Question 1

In the finance and investment cycle, which of the following controls would be most effective in ensuring that proper custody of assets has been 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)  The recorded balances in the investment subsidiary ledger are periodically compared with the contents of the safety deposit box by independent personnel. 
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)  The recorded balances in the investment subsidiary ledger are periodically compared with the contents of the safety deposit box by independent personnel.

Question 2

A typical activity performed in the finance and investment cycle would be ________.

Accepted Answer

A)  analysis of excess cash funds 
B)  reconciliation of cash balances 
C)  authorization of cash disbursements 
D)  preparation of the cash flow statement 
A)  analysis of excess cash funds 
B)  reconciliation of cash balances 
C)  authorization of cash disbursements 
D)  preparation of the cash flow statement

Question 3

What is off-balance-sheet financing? Define the term and provide at least two examples.

Accepted Answer

Off-balance-sheet financing exists when

Question 4

What is a compensating control? Describe a compensating control in the finance and investment cycle.

Accepted Answer

A compensating control is an alternative

Question 5

It is very common for auditors to perform substantive procedures on 100% of the transactions and general ledger balances for investment accounts and finance accounts.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  Authorization. 
B)  Custody. 
C)  Record-keeping. 
D)  Periodic reconciliation. 
A)  Authorization. 
B)  Custody. 
C)  Record-keeping. 
D)  Periodic reconciliation.

Question 7

Debt covenant violations have a significant impact on a company since they can affect ________.

Accepted Answer

A)  the ability of the entity to function as a going concern 
B)  overall liability relationships in the financial statements 
C)  the nature of disclosures required in the audit report 
D)  how loan agreements should be structured 
A)  the ability of the entity to function as a going concern 
B)  overall liability relationships in the financial statements 
C)  the nature of disclosures required in the audit report 
D)  how loan agreements should be structured

Question 8

What are the contributions that a board of directors can make to internal control?

Accepted Answer

i. Approving and monitoring mission, vis

Question 9

Who is responsible for making accounting estimates?

Accepted Answer

A)  Auditors. 
B)  Management. 
C)  Boards of directors. 
D)  Shareholders. 
A)  Auditors. 
B)  Management. 
C)  Boards of directors. 
D)  Shareholders.

Question 10

In the area of finance and investment, the involvement of two or more persons in each important functional responsibility could be considered a compensating control.

Accepted Answer

A) True 
 B)False

Question 11

If an auditor decided to confirm share capital, the auditor would obtain the confirmation from ________.

Accepted Answer

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

Question 12

The auditor's tests of controls over the appropriateness of accounting estimates consist primarily of enquiry and observation.

Accepted Answer

A) True 
 B)False

Question 13

Transactions in debt and shareholder equity are typically handled by ________.

Accepted Answer

A)  payroll 
B)  accounting staff 
C)  accounting supervisors 
D)  upper management 
A)  payroll 
B)  accounting staff 
C)  accounting supervisors 
D)  upper management

Question 14

Auditors should expect to find the authorizing signatures of the CEO, CFO, chair of the board of directors, and perhaps other high-ranking officers on financing documents.

Accepted Answer

A) True 
 B)False

Question 15

In the audit casette "14.3 Off-Balance-Sheet Inventory Financing, " Verity Distillery Company used the product repurchase ploy to ________.

Accepted Answer

A)  overstate assets and understate liabilities by borrowing money and not recording the liability 
B)  increase owners' equity by recording the sale of inventory without recording any cost of goods sold 
C)  understate assets and understate liabilities by borrowing money through an undisclosed related party transaction and disguising it as a sale 
D)  understate assets and understate liabilities by loaning money to its officers 
A)  overstate assets and understate liabilities by borrowing money and not recording the liability 
B)  increase owners' equity by recording the sale of inventory without recording any cost of goods sold 
C)  understate assets and understate liabilities by borrowing money through an undisclosed related party transaction and disguising it as a sale 
D)  understate assets and understate liabilities by loaning money to its officers

Question 16

Which of the following management assertions for long-term liabilities is related to completeness?

Accepted Answer

A)  All material long-term liabilities are recorded. 
B)  Assumption of new long-term liabilities and repayment of debt are properly authorized. 
C)  Terms, conditions, and restrictions relating to long-term debt are adequately disclosed. 
D)  Disclosure of five-year repayment schedule and debt maturity dates is accurate and adequate. 
A)  All material long-term liabilities are recorded. 
B)  Assumption of new long-term liabilities and repayment of debt are properly authorized. 
C)  Terms, conditions, and restrictions relating to long-term debt are adequately disclosed. 
D)  Disclosure of five-year repayment schedule and debt maturity dates is accurate and adequate.

Question 17

According to generally accepted auditing standards, the relevant aspects of a control system over the preparation of accounting estimates include:
> Identifying where accounting estimates are required.
> Gathering relevant, sufficient, and reliable data for the estimates.
> Developing assumptions about the estimates.
> Preparation of estimates by qualified personnel.
> Adequate review and approval by appropriate levels of authority.
> Comparison of previous estimates with actual results.
> Consideration by management of whether the accounting estimates are reasonable and consistent with the company's operational plans.
Required:
A) How would the auditor test controls over the preparation of accounting estimates?
B) What substantive audit procedures could the auditor use in testing the estimates?

Accepted Answer

A) An auditor uses inquiry and observati

Question 18

If the auditor suspects that the financial statements are intentionally misstated, he or she should perform procedures to confirm or dispel that suspicion.

Accepted Answer

A) True 
 B)False

Question 19

Name the typical specific management assertions relating to long-term liabilities.

Accepted Answer

i. All important long-term liabilities a

Question 20

Management's statement that a marketable security is a long-term investment may be the only evidence available to support classifying the investment as a non-current asset.

Accepted Answer

A) True 
 B)False

In the finance and investment cycle, which of the following controls would be most effective in ensuring that proper custody of assets has been maintained?

A typical activity performed in the finance and investment cycle would be ________.

What is off-balance-sheet financing? Define the term and provide at least two examples.

What is a compensating control? Describe a compensating control in the finance and investment cycle.

It is very common for auditors to perform substantive procedures on 100% of the transactions and general ledger balances for investment accounts and finance accounts.

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

Debt covenant violations have a significant impact on a company since they can affect ________.

What are the contributions that a board of directors can make to internal control?

Who is responsible for making accounting estimates?

In the area of finance and investment, the involvement of two or more persons in each important functional responsibility could be considered a compensating control.

If an auditor decided to confirm share capital, the auditor would obtain the confirmation from ________.

The auditor's tests of controls over the appropriateness of accounting estimates consist primarily of enquiry and observation.

Transactions in debt and shareholder equity are typically handled by ________.

Auditors should expect to find the authorizing signatures of the CEO, CFO, chair of the board of directors, and perhaps other high-ranking officers on financing documents.

In the audit casette "14.3 Off-Balance-Sheet Inventory Financing, " Verity Distillery Company used the product repurchase ploy to ________.

Which of the following management assertions for long-term liabilities is related to completeness?

If the auditor suspects that the financial statements are intentionally misstated, he or she should perform procedures to confirm or dispel that suspicion.

Name the typical specific management assertions relating to long-term liabilities.

Management's statement that a marketable security is a long-term investment may be the only evidence available to support classifying the investment as a non-current asset.

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

In the finance and investment cycle, which of the following controls would be most effective in ensuring that proper custody of assets has been maintained?

A typical activity performed in the finance and investment cycle would be ________.

What is off-balance-sheet financing? Define the term and provide at least two examples.

What is a compensating control? Describe a compensating control in the finance and investment cycle.

It is very common for auditors to perform substantive procedures on 100% of the transactions and general ledger balances for investment accounts and finance accounts.

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

Debt covenant violations have a significant impact on a company since they can affect ________.

What are the contributions that a board of directors can make to internal control?

Who is responsible for making accounting estimates?

In the area of finance and investment, the involvement of two or more persons in each important functional responsibility could be considered a compensating control.

If an auditor decided to confirm share capital, the auditor would obtain the confirmation from ________.

The auditor's tests of controls over the appropriateness of accounting estimates consist primarily of enquiry and observation.

Transactions in debt and shareholder equity are typically handled by ________.

Auditors should expect to find the authorizing signatures of the CEO, CFO, chair of the board of directors, and perhaps other high-ranking officers on financing documents.

In the audit casette "14.3 Off-Balance-Sheet Inventory Financing, " Verity Distillery Company used the product repurchase ploy to ________.

Which of the following management assertions for long-term liabilities is related to completeness?

If the auditor suspects that the financial statements are intentionally misstated, he or she should perform procedures to confirm or dispel that suspicion.

Name the typical specific management assertions relating to long-term liabilities.

Management's statement that a marketable security is a long-term investment may be the only evidence available to support classifying the investment as a non-current asset.

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