cpa audit review ch7 review 1

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cpa audit review ch7 review 1
2014-08-28 00:17:23
cpa audit review ch7

cpa audit review ch7 review 1
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  1. A firm’s inventory consisted of 1,000 different items, 20 of which accounted for 70% of the dollar value. The most recent regular quarterly manual count revealed an unnecessary 2 years’ supply of several of the more expensive items. The control that would best help to correct this oversupply problem is
    Perpetual inventory of the larger dollar value items in the inventory.

    In a perpetual system, purchases (or transfers from work-in-process) are recorded directly in the inventory account when they are made. Inventory is correspondingly reduced as sales occur. Thus, a running total of inventory can be monitored throughout the period.
  2. When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the
    Debit memo.

    A debit memo indicates a reduction in the amount owed to a vendor because goods have been returned. The debit memo authorizes the accounting department to debit the appropriate payable
  3. What information would the auditor expect to find in the data dictionary that would assist in a payroll application audit?
    Programs that access the data.

    The data dictionary is a file (possibly manual but usually computerized) in which the records relate to specified data items. It contains definitions of data records and files and the list of programs used to process them. Only certain persons or entities are permitted to retrieve data or to modify data items. Accordingly, these access limitations are also found in the data dictionary.
  4. A company uses an MRP (materials requirement planning) system to control inventory. One objective is to minimize raw material inventories while avoiding production shutdowns. One way to achieve this objective using MRP is to
    Regularly update the authorized master production schedule.

    MRP is a computer-based information system designed to plan and control materials used in production. It determines the quantity of finished goods that will be required and the point when they will be needed. The system requires prompt notice of changes in production schedules.
  5. Which of the following controls would be most effective in assuring that the proper custody of assets in the investing cycle is maintained?

    A.The recorded balances in the investment subsidiary ledger are periodically compared with the contents of the safe deposit box by independent personnel.

    B.The purchase and sale of investments are executed on the specific authorization of the board of directors.

    C.Direct access to securities in the safe-deposit box is limited to only one corporate officer.

    D.Personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger.
    A. The recorded balances in the investment subsidiary ledger are periodically compared with the contents of the safe deposit box by independent personnel.

    Custody of securities should be segregated from the accounting responsibility. Ideally, the CFO should have custody of investment securities, accounting should maintain the related records (establish accountability), and, periodically, assets should be independently reconciled with the records.