Question 1

As one of the year-end audit procedures,the auditor instructed the client's personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year.After the client's treasurer had signed the request,it was mailed to the bank by the assistant treasurer.What is the major flaw in this audit procedure?

Accepted Answer

The major flaw is that the request was mailed by the assistant treasurer, which could compromise the integrity of the confirmation process. The auditor should control the mailing to ensure the bank receives the request directly from the auditor, preventing any potential tampering by the client's personnel.

Question 2

Which of the following would provide the best form of evidential matter pertaining to the annual valuation of a long-term investment in which the independent auditor's client owns a 45 percent voting interest?

Accepted Answer

The audited financial statements of the investee company would provide the most reliable and relevant evidence regarding the annual valuation of the long-term investment. This is because the audited financial statements are prepared in accordance with generally accepted accounting principles (GAAP) and are subject to an independent auditor's opinion. The market quotations of the investee company's stock could fluctuate and may not necessarily reflect the true value of the investment. The current fair value of the investee company's assets would also not necessarily give a complete picture of the investee company's financial health. The historical costs of the investee company's assets are irrelevant to their current value.

Question 3

When an auditor is unable to inspect and count a client's investment securities until after the balance sheet date,the bank where the securities are held in a safe-deposit box should be notified on or before the balance sheet date that it will be asked to

Accepted Answer

The bank should confirm that there has been no access to the box between the balance sheet date and the security-count date to ensure the integrity of the securities count.

Question 4

For each assertion about cash listed below,give an example of a test of transactions for (1)cash receipts and (2)cash disbursements.
a.Classification.
b.Occurrence.
c.Authorization.
d.Completeness.

Accepted Answer

The answer of For each assertion about cash listed below,give...

Question 5

Explain the importance of the bank reconciliation to the audit and list some of the items found on the reconciliation.

Accepted Answer

The answer of Explain the importance of the bank reconciliation...

Question 6

In a manufacturing company,which one of the following audit procedures would give the least assurance for the existence of the general ledger balance of investment in stocks and bonds at the audit date?

Accepted Answer

The answer of In a manufacturing company,which one of the...

Question 7

Which of the following is not one of the auditor's primary objectives in an examination of marketable securities?

Accepted Answer

While determining the authenticity of securities is important, it is not one of the primary objectives of an auditor in examining marketable securities. The primary objectives are to determine ownership, existence, and proper classification on the balance sheet.

Question 8

Which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed?

Accepted Answer

The safeguarding of marketable securities can be ensured by physically securing them, which can be achieved through the use of a bank safe-deposit box. Requiring two company officials to be present to access the marketable securities would also provide a form of dual control and reduce the risk of fraud. The other options are not directly related to safeguarding marketable securities.

Question 9

Which of the following control activities would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

Accepted Answer

The internal auditor comparing the securities in the bank safe-deposit box with recorded investments would assist in satisfying the completeness assertion, as it ensures that all investments have been accurately recorded in the financial statements. The other control activities listed are relevant to other assertions or do not directly address the completeness assertion for long-term investments.

Question 10

The auditor should insist that a representative of the client be present during the physical examination of securities in order to

Accepted Answer

Having a client representative present during the physical examination of securities ensures that there is mutual acknowledgment and verification of the securities being returned, which helps in maintaining accountability and preventing disputes.

Question 11

Which of the following procedures would be most important in the audit of an investment valued at fair value?

Accepted Answer

Developing an independent estimate of the fair value measurement is the most important procedure for auditing an investment valued at fair value. This is because fair value measurements involve significant judgment and estimation by management, and it is important for auditors to independently assess the reasonableness of those measurements. While reviewing prior year balances and reading footnote disclosures are important procedures, they are not as critical as developing an independent estimate of fair value. Inquiring of management regarding the accuracy and reliability of the data is also important, but this does not necessarily address the issue of determining whether the fair value measurement is reasonable.

Question 12

Auditors will need to perform more substantive tests than normal to obtain sufficient appropriate evidence that a financial instrument is fairly stated if which of the following conditions exist?

Accepted Answer

If management's key assumptions are subject to volatility, there is a higher risk of material misstatement, and auditors will need to perform more substantive tests to obtain sufficient appropriate evidence of fair valuation. The other conditions listed do not necessarily increase the risk of material misstatement or require additional substantive testing.

Question 13

Examining brokers' advices for a sample of securities purchased during the year is a test for the assertion of

Accepted Answer

The answer of Examining brokers' advices for a sample of...

Question 14

When there is a large number of negotiable securities in multiple locations,careful planning of the physical inspection and count of the securities by the auditor is necessary to guard against

Accepted Answer

The answer of When there is a large number of...

Question 15

The primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to

Accepted Answer

The primary purpose of a standard confirmation request is to obtain corroboration of information regarding deposit and loan balances, which is crucial in verifying the accuracy of financial statements. This confirmation process can also help detect errors, omissions, or fraud, but its primary purpose is to provide assurance regarding the accuracy of financial statements.

Question 16

Jones was engaged to examine the financial statements of Virginia Corporation for the year ended June 30.Having completed an examination of the investment securities,which of the following is the best method of verifying the accuracy of recorded dividend income?

Accepted Answer

The answer of Jones was engaged to examine the financial...

Question 17

A client has a large and active investment portfolio that is kept in a bank safe-deposit box.If the auditor is unable to examine and count the securities at the balance sheet date but will examine and count the securities shortly thereafter,the auditor most likely will

Accepted Answer

The answer of A client has a large and active...

Question 18

In establishing the existence and ownership of a long-term investment in stock of a publicly traded company,an auditor should inspect the securities or

Accepted Answer

The answer of In establishing the existence and ownership of...

Question 19

Under which of the following circumstances would an auditor be most likely to intensify an examination of a $1,000 petty cash fund maintained on an imprest basis?

Accepted Answer

If the reimbursement of the fund from the general cash account occurs twice or more each week, it could indicate that the petty cash fund is being used for purposes other than small and incidental purchases, which violates the imprest system. This may lead to an intensification of the auditor's examination to ensure the fund is being properly maintained. The other options may also raise concerns, but they are not as significant as the frequency of reimbursement from the general cash account.

Question 20

Explain how cash plays a role in all business processes.

Accepted Answer

The answer of Explain how cash plays a role in...

Quiz 16: Auditing the Financinginvesting Process: Cash and Investments