Question 1

Which of the following is not a substantive audit procedure for estimates of management?

Accepted Answer

A)  Recalculating the mathematical estimate. 
B)  Observing whether estimates are prepared by qualified personnel. 
C)  Developing an independent estimate based on alternative assumptions. 
D)  Comparing the estimates of management to subsequently discovered facts before the end of fieldwork. 
A)  Recalculating the mathematical estimate. 
B)  Observing whether estimates are prepared by qualified personnel. 
C)  Developing an independent estimate based on alternative assumptions. 
D)  Comparing the estimates of management to subsequently discovered facts before the end of fieldwork.

Question 2

The typical assertion relating to investments and related accounts in a manufacturing company would not include the assertion that

Accepted Answer

A)  all investments are valued at cost. 
B)  investment securities are on hand or held in safekeeping by a trustee. 
C)  investment income has been received and recorded. 
D)  investments are adequately classified and described in the balance sheet, including disclosures. 
A)  all investments are valued at cost. 
B)  investment securities are on hand or held in safekeeping by a trustee. 
C)  investment income has been received and recorded. 
D)  investments are adequately classified and described in the balance sheet, including disclosures.

Question 3

Mike is the controller at Huskie Supply Company.Huskie Supply has an investment account with DT National Brokerage.Mike is authorized to call the broker and initiate trades on behalf of the company.Mike's son goes to MEU (Most Expensive University)and Mike has a CD with the money for this year's tuition.MEU changed the tuition due date such that the tuition came due 30 days before Mike's CD matured.Mike would lose a large amount of interest if he cashed in the CD early,and a loan from the bank was not possible (Mike is already over extended),and interest on a credit card advance would be 28%.
Mike authorized DT National Brokerage to sell one of the company's investments and send the check to his attention at the company.Mike paid the tuition and 30 days later,when the CD came due Mike repurchased the investment with the broker.In fact,the stock had dropped $3 and mike made a profit of $900.
A)Define the internal control weakness that allowed the situation to exist - if any;
B)One (and only one)internal controls that should be in place to prevent or detect the problem; and.
C)One (and only one)test of control audit procedure.
D)One (and only one)substantive audit procedure that may detect the situation described.
Consider each item separately - no credit will be given for generic controls (e.g.policies and procedures; separation of duties (without specifics); discuss with management.
Chapter 10 Finance and Investment Cycle Answer Key
True / False Questions

Accepted Answer

The answer of Mike is the controller at Huskie Supply...

Question 4

In the audit of notes payable,an auditor testing the ASB balance assertion of accuracy and valuation most likely would

Accepted Answer

A)  read directors' and finance committee's minutes for authorization of financing transactions. 
B)  select a sample of paid notes and trace interest expense to the general ledger account. 
C)  select a sample of paid notes and recalculate interest expense for the period under audit. 
D)  select a sample of notes payable and vouch cash receipt to the bank statement. 
A)  read directors' and finance committee's minutes for authorization of financing transactions. 
B)  select a sample of paid notes and trace interest expense to the general ledger account. 
C)  select a sample of paid notes and recalculate interest expense for the period under audit. 
D)  select a sample of notes payable and vouch cash receipt to the bank statement.

Question 5

Appropriate audit inquiries regarding estimates include all of the following except:

Accepted Answer

A)  Who prepares the estimates?. 
B)  Why are they prepared?. 
C)  What data are used?. 
D)  When are they prepared?. 
A)  Who prepares the estimates?. 
B)  Why are they prepared?. 
C)  What data are used?. 
D)  When are they prepared?.

Question 6

A ___________________________ approved by the board of directors constitutes the authorization for capital asset acquisitions and investments.
Question also found in study guide

Accepted Answer

The answer of A ___________________________ approved by the board of...

Question 7

An audit team would most likely verify the interest earned on bond investments by

Accepted Answer

A)  vouching the receipt and deposit of interest checks. 
B)  confirming the bond interest rate with the issuer of the bonds. 
C)  recomputing the interest earned on the basis of face amount, interest rate, and period held. 
D)  testing internal controls relevant to cash receipts. 
A)  vouching the receipt and deposit of interest checks. 
B)  confirming the bond interest rate with the issuer of the bonds. 
C)  recomputing the interest earned on the basis of face amount, interest rate, and period held. 
D)  testing internal controls relevant to cash receipts.

Question 8

Sales of capital stock and debt financing transactions usually are authorized by Cheif financial officer.

Accepted Answer

A) True 
 B)False

Question 9

Keeping track of securities owners for payment of interest or dividends is usually done by the company's

Accepted Answer

A)  treasurer. 
B)  broker. 
C)  transfer agent. 
D)  registrar. 
A)  treasurer. 
B)  broker. 
C)  transfer agent. 
D)  registrar.

Question 10

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is to

Accepted Answer

A)  evaluate internal control over securities. 
B)  determine the validity of prepaid interest expense. 
C)  ascertain the reasonableness of imputed interest. 
D)  detect unrecorded liabilities. 
A)  evaluate internal control over securities. 
B)  determine the validity of prepaid interest expense. 
C)  ascertain the reasonableness of imputed interest. 
D)  detect unrecorded liabilities.

Question 11

Which of the following would not be a place in which owners' equity transactions would be documented?

Accepted Answer

A)  Capital budget. 
B)  Minutes of the meetings of the board of directors. 
C)  Proxy statements. 
D)  Securities offering registration statements. 
A)  Capital budget. 
B)  Minutes of the meetings of the board of directors. 
C)  Proxy statements. 
D)  Securities offering registration statements.

Question 12

A ______________________________ is a control feature relied upon when a standard internal control procedure is not in place.
Question also found in study guide

Accepted Answer

compensati

Question 13

An audit plan to examine long-term debt most likely would include steps that require

Accepted Answer

A)  comparing the carrying amount of held-to-maturity securities with their year-end market values. 
B)  correlating interest expense recorded for the period with outstanding debt. 
C)  verifying the existence of the holders of the debt by direct confirmation. 
D)  inspecting the accounts payable subsidiary ledger for unrecorded long-term debt. 
A)  comparing the carrying amount of held-to-maturity securities with their year-end market values. 
B)  correlating interest expense recorded for the period with outstanding debt. 
C)  verifying the existence of the holders of the debt by direct confirmation. 
D)  inspecting the accounts payable subsidiary ledger for unrecorded long-term debt.

Question 14

_________________________________ transactions are obligations and commitments that are not required to be recorded.
Question also found in study guide

Accepted Answer

Off-balanc

Question 15

Records of stock and bond certificates are usually maintained by the company's

Accepted Answer

A)  treasurer. 
B)  chief financial officer. 
C)  transfer agent. 
D)  registrar. 
A)  treasurer. 
B)  chief financial officer. 
C)  transfer agent. 
D)  registrar.

Question 16

Bank confirmation requests should only include balances for cash accounts.

Accepted Answer

A) True 
 B)False

Question 17

__________________________________ of securities can prevent the use of company securities as _____________________________ for personal loans.
Question also found in study guide

Accepted Answer

Proper cus

Question 18

When a company keeps its own stock records,which of the following procedures is not required?

Accepted Answer

A)  Confirm outstanding common stock with stock registrar agent. 
B)  Inspect the stock record stubs for certificate numbers and number of shares. 
C)  Inspect the unissued certificates. 
D)  Obtain written representation about the number of shares issued and outstanding. 
A)  Confirm outstanding common stock with stock registrar agent. 
B)  Inspect the stock record stubs for certificate numbers and number of shares. 
C)  Inspect the unissued certificates. 
D)  Obtain written representation about the number of shares issued and outstanding.

Question 19

If it would be appropriate to confirm capital stock,the auditor would obtain the confirmation from

Accepted Answer

A)  management. 
B)  the board of directors. 
C)  stockholders. 
D)  an independent registrar. 
A)  management. 
B)  the board of directors. 
C)  stockholders. 
D)  an independent registrar.

Question 20

ABC Company has issued a bond that pays 5% interest semiannually to bond holders on record June 30 and December 30.Payments are made on July 15 and January 15.ABC Company has a December 31 fiscal year-end.The auditor vouches the January 15,2010 payment to the liabilities recorded on the December 31,2009 balance sheet.Which of the following ASB balance assertions is the auditor testing?

Accepted Answer

A)  Existence. 
B)  Rights and obligations. 
C)  Completeness. 
D)  Valuation. 
A)  Existence. 
B)  Rights and obligations. 
C)  Completeness. 
D)  Valuation.

Which of the following is not a substantive audit procedure for estimates of management?

The typical assertion relating to investments and related accounts in a manufacturing company would not include the assertion that

In the audit of notes payable,an auditor testing the ASB balance assertion of accuracy and valuation most likely would

Appropriate audit inquiries regarding estimates include all of the following except:

A ___________________________ approved by the board of directors constitutes the authorization for capital asset acquisitions and investments. Question also found in study guide

An audit team would most likely verify the interest earned on bond investments by

Sales of capital stock and debt financing transactions usually are authorized by Cheif financial officer.

Keeping track of securities owners for payment of interest or dividends is usually done by the company's

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is to

Which of the following would not be a place in which owners' equity transactions would be documented?

A ______________________________ is a control feature relied upon when a standard internal control procedure is not in place. Question also found in study guide

An audit plan to examine long-term debt most likely would include steps that require

_________________________________ transactions are obligations and commitments that are not required to be recorded. Question also found in study guide

Records of stock and bond certificates are usually maintained by the company's

Bank confirmation requests should only include balances for cash accounts.

______ of securities can prevent the use of company securities as _ for personal loans. Question also found in study guide

When a company keeps its own stock records,which of the following procedures is not required?

If it would be appropriate to confirm capital stock,the auditor would obtain the confirmation from

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

Exam 10: Finance and Investment Cycle

Which of the following is not a substantive audit procedure for estimates of management?

The typical assertion relating to investments and related accounts in a manufacturing company would not include the assertion that

In the audit of notes payable,an auditor testing the ASB balance assertion of accuracy and valuation most likely would

Appropriate audit inquiries regarding estimates include all of the following except:

A ___________________________ approved by the board of directors constitutes the authorization for capital asset acquisitions and investments. Question also found in study guide

An audit team would most likely verify the interest earned on bond investments by

Sales of capital stock and debt financing transactions usually are authorized by Cheif financial officer.

Keeping track of securities owners for payment of interest or dividends is usually done by the company's

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is to

Which of the following would not be a place in which owners' equity transactions would be documented?

A ______________________________ is a control feature relied upon when a standard internal control procedure is not in place. Question also found in study guide

An audit plan to examine long-term debt most likely would include steps that require

_________________________________ transactions are obligations and commitments that are not required to be recorded. Question also found in study guide

Records of stock and bond certificates are usually maintained by the company's

Bank confirmation requests should only include balances for cash accounts.

__________________________________ of securities can prevent the use of company securities as _____________________________ for personal loans. Question also found in study guide

When a company keeps its own stock records,which of the following procedures is not required?

If it would be appropriate to confirm capital stock,the auditor would obtain the confirmation from

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

______ of securities can prevent the use of company securities as _ for personal loans. Question also found in study guide