cpa audit review ch 12 review 3

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Joens1313
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283315
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cpa audit review ch 12 review 3
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2014-09-17 00:02:39
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cpa audit review 12
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cpa audit review ch 12 review 3
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  1. In auditing accounts payable, an auditor’s procedures most likely will focus primarily on the relevant assertion about
    Completeness.

    The primary audit risk for accounts payable is understatement of the liability. Thus, the auditor will most likely focus on the completeness assertion.
  2. The safeguarding of inventory most likely includes

    A.Comparison of the information contained on the purchase requisitions, purchase orders, receiving reports, and vendors’ invoices.

    B.Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count.

    C.Analytical procedures for raw materials, goods in process, and finished goods that identify unusual transactions, theft, and obsolescence.

    D.Application of established overhead rates on the basis of direct labor hours or direct labor costs.
    B.Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count.

    The recorded accountability for inventory should be compared with existing inventory at reasonable intervals by taking a physical count. If inventory is susceptible to loss through fraud or error, the comparison should be made independently. An independent comparison is one made by persons not having responsibility for inventory custody or the authorization or recording of transactions.
  3. An auditor would be most likely to learn of slow-moving inventory through
    Review of perpetual inventory records.

    To identify slow-moving inventory, the auditor should review perpetual inventory records. In a perpetual system, receipts and issuances of goods are recorded as the transactions occur, both as to quantities and prices. By comparing the dates of receipt and issuance, the auditor is able to readily identify slow-moving and possibly obsolete inventory.
  4. Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?

    A.Compare cash payments made after the balance sheet date with the accounts payable trial balance.

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

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

    D.Review the responses of accounts receivable confirmations for indications of disputes with customers.
    A.Compare cash payments made after the balance sheet date with the accounts payable trial balance.

    Tracing subsequent payments to recorded payables is a primary procedure to match payments (checks issued) after year end with the related payables. Checks should be issued only for recorded payables. Any checks that cannot be matched are likely indications of unrecorded liabilities. Management may want to delay recording of liabilities to improve the current ratio. However, unrecorded accounts payable still must be paid, and financial statements that fail to report all liabilities at year end are misstated.
  5. When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely is

    A.Vendors with whom the entity has previously done business.

    B.Amounts recorded in the accounts payable subsidiary ledger.

    C.Invoices filed in the entity’s open invoice file.

    D.Payees of checks drawn in the month after the year end.
    A.Vendors with whom the entity has previously done business.

    When sending confirmations for accounts payable, the population of accounts should include small and zero balances as well as large balances. The auditor should use the activity in the account as a gauge for sample selection. That is, if orders are placed with a vendor on a consistent basis, a confirmation should be sent to that vendor regardless of the recorded balance due.

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