Question 1

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 2

Documenting ownership of bonds can be handled by a registrar and transfer agent.

Accepted Answer

A) True 
 B)False

Question 3

_______________________________ is responsible for making estimates and should have a _____________________________ and _____________________________ designed to reduce the likelihood of material misstatements in them.
Question also found in study guide

Accepted Answer

Client's m

Question 4

In auditing for unrecorded long-term bonds payable,an audit team most likely will

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 5

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 6

A client has a large and active investment portfolio that is kept in a bank safe deposit box.If the auditors are unable to count securities at the balance-sheet date,they most likely will

Accepted Answer

A) request the bank to confirm to the auditors the contents of the safe deposit box at the balance-sheet date. 
B) examine supporting evidence for transactions occurring during the year. 
C) count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance-sheet date. 
D) request the client to have the bank seal the safe deposit box until the auditors can count the securities at a subsequent date. 
A) request the bank to confirm to the auditors the contents of the safe deposit box at the balance-sheet date. 
B) examine supporting evidence for transactions occurring during the year. 
C) count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance-sheet date. 
D) request the client to have the bank seal the safe deposit box until the auditors can count the securities at a subsequent date.

Question 7

What are "off-balance-sheet" financing transactions? Explain and provide two or more examples.

Accepted Answer

"Off-balance-sheet" financing transactio

Question 8

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

Accepted Answer

Proper cus

Question 9

Which of the following audit procedures would not likely be performed for audits of shareholders' equity?

Accepted Answer

A) Read board of directors' minutes for authorization of equity transactions. 
B) Confirm outstanding common and preferred stock with stock registrar. 
C) Compare valuation of stock to published market prices. 
D) Obtain management representation about number of shares issued and outstanding. 
A) Read board of directors' minutes for authorization of equity transactions. 
B) Confirm outstanding common and preferred stock with stock registrar. 
C) Compare valuation of stock to published market prices. 
D) Obtain management representation about number of shares issued and outstanding.

Question 10

All companies use a registrar to keep track of stock certificates issued and outstanding.

Accepted Answer

A) True 
 B)False

Question 11

Red Corporation had a temporary cash squeeze near its balance-sheet date.It needed cash badly for a seasonal dip in sales.However,a loan covenant requiring a certain debt/equity ratio would be violated if any additional money were borrowed.To remedy this,the top two officers of the Corporation set up another corporation,Pink Inc.,Red made a large sale of inventory to Pink at cost.Pink used the inventory as collateral for a three-month loan from a local bank.The money from the loan was used to pay Red for the accounts receivable resulting from the "sale." The officers intended to have Red buy back the inventory from Pink at the end of the three-month period at a price that would allow Pink to pay off the loan plus interest.
Required:
a.How would this transaction designed by the two officers enable Red to maintain its required debt/equity ratio while obtaining the cash it needed?
b.What tests of controls and substantive tests would enable an auditor to detect this scheme?

Accepted Answer

a.By devising this transaction as a sale

Question 12

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 13

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 14

Which of the following questions would auditors most likely include on an internal control questionnaire for notes payable?

Accepted Answer

A) Are assets that collateralize notes payable critically needed for the entity's continued existence? 
B) Are two or more authorized signatures required on checks that repay notes payable? 
C) Are the proceeds from notes payable used for the purchase of noncurrent assets? 
D) Are direct borrowings on notes payable authorized by the board of directors? 
A) Are assets that collateralize notes payable critically needed for the entity's continued existence? 
B) Are two or more authorized signatures required on checks that repay notes payable? 
C) Are the proceeds from notes payable used for the purchase of noncurrent assets? 
D) Are direct borrowings on notes payable authorized by the board of directors?

Question 15

Which of the following is the most important audit consideration when examining the stockholders' equity section of a client's balance sheet?

Accepted Answer

A) Changes in the capital stock account are verified by an independent stock transfer agent. 
B) Stock dividends and stock splits during the year under audit were approved by the stockholders. 
C) Stock dividends are capitalized at par or stated value on the dividend declaration date. 
D) Entries in the capital stock account can be traced to resolutions in the minutes of meetings of the board of directors. 
A) Changes in the capital stock account are verified by an independent stock transfer agent. 
B) Stock dividends and stock splits during the year under audit were approved by the stockholders. 
C) Stock dividends are capitalized at par or stated value on the dividend declaration date. 
D) Entries in the capital stock account can be traced to resolutions in the minutes of meetings of the board of directors.

Question 16

When auditing the valuation assertion of an equity method investment,which of the following is the auditor most likely to do?

Accepted Answer

A) Inspect stock certificates. 
B) Obtain audited financial statements of the investee company. 
C) Obtain the market price of the stock as of year-end. 
D) Review management's calculations. 
A) Inspect stock certificates. 
B) Obtain audited financial statements of the investee company. 
C) Obtain the market price of the stock as of year-end. 
D) Review management's calculations.

Question 17

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 18

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.

Question 19

Investment transactions list on the monthly statement from the broker should be vouched to the broker's advice,proper authorization,and the cash accounts.

Accepted Answer

A) True 
 B)False

Question 20

The most significant inherent risk in the finance and investment cycle is the proper presentation of items on the balance sheet.

Accepted Answer

A) True 
 B)False

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

Documenting ownership of bonds can be handled by a registrar and transfer agent.

_________________ is responsible for making estimates and should have a _ and _______________ designed to reduce the likelihood of material misstatements in them. Question also found in study guide

In auditing for unrecorded long-term bonds payable,an audit team most likely will

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

A client has a large and active investment portfolio that is kept in a bank safe deposit box.If the auditors are unable to count securities at the balance-sheet date,they most likely will

What are "off-balance-sheet" financing transactions? Explain and provide two or more examples.

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

Which of the following audit procedures would not likely be performed for audits of shareholders' equity?

All companies use a registrar to keep track of stock certificates issued and outstanding.

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

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

Which of the following questions would auditors most likely include on an internal control questionnaire for notes payable?

Which of the following is the most important audit consideration when examining the stockholders' equity section of a client's balance sheet?

When auditing the valuation assertion of an equity method investment,which of the following is the auditor most likely to do?

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.

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

Investment transactions list on the monthly statement from the broker should be vouched to the broker's advice,proper authorization,and the cash accounts.

The most significant inherent risk in the finance and investment cycle is the proper presentation of items on the balance sheet.

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

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

Documenting ownership of bonds can be handled by a registrar and transfer agent.

_______________________________ is responsible for making estimates and should have a _____________________________ and _____________________________ designed to reduce the likelihood of material misstatements in them. Question also found in study guide

In auditing for unrecorded long-term bonds payable,an audit team most likely will

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

A client has a large and active investment portfolio that is kept in a bank safe deposit box.If the auditors are unable to count securities at the balance-sheet date,they most likely will

What are "off-balance-sheet" financing transactions? Explain and provide two or more examples.

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

Which of the following audit procedures would not likely be performed for audits of shareholders' equity?

All companies use a registrar to keep track of stock certificates issued and outstanding.

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

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

Which of the following questions would auditors most likely include on an internal control questionnaire for notes payable?

Which of the following is the most important audit consideration when examining the stockholders' equity section of a client's balance sheet?

When auditing the valuation assertion of an equity method investment,which of the following is the auditor most likely to do?

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.

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

Investment transactions list on the monthly statement from the broker should be vouched to the broker's advice,proper authorization,and the cash accounts.

The most significant inherent risk in the finance and investment cycle is the proper presentation of items on the balance sheet.

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

_________________ is responsible for making estimates and should have a _ and _______________ designed to reduce the likelihood of material misstatements in them. Question also found in study guide

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