ACCT 460 Auditing Spring 2012, Quiz #7, Chpts 16, 17 & 24

Name _____________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1 The net rea!iza"!e #a!ue $% a&&$unts re&ei#a"!e is e'ua! t$( 1 _______ A)

ross accounts receivable less allowance !or uncollectible accounts ) * gr$ss a&&$unts re&ei#a"!e !ess returns and a!!$+an&es) C gr$ss a&&$unts re&ei#a"!e !ess sa!es dis&$unts) , gr$ss a&&$unts re&ei#a"!e !ess "ad de"t e-pense) 2 The understatement $% sa!es and a&&$unts re&ei#a"!e is "est un&$#ered ".( 2 _______ A

re#ie+ing the aged tria! "a!an&e) * &$n%irming re&ei#a"!es) C re&$n&i!ing the a&&$unts re&ei#a"!e genera! !edger a&&$unt +ith the s&hedu!e $% a&&$unts re&ei#a"!e) , test $% transa&ti$ns %$r shipments made "ut n$t re&$rded) / An audit$r !earns that &$!!e&ti$ns $% a&&$unts re&ei#a"!e during the %irst ten da.s $% 0anuar. +ere de"ited t$ &ash and &redited t$ a&&$unts re&ei#a"!e as $% ,e&em"er /1) The e%%e&t genera!!. +i!! "e t$( / _______

A $#erstate the &urrent rati$ +ith n$ e%%e&t $n +$r1ing &apita! at ,e&em"er /1) * !ea#e "$th +$r1ing &apita! and the &urrent rati$ un&hanged at ,e&em"er /1) C $#erstate +$r1ing &apita! +ith n$ e%%e&t $n the &urrent rati$ at ,e&em"er /1) , $#erstate "$th +$r1ing &apita! and the &urrent rati$ at ,e&em"er /1) 4 The &$rre&t a&&$unting %$r a&&$unts re&ei#a"!e a&&$unts +ith &redit "a!an&es, pr$#ided the. are signi%i&ant, +$u!d "e( 4 _______ A &$rre&ted ". ma1ing ad2usting entries) * m$#ed t$ the de"it side) C re&!assi%ied as a&&$unts pa.a"!e) , +ritten $%%) 3 4% the &!ient5s interna! &$ntr$! %$r re&$rding sa!es returns and a!!$+an&es is e#a!uated as ine%%e&ti#e( 3 _______ A a!! sa!es returns must "e &$n%irmed +ith the &ust$mer) * a !arger samp!e ma. "e needed t$ #eri%. &ut$%%) C a!! sa!es returns must "e tra&ed t$ supp$rting d$&umentati$n)

, samp!ing is n$t appr$priate) 6 A &ust$mer mai!s and re&$rds a &he&1 t$ a &!ient %$r pa.ment $% an unpaid a&&$unt $n ,e&em"er /0) The &!ient re&ei#es and re&$rds the am$unt $n 0anuar. 2) The re&$rds $% the t+$ $rganizati$ns +i!! "e di%%erent $n ,e&em"er /1) This represents( 6 _______ A A timing di%%eren&e 6es

A &ut$%% misstatement N$ * A &ut$%% misstatement N$ C A &ut$%% misstatement 6es , A &ut$%% misstatement 6es 7

A timing di%%eren&e N$

A timing di%%eren&e N$

A timing di%%eren&e 6es

6$u are re#ie+ing sa!es t$ dis&$#er &ut$%% pr$"!ems) 4% the &!ient5s p$!i&. is t$ re&$rd sa!es +hen tit!e t$ the mer&handise passes t$ the "u.er, then the "$$1s and re&$rds +$u!d &$ntain err$rs i% the ,e&em"er /1 entries +ere %$r sa!es re&$rded( 7 _______ A

se#era! da.s su"se'uent t$ shipment) * at a time a%ter the p$int at +hi&h tit!e passed) C "e%$re the mer&handise +as shipped)

, at the time the mer&handise +as shipped) 7 A pr$&edure t$ test %$r a &ash re&eipts &ut$%% err$r is( 7 _______ A

tra&ing re&$rded &ash re&eipts t$ "an1 dep$sits $n the "an1 statement $% a di%%erent peri$d) * $"ser#ing the &$unting $% &ash at the "a!an&e sheet date) C re&$n&i!ing the "an1 statement) , per%$rming a %$ur8&$!umn pr$$%8$%8&ash) 9 6$u are auditing :$dgers and C$mpan. and ha#e n$ti&ed that a&&$unts re&ei#a"!es ha#e in&reased %r$m the pre#i$us .ear "e&ause $% %inan&ia! pr$"!ems +ith its &ust$mers) 6$ur !i1e!. %irst resp$nse +$u!d "e t$( 9 _______ A in&rease the a!!$+an&e %$r un&$!!e&ti"!e a&&$unts %$r the &!ient) * &$mmuni&ate t$ the &!ient that &redit p$!i&. must "e re#ie+ed) C e-pand tests regarding a&&$unt "a!an&e &$!!e&ta"i!it.) , in&rease the samp!e size $% past due a&&$unts) 10 ;hen se!e&ting a samp!e size %$r su"stanti#e tests $% "a!an&es +hi&h %a&t$r, $ther %a&t$rs "eing e'ua!, +$u!d resu!t in a !arger samp!e< 10

______ A sma!! e-pe&ted misstatements * sma!!er t$!era"!e misstatement C greater e-pe&ted misstatement , greater t$!era"!e misstatement 11 4% an audit$r desires a greater !e#e! $% assuran&e in auditing a "a!an&e, the a&&epta"!e ris1 $% in&$rre&t a&&eptan&e( 11 ______ A

is in&reased) * ma. "e redu&ed $r in&reased depending up$n $ther &ir&umstan&es) C is redu&ed) , is n$t &hanged) 12 The a&&epta"!e ris1 $% in&$rre&t a&&eptan&e is m$st re!ated t$( 12 ______ A

audit estimati$n) * audit resu!ts) C

audit e%%i&ien&.) , audit e%%e&ti#eness) 1/ The ris1 the audit$r is +i!!ing t$ ta1e $% a&&epting a "a!an&e as &$rre&t +hen the true misstatement in the "a!an&e under audit is greater than the t$!era"!e misstatement is( 1/ ______ A

the upper "$und) * the !$+er "$und) C the a&&epta"!e ris1 $% in&$rre&t a&&eptan&e) , the t$!era"!e ris1) 14 ;hen err$rs are %$und in a samp!e, audit$rs in pra&ti&e genera!!. ma1e the assumpti$n( 14 ______ A

that the a&tua! samp!e err$rs are representati#e $% the p$pu!ati$n err$rs) * that the p$pu!ati$n err$rs are !arger than the samp!e err$rs) C $% a 100= assumpti$n %$r a!! err$rs) , that the p$pu!ati$n err$rs are sma!!er than the samp!e err$rs) 13 ;hat is the primar. $"2e&ti#e $% using strati%ied samp!ing in auditing< 13

______ A T$ de&rease the e%%e&t $% #arian&e in the t$ta! p$pu!ati$n) * T$ determine the $&&urren&e rate %$r a gi#en &hara&teristi& in the p$pu!ati$n "eing studied) C T$ determine the pre&isi$n range $% the samp!e se!e&ted) , T$ in&rease the &$n%iden&e !e#e! at +hi&h a de&isi$n +i!! "e rea&hed %r$m the resu!ts $% the samp!e se!e&ted) 16 6$ur audit samp!ing pr$gram states( the upper misstatement !imit is >1/,200 and the ris1 $% in&$rre&t a&&eptan&e is at the 93= &$n%iden&e !e#e!) This means( 16 ______ A there is a 3= &han&e the a&tua! misstatement is !ess than >1/,200) * there is a 93= &han&e the a&tua! misstatement is greater than >1/,200) C there is a 3= &han&e the a&tua! misstatement is greater than >1/,200) , there is a 93= &han&e the a&tua! misstatement is !ess than >1/)200) 17 4n m$netar.8unit samp!ing, the #a!ues $% the estimated !i1e!. ma-imum misstatements are re%erred t$ as the( 17 ______ A

&$n%iden&e inter#a!s) * p$int estimates) C

pre&isi$n inter#a!s) , misstatement "$unds) 17 The &$n%iden&e !imits in #aria"!es samp!ing are simi!ar t$ the m$netar.8unit samp!ing5s( 17 ______ A standard err$r $% the mean) * standard de#iati$n) C misstatement "$unds) , p$int estimate) 19 The audit$r5s primar. &$n&erns re!ati#e t$ presentati$n and dis&!$sure8re!ated $"2e&ti#es is( 19 ______ A a&&ura&.) * $&&urren&e) C e-isten&e) , &$mp!eteness) 20 A &$mmitment is "est des&ri"ed as( 20 ______

A an agreement t$ &$mmit the %irm t$ a set $% %i-ed &$nditi$ns in the %uture that depends $n &urrent mar1et &$nditi$ns) * a p$tentia! %uture $"!igati$n t$ an $utside part. %$r an as .et t$ "e determined am$unt) C an agreement t$ &$mmit the %irm t$ a set $% %i-ed &$nditi$ns in the %uture that depends $n &$mpan. pr$%ita"i!it.) , an agreement t$ &$mmit the %irm t$ a set $% %i-ed &$nditi$ns in the %uture) 21 6$u are auditing :$dgers and C$mpan.) 6$u are a+are $% a p$tentia! !$ss due t$ n$n8&$mp!ian&e +ith en#ir$nmenta! regu!ati$ns) ?anagement has assessed that there is a 40= &han&e that a >10? pa.ment &$u!d resu!t %r$m the n$n8&$mp!ian&e) The appr$priate %inan&ia! statement treatment is t$( 21 ______ A

a&&rue a >4 mi!!i$n !ia"i!it.) * sin&e there is !ess than a 30= &han&e $% $&&urren&e, ign$re) C sin&e there is greater that a rem$te &han&e $% $&&urren&e, a&&rue the >10 mi!!i$n) , dis&!$se a !ia"i!it. and pr$#ide a range $% $ut&$mes) 22 Audit$rs +i!! genera!!. send a standard in'uir. !etter t$( 22 ______ A

th$se att$rne.s +h$m the &!ient re!ies $n %$r ad#i&e re!ated t$ su"stantia! !ega! matters) * $n!. the att$rne. +h$ represents the &!ient in pr$&eeding +here the &!ient is de%endant) C

$n!. th$se att$rne.s +h$ ha#e de#$ted su"stantia! time t$ &!ient matters during the .ear) , e#er. att$rne. that the &!ient has "een in#$!#ed +ith in the &urrent $r pre&eding .ear, p!us an. att$rne. the &!ient engages $n $&&asi$n)

2/ ;hen a &!ient +i!! n$t permit in'uir. $% $utside !ega! &$unse!, the audit rep$rt +i!! $rdinari!. &$ntain a@n ( 2/ ______ A 'ua!i%ied $pini$n) * un'ua!i%ied $pini$n +ith a separate e-p!anat$r. paragraph) C dis&!aimer $% $pini$n) , standard un'ua!i%ied $pini$n) 24 ;hi&h $% the %$!!$+ing su"se'uent e#ents is m$st !i1e!. t$ resu!t in an ad2ustment t$ a &$mpan.5s %inan&ia! statements< 24 ______ A

issuan&e $% &$mm$n st$&1 * merger $r a&'uisiti$n a&ti#ities C an uninsured !$ss $% in#ent$ries due t$ a %ire , "an1rupt&. @due t$ deteri$rating %inan&ia! &$nditi$n $% a &ust$mer +ith an $utstanding a&&$unts re&ei#a"!e "a!an&e 23 A signi%i&ant &ust$mer $% the %irm su%%ers a !arge e&$n$mi& !$ss a%ter .ear end, "ut pri$r t$ &$mp!eti$n $% %ie!d +$r1) The audit &!ient "e!ie#es this e#ent +i!! ha#e materia! e%%e&t $n the %inan&ia! statements) The audit$r sh$u!d( 23 ______

A ad2ust the %inan&ia! statements %$r the .ear under audit) * add a paragraph t$ the audit rep$rt) C ad#ise the &!ient t$ de!a. issuing the %inan&ia! statements unti! the e&$n$mi& !$ss &an "e determined) , ad#ise the &!ient t$ dis&!$se the e#ent in the n$tes t$ the %inan&ia! statements) 26 4n &$nne&ti$n +ith the annua! audit, +hi&h $% the %$!!$+ing is n$t a Asu"se'uent e#entsA pr$&edure< 26 ______ A

,is&uss +ith $%%i&ers the &urrent status $% items in the %inan&ia! statements that +ere a&&$unted %$r $n the "asis $% tentati#e, pre!iminar., $r in&$n&!usi#e data) * :ead a#ai!a"!e minutes $% meetings $% st$&1h$!ders, dire&t$rs, and &$mmittees and, %$r meetings +here minutes are n$t a#ai!a"!e, in'uire a"$ut matters dea!t +ith at su&h meetings) C ?a1e in'uiries +ith respe&t t$ the %inan&ia! statements &$#ered ". the audit$r5s pre#i$us!. issued rep$rt i% ne+ in%$rmati$n has "e&$me a#ai!a"!e during the &urrent e-aminati$n that might a%%e&t that rep$rt) , :e#ie+ a#ai!a"!e interim %inan&ia! statements) 27 ;hi&h e#ent that $&&urred a%ter the end $% the %is&a! .ear under audit "ut pri$r t$ issuan&e $% the audit$r5s rep$rt +$u!d n$t re'uire dis&!$sure in the %inan&ia! statements< 27 ______ A

!$ss $% p!ant $r in#ent$ries as a resu!t $% %ire $r %!$$d * a signi%i&ant de&!ine in the mar1et pri&e $% the &$rp$rati$n5s st$&1 C

sa!e $% a "$nd $r &apita! st$&1 issue , sett!ement $% !itigati$n +hen the e#ent gi#ing rise t$ the &!aim t$$1 p!a&e a%ter the "a!an&e sheet date

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