Question 1

Which management assertion is of most importance to auditors in examining long-term debt?

Accepted Answer

A)  Existence. 
B)  Completeness. 
C)  Rights and obligations. 
D)  Presentation and disclosure. 
A)  Existence. 
B)  Completeness. 
C)  Rights and obligations. 
D)  Presentation and disclosure. B

Question 2

What is the most appropriate control to prevent improper use of share or bond instruments?

Accepted Answer

A)  Authorization to purchase shares by a senior financial officer. 
B)  Use of a registered broker to purchase and sell all shares. 
C)  Proper custodial control of securities. 
D)  Registration of bond instruments with the exchange authorities. 
A)  Authorization to purchase shares by a senior financial officer. 
B)  Use of a registered broker to purchase and sell all shares. 
C)  Proper custodial control of securities. 
D)  Registration of bond instruments with the exchange authorities. C

Question 3

The inherent risk associated with the finance and investment cycle is less than that associated with other cycles, especially given the low number of transactions typically involved.

Accepted Answer

A) True 
 B)False  False

Question 4

The sale of share capital and the decision to finance the company with debt are transactions usually authorized by shareholders.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not an example of management's policies and procedures over the preparation of accounting estimates?

Accepted Answer

A)  Accumulation of relevant, sufficient, and reliable data. 
B)  Preparation of estimates by qualified personnel. 
C)  Review by the independent auditor. 
D)  Consideration by management of whether the accounting estimates are consistent with the company's operational plans. 
A)  Accumulation of relevant, sufficient, and reliable data. 
B)  Preparation of estimates by qualified personnel. 
C)  Review by the independent auditor. 
D)  Consideration by management of whether the accounting estimates are consistent with the company's operational plans.

Question 6

Accounting estimates include which of the following?

Accepted Answer

A)  Trade payable balances. 
B)  Cash balances. 
C)  Capital assets at cost. 
D)  Amortization expense. 
A)  Trade payable balances. 
B)  Cash balances. 
C)  Capital assets at cost. 
D)  Amortization expense.

Question 7

Discuss the custody of investments and intangible assets.

Accepted Answer

Custody of investments and intangible as

Question 8

The auditor selected a sample of journal entries related to notes payable and traced interest expense to the general ledger. The auditor is testing controls over accuracy.

Accepted Answer

A) True 
 B)False

Question 9

Confirmation requests should be sent to lenders only if there is a balance owing to the lender at the confirmation date.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is a substantive procedure in the audit of estimates made by auditor?

Accepted Answer

A)  Observing whether estimates are prepared by qualified personnel. 
B)  Recalculating the mathematical estimate. 
C)  Scanning for evidence of review by senior management. 
D)  Ensuring estimates are recorded in the right accounts. 
A)  Observing whether estimates are prepared by qualified personnel. 
B)  Recalculating the mathematical estimate. 
C)  Scanning for evidence of review by senior management. 
D)  Ensuring estimates are recorded in the right accounts.

Question 11

Red Corporation had a temporary cash squeeze near its balance sheet date. It needed cash badly to cover a seasonal dip in sales. However, if any additional money were borrowed, the company would violate a loan covenant requiring that a defined debt/equity ratio be maintained. To get around this requirement, the top two officers Red Corporation set up another corporation called 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 inventory transaction. At the end of the three-month period, Red intended to repurchase the inventory from Pink at a price that would allow Pink repay the loan plus interest.
Required:
A) How would this transaction enable Red Corporation to maintain its required debt/equity ratio and obtain the cash it needs?
B) What tests of controls and/or substantive procedures would lead an auditor to detect this scheme?

Accepted Answer

A) By devising this transaction as a sal

Question 12

It is easier to segregate functional responsibilities in middle management than in upper-level management.

Accepted Answer

A) True 
 B)False

Question 13

Off-the-balance-sheet means that ________.

Accepted Answer

A)  obligations and commitments are recorded only in the income statement accounts 
B)  obligations and commitments are recorded only in the statement of cash flows 
C)  capital budgets are properly authorized and approved 
D)  obligations and commitments are not recorded in the accounts of the company 
A)  obligations and commitments are recorded only in the income statement accounts 
B)  obligations and commitments are recorded only in the statement of cash flows 
C)  capital budgets are properly authorized and approved 
D)  obligations and commitments are not recorded in the accounts of the company

Question 14

The auditor's primary concern in the verification of long-term liabilities is that all liabilities are recorded and that the interest expense is properly paid or accrued.

Accepted Answer

A) True 
 B)False

Question 15

This internal control questionnaire item-"Are interest payments and accruals monitored for due dates?"-relates to the control objective of ________.

Accepted Answer

A)  validity 
B)  completeness 
C)  accounting 
D)  proper period recording 
A)  validity 
B)  completeness 
C)  accounting 
D)  proper period recording

Question 16

Which of the following questions is an auditor most likely to include on an internal control questionnaire?

Accepted Answer

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

Question 17

Selecting a sample of paid notes and tracing interest costs to the general ledger expense account is a test of the control objective of ________.

Accepted Answer

A)  accounting 
B)  accuracy 
C)  completeness 
D)  validity 
A)  accounting 
B)  accuracy 
C)  completeness 
D)  validity

Question 18

The purchase of fixed assets is part of the finance and investment cycle.

Accepted Answer

A) True 
 B)False

Question 19

Letters of credit are an example of "off-balance-sheet" financing.

Accepted Answer

A) True 
 B)False

Question 20

The auditor can use analytical procedures in the audit of interest expense related to long-term debt. Describe how this is done.

Accepted Answer

Through confirmation and other audit pro

Which management assertion is of most importance to auditors in examining long-term debt?

What is the most appropriate control to prevent improper use of share or bond instruments?

The inherent risk associated with the finance and investment cycle is less than that associated with other cycles, especially given the low number of transactions typically involved.

The sale of share capital and the decision to finance the company with debt are transactions usually authorized by shareholders.

Which of the following is not an example of management's policies and procedures over the preparation of accounting estimates?

Accounting estimates include which of the following?

Discuss the custody of investments and intangible assets.

The auditor selected a sample of journal entries related to notes payable and traced interest expense to the general ledger. The auditor is testing controls over accuracy.

Confirmation requests should be sent to lenders only if there is a balance owing to the lender at the confirmation date.

Which of the following is a substantive procedure in the audit of estimates made by auditor?

It is easier to segregate functional responsibilities in middle management than in upper-level management.

Off-the-balance-sheet means that ________.

The auditor's primary concern in the verification of long-term liabilities is that all liabilities are recorded and that the interest expense is properly paid or accrued.

This internal control questionnaire item-"Are interest payments and accruals monitored for due dates?"-relates to the control objective of ________.

Which of the following questions is an auditor most likely to include on an internal control questionnaire?

Selecting a sample of paid notes and tracing interest costs to the general ledger expense account is a test of the control objective of ________.

The purchase of fixed assets is part of the finance and investment cycle.

Letters of credit are an example of "off-balance-sheet" financing.

The auditor can use analytical procedures in the audit of interest expense related to long-term debt. Describe how this is done.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

The Revenues, Receivables, and Receipts Process and Cash Account Balance

The Purchases, Payables, and Payments Process

Payroll and Production Processes

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

Filters

Exam 14: The Finance and Investment Process

Which management assertion is of most importance to auditors in examining long-term debt?

What is the most appropriate control to prevent improper use of share or bond instruments?

The inherent risk associated with the finance and investment cycle is less than that associated with other cycles, especially given the low number of transactions typically involved.

The sale of share capital and the decision to finance the company with debt are transactions usually authorized by shareholders.

Which of the following is not an example of management's policies and procedures over the preparation of accounting estimates?

Accounting estimates include which of the following?

Discuss the custody of investments and intangible assets.

The auditor selected a sample of journal entries related to notes payable and traced interest expense to the general ledger. The auditor is testing controls over accuracy.

Confirmation requests should be sent to lenders only if there is a balance owing to the lender at the confirmation date.

Which of the following is a substantive procedure in the audit of estimates made by auditor?

It is easier to segregate functional responsibilities in middle management than in upper-level management.

Off-the-balance-sheet means that ________.

The auditor's primary concern in the verification of long-term liabilities is that all liabilities are recorded and that the interest expense is properly paid or accrued.

This internal control questionnaire item-"Are interest payments and accruals monitored for due dates?"-relates to the control objective of ________.

Which of the following questions is an auditor most likely to include on an internal control questionnaire?

Selecting a sample of paid notes and tracing interest costs to the general ledger expense account is a test of the control objective of ________.

The purchase of fixed assets is part of the finance and investment cycle.

Letters of credit are an example of "off-balance-sheet" financing.

The auditor can use analytical procedures in the audit of interest expense related to long-term debt. Describe how this is done.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

The Revenues, Receivables, and Receipts Process and Cash Account Balance

The Purchases, Payables, and Payments Process

Payroll and Production Processes

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

Filters