Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 19, Problem 15.3MCQ
To determine
Indicate the equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control that provides for:
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Equipment acquisitions that are misclassified as maintenance expense most likely wouldbe detected by an internal control that provides for(1) segregation of duties of employees in the accounts payable department.(2) authorization by the board of directors of significant equipment acquisitions.(3) investigations of variances within a formal budgeting system.(4) independent verification of invoices for disbursements recorded as equipmentacquisitions.
The following are typical questions that might appear on an internal control questionnaire relating to plant and equipment:
Has a dollar minimum been established for expenditures to be capitalized?
Are subsidiary ledgers for plant and equipment regularly reconciled with general ledger controlling accounts?
Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of risks of material misstatements.
An internal auditor plans to use an analytical review to verify the correctness of various operating expenses in a division. The use of an analytical review as a verification technique would not be a preferred approach if:
Select one:
a.
The auditor notes strong indicators of a specific fraud involving this account
b.
The auditor would like to identify large, unusual, or nonrecurring transactions during the year.
c.
The operating expenses vary in relation to other operating expenses but not in relation to revenue.
d.
The company has relatively stable operations that have not changed much over the past year
Chapter 19 Solutions
Auditing And Assurance Services
Ch. 19 - Identify three asset accounts, three expense...Ch. 19 - Explain the relationship between substantive tests...Ch. 19 - Prob. 3RQCh. 19 - Prob. 4RQCh. 19 - Prob. 5RQCh. 19 - Prob. 6RQCh. 19 - Prob. 7RQCh. 19 - Prob. 8RQCh. 19 - Prob. 9RQCh. 19 - Prob. 10RQ
Ch. 19 - Which documents will be used to verify accrued...Ch. 19 - Prob. 12RQCh. 19 - Prob. 13RQCh. 19 - Prob. 14RQCh. 19 - Prob. 15.1MCQCh. 19 - Prob. 15.2MCQCh. 19 - Prob. 15.3MCQCh. 19 - Prob. 16.1MCQCh. 19 - Prob. 16.2MCQCh. 19 - Prob. 16.3MCQCh. 19 - Prob. 17.1MCQCh. 19 - Prob. 17.2MCQCh. 19 - Prob. 17.3MCQCh. 19 - Prob. 18.1MCQCh. 19 - Prob. 18.2MCQCh. 19 - Prob. 18.3MCQCh. 19 - Prob. 19DQPCh. 19 - Prob. 20DQPCh. 19 - Prob. 21DQPCh. 19 - Prob. 22DQPCh. 19 - Prob. 24DQPCh. 19 - Prob. 25DQPCh. 19 - You are auditing the financial statements of...Ch. 19 - Prob. 27DQPCh. 19 - Prob. 28DQPCh. 19 - Prob. 29DQP
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- The revenue cycle requires regular review. Identify at least two types of misstatements found in the revenue process.Next, identify a sound, timely internal control to detect and correct this misstatement.arrow_forward3. Which of the following is NOT part of the control activities applicable to Financial Statement Audit? a. Segregation of duties to prevent opportunities to commit fraud , conceal errors and other irregularities b. Performance Review like comparison of actual performance with budget, forecasts and previous year's performance c. Compliance to reportorial requirements to regulatory bodies. d. Physical controls, ensuring adequate safeguards over access to assets and records.arrow_forwardWhich of the following is an incorrect statement? a. The amount of audit work should vary inversely with the likelihood of material misstatements existing in the accounting records. b. The better the organization’s control structure, the less likely it is that material misstatements will be present c. Complex or unusual transactions are more likely to be recorded in error than recurring or routine transactions are d. If misstatements are likely to occur in the recording process, the auditor should develop procedures to detect misstatements.arrow_forward
- The following are typical questions that might appear on an internal control questionnaire for accounts payable. 1. Are monthly statements from vendors reconciled with the accounts payable listing? 2. Are vendors’ invoices matched with receiving reports before they are approved for payment? Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of the risk of material misstatement.arrow_forwardIdentify important internal control activitiespresent in a properly designed system tomitigate the risk of material misstatementsfor each relevant assertion in the revenueand collection cycle.arrow_forwardWhen completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends ona. Whether there is a reasonable possibility that the company’s controls will fail to prevent or detect a misstatement of an account balance or disclosure.b. Whether a misstatement has actually occurred as a result of the deficiency.c. The magnitude of the potential misstatement resulting from the deficiency or the deficiencies.d. Both a and c are correct.e. All of the above are correct.arrow_forward
- Why is there a need on the part of the client entity to monitor internal controls over time? a. Because the auditor needs to obtain understanding of internal control b. Because unmonitored controls tend to deteriorate over time c. Because it will affect the timing of substantive audit procedures d. Because it is a requirement of the applicable financial reporting frameworkarrow_forwardWhich of the following is most likely to be presumed to represent fraud risk on an audit? a. Introduction of significant new products. b. Improper interest expense accrual. c. Capitalization of repairs and maintenance into the property, plant, and equipment asset account. O d. Improper revenue recognition.arrow_forwardEmployee Embezzlement via Cash Receipts and Payment of Personal Expenses.Assume you have received a message from an informant regarding the following case. Your assignment is to write the “audit approach” portion of the case.a. Write a brief explanation of desirable controls, missing controls, and especially the kinds of “deviations” that might arise from the situation described in the case.b. Develop some procedures for obtaining evidence about existing controls, especially procedures that could discover deviations from controls. If there are no controls to test, then there are no procedures to perform. Then just move on to part (c). An audit “procedure” should instruct someone about the source(s) of evidence to obtain and the work to perform.c. Write some procedures for gathering evidence in this case.d. Write a short statement about the discovery you expect to accomplish with your procedures.The Extra Bank AccountThe Ourtown Independent School District, like all others, had formal,…arrow_forward
- Following are seven audit activities.a. Examine invoices supporting recorded fixed asset additions.b. Review industry databases to assess the risk of material misstatement in the financialstatements.c. Summarize misstatements identified during testing to assess whether the overallfinancial statements are fairly stated.d. Test computerized controls over credit approval for sales transactions.e. Send letters to customers confirming outstanding accounts receivable balances.f. Perform analytical procedures comparing the client with similar companies in theindustry to gain an understanding of the client’s business and strategies.g. Compare information on purchases invoices recorded in the acquisitions journalwith information on receiving reports.For each activity listed above, indicate in which phase of the audit the procedure waslikely performed.1. Plan and design an audit approach based on risk assessment procedures (Phase I)2. Perform tests of controls and substantive tests of…arrow_forwardWhich of the following audit findings would be considered a deficiency in internal controls in the revenue cycle? A. No evidence that price and quantity on an invoice was compared with supporting documentation. B. Quantity shipped differed from quantity billed. C. Recording sales several days before the shipment date. D. All of the above. E. None of the above.arrow_forwardWhich of the following controls will most likely justify a reduced assessed level ofcontrol risk for the existence assertion for equipment?(1) Internal auditors periodically select equipment items in the fixed assets masterfile and locate the related equipment on company premises.(2) Department heads are asked to provide information to the accounting department each quarter about any equipment no longer in use or somewhat damaged.(3) All contracts of equipment purchases are reviewed by both the controller andattorney to verify that legal title transfers to the client and that none representoperating leases.(4) As part of quarterly and annual inventory physical counts, factory equipment islisted and subsequently reconciled to the fixed asset master file.arrow_forward
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