Term
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Definition
(1) In the Payroll and Personnel Cycle, which account(s) are involved?
A) Cash in Bank
B) Direct Labor
C) Commissions
D) Withheld income taxes and deductions
E) All of the above |
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Term
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Definition
(2) Which of the following statements is true about the payroll and personnel cycle?
A)There are 4 business functions, Payroll cash, payroll expense, payroll withholding, payroll accrual
B)The payroll and personnel cycle involves the employment and payment of all employees.
C) Accrued wages, accounts payable, and payroll tax expense are all involved.
D)There are 3 classes transactions; liability, cash, and taxes |
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Term
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Definition
(3) This form is used to set the employee’s number of exemptions for withholding income taxes.
A) W-2
B) Form 1140
C) W-4
D) None of the above |
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Term
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Definition
(4) If the auditor is comparing payroll disbursements to the bank statement the auditor is testing for:
A) Occurrence
B) Existence
C) Completeness
D) Accuracy |
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Term
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Definition
(5) In most systems the accrued wages and salaries account is used only at the end of an accounting period.
(True)
(False) |
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Term
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Definition
(6) The Payroll Master file is
(A) Is created for external auditors after an audit engagement has been established.
(B) Is highly confidential and is used to protect employee information
(C) Is used for recording each payroll transaction for each employee. |
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Term
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Definition
(7) A common test of Payroll is the relationship between Payroll and…
(A) Inventory valuation
(B) Supplies expense
(C) Manufacturing overhead
(D) Income tax expense |
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Term
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Definition
(8) Comparing direct labor as a percentage of sales with previous years reveals which possible misstatement?
(A) payroll expense accounts
(B) direct labor and inventory
(C) payroll tax expense
(D) commission expense |
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Term
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Definition
) Two Major Balance-related Audit objectives are:
(A) accruals in the trial balance are accurate; Transactions in the payroll and personnel cycle are recorded in the proper period.
(B) Payroll tax expense matches employees withholding preferences; Balance In Accounts Payable is accurate
(C) Accruals in the general ledger are accurate; Cash disbursements to payroll are made in the proper period. |
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Term
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Definition
(10) Test(s) of Details of Balances for Expense accounts are
(A) Officers’ compensation
(B) Total Payroll
(C) Contract Labor
(D) All of the Above |
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Term
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Definition
1. Which of the following is not an account in the capital acquisition and repayment cycle:
a. Bonds Payable
b. Treasury Stock
c. Accounts Receivable
d. Cash in the Bank |
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Term
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Definition
2. The accounts in a company's capital acquisition and repayment cycle depend on:
a. The type of business
b. The auditor
c. The size of the company
d. Whichever ones management decides |
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Term
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Definition
ich of the following are NOT four of the controls over notes payable?
a. Proper authorization for the issue of new notes
b. Proper document and records
c. Proper testing of records
d. Periodic independent verification |
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Term
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Definition
4. Which of the following is the two balance-related audit objective in notes payable?
a. Completeness and Occurrence
b. Occurrence and Accuracy
c. Accuracy and Completeness
d. None of above |
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Term
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Definition
5. What is/are the major owner’s equity account(s) in a publicly held corporation?
a. Capital and common stock
b. Paid-in capital in excess of par
c. Retained earnings and related dividends
d. All of the above |
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Term
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Definition
6. Which of the following is not an equity transaction that requires authorization?
a. Issuance of capital stock
b. Declaration of independent socks
c. Repurchase of capital stock
d. Declaration of dividends |
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Term
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Definition
7. The emphasis in the audit of dividends is usually on what?
a. Internal controls
b. Ending balance
c. Dividend transactions
d. None of these |
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Term
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Definition
8. Where do auditor look to verify authorization of the amount of dividend per share and the dividend date?
a. Minutes of BOD meeting
b. Notes of financial statements
c. Company news letter
d. Bank statement |
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Term
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Definition
9. Which transaction is typically involved in the audit of retained earnings?
a. Net Earnings for the year ended
b. Dividends declared
c. Both a & b
d. Neither of these |
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Term
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Definition
10. Which of these is NOT a step to confirm any changes to beginning balances?
a. Get a document , as a proof, from your client that shows how they got from beginning to ending retained earnings for the year ended under audit.
b. Trace the amount on net income (loss) adjustment to the client’s income statement.
c. Verify any receivables.
d. If the client reflects any prior-period adjustments, confirm that these are indeed errors and propose to make an adjustment to retained earnings. |
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Term
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Definition
1. What is not consider to test of Cost Accounting?
a. Unit cost record
b. Physical control over inventory
c. Transaction record
d. Perpeptual inventory master files |
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Term
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Definition
2. What is not physical observation of inventory?
a. Be present after the client counts its inventory for determining year-end balances.
b. Observe the client’s counting procedures.
c. Make inquiries of client personnel about their a couting procedures.
d. Make their own independent test of physical count. |
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Term
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Definition
3. What is Inventory Price Tests?
a. Include all the tests of client’s unit prices to determine whether they are incorrect.
b. Include all the tests of client’s unit prices to determine whether they are correct.
c. Include all the tests of client’s cost record to determine whether they are correct.
d. Include all the tests of client’s cost prices to determine. |
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Term
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Definition
4. What is the first step related to Flow of Inventory?
a. Put material in storage.
b. Put material in production.
c. Receive raw material.
d. Put complete goods in storage. |
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Term
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Definition
5. What is Cost Accounting Controls?
a. Physical control over inventory by cost related to it.
b. Cutting uncecessary storage cost.
c. Getting goods in lower cost.
d. Cutting inventory wastage. |
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Term
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Definition
6. When auditor observe the client counting inventory, which of the following factors they shouldn’t worried about?
a. Observing the counting of most significant item.
b. Number of students in our ACCT 415 class.
c. Inquire about items that are likely to be obsolete or damage.
d. Discuss with management the reasons for excluding any material items. |
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Term
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Definition
7. Which account is not part of Inventory and Warehouse cycle?
a. Direct labor
b. Work-in-process
c. Cost of Goods Sold
d. Sales. |
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Term
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Definition
8. Which Inventory and Warehousing function requires cost accounting system?
a. Process purchase orders
b. Store raw materials
c. Store finish goods
d. Process the goods |
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Term
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Definition
9. What are the balance-related audit objectives in inventory?
a. Existence
b. Accuracy
c. Both a & b
d. None of the above. |
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Term
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Definition
10. Which of the following is not 5 activities within the Inventory and Warehousing cycle?
a. Price and complete inventory.
b. Physical observe inventory.
c. Physical controls over inventory.
d. Internally transfer assets and costs. |
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Term
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Definition
1. Which account is included in all 3 classes of transactions?
a. Cash in Bank
b. Accounts Payable
c. Prepaid Expenses
d. Raw Materials |
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Term
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Definition
2. Which is not a report to use to recognize a liability?
a. Voucher
b. Vendor Invoice
c. Income Statement
d. Acquisition Transaction File |
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Term
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Definition
3. In the test “Acquisition transactions are correctly included in the accounts payable and inventory master files and are correctly summarized”, which assertion is of principle concern to the auditors?
a. Valuation
b. Completeness
c. Existence
d. Timing |
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Term
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Definition
4. What report should auditors trace when performing a cutoff test?
a. Receiving report
b. Acquisition report
c. Purchase Order
d. Fixed Asset Master File |
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Term
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Definition
5. A set of records for each piece of equipment that includes descriptive information, date of acquisition, original cost, current year depreciation, and accumulated depreciation is the:
a. Acquisitions journal
b. Depreciation schedule
c. Fixed asset master file
d. File of purchase requisitions |
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Term
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Definition
6. Which Account is not included in this cycle?
a. Accounts Payable
b. Purchase Discounts
c. Prepaid Expenses
d. Retained Earnings |
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Term
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Definition
7. A prepaid expense is:
a. Paid and recorded in an asset account before it is used or consumed
b. Not paid or recorded until the expense occurs
c. Paid and recorded as an expense before it is used or consumed
d. Not paid or recorded until the end of the fiscal year |
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Term
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Definition
8. Which is not an example of a prepaid expense?
a. Rent
b. Insurance
c. Property
d. Taxes |
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Term
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Definition
The following class of transactions are included in the 8 business functions of the sales and collection cycle:
a. accounts receivable, cash, purchases, sales discounts
b. accounts receivable, sales, accounts payable
c. sales, cash receipts, sales returns and allowances, write-off of uncollectible accounts, and bad debt expense
d. bad debt expense, cash, accounts payable, retained earnings, uncollectible accounts |
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Term
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Definition
Which of the following is NOT one of the 8 business functions of the sales and collection cycle?
a. processing customer orders
b. providing for bad debts
c. shipping goods
d. recording accounts payable |
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Term
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Definition
. Which one is NOT the account in the sales and collection cycle?
a. Sales
b. Accounts Payable
c. Cash in bank
d. Sales returns and allowances |
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Term
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Definition
4.What is the overall objective of the Sales and Collections Cycle?
a. To evaluate is whether the account balances affected are fairly presented with accounting standards.
b. To Decide whether the Winter Collection sold needs to updated.
c. To evaluate the Sales and Collections of competitors and decide if prices need to be dropped.
d. To evaluate the past due Sales accounts and decide who is behind and how to get them to
pay their accounts. |
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Term
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Definition
. An existing sales transaction is recorded as?
a. Occurrence
b. Completeness
c. Accuracy
d. Timing |
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Term
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Definition
. When a recorded sales transaction exists?
a. Occurrence
b. Completeness
c. Accuracy
d. Timing |
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Term
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Definition
. Which assertion may require an auditor to examine the allowance estimate made by management:
a) Existence
b) Disclosure
c) Valuation
d) Bad Debt |
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Term
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Definition
. Which is a type of confirmation that is addressed to the debtor and requests a response only when the debtor disagrees with the stated amount?
A. negative confirmation
B. blank confirmation form
C. invoice confirmation
D. positive confirmation |
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Term
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Definition
Charge-Off for Uncollectible Accounts affects which accounts?
a. Accounts Receivable and Sales
b. Sales and Bad Debt Expense
c. Bad Debt Expense and Allowance for uncollectible accounts
d. Accounts Receivable and Allowance for uncollectible accounts |
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Term
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Definition
The transaction class Sales deals with which Business function?
a. Providing for Bad Debts
b. Processing customer orders, granting credit, shipping goods, billing customers & recording sales
c. Processing & recording sales returns & allowances
d. Processing & recording cash receipts |
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Term
Control environment
Information and communication
Risk assessment
Monitoring
Control activities |
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Definition
| The COSO Framework describes five components of internal control: |
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Term
| reporting, operations, and compliance. |
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Definition
| The updated COSO framework includes a total of 17 broad principles that provide guidance to support all three internal control objectives: |
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Term
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Definition
| Consists of the actions, policies, and procedures that reflect the overall attitudes of top management, directors, and owners of an entity about internal control and its importance to the entity. |
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Term
Integrity and ethical values code of conduct and must be communicated to employees
Board of director or audit committee participation oversight of management
Organizational structure defines existing lines of responsibility and authority
Commitment to competence hiring only those with proper skills and knowledge
Accountability hold people accountable for their actions
The control environment is an umbrella over the other four components of internal control, |
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Definition
| The control environment has five underlying principles: |
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Term
risk assessment
Mgmt must identify risks, estimate significance, assess likelihood, and develop actions to reduce the risk to acceptable level. |
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Definition
A process for identifying and analyzing risks that may prevent the organization from achieving its objectives.
Involves management’s identification and analysis of risks relevant to the preparation of financial statements in conformity with appropriate accounting standards. |
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Term
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Definition
| The policies and procedures that help ensure that necessary actions are taken to address the risks to the achievement of the entity’s objectives. Can be manual (done by hand) or automated (computerized) |
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Term
Separation of the custody of assets from accounting
Separation of the authorization of transactions from the custody of related assets
Separation of operational responsibility from record-keeping responsibility
Separation of IT duties from the user departments |
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Definition
| There are four general guidelines for adequate separation of duties to prevent both fraud and errors: |
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Term
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Definition
| Management must establish and maintain the entity’s internal controls and report on effectiveness under: |
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Term
Reasonable Assurance—Management designs a system that provides reasonable assurance considering the costs involved. Low likelihood of material misstatement
Inherent Limitations—
No system of internal controls can be completely effective
Effectiveness depends on the competency and dependability of the employees
Collusion is still possible |
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Definition
| Internal control systems are designed with two concepts in mind |
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Term
Section 404 of Sarbanes-Oxley requires management of all public companies to issue an internal control report that includes the following:
Statement of responsibility
An assessment of the effectiveness of internal control over financial reporting as of the end of the fiscal year |
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Definition
| Management’s Section 404 Reporting Responsibilities |
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Term
Must obtain an understanding of internal control relevant to the audit.
Auditors are primarily concerned about:
Controls over the reliability of financial reporting
Controls over classes of transactions more concerned about transactions because they make up the account balances |
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Definition
Auditor Responsibilities for Understanding Internal Control—
* |
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Term
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Definition
| The policies and procedures that help ensure that necessary actions are taken to address the risks to the achievement of the entity’s objectives. Can be manual (done by hand) or automated (computerized) |
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Term
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Definition
| Controls that operate at the process level and apply to processing transactions |
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Term
Input controls designed to ensure that the info entered into the computer is authorized, accurate, and complete. Ex. mgmt.’s authorization of transactions, adequate preparation of documents, competent people, input screens, immediate error correction procedures. Also, batch controls (see next slide)
Processing controls prevent or detect errors while transaction data are processed, minimize processing errors (see processing control slide for examples)
Output controls focus on detecting errors after processing is completed, rather than on preventing errors. Most important is review of data for reasonableness by someone knowledgeable about the output, ex. reconcile produced output to manual totals, compare number of units to number of units submitted, verify dates and times |
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Definition
Application Controls—Designed for each software application.
Controls may be manual (depends on competence and care of personnel) or automated and include the following: |
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Term
Provides oversight for auditors of public companies including:
Establishing auditing, attestation, and quality control standards for public company audits.
Performing inspections of audit engagements and quality controls. |
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Definition
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Term
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Definition
| Established the Public Company Accounting Oversight Board (PCAOB). |
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Term
| sets the standards for all non public companies |
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Definition
|
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Term
| of the AICPA issues auditing standards, called Statements on Auditing Standards (SASs), which apply to all audit engagements not covered by PCAOB standards. |
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Definition
| The Auditing Standards Board (ASB |
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Term
| rules of conduct that CPAs are required to meet. The Code of Professional Conduct |
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Definition
| The AICPA Professional Ethics Executive Committee sets |
|
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Term
| International Standards on Auditing, AICPA auditing standards for entities other than public companies, and PCAOB Auditing Standards. |
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Definition
| Three main sets of auditing standards are |
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Term
is also known as a clean opinion because there is no modification of the auditor’s opinion.
This is the most common audit opinion. If there are circumstances that prevent a clean opinion, clients and auditors make the appropriate changes to their accounting records to avoid a qualification or modification by the auditor. |
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Definition
| Conditions for standard unmodified opinion audit report |
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Term
The scope of the audit has been restricted (scope limitation).
Auditor does not have sufficient appropriate evidence to make a conclusion.
Two major causes: restrictions imposed by the client and those caused by circumstances beyond either the client’s or auditor’s control.
The financial statements have not been prepared in accordance with GAAP (GAAP departure).
Ex. states assets at replacement costs instead of historical cost.
The auditor is not independent. |
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Definition
| Three conditions requiring a modification to the audit opinion: |
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Term
| Used when FS are so materially misstated or misleading that they do not present fairly the financial position of the entity. This is uncommon and is rarely used. Auditor has knowledge that they are misstated as opposed to a disclaimer when there is a lack of knowledge. |
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Definition
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Term
| Used when the auditor cannot form an opinion on the FS due to a severe scope limitation, lack of knowledge on the part of the auditor, or lack of independence. Disclaimer can also be used when client is a going concern, but this is rare in practice. |
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Definition
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Term
| A misstatement in the FS can be considered material if knowledge of the misstatement will affect a decision of a reasonable user of the statements. |
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Definition
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Term
| A disclaimer or adverse opinion is appropriate (Users are likely to make incorrect decisions if they rely on the FS). Auditor must consider how the exception affects different parts of the FS (pervasiveness). More pervasive=adverse opinion. Lack of independence=disclaimer |
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Definition
| Amounts are so material or so pervasive that overall fairness of the FS is in question: |
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Term
Decisions regarding materiality in specific audit situations involves judgment and are based on the following:
Materiality decisions—Non-GAAP condition leads to an unmodified opinion, qualified opinion only, or adverse opinion, depending on materiality level
Dollar amounts compared with a benchmark total amount of misstatement compared to a benchmark (common base is NI, total assets, current assets, and working capital)
Measurability somethings can’t be measured, client’s unwillingness to disclose an existing lawsuit |
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Definition
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Term
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Definition
risk that the auditor reaches an incorrect conclusion because the sample is not representative of the population. Inherent part of sampling
• Control it by adjust the sample size
• Use appropriate method of selecting sample items from the populations |
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Term
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Definition
| risk that the auditor reaches an incorrect conclusion for any reason not related to sampling risk. |
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Term
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Definition
| is one in which the characteristics in the sample are approximately the same as those of the population. |
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Term
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Definition
associated with non probabilistic sampling
• Every possible combination of population items has an equal chance of being included in the sample.
• Often generate random numbers |
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Term
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Definition
| auditors can quantify sampling risk in planning the sample and evaluating the results (ex. 95% confidence interval is a 5% sampling risk) |
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Term
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Definition
| auditors do not quantify sampling risk |
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Term
| systematic sample selection |
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Definition
• Auditor calculates an interval and then selects the items for the sample based on size of the interval
• Determine interval by dividing the population size by desired sample size.
• Advantage is ease of use, disadvantage is possible bias→patterns |
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Term
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Definition
| exception rate that the auditor will permit in the population and still be willing to conclude the control is operating effectively or the amount of monetary misstatements in the transaction established during planning is acceptable |
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Term
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Definition
| number of exceptions in the sample divided by the sample size |
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Term
| acceptable risk of overreliance |
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Definition
| isk that the auditor is willing to take of accepting a control as effective or a rate of monetary misstatement as tolerable, when the true population exception rate is greater than the tolerable exception rate (TER) |
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Term
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Definition
• Take a sample in which the probability of selecting any individual population item is proportional to its recorded amount. AKA sampling with probability proportional to size (PPS)
• Divide the population into subpopulations, usually by dollar size, and take larger samples from subpopulations with larger sizes. Aka stratified sampling |
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Term
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Definition
simple random
systematic
probability proportional to size
haphazard
block |
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Term
attributes sampling
specific amount 10% or 5% because they have to evaluate results statistically |
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Definition
| allows us to quantify the allowance for sampling risk and upper exception rate. Auditor compares the CUER with TER. Actual results must be less than or equal to the TER |
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Term
| plan, select and perform tests, evaluate results |
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Definition
| • Sampling is done in 3 steps: |
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Term
| the difference between the sample exception rate and the population exception rate. |
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Definition
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Term
o Attributes sampling→is a statistical method
o Difference between attributes sampling and nonstatistical sampling→calculation of initial sample size developed from statistical probability distributions using tables or software and calculation of estimated upper exception rates using audit software or tables |
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Definition
| statistical audit sampling |
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