cpa audit review ch7 review 7

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Joens1313
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cpa audit review ch7 review 7
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2014-08-30 23:00:08
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cpa audit review ch7 review 7
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  1. In auditing an entity’s computerized payroll transactions, an auditor would be least likely to use test data to test controls concerning

    A.Withholding of taxes and Social Security contributions.

    B.Control and distribution of unclaimed checks.

    C.Missing employee identification numbers.

    D.Overpayment of employees for hours not worked.
    B.Control and distribution of unclaimed checks.

    If wages are not directly deposited into employees’ bank accounts, paper checks must be physically distributed by the cash disbursements function. Any unclaimed checks should be turned over to an appropriate custodian for safe storage. Accordingly, the test data approach does not apply to the control and distribution of unclaimed checks. It is a method of testing computerized controls by processing dummy transactions, some of which should result in error listings.
  2. Which of the following questions should not appear in an internal control questionnaire relating to cash disbursements?

    A.Is each check supported by an approved voucher?

    B.Are prelistings made of all cash receipts?

    C.Are all disbursements except for petty cash made by check?

    D.Are imprinted and prenumbered checks used and is a check protection device used in printing the check amount?
    B.Are prelistings made of all cash receipts?

    Prelisting of cash receipts is performed in the mail room as part of the sales-receivables-cash receipts cycle. This question is inappropriate in a questionnaire relating to cash disbursements. The questionnaire should list inquiries as to whether (1) supporting documentation is mutilated upon signing, (2) issuing a check to cash or bearer is prohibited, (3) signing blank checks is prohibited, (4) unused checks are controlled, (5) voided checks are retained and accounted for, and (6) the check signer is responsible for mailing signed checks.
  3. 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.
  4. To avoid potential errors and fraud, well-designed internal control in the accounts payable area should include a segregation of which of the following functions?

    A.Cash disbursements and vendor invoice verification.

    B.Vendor invoice verification and merchandise ordering.

    C.Physical handling of merchandise received and preparation of receiving reports.

    D.Check signing and cancellation of payment documentation.
    A.Cash disbursements and vendor invoice verification.

    The functions of cash disbursements (custody of assets) and invoice verification (recordkeeping) should be segregated for effective internal control. Invoice verification should be done by an employee outside the CFO’s department.
  5. Which of the following controls could best prevent direct labor from being charged to manufacturing overhead?

    A.Reconciliation of work-in-process inventory with cost records.

    B.Reconciliation of unfinished job summary and production cost records.

    C.Comparison of daily journal entries with factory labor summary.

    D.Comparison of periodic cost budgets and time cards.
    C.Comparison of daily journal entries with factory labor summary.

    Daily journal entries are made to record labor, materials, and overhead. Direct labor is posted from the daily factory labor summary. If the latter has been properly recorded, tracing the amounts to the journal entries will determine whether manufacturing overhead was incorrectly charged with direct rather than indirect labor.
  6. In planning to assess control risk for purchasing and disbursement procedures, the auditor will be least influenced by

    A.The scope and results of audit work by the company’s internal auditor.

    B.The existence within the purchasing and disbursement area of internal control strengths that offset weaknesses.

    C.The availability of a company manual describing purchasing and disbursement procedures.

    D.The strength or weakness of internal control in other areas, e.g., sales and accounts receivable.
    D.The strength or weakness of internal control in other areas, e.g., sales and accounts receivable.

    If the auditor wishes to rely on controls, (s)he should identify controls relevant to specific financial statement assertions (such as those related to the purchases cycle) and perform tests of controls to evaluate their operating effectiveness. The auditor should obtain sufficient appropriate evidence about operating effectiveness and document the results of the audit procedures, including the conclusions if they are not clear (AU-C 330). The effectiveness of internal control in other areas of an organization, such as sales and accounts receivable, should not affect the risk assessment for purchasing and disbursement procedures. Each area should be judged separately.

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