Question 1

Examining company policies is an example of an audit procedure in auditing accrued liabilities.

Accepted Answer

Examining company policies is a common audit procedure performed by auditors to verify and evaluate the accuracy of accrued liabilities recorded in the financial statements. By reviewing the company policies, auditors can determine if the accruals are reasonable and comply with accounting standards and regulatory requirements.

Question 2

When auditing owners' equity, the rights and obligations objective is not applicable.

Accepted Answer

The answer of When auditing owners' equity, the rights and...

Question 3

The bank reconciliation should be completed by someone with primary responsibility for cash receipts and payments.

Accepted Answer

The bank reconciliation should be completed by someone who does not have direct responsibilities for cash receipts and payments to ensure independence and reduce the risk of fraud or error.

Question 4

The procedure of comparing the total balance in loans payable, interest expense and accrued interest with the prior year is to identify possible misstatements of interest expense, accrued interest or loans payable.

Accepted Answer

Comparing the total balance in loans payable, interest expense and accrued interest with the prior year is a common analytical procedure used by auditors to identify any significant misstatements or errors in financial statements related to these accounts. It helps to ensure the accuracy and completeness of financial information presented in the statements.

Question 5

The audit of dividends transactions is typically performed using attributes sampling.

Accepted Answer

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Question 6

If internal controls over cash- related transactions are operating effectively, control risk is increased.

Accepted Answer

If internal controls over cash-related transactions are operating effectively, control risk is decreased rather than increased. Effective internal controls help to reduce the likelihood of errors or fraud within cash transactions, therefore lowering the risk associated with these transactions.

Question 7

Proof of cash is prepared in the audit when the client has a significant deficiency in internal control in cash.

Accepted Answer

Proof of cash is a procedure that involves reconciling the cash balance on the bank statement to the general ledger cash balance. It is typically performed in situations where the auditor has identified significant deficiencies in the client's internal control over cash. Therefore, the statement is true.

Question 8

The starting point for the verification of current- year acquisitions of property, plant and equipment is normally a client- prepared schedule of all acquisitions recorded in the general ledger during the year.

Accepted Answer

This is true as the client is responsible for recording all acquisitions in the general ledger. The auditor will use this schedule to verify and test the acquisitions.

Question 9

The audit of the bank reconciliation will normally lead to the discovery of theft of cash by interception of cash receipts from customers before they are recorded, with the account written off as a bad debt.

Accepted Answer

The audit of the bank reconciliation primarily focuses on verifying the accuracy of the bank's ending balance and the company's book balance by identifying outstanding checks, deposits in transit, and other reconciling items. It may not directly uncover theft of cash by interception before recording, as this type of fraud involves manipulating records before they reach the reconciliation process. Detection of such theft often requires additional audit procedures targeting internal controls, receipt processes, and review of write-offs.

Question 10

The most important audit objective for depreciation expense is completeness.

Accepted Answer

The most important audit objective for depreciation expense is accuracy, as it ensures the depreciation calculations are correct and reflect the asset's consumption over its useful life. Completeness is more relevant to ensuring all assets that should be depreciated are included in the calculation.

Question 11

A shareholders' master file is a record of the issuance and redemption of shares over the life of the corporation.

Accepted Answer

The answer of A shareholders' master file is a record...

Question 12

The audit objectives for tests of cash balances are completeness, accuracy and cutoff.

Accepted Answer

The answer of The audit objectives for tests of cash...

Question 13

The primary accounting record for manufacturing equipment and other property, plant and equipment accounts is generally an asset register.

Accepted Answer

An asset register is the primary accounting record for manufacturing equipment and other property, plant and equipment accounts. It is used to track details such as the purchase date, cost, depreciation, and current value of each asset.

Question 14

The cash balance is immaterial in many audits, but cash transactions affecting the balance are almost always extremely material.

Accepted Answer

While the cash balance may not be material in some audits, any transactions that affect the balance, such as large deposits, withdrawals, or discrepancies, have the potential to significantly impact the financial statements and are therefore considered highly material.

Question 15

In auditing the retained earnings balance for the year, the auditor traces the entry in retained earnings to the net earnings shown in the balance sheet.

Accepted Answer

The auditor traces the entry in retained earnings to the net earnings shown in the income statement, not the balance sheet. The balance sheet shows the ending balance of retained earnings after net earnings and any dividends have been accounted for.

Question 16

The audit procedure 'Examine loans paid after year- end to determine whether they were liabilities at the balance sheet date' is performed when verifying the completeness objective for loans payable.

Accepted Answer

This procedure helps ensure that all liabilities existing at the balance sheet date are recorded, thus verifying the completeness of loans payable.

Question 17

The audit procedure 'foot the schedule of fixed assets acquisitions and trace the total to the general ledger' relates most closely to the accuracy objective for fixed assets acquisitions.

Accepted Answer

The answer of The audit procedure 'foot the schedule of...

Question 18

The auditor's physical examination of property, plant and equipment is commonly used when verifying the existence objective for acquisitions of property, plant and equipment.

Accepted Answer

The auditor's physical examination of property, plant and equipment is a common procedure used to confirm the existence of the assets being acquired as part of the verification process.

Question 19

Kiting involves transferring money from one bank to another and incorrectly recording the transaction.

Accepted Answer

Kiting involves intentionally inflating an account balance by transferring funds between bank accounts and recording the same transfer multiple times in order to falsely inflate the balance. It is a form of check fraud and is illegal.

Question 20

Recording of an acquisition of a fixed asset at an improper amount affects the balance sheet until the company disposes of the asset, but the income statement is not affected.

Accepted Answer

Recording an acquisition of a fixed asset at an improper amount affects not only the balance sheet through incorrect asset and possibly equity values but also the income statement over time due to incorrect depreciation expense, which impacts net income.

Quiz 16: Audit of Transaction Cycles and Financial Statement Balances II