Question 1

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 C

Question 2

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  True

Question 3

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. B

Question 4

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

Accepted Answer

Off-balance-sheet financing exists when

Question 5

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

Accepted Answer

A compensating control is an alternative

Question 6

Which of the following questions is an auditor most likely to include on an internal control questionnaire for notes and loans payable?

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 7

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.

Question 8

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.

Question 9

Custody of share capital is a higher control risk issue in small companies.

Accepted Answer

A) True 
 B)False

Question 10

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 11

"Off-the-balance-sheet" financing transactions 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 12

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

Accepted Answer

i.Approving and monitoring mission,visio

Question 13

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

Question 14

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 15

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 16

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 17

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 18

The main risks in the finance and investment process include all of the following,EXCEPT:

Accepted Answer

A) Completeness of debt. 
B) Occurrence of interest expense. 
C) Valuation of financial instruments. 
D) Presentation and disclosure of intercorporate investments. 
A) Completeness of debt. 
B) Occurrence of interest expense. 
C) Valuation of financial instruments. 
D) Presentation and disclosure of intercorporate investments.

Question 19

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 20

Discuss the custody of investments and intangible assets.

Accepted Answer

Custody of investments and intangible as

Exam 14: The Finance and Investment Process

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

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.

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

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.

Which of the following questions is an auditor most likely to include on an internal control questionnaire for notes and loans payable?

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

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

Custody of share capital is a higher control risk issue in small companies.

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

"Off-the-balance-sheet" financing transactions means that ________.

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

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 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.

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

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

The main risks in the finance and investment process include all of the following,EXCEPT:

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.

Discuss the custody of investments and intangible assets.

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 the Audit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Legal Liability Cases

Other Professional Accounting Services and Reports, including Fraud Auditing

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