Question 1

Auditors' test of controls over the production of estimates amounts to inquiries and observations.

Accepted Answer

A) True 
 B)False  True

Question 2

Confirmation requests should be sent only to lenders with a liability balance at the audit date.

Accepted Answer

A) True 
 B)False  False

Question 3

According to auditing standards,specific relevant aspects of an internal control system for making estimates include:
• Management communication of the need for proper accounting estimates.
• Accumulation of relevant,sufficient,and reliable data for estimates.
• Preparation of estimates by qualified personnel.
• Adequate review and approval by appropriate levels of authority.
• Comparison of prior estimates with subsequent results to assess the reliability of the estimation outcomes.
• Consideration by management of whether particular accounting estimates are consistent with the company's operational plans.
Required:
a.How would the auditor test these control activities over the production of estimates?
b.What substantive audit procedures would the auditor use to test the accounting estimates?

Accepted Answer

a.An auditor would primarily use inquiries and observations to test controls over the production of estimates.Such inquires would include determining who prepares estimates,when are they prepared,what data are used,who reviews and approves the estimates,have you compared prior estimates with subsequent actual events? Observations include the study of (1)data documentation,(2)comparisons of prior estimates with subsequent actual experience,and (3)intercompany correspondence concerning estimates and operational plans.
b.Beyond tests of controls,substantive audit procedures include recalculating the mathematical estimate,developing an auditor's own independent estimate based on alternative assumptions,and comparing the estimate to subsequently discovered facts to the extent they are known before the end of the fieldwork.

Question 4

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 5

It is very common for auditors to perform substantive procedures on 100 percent of the details in the finance and investment accounts.

Accepted Answer

A) True 
 B)False

Question 6

A _____________________________ is a financial institution appointed to record the issuance and ownership of company securities.

Accepted Answer

The answer of A _____________________________ is a financial institution appointed...

Question 7

Which of the following is not an estimate required in the finance and investment cycle?

Accepted Answer

A)  Actuarial assumptions for pension accruals. 
B)  Residual values for leases. 
C)  Stated market value of publicly traded stocks. 
D)  All the above are estimates. 
A)  Actuarial assumptions for pension accruals. 
B)  Residual values for leases. 
C)  Stated market value of publicly traded stocks. 
D)  All the above are estimates.

Question 8

The typical assertions related to investments and related accounts would not include the PCAOB assertion that

Accepted Answer

A)  Capitalized intangible costs relate to intangibles acquired in exchange transactions. 
B)  Amortization is properly calculated. 
C)  Research and development costs are properly classified. 
D)  Goodwill is valued at market value. 
A)  Capitalized intangible costs relate to intangibles acquired in exchange transactions. 
B)  Amortization is properly calculated. 
C)  Research and development costs are properly classified. 
D)  Goodwill is valued at market value.

Question 9

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 10

A transfer agent

Accepted Answer

A)  Keeps the stockholder list and, from time to time, determines the shareholders eligible to receive dividends. 
B)  Handles the exchange of shares, canceling the shares surrendered by sellers and issuing new certificates. 
C)  Records notes and bonds payable. 
D)  Makes investment decisions for an entity. 
A)  Keeps the stockholder list and, from time to time, determines the shareholders eligible to receive dividends. 
B)  Handles the exchange of shares, canceling the shares surrendered by sellers and issuing new certificates. 
C)  Records notes and bonds payable. 
D)  Makes investment decisions for an entity.

Question 11

Interest expense related to interest-bearing liabilities could be audited using analytical procedures.Describe how this might be done and how the results would be used.

Accepted Answer

For interest-bearing liabilities,interes

Question 12

In an audit test of recorded interest expense and accrued interest,the auditor was able to detect that the recorded interest expense was higher than the calculations showed.This may indicate

Accepted Answer

A)  A failure to accrue interest occurred. 
B)  Interest payments are in default. 
C)  Interest payments were charged to another account. 
D)  Interest was paid on an unknown debt or unrecorded liability. 
A)  A failure to accrue interest occurred. 
B)  Interest payments are in default. 
C)  Interest payments were charged to another account. 
D)  Interest was paid on an unknown debt or unrecorded liability.

Question 13

__________________________________ of securities can prevent the use of company securities as _____________________________ for personal loans.

Accepted Answer

Proper cus

Question 14

When an entity uses a trust company as custodian of its marketable securities,the possibility of concealing fraud most likely would be reduced if the

Accepted Answer

A)  Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records. 
B)  Securities are registered in the name of the trust company rather than the entity itself. 
C)  Interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities. 
D)  The trust company places the securities in a bank safe deposit vault under the custodian's exclusive control. 
A)  Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records. 
B)  Securities are registered in the name of the trust company rather than the entity itself. 
C)  Interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities. 
D)  The trust company places the securities in a bank safe deposit vault under the custodian's exclusive control.

Question 15

The preferred source of fair values for investments is management's estimate of what the market value should be.

Accepted Answer

A) True 
 B)False

Question 16

When fixed assets are acquired during the year under audit,auditors should inquire about the source of funds for financing the new asset.

Accepted Answer

A) True 
 B)False

Question 17

All investment policies should be approved by the board of directors or its investment committee.

Accepted Answer

A) True 
 B)False

Question 18

Investment accounting may be on the _____________________________ method,_____________________________ method,or _____________________________ method.

Accepted Answer

cost; equi

Question 19

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.

Question 20

The decision of a company to have a transfer agent handle exchanges of shares is related primarily to which of the functional responsibilities?

Accepted Answer

A)  Rights and obligations. 
B)  Custody. 
C)  Record keeping. 
D)  Periodic reconciliation. 
A)  Rights and obligations. 
B)  Custody. 
C)  Record keeping. 
D)  Periodic reconciliation.

Auditors' test of controls over the production of estimates amounts to inquiries and observations.

Confirmation requests should be sent only to lenders with a liability balance at the audit date.

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

It is very common for auditors to perform substantive procedures on 100 percent of the details in the finance and investment accounts.

A _____________________________ is a financial institution appointed to record the issuance and ownership of company securities.

Which of the following is not an estimate required in the finance and investment cycle?

The typical assertions related to investments and related accounts would not include the PCAOB assertion that

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

A transfer agent

Interest expense related to interest-bearing liabilities could be audited using analytical procedures.Describe how this might be done and how the results would be used.

In an audit test of recorded interest expense and accrued interest,the auditor was able to detect that the recorded interest expense was higher than the calculations showed.This may indicate

______ of securities can prevent the use of company securities as _ for personal loans.

When an entity uses a trust company as custodian of its marketable securities,the possibility of concealing fraud most likely would be reduced if the

The preferred source of fair values for investments is management's estimate of what the market value should be.

When fixed assets are acquired during the year under audit,auditors should inquire about the source of funds for financing the new asset.

All investment policies should be approved by the board of directors or its investment committee.

Investment accounting may be on the _______________ method,_ method,or _______________ method.

The decision of a company to have a transfer agent handle exchanges of shares is related primarily to which of the functional responsibilities?

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 Governmental and Fraud Audits

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing in a Computerized Environment

Filters

Exam 10: Finance and Investment Cycle

Auditors' test of controls over the production of estimates amounts to inquiries and observations.

Confirmation requests should be sent only to lenders with a liability balance at the audit date.

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

It is very common for auditors to perform substantive procedures on 100 percent of the details in the finance and investment accounts.

A _____________________________ is a financial institution appointed to record the issuance and ownership of company securities.

Which of the following is not an estimate required in the finance and investment cycle?

The typical assertions related to investments and related accounts would not include the PCAOB assertion that

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

A transfer agent

Interest expense related to interest-bearing liabilities could be audited using analytical procedures.Describe how this might be done and how the results would be used.

In an audit test of recorded interest expense and accrued interest,the auditor was able to detect that the recorded interest expense was higher than the calculations showed.This may indicate

__________________________________ of securities can prevent the use of company securities as _____________________________ for personal loans.

When an entity uses a trust company as custodian of its marketable securities,the possibility of concealing fraud most likely would be reduced if the

The preferred source of fair values for investments is management's estimate of what the market value should be.

When fixed assets are acquired during the year under audit,auditors should inquire about the source of funds for financing the new asset.

All investment policies should be approved by the board of directors or its investment committee.

Investment accounting may be on the _____________________________ method,_____________________________ method,or _____________________________ method.

The decision of a company to have a transfer agent handle exchanges of shares is related primarily to which of the functional responsibilities?

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 Governmental and Fraud Audits

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing in a Computerized Environment

Filters

______ of securities can prevent the use of company securities as _ for personal loans.

Investment accounting may be on the _______________ method,_ method,or _______________ method.