Question 1

Observing the client's inventory taking enables the auditor to establish that:
A) count tags, sheets or cards are properly controlled.
B) the client's personnel are complying with the instructions for inventory counts.
C) items belonging to the client are accurately counted and recorded.
D) all of the above.

Accepted Answer

Observing the client's inventory taking enables the auditor to establish all of the above. It allows the auditor to ensure that count tags, sheets or cards are properly controlled, the client's personnel are complying with instructions for inventory counts, and items belonging to the client are accurately counted and recorded.

Question 2

The additional opportunities for influencing the timing of the work include:
A) reviewing provisions prior to year-end.
B) leveraging off the activities of the internal audit function.
C) reviewing activity in the period to date.
D) all of the above.

Accepted Answer

Reviewing provisions prior to year-end, leveraging off the activities of the internal audit function, and reviewing activity in the period to date are all additional opportunities for influencing the timing of the work. Therefore, the best choice is D.

Question 3

Anna Monticello tested the postings of the totals in the cash receipts journal to the general ledger, trade receivables sub-ledger and other subsidiary ledgers. Which assertion(s) was she
Fulfilling?
A) completeness
B) valuation and allocation
C) accuracy
D) none of the above

Accepted Answer

The answer of Anna Monticello tested the postings of the...

Question 4

Lynn Katsopolus was not sure which customers of her client to send confirmations. Who should she send confirmations to?
A) to the customers who will be most likely to reply
B) to the customers with the largest balances
C) to the customers with the oldest balances
D) both b and c

Accepted Answer

Sending confirmations to customers with the largest and oldest balances helps ensure the accuracy of significant and potentially problematic accounts.

Question 5

The three audit assertions particularly important to enable the auditor to conclude that there are no material misstatements in cash as at year-end are:
A) existence, completeness and classification.
B) rights and obligations, cut-off and occurrence.
C) occurrence, completeness and accuracy.
D) classification, occurrence and valuation.

Accepted Answer

Existence, completeness, and classification are key assertions for cash. Existence ensures the cash balance is real, completeness ensures all cash transactions are recorded, and classification ensures transactions are recorded in the correct accounts.

Question 6

Which of the following statements regarding a share register is incorrect?
A) It is a list of all the items of inventory that a company has.
B) It is used to capture purchases and sales of shares.
C) It is essentially the sub-ledger reconciled to the general ledger account for share capital.
D) It is prepared by the auditor.

Accepted Answer

The answer of Which of the following statements regarding a...

Question 7

Theresa Bamboukian started her sales process audit and was accounting for the numerical sequence of sales invoices, sales orders and shipping documents. In addition she performed a
Reconciliation of billings with shipping documents. Which assertions was she fulfilling?
A) existence, accuracy
B) completeness, cutoff
C) existence, valuation and allocation
D) none of the above

Accepted Answer

The answer of Theresa Bamboukian started her sales process audit...

Question 8

Which of the following is a substantive test of the trade receivables balance that is always performed?
A) testing the accounting classification of sales transactions
B) testing the mathematical accuracy of the cash receipts ledger
C) evaluating the adequacy of the provision for doubtful accounts
D) none of the above

Accepted Answer

Evaluating the adequacy of the provision for doubtful accounts is always performed as it is a key control over the trade receivables balance. This test is essential in ensuring that the company has accurately estimated the amount of potential bad debts and has made adequate provisions for these debts in the financial statements.

Question 9

When Costa Zimbalist observes the inventory count at a client to establish that the client's personnel are complying with inventory count instructions, which assertions are in play?
A) completeness, cutoff, rights and obligations
B) completeness, cutoff
C) existence, classification
D) existence, completeness, valuation and accuracy

Accepted Answer

Observing the inventory count helps ensure that the inventory exists, is complete, and is accurately valued and recorded, which relates to the assertions of existence, completeness, and valuation and accuracy.

Question 10

George Malinowski was trying to check whether the receivables of Cosentino Distributors were being carried at their net realizable value. His objective was to fulfill which assertion?
A) completeness
B) valuation and allocation
C) existence
D) none of the above

Accepted Answer

George Malinowski was trying to check whether the receivables of Cosentino Distributors were being carried at their net realizable value, which is related to the valuation and allocation assertion. Completeness is related to ensuring that all transactions are recorded, existence is related to ensuring that the assets exist and are owned by the company. None of these are the objective of George Malinowski.

Question 11

Which of the following is not an example of a substantive test of cash payments transactions?
A) test the account classifications of cash payments
B) account for the numerical sequence of cheques issued during a specified period
C) test the mathematical accuracy of the cash receipts ledger
D) determine whether the signatures on paid cheques are authorized

Accepted Answer

Substantive tests of cash payments transactions focus on verifying the validity and accuracy of cash disbursements. Testing the mathematical accuracy of the cash receipts ledger is related to cash receipts, not cash payments.

Question 12

Which are the two audit assertions considered most important to the auditor concluding there are no material misstatements in trade receivables at year-end?
A) valuation and allocation, and rights and obligations
B) existence and occurrence
C) occurrence and rights and obligations
D) existence and valuation and allocation

Accepted Answer

The two audit assertions considered most important to the auditor concluding there are no material misstatements in trade receivables at year-end are existence and valuation and allocation. Existence is important to ensure that the trade receivables actually exist and belong to the company, while valuation and allocation are necessary to confirm that the trade receivables are recorded accurately and fairly. Rights and obligations assertion relates to whether the company has legal rights to its trade receivables and whether the trade receivables are stated at the correct amount. Occurrence assertion relates to whether the trade receivables actually occurred and whether the transaction was recorded properly. Although these assertions are also important, they are not the two most important assertions for trade receivables.

Question 13

Accounts that are clearly trivial or immaterial are usually ignored or only subjected to:
A) tests of controls.
B) analytical procedures.
C) confirmations.
D) observations.

Accepted Answer

Trivial or immaterial accounts are not significant enough to impact the overall financial statements, so they may be subjected only to analytical procedures rather than confirmations or tests of controls. Observations are not typically part of the audit process for individual accounts.

Question 14

Existence of trade receivables is usually verified by:
A) examining copies of sales invoices sent to the client's customers.
B) sending confirmations to the client's customers.
C) calculating changes in the receivables balance from one year to the next.
D) evaluating the adequacy of the provision for doubtful accounts.

Accepted Answer

The most reliable way to verify the existence of trade receivables is through direct confirmation with the client's customers. This ensures that the balances are accurate and are actually expected to be collected. A&B are the common methods to verify the existence of trade receivables, but examining copies of sales invoices only shows that a sale was made, not if the receivable was paid or not. Calculating changes in the receivables balance may show if there are any discrepancies, but does not verify the actual existence of the receivables. Evaluating the adequacy of the provision for doubtful accounts is related to the valuation and accuracy of the receivables balance, but does not directly verify their existence.

Question 15

The rights and obligations assertion for inventory relates to which of the following audit objectives?
A) Inventory is properly classified, described and disclosed in the financial statements.
B) The entity owns, or has the legal right to, all of the inventory on the balance sheet.
C) All inventory on the inventory listing is included in the financial statements.
D) All inventory owned by the entity at year-end is included on the balance sheet.

Accepted Answer

The rights and obligations assertion for inventory relates to whether the entity owns, or has the legal right to, all of the inventory on the balance sheet. This assertion ensures that the inventory belongs to the entity and that there are no ownership or legal rights issues, such as consigned inventory or inventory held on behalf of others. Therefore, the best choice is B. The other options relate to completeness (C, D) and accuracy and presentation (A) assertions.

Question 16

Which of the following substantive tests of cash account balances are always performed?
A) Test cut-off of cash receipts, cash payments and transfers at year-end
B) Confirm cash held by others
C) Examine the client's bank reconciliations
D) All of the above

Accepted Answer

All three substantive tests are crucial in providing sufficient evidence for the auditor's evaluation of the cash account balance. Testing cut-off ensures that all transactions are recorded and reflected in the appropriate period. Confirming cash balances held by others provides independent verification of the existence of cash balances. Examining bank reconciliations ensures that all reconciling items are properly accounted for and accurately reflected in the cash balance.

Question 17

When the assessment of inherent and control risk is low:
A) the level of substantive procedures is limited.
B) there are lots of controls that have been tested and found to be effective.
C) both a and b.
D) none of the above.

Accepted Answer

When inherent and control risks are assessed as low, it implies that the auditor has found effective controls in place, thus reducing the need for extensive substantive procedures.

Question 18

When Silvana Mathews reviewed the physical inventory compilation she performed a procedure that included tracing the cut-off information obtained during the physical inventory
Observation to the accounting records of sales and purchases. Which assertion did this
Procedure satisfy?
A) valuation and accuracy
B) completeness
C) existence
D) all of the above

Accepted Answer

The answer of When Silvana Mathews reviewed the physical inventory...

Question 19

Celestino Minotti tested the posting of individual credit memos to the sales returns and allowances ledger and to the trade receivables sub-ledger. Which assertion was he fulfilling?
A) classification
B) existence
C) completeness
D) cutoff

Accepted Answer

By posting individual credit memos to the sales returns and allowances ledger and to the trade receivables sub-ledger, Celestino Minotti is fulfilling the assertion of classification, which means proper classification of transactions in the financial statements.

Question 20

Can you help Rosa Chaput determine why there is some effort put into testing cash when the cash account is not material?
A) because cash can be stolen easily
B) because cash has to be valued properly at year-end
C) because so many transactions flow through cash
D) none of the above

Accepted Answer

The answer of Can you help Rosa Chaput determine why...

Quiz 10: Substantive Testing and Balance Sheet Accounts

Observing the client's inventory taking enables the auditor to establish that:

The additional opportunities for influencing the timing of the work include:

Anna Monticello tested the postings of the totals in the cash receipts journal to the general ledger, trade receivables sub-ledger and other subsidiary ledgers. Which assertion(s) was she Fulfilling?

Lynn Katsopolus was not sure which customers of her client to send confirmations. Who should she send confirmations to?

The three audit assertions particularly important to enable the auditor to conclude that there are no material misstatements in cash as at year-end are:

Which of the following statements regarding a share register is incorrect?

Theresa Bamboukian started her sales process audit and was accounting for the numerical sequence of sales invoices, sales orders and shipping documents. In addition she performed a Reconciliation of billings with shipping documents. Which assertions was she fulfilling?

Which of the following is a substantive test of the trade receivables balance that is always performed?

When Costa Zimbalist observes the inventory count at a client to establish that the client's personnel are complying with inventory count instructions, which assertions are in play?

George Malinowski was trying to check whether the receivables of Cosentino Distributors were being carried at their net realizable value. His objective was to fulfill which assertion?

Which of the following is not an example of a substantive test of cash payments transactions?

Which are the two audit assertions considered most important to the auditor concluding there are no material misstatements in trade receivables at year-end?

Accounts that are clearly trivial or immaterial are usually ignored or only subjected to:

Existence of trade receivables is usually verified by:

The rights and obligations assertion for inventory relates to which of the following audit objectives?

Which of the following substantive tests of cash account balances are always performed?

When the assessment of inherent and control risk is low:

When Silvana Mathews reviewed the physical inventory compilation she performed a procedure that included tracing the cut-off information obtained during the physical inventory Observation to the accounting records of sales and purchases. Which assertion did this Procedure satisfy?

Celestino Minotti tested the posting of individual credit memos to the sales returns and allowances ledger and to the trade receivables sub-ledger. Which assertion was he fulfilling?

Can you help Rosa Chaput determine why there is some effort put into testing cash when the cash account is not material?