working paper?
A)Notes receivable and interest income.
B)Accrued interest receivable and accrued interest payable.
C)Notes payable and notes receivable.
D)Interest income and interest expense.

Accepted Answer

Notes receivable and interest income are directly related as the interest income is generated from the notes receivable, making them logical to analyze together on the same working paper.

Question 19

While undertaking the audit of the debtors' balance, you use your audit software to extract from the accounts receivable master file a report that shows those debtors with a positive balance owing that is overdue by more than 30 days.At which of the following account balance assertions is this report aimed?
A)Completeness.
B)Valuation and allocation.
C)Occurrence.
D)Existence.

Accepted Answer

This report is aimed at the valuation and allocation assertion, as it is used to identify any potentially overstated accounts receivable balances that may not be collectable or have been overdue for an extended period of time.

Question 20

Which of the following audit procedures would an auditor be least likely to perform using generalised audit software?
A)Inputting test transactions to ensure that the check digit control is operating.
B)Searching records of accounts receivable balances for credit balances.
C)Listing unusually large inventory balances.
D)Selecting accounts receivable for positive and negative confirmation.

Accepted Answer

Generalised audit software is typically used for analyzing large volumes of data, searching for specific criteria, and selecting samples. Inputting test transactions to ensure that the check digit control is operating is more of a manual testing procedure or specific application control testing, not ideally suited for generalized audit software, which is more about data analysis and extraction.

Quiz 9: Substantive Tests of Transactions and Balances

An auditor analyses the repairs and maintenance expense account primarily to obtain evidence that:

One of the primary reasons for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial report is to:

Auditors often make use of computer programs that perform routine processing functions such as sorting and merging.These programs are made available by IT companies and others and are specifically referred to as:

Which of the following is an exception report that the auditor would generate using generalised audit software in order to test the valuation and allocation assertion for accounts receivable?

The auditor is most likely to verify the liability account 'accrued comissions payable' in conjunction with the:

The auditor is least likely to use generalised audit software to:

Which of the following audit procedures is least likely to detect an unrecorded liability?

When a client company does not maintain its own share records, the auditor should obtain written confirmation from the share registrar concerning:

Which of the following analytical procedures should be applied to the income statement?

In the audit of Cassie Ltd, a medium-sized manufacturing company, which one of the following areas would be expected to require the least amount of audit time?

Which of the following is the most effective audit procedure for verification of dividends earned on investments in marketable equity securities?

Substantive testing is typically used to audit shareholders' equity because:

An auditor using audit software would probably be least interested in which of the following fields in a computerised perpetual inventory file?

Which of the following is necessary to audit balances in an on-line IT system in an environment where updated information is written over existing information?

Reviewing interest expense to identify payments to debt-holders not listed on the debt analysis schedule is a procedure that can be used to provide evidence for which audit assertion for loans payable:

For which of the following tests would the auditor use generalised audit softwareto test the completeness assertion of inventory?

The auditor is least likely to use generalised audit software to:

Which of the following pairs of accounts would an auditor most likely analyse on the same working paper?

Which of the following audit procedures would an auditor be least likely to perform using generalised audit software?