Question 1

Accounting estimates include which of the following?

Accepted Answer

A) Trade payable balances. 
B) Cash balances. 
C) Capital assets at cost. 
D) Imputed interest rates on receivables and payables. 
A) Trade payable balances. 
B) Cash balances. 
C) Capital assets at cost. 
D) Imputed interest rates on receivables and payables.

Question 2

Guarantees are an example of "off-balance-sheet" financing.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

Key control procedures for derivative financial instruments include all but which of the following?

Accepted Answer

A) Derivatives activities are monitored by independent control staff. 
B) Accurate transmittals of derivatives positions are made to the risk measurement systems. 
C) Reconciliations are performed to ensure data integrity across a full range of derivatives. 
D) Access to derivatives is limited to the CEO,CFO,or Board chair. 
A) Derivatives activities are monitored by independent control staff. 
B) Accurate transmittals of derivatives positions are made to the risk measurement systems. 
C) Reconciliations are performed to ensure data integrity across a full range of derivatives. 
D) Access to derivatives is limited to the CEO,CFO,or Board chair.

Question 9

Which of the following procedures is a test of control for the validity objective for notes payable?

Accepted Answer

A) Read minutes of director's meetings for authorization of financing transactions. 
B) Select a sample of notes payable and vouch cash receipt to the bank statement. 
C) Select a sample of paid notes and recalculate interest expense for the period under audit. 
D) Select a sample of paid notes and trace interest costs to the general ledger expense account. 
A) Read minutes of director's meetings for authorization of financing transactions. 
B) Select a sample of notes payable and vouch cash receipt to the bank statement. 
C) Select a sample of paid notes and recalculate interest expense for the period under audit. 
D) Select a sample of paid notes and trace interest costs to the general ledger expense account.

Question 10

The substantive audit procedure "confirm outstanding common and preferred shares with share registrar agent" provides evidence for which of the following assertion(s)?

Accepted Answer

A) Presentation and ownership. 
B) Completeness,valuation,and presentation. 
C) Existence,completeness,and ownership. 
D) Existence only. 
A) Presentation and ownership. 
B) Completeness,valuation,and presentation. 
C) Existence,completeness,and ownership. 
D) Existence only.

Question 11

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 12

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 13

Recordkeeping for the management of some intangible accounts,like goodwill,are subject to high inherent risk of overstatement because:

Accepted Answer

A) Such investment transactions are often off the balance sheet. 
B) Such assets have a high risk of theft. 
C) They are dependent on management estimates,which can be biased. 
D) There is a high volume of such investments. 
A) Such investment transactions are often off the balance sheet. 
B) Such assets have a high risk of theft. 
C) They are dependent on management estimates,which can be biased. 
D) There is a high volume of such investments.

Question 14

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 15

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

Question 16

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 17

High estimation uncertainty for accounting estimates may create new opportunities for management fraud.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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 20

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 presentation of equity in the financial statements 
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 presentation of equity in the financial statements 
D) how loan agreements should be structured

Exam 14: The Finance and Investment Process

Accounting estimates include which of the following?

Guarantees are an example of "off-balance-sheet" financing.

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

Who is responsible for making accounting estimates?

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

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

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

Key control procedures for derivative financial instruments include all but which of the following?

Which of the following procedures is a test of control for the validity objective for notes payable?

The substantive audit procedure "confirm outstanding common and preferred shares with share registrar agent" provides evidence for which of the following assertion(s)?

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

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.

Recordkeeping for the management of some intangible accounts,like goodwill,are subject to high inherent risk of overstatement because:

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

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

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?

High estimation uncertainty for accounting estimates may create new opportunities for management fraud.

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

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 ________.

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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