cpa audit review ch 7 review 3

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Joens1313
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281512
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cpa audit review ch 7 review 3
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2014-08-28 00:25:42
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cpa audit review ch 7 review 3
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  1. Before sending or receiving EDI messages, a company should
    Execute a trading partner agreement with each of its customers and suppliers.

    Before sending or receiving EDI messages, a company should execute a trading partner agreement with its customers and suppliers. For example, all parties should understand (1) their responsibilities, (2) the messages each will initiate, (3) how they will interpret messages, (4) the means of authenticating and verifying the completeness and accuracy of messages, (5) the moment when the contract between the parties is effective, and (6) the required level of security
  2. Internal control over inventories is important for all of the following reasons except

    A.Inventories directly affect the results of operations.

    B.Inventories are a material component of total assets.

    C.Inventories are the most liquid asset.

    D.Inventories are often the largest current asset.
    C. Inventories are the most liquid asset.

    Cash is considered the most liquid asset and most subject to the risks of material misstatement.
  3. In a properly designed internal control system, the same employee most likely would match vendors’ invoices with receiving reports and also
    Recompute the calculations on vendors’ invoices.

    The vouchers payable clerk (1) matches purchase orders, vendors’ invoices, and receiving reports; (2) tests the calculations and terms on the vendors’ invoices; and (3) prepares a disbursement voucher.
  4. Which of the following internal control activities most likely justifies reducing the assessment of the risks of material misstatement for plant and equipment acquisitions?

    A.Comparison of current-year plant and equipment account balances with prior-year actual balances.

    B.The review of prenumbered purchase orders to detect unrecorded trade-ins.

    C.Approval of periodic depreciation entries by a supervisor independent of the accounting department.

    D.Periodic physical inspection of plant and equipment by the internal audit staff.
    D.Periodic physical inspection of plant and equipment by the internal audit staff.

    A periodic physical inspection by the internal audit staff is the best activity for verifying the existence of plant and equipment. Direct observation by an independent, competent, and objective internal audit staff helps to reduce the potential for fictitious acquisitions or other fraudulent activities. The result is a lower assessment of the RMMs.
  5. Which of the following internal control activities would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

    A.The controller compares the current market prices of recorded investments with the brokers’ advices on file.

    B.Senior management verifies that securities in the bank safe-deposit box are registered in the entity’s name.

    C.The internal auditor compares the securities in the bank safe-deposit box with recorded investments.

    D.The CFO vouches the acquisition of securities by comparing brokers’ advices with canceled checks.
    C.The internal auditor compares the securities in the bank safe-deposit box with recorded investments.

    The items being tested consist of the assets in the safe-deposit box. This population should be compared with the records of the investments to provide assurance that the balance is complete, that is, contains all long-term investments.

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