Question 1

Flagpole Company Limited recently upgraded its accounting software due to changes in the payroll income tax rates.Unfortunately,there was an error in the software,and income tax was calculated incorrectly.The general transaction-related audit objective affected by this error is

Accepted Answer

The error in the software resulted in an incorrect calculation of income tax, impacting the accuracy of the transactions. Therefore, the general transaction-related audit objective affected by this error is accuracy.

Question 2

List and explain the assertions that are relevant to presentation and disclosures.

Accepted Answer

The answer of List and explain the assertions that are...

Question 3

To help improve the cash balance on the financial statements,the controller recorded several deposits from early January in the month of December.The general balance-related audit objective affected by this activity is

Accepted Answer

The general balance-related audit objective affected by recording several deposits from early January in the month of December is allocation timing. This is because the timing of recording these deposits in a different period may affect the cash balance reported on the financial statements. By recording the deposits in December instead of January, the cash balance will be overstated for December and understated for January, which can mislead users of financial statements. Therefore, auditors need to examine the timing of transactions and ensure that they are recorded in the correct period.

Question 4

The sole shareholder of Jade Company had a contractor pave the parking lot at the company building as well as the driveway of his home.Both paving jobs were billed to the company on a single invoice.The general balance-related audit objective affected by this activity is

Accepted Answer

The general balance-related audit objective affected by this activity is rights and obligations. This is because the invoice for the paving of the shareholder's home driveway should not have been paid for by the company as it is not an expense related to the company's operations. Therefore, the auditor needs to ensure that the company did not have any unauthorized or invalid expenses, and that all expenses incurred by the company were for its own benefit and in compliance with legal and contractual obligations.

Question 5

Gabori Company would like to pay less income tax this year.It decided that it could do this by understating its inventory values,increasing costs of goods sold.This was done by deliberately pricing the inventory at incorrect amounts,so that it would be shown at a lower value than it was really worth (for example,items worth five dollars each were shown at fifty cents each).Which management assertion has been violated?

Accepted Answer

The answer of Gabori Company would like to pay less...

Question 6

Heavy Manufacturing Company is in the business of making steel plates,forming heavy metal slabs,and drilling and scoring metals.The company recently upgraded many of its forming machines.Five machines were purchased on four different invoices.Unfortunately,one of the invoices was recorded twice,resulting in five invoices being recorded.The general balance-related audit objective affected by this activity is

Accepted Answer

The existence objective is affected because the recording of an invoice twice suggests that there may be an overstatement of assets, indicating that not all recorded transactions actually occurred.

Question 7

List and explain the assertions that are relevant to classes of transactions and events.

Accepted Answer

The answer of List and explain the assertions that are...

Question 8

In testing for cutoff,the objective is to determine

Accepted Answer

The objective of testing for cutoff is to ensure that the transactions have been recorded in the proper period. This means that transactions occurring in the current period are recorded in the current period and not in a future period or the prior period. Therefore, the best choice is D - whether transactions are recorded in the proper period.

Question 9

Frank has come to you because he is worried about recovering the cost of his share of a law firm partnership.His partner,Jennifer,is exercising the "shotgun" clause in their partnership agreement and wants to buy him out.Over the last two years,Frank and Jennifer have had numerous battles over the way that Frank handles his accounts receivable.Frank is lenient with his customers and has converted many of his accounts into long-term notes extending two and three years into the future.He is confident that these amounts are collectible because every one of his clients continues to make small monthly payments.
Frank thinks that Jennifer may have been hiding profits from him and collecting some of her accounts in cash.He wants you to audit the books so that he can figure out what the "true" profits are and how much Jennifer should pay him for his share of the partnership.
Required:
A)Explain to Frank what you would be able to do during the audit engagement.
B)List the management assertions that may have been violated.Justify your answer.

Accepted Answer

The answer of Frank has come to you because he...

Question 10

If the purchase of a long-term note receivable is included as cost of goods sold,there is a violation of the

Accepted Answer

Classification objective. The cost of a long-term note receivable should not be included as cost of goods sold, as it is not directly related to the sale of goods or services. This is a violation of the classification objective, which requires that items should be properly categorized in financial statements.

Question 11

Georgina was working as the part-time accountant for three small businesses.Whenever she could,she pocketed cash and neglected to record the sale in the sales system.The general transaction-related audit objective affected by her actions is

Accepted Answer

The general transaction-related audit objective affected by Georgina's actions is completeness. Completeness ensures that all transactions have been recorded in the accounting system. Georgina's misconduct of neglecting to record sales affects the completeness objective as they are not recorded in the system.

Question 12

Radio Supplies Limited sells parts and components to organizations that repair radios and other forms of audio equipment.It has many parts on its inventory listing at cost that were purchased up to fifteen years ago.Some of these parts have not seen any movement in the last ten years.The general balance-related audit objective affected by this activity is

Accepted Answer

The general balance-related audit objective affected by this activity is valuation. The age of the parts raises a question about their current value, and it may be necessary to adjust the inventory's value on the balance sheet to accurately reflect their true value.

Question 13

Balance-related audit objectives are applied to which types of general ledger accounts?

Accepted Answer

Balance-related audit objectives are applicable to balance sheet accounts as they represent the assets, liabilities, and equity of the organization. Additionally, some income statement accounts may also be subject to balance-related audit objectives as they may have a direct impact on the balances of the balance sheet accounts (e.g. accruals, deferrals, depreciation). The cash flow statement is not directly relevant to balance-related audit objectives.

Question 14

When considering each material type (or class)of transaction during the audit,which general transaction-related audit objectives are assessed during the audit?

Accepted Answer

Audit objectives related to transactions include completeness, occurrence, accuracy, authorization, and cutoff. All five objectives should be assessed during the audit to ensure that transactions are recorded accurately and completely in the financial statements. The risk of error and the quality of the internal controls may impact the assessment of these objectives, but they should all be considered regardless. Therefore, option B is the best choice. Option D is not correct as it assumes that only three objectives are typically associated with errors, which is not necessarily true.

Question 15

Big Bank had a program failure occur on Sunday night due to a maintenance program error.Transaction posting was interrupted,with several errors occurring in posting to the master files.Although sales had been posted to the general ledger,individual accounts were not recorded until subsequent days.The general transaction-related audit objective affected by this activity is

Accepted Answer

The error in posting to the master files implies that there were inaccuracies in the transaction records, affecting the accuracy audit objective.

Question 16

Jane's employer purchased a new calculator this month.When Jane added up the sales for the day,she was a bit confused with the new calculator and made numerous adding errors.The daily sales total for the next week were incorrectly posted to the general ledger.The general balance-related audit objective affected by this activity is

Accepted Answer

The adding errors made by Jane with the new calculator resulted in incorrect daily sales totals, which would affect the accuracy (of allocation) objective. The amounts wrongly entered into the general ledger may have been allocated to the incorrect accounts, causing discrepancies in the financial statements.

Question 17

List and explain the assertions that are relevant to account balances.

Accepted Answer

The answer of List and explain the assertions that are...

Question 18

Heavy Manufacturing Company is in the business of making steel plates,forming heavy metal slabs,and drilling and scoring metals.The company recently upgraded many of its forming machines.Fortunately,it was able to sell its old equipment at a reasonable price.The effect was that sales for the quarter are substantially improved over the same period in the prior year.The general transaction-related audit objective affected by this activity is

Accepted Answer

The correct answer is classification because the sale of old equipment and the improvement in sales from the core business activities (making steel plates, forming heavy metal slabs, and drilling and scoring metals) should be classified differently in the financial statements. The sale of old equipment is a one-time transaction that does not relate to the core operational revenue, thus affecting the classification objective to ensure transactions are recorded in the proper accounts.

Question 19

Camilla is preparing the audit program for the inventory of Summers,a large department store.Camilla listed "select a sample of invoices from suppliers to verify that the risks and rewards of the inventory were transferred to Summers." Camilla is concerned that some of the inventory in the store might be on consignment.The account balance-related objective that Camilla is concerned about is

Accepted Answer

The account balance-related objective that Camilla is concerned about is rights and obligation, which involves verifying that Summers owns the inventory and has the right to use or sell it. This is particularly relevant in cases where inventory is held on consignment, as the legal title and risks and rewards of the goods may still lie with the consignor, and not with Summers. Verifying the invoices from suppliers is a way to gather evidence to support the assertion of rights and obligation. Accuracy, valuation, and existence are other important account balance-related objectives, but they are not the primary concern in this scenario.

Question 20

The Big Insurance Company implemented a new computer system to track and record insurance premiums receivable.The program automatically prints invoices and sends them to customers when premiums are due.Due to a program error,a whole series of invoices were included in sales but not in accounts receivable.The general balance-related audit objective affected by this activity is

Accepted Answer

The error resulted in the omission of invoices from accounts receivable, indicating that the completeness objective was not met. This means that some transactions were not recorded in the system, leading to an incomplete representation of the organization's financial standing.

Quiz 4: Audit Responsibilities and Objectives

Flagpole Company Limited recently upgraded its accounting software due to changes in the payroll income tax rates.Unfortunately,there was an error in the software,and income tax was calculated incorrectly.The general transaction-related audit objective affected by this error is

List and explain the assertions that are relevant to presentation and disclosures.

To help improve the cash balance on the financial statements,the controller recorded several deposits from early January in the month of December.The general balance-related audit objective affected by this activity is

The sole shareholder of Jade Company had a contractor pave the parking lot at the company building as well as the driveway of his home.Both paving jobs were billed to the company on a single invoice.The general balance-related audit objective affected by this activity is

List and explain the assertions that are relevant to classes of transactions and events.

In testing for cutoff,the objective is to determine

If the purchase of a long-term note receivable is included as cost of goods sold,there is a violation of the

Georgina was working as the part-time accountant for three small businesses.Whenever she could,she pocketed cash and neglected to record the sale in the sales system.The general transaction-related audit objective affected by her actions is

Balance-related audit objectives are applied to which types of general ledger accounts?

When considering each material type (or class) of transaction during the audit,which general transaction-related audit objectives are assessed during the audit?

List and explain the assertions that are relevant to account balances.