Question 1

In auditing long-term bonds payable,an auditor most likely would

Accepted Answer

A)  Perform analytical procedures on the bond premium and discount accounts. 
B)  Examine documentation of assets purchased with bond proceeds for liens. 
C)  Compare interest expense with the bond payable amount for reasonableness. 
D)  Confirm the existence of individual bondholders at year-end. 
A)  Perform analytical procedures on the bond premium and discount accounts. 
B)  Examine documentation of assets purchased with bond proceeds for liens. 
C)  Compare interest expense with the bond payable amount for reasonableness. 
D)  Confirm the existence of individual bondholders at year-end.

Question 2

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 3

The auditors should insist that a representative of the client be present during the inspection and count of securities to

Accepted Answer

A)  Lend authority to the auditors' directives. 
B)  Detect forged securities. 
C)  Coordinate the return of all securities to proper locations. 
D)  Acknowledge the receipt of securities returned. 
A)  Lend authority to the auditors' directives. 
B)  Detect forged securities. 
C)  Coordinate the return of all securities to proper locations. 
D)  Acknowledge the receipt of securities returned.

Question 4

The typical business activity in the financing and investment cycle that requires an accounting entry is

Accepted Answer

A)  Short-and long-term forecast. 
B)  Meeting with investment bankers. 
C)  Proposal to board of directors for investing excess monies. 
D)  Investment of excess funds in temporary or long-term securities. 
A)  Short-and long-term forecast. 
B)  Meeting with investment bankers. 
C)  Proposal to board of directors for investing excess monies. 
D)  Investment of excess funds in temporary or long-term securities.

Question 5

ABC Company has 100 shares of IBM stock that is held as an investment.The stock was purchased three years ago and has been in the client's safe deposit box along with other investment securities.During an inspection of securities held by the client,the auditor noted the 100 shares of IBM stock had a different CUSIP number than the number listed when purchased and the number verified during the previous audit.Which of the following would be the auditor's main concern about this discovery?

Accepted Answer

A)  The certificates in the safe deposit box were forgeries. 
B)  There was unauthorized buying and selling of investment securities. 
C)  The securities may be misclassified on the balance sheet. 
D)  The securities were no longer owned by ABC Company. 
A)  The certificates in the safe deposit box were forgeries. 
B)  There was unauthorized buying and selling of investment securities. 
C)  The securities may be misclassified on the balance sheet. 
D)  The securities were no longer owned by ABC Company.

Question 6

In Case 10.4 (No Treasure in This Treasure Planet),Disney overvalued net assets by capitalizing unrecoverable production costs.The lesson for the auditors in this case was to

Accepted Answer

A)  Always recalculate the client's figures regardless of how simple they appear. 
B)  Maintain professional skepticism when evaluating clients' estimates. 
C)  Always look into the background of the client before accepting an engagement. 
D)  None of the above. 
A)  Always recalculate the client's figures regardless of how simple they appear. 
B)  Maintain professional skepticism when evaluating clients' estimates. 
C)  Always look into the background of the client before accepting an engagement. 
D)  None of the above.

Question 7

Which of the following controls would be most effective in ensuring that the proper custody of assets in the investing cycle is maintained?

Accepted Answer

A)  Direct access to securities in the safety deposit box is limited to only one corporate officer. 
B)  Personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger. 
C)  The purchase and sale of investments are executed on the specific authorization of the board of directors. 
D)  Independent personnel periodically compare the recorded balances in the investment subsidiary ledger with the contents of the safety deposit box. 
A)  Direct access to securities in the safety deposit box is limited to only one corporate officer. 
B)  Personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger. 
C)  The purchase and sale of investments are executed on the specific authorization of the board of directors. 
D)  Independent personnel periodically compare the recorded balances in the investment subsidiary ledger with the contents of the safety deposit box.

Question 8

For each of the internal control questions for notes payable,indicate by letter the related ASB transaction assertion.Answers may be used more than once.

Accepted Answer

@#IMG-DLM& 
1.B; 2.A

Question 9

When independent stock transfer agents are not employed and the corporation issues its own stock and maintains stock records,canceled stock certificates should

Accepted Answer

A)  Be defaced to prevent reissuance and attached to their corresponding stubs. 
B)  Not be defaced but be segregated from other stock certificates and retained in a canceled certificates file. 
C)  Be destroyed to prevent fraudulent reissuance. 
D)  Be defaced and sent to the secretary of state. 
A)  Be defaced to prevent reissuance and attached to their corresponding stubs. 
B)  Not be defaced but be segregated from other stock certificates and retained in a canceled certificates file. 
C)  Be destroyed to prevent fraudulent reissuance. 
D)  Be defaced and sent to the secretary of state.

Question 10

Which of the following is not a typical assertion relating to owners' equity?

Accepted Answer

A)  The number of shares shown as issued is in fact issued. 
B)  The accounting is proper for options, warrants, and other stock issue plans, and related disclosure is adequate. 
C)  All owners' equity transactions have been authorized by the board of directors. 
D)  The valuation of shares issued for noncash consideration is reflected at book value. 
A)  The number of shares shown as issued is in fact issued. 
B)  The accounting is proper for options, warrants, and other stock issue plans, and related disclosure is adequate. 
C)  All owners' equity transactions have been authorized by the board of directors. 
D)  The valuation of shares issued for noncash consideration is reflected at book value.

Question 11

Financial planning starts with the chief financial officer's cash flow forecast.

Accepted Answer

A) True 
 B)False

Question 12

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 13

An audit team testing long-term investments would ordinarily use analytical procedures to ascertain the reasonableness of the

Accepted Answer

A)  Existence of unrealized gains or losses. 
B)  Completeness of recorded investment income. 
C)  Classification as available-for-sale or trading securities. 
D)  Valuation of trading securities. 
A)  Existence of unrealized gains or losses. 
B)  Completeness of recorded investment income. 
C)  Classification as available-for-sale or trading securities. 
D)  Valuation of trading securities.

Question 14

When a client company does not maintain its own capital stock records,the auditors should obtain written confirmation from the transfer agent and registrar concerning.

Accepted Answer

A)  Restrictions on the payment of dividends. 
B)  The number of shares issued and outstanding. 
C)  Guarantees of preferred stock liquidation value. 
D)  The number of shares subject to agreements to repurchase. 
A)  Restrictions on the payment of dividends. 
B)  The number of shares issued and outstanding. 
C)  Guarantees of preferred stock liquidation value. 
D)  The number of shares subject to agreements to repurchase.

Question 15

Selecting a sample of notes payable transactions and vouching payments to canceled checks is a test of the ASB balance assertion of

Accepted Answer

A)  Accuracy. 
B)  Completeness. 
C)  Existence. 
D)  Presentation. 
A)  Accuracy. 
B)  Completeness. 
C)  Existence. 
D)  Presentation.

Question 16

In connection with the audit of an issue of long-term bonds payable,the audit team should

Accepted Answer

A)  Determine whether bondholders are persons other than owners, directors, or officers of the company issuing the bond. 
B)  Calculate the effective interest rate to see if it is substantially the same as the rates for similar issues. 
C)  Decide whether the bond issue was made without violating state or local law. 
D)  Ascertain that the client has obtained the opinion of counsel on the legality of the issue. 
A)  Determine whether bondholders are persons other than owners, directors, or officers of the company issuing the bond. 
B)  Calculate the effective interest rate to see if it is substantially the same as the rates for similar issues. 
C)  Decide whether the bond issue was made without violating state or local law. 
D)  Ascertain that the client has obtained the opinion of counsel on the legality of the issue.

Question 17

All corporate capital stock transactions should ultimately be traced to the

Accepted Answer

A)  Minutes of the meetings of the board of directors. 
B)  Cash receipts journal. 
C)  Cash disbursements journal. 
D)  Numbered stock certificates. 
A)  Minutes of the meetings of the board of directors. 
B)  Cash receipts journal. 
C)  Cash disbursements journal. 
D)  Numbered stock certificates.

Question 18

Which of the following approaches is most suitable for auditing the finance and investment cycle?

Accepted Answer

A)  Perform extensive tests of controls and limit substantive procedures to analytical procedures. 
B)  Ignore internal controls and perform extensive substantive procedures. 
C)  Gain an understanding of internal controls and perform extensive substantive procedures. 
D)  Ignore internal controls and limit substantive procedures to analytical procedures. 
A)  Perform extensive tests of controls and limit substantive procedures to analytical procedures. 
B)  Ignore internal controls and perform extensive substantive procedures. 
C)  Gain an understanding of internal controls and perform extensive substantive procedures. 
D)  Ignore internal controls and limit substantive procedures to analytical procedures.

Question 19

"Are interest payments and accruals monitored for due dates and financial statement dates?" is an internal control questionnaire item that is related to the ASB transaction assertion of

Accepted Answer

A)  Occurrence. 
B)  Completeness. 
C)  Cutoff. 
D)  Accuracy. 
A)  Occurrence. 
B)  Completeness. 
C)  Cutoff. 
D)  Accuracy.

Question 20

An audit plan for the examination of the retained earnings account should include a step that requires verification of the

Accepted Answer

A)  Market value used to charge retained earnings to account for a 2-for-1 stock split. 
B)  Approval of the adjustment to the beginning balance as a result of a write-down of account receivables. 
C)  Authorization for both cash and stock dividends. 
D)  Dividends received from investments. 
A)  Market value used to charge retained earnings to account for a 2-for-1 stock split. 
B)  Approval of the adjustment to the beginning balance as a result of a write-down of account receivables. 
C)  Authorization for both cash and stock dividends. 
D)  Dividends received from investments.

In auditing long-term bonds payable,an auditor most likely would

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

The auditors should insist that a representative of the client be present during the inspection and count of securities to

The typical business activity in the financing and investment cycle that requires an accounting entry is

In Case 10.4 (No Treasure in This Treasure Planet),Disney overvalued net assets by capitalizing unrecoverable production costs.The lesson for the auditors in this case was to

Which of the following controls would be most effective in ensuring that the proper custody of assets in the investing cycle is maintained?

For each of the internal control questions for notes payable,indicate by letter the related ASB transaction assertion.Answers may be used more than once.

When independent stock transfer agents are not employed and the corporation issues its own stock and maintains stock records,canceled stock certificates should

Which of the following is not a typical assertion relating to owners' equity?

Financial planning starts with the chief financial officer's cash flow forecast.

Appropriate audit inquiries regarding estimates include all of the following except

An audit team testing long-term investments would ordinarily use analytical procedures to ascertain the reasonableness of the

When a client company does not maintain its own capital stock records,the auditors should obtain written confirmation from the transfer agent and registrar concerning.

Selecting a sample of notes payable transactions and vouching payments to canceled checks is a test of the ASB balance assertion of

In connection with the audit of an issue of long-term bonds payable,the audit team should

All corporate capital stock transactions should ultimately be traced to the

Which of the following approaches is most suitable for auditing the finance and investment cycle?

"Are interest payments and accruals monitored for due dates and financial statement dates?" is an internal control questionnaire item that is related to the ASB transaction assertion of

An audit plan for the examination of the retained earnings account should include a step that requires verification of the

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

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Internal Governmental and Fraud Audits

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Exam 10: Finance and Investment Cycle

In auditing long-term bonds payable,an auditor most likely would

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

The auditors should insist that a representative of the client be present during the inspection and count of securities to

The typical business activity in the financing and investment cycle that requires an accounting entry is

In Case 10.4 (No Treasure in This Treasure Planet),Disney overvalued net assets by capitalizing unrecoverable production costs.The lesson for the auditors in this case was to

Which of the following controls would be most effective in ensuring that the proper custody of assets in the investing cycle is maintained?

For each of the internal control questions for notes payable,indicate by letter the related ASB transaction assertion.Answers may be used more than once.

When independent stock transfer agents are not employed and the corporation issues its own stock and maintains stock records,canceled stock certificates should

Which of the following is not a typical assertion relating to owners' equity?

Financial planning starts with the chief financial officer's cash flow forecast.

Appropriate audit inquiries regarding estimates include all of the following except

An audit team testing long-term investments would ordinarily use analytical procedures to ascertain the reasonableness of the

When a client company does not maintain its own capital stock records,the auditors should obtain written confirmation from the transfer agent and registrar concerning.

Selecting a sample of notes payable transactions and vouching payments to canceled checks is a test of the ASB balance assertion of

In connection with the audit of an issue of long-term bonds payable,the audit team should

All corporate capital stock transactions should ultimately be traced to the

Which of the following approaches is most suitable for auditing the finance and investment cycle?

"Are interest payments and accruals monitored for due dates and financial statement dates?" is an internal control questionnaire item that is related to the ASB transaction assertion of

An audit plan for the examination of the retained earnings account should include a step that requires verification of the

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