cpa audit review ch 12 review 1

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Joens1313
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cpa audit review ch 12 review 1
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2014-09-16 23:52:39
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cpa audit review 12
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cpa audit review ch 12 review 1
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  1. Which of the following audit procedures is least likely to detect an unrecorded liability?

    A.Mailing of standard bank confirmation forms.

    B.Reading of the minutes of meetings of the board of directors.

    C.Analysis and recomputation of depreciation expense.

    D.Analysis and recomputation of interest expense.
    C.Analysis and recomputation of depreciation expense.

    The analysis and recomputation of depreciation expense is useful in determining whether the expense and asset accounts have been properly stated. Because liabilities are not part of the depreciation recording process, analysis and recomputation of depreciation would not detect unrecorded liabilities.
  2. Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?

    A.Reconcile receiving reports with related cash payments made just prior to year end.

    B.Contrast the ratio of accounts payable to purchases with the prior year’s ratio.

    C.Vouch a sample of creditor balances to supporting invoices, receiving reports, and purchase orders.

    D.Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.
    D.Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.

    Observance of cutoff procedures helps ensure that liabilities were recorded in the appropriate period. Tracing cash disbursements made subsequent to year end to amounts recorded at year end may disclose liabilities that were unrecorded as a result of a failure to observe such procedures. Recomputation of interest, bank confirmations, and reading the minutes of directors’ meetings may also detect unrecorded liabilities.
  3. An auditor most likely would inspect loan agreements under which an entity’s inventories are pledged to support management’s financial statement assertion of
    Classification and understandability.

    Assertions about presentation and disclosure address whether particular components of the financial statements are properly classified, described, and disclosed. Determining that the pledge or assignment of inventories is appropriately disclosed is an audit objective related to the classification and understandability assertion.
  4. An auditor’s purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning relevant assertions about
    Classification and understandability.

    Events such as the renewal of the note payable do not require adjustment of the financial statements but may require disclosure. Accordingly, the auditor should determine that the renewal had essentially the same terms and conditions as the recorded debt at year end. A significant change may affect the classification of notes payable (e.g., as current or noncurrent), the understandability of the statements, and the required disclosures.
  5. Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence and valuation assertions about recorded accounts payable?

    A.Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.

    B.Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for.

    C.Receiving the client’s mail, unopened, for a reasonable period of time after year end to search for unrecorded vendor’s invoices.

    D.Confirming accounts payable balances with known suppliers who have zero balances.
    A.Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.

    Vouching a sample of recorded accounts payable to purchase orders and receiving reports provides evidence that the obligations exist at a given date. The purchase orders evidence the initiation of the transactions, and the receiving reports indicate that goods were received and that liabilities were thereby incurred. Thus, these documents provide evidence that amounts are owed to others, that the transactions occurred, and that the liabilities have been included at appropriate amounts.

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