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Exam 10: Substantive Tests of Transactions and Balances

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Question 21

Multiple Choice

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The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the following could explain the difference?

A) Credit memos for several items returned by customers had not been recorded.
B) Inventory items had been counted but the tags placed on the items had not been taken off the items and added to the inventory accumulation sheets.
C) An item purchased 'FOB shipping point' had not arrived at the date of the inventory count and had not been reflected in the perpetual records.
D) No journal entry had been made on the retailer's books for several items that the retailer returned to its suppliers.

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Question 22

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In auditing intangible assets, an auditor would determine whether the amortisation amount is reasonable in support of management's financial statement assertion of:

A) valuation and allocation.
B) existence.
C) completeness.
D) rights and obligations.

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Question 23

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To verify that all sales transactions have been recorded (the completeness assertion) , a test of transactions should be completed on a representative sample drawn from:

A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably:

Which of the following is true of generalised audit software?

Which of the following tests would the auditor use generalised audit software for in order to test the completeness assertion of inventory?

Procedures related to the purchases cut-off assertion should be designed to test whether or not all inventory:

Two months before the year-end the bookkeeper erroneously recorded the receipt of a long-term bank loan by a debit to cash and a credit to sales. Which of the following is the most effective procedure for detecting this Type of misstatement?

The primary difference between an audit of the statement of financial position and an audit of the income statement lies in the fact that the audit of the income statement deals with the verification of:

In auditing accounts receivable the negative form of confirmation request most likely would be used when:

In the audit of a medium-sized manufacturing concern, which one of the following areas would be expected to require the least amount of audit time?

Johnson is engaged in the audit of a power company which supplies power to a residential community. All accounts receivable balances are small and the internal control structure is effective. Customers are billed twice monthly. In Order to obtain evidence with regards the valuation and allocation assertion of the accounts receivable balances as At balance date, Johnson would most likely:

An auditor would be least likely to use external confirmation procedures in connection with the examination of:

Your client sells a high-technology product which is subject to frequent technological improvements and design changes in order to keep current with the market. Based on this information, for the inventory account, the Assertion upon which you should concentrate your audit procedures is:

The accuracy of perpetual inventory records may be established, in part, by comparing entries on the perpetual records with details from:

Which of the following pairs of accounts would an auditor most likely analyse on the same working paper?

A client's physical count of inventory was higher than the inventory per the perpetual records. This situation could be the result of the failure to record:

An auditor using audit software would probably be least interested in which of the following fields in a computerised perpetual inventory file?

The auditor tests the quantity of materials charged to work-in-process by tracing these quantities to:

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's assertion of valuation and allocation of inventory?