Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 23, Problem 17.3MCQ
To determine
Identify what can be considered as a weakness in the client’s internal control over investments if discovered by the auditor.
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Following are typical questions that might appear on an internal control questionnaire for investments in marketable securities.
Is custody of investment securities maintained by an employee who does not maintain the detailed records of the securities?
Are securities registered in the company name?
Are investment activities reviewed by an investment committee of the board of directors?
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 control risk.
When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if thea. Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records.b. Securities are registered in the name of the trust company rather than the entity itself.c. Interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities.d. The trust company places the securities in a bank safe deposit vault under the custodian’s exclusive control.
Which of the following questions would auditors most likely include on an internal control questionnaire for notes payable?a. Are assets that collateralize notes payable critically needed for the entity’s continued existence?b. Are two or more authorized signatures required on checks that repay notes payable?c. Are the proceeds from notes payable used to purchase noncurrent assets?d. Are direct borrowings on notes payable authorized by the board of directors?
Chapter 23 Solutions
Auditing And Assurance Services
Ch. 23 - Explain the relationships among the initial...Ch. 23 - Prob. 2RQCh. 23 - Prob. 3RQCh. 23 - Prob. 4RQCh. 23 - Prob. 5RQCh. 23 - Prob. 6RQCh. 23 - Prob. 7RQCh. 23 - Prob. 8RQCh. 23 - Prob. 9RQCh. 23 - Prob. 10RQ
Ch. 23 - Prob. 11RQCh. 23 - Prob. 12RQCh. 23 - Prob. 13RQCh. 23 - Prob. 14RQCh. 23 - Prob. 15.1MCQCh. 23 - Prob. 15.2MCQCh. 23 - Prob. 15.3MCQCh. 23 - Prob. 16.1MCQCh. 23 - Prob. 16.2MCQCh. 23 - Prob. 16.3MCQCh. 23 - Prob. 17.1MCQCh. 23 - Prob. 17.2MCQCh. 23 - Prob. 17.3MCQCh. 23 - Prob. 18DQPCh. 23 - Prob. 19DQPCh. 23 - Prob. 20DQPCh. 23 - Prob. 21DQPCh. 23 - Prob. 22DQPCh. 23 - You are doing the first-year audit of Sherman...Ch. 23 - Prob. 24DQPCh. 23 - Prob. 25DQPCh. 23 - The amount of subjectivity involved in...
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- Which of the following control objectives would be least likely be considered by the internal auditors in drafting the audit procedures for bank accounts and banking arrangement activities under the Acquire-to-Retire process? To ensure that fund transfers and automated methods of effecting banking transactions are valid and verified, in the best interests of the organization, and authorized. A. To ensure that banking charges are effectively monitored and minimized. B. To ensure that all income from bank is recorded without delay. C.To ensure that all banking transactions are bona fide, accurate and authorized whenever necessary. D. To ensure that overdraft set facilities are authorized and correctly operated within the limits defined by management and the organization's bankers. E. To ensure that the potential for staff malpractice and fraud are minimized. F. To ensure that banking arrangements and facilities are sufficient, appropriate and adequate for the business.arrow_forwardWhich of the following is most closely related to the relevance of audit evidence?a. Auditors decide to physically inspect investment securities held by a custodian instead of obtaining confirmations from the custodian.b. In addition to confirmations of accounts receivable, auditors perform an analysis of the aging of accounts receivable to evaluate the collectability of accounts receivable.c. In response to less effective internal control, auditors increase the number of customer accounts receivable confirmations mailed compared to that in the prior year.d. Because of a large number of transactions occurring near year-end, auditors decide to confirm a larger number of receivables following year-end instead of during the interim period.arrow_forwardWhich of the following types of audit evidence provides the least assurance of reliability? A. Receivable confirmations received from the client's customers B. prenumbered receiving reports completed by the client's employees C. Prior months' bank statements obtained from the client D. Municipal property tax bills prepared in the client's name.arrow_forward
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- Which of the following actions did the Treadway Commission recommend to reduce fraudulent financial reporting? Establish financial incentives that promote integrity in the financial reporting process. Identify and understand the factors that lead to fraudulent financial reporting. Assess the risk of corruption and misappropriation of assets within the company. Design and implement internal controls to provide reasonable assurance of preventing fraudulent financial reporting.arrow_forwardWhich of the following is NOT a purpose of an audit of financial statements? a.To express an opinion on the financial statements b. To detect fraud c. To provide assurance to stakeholders d.To improve the company's financial reportingarrow_forwardA client has a large and active investment portfolio that is kept in a bank safe deposit box. If the auditors are unable to count securities at the balance sheet date, they most likely willa. Request the bank to confirm to the auditors the contents of the safe deposit box at the balance-sheet date.b. Examine supporting evidence for transactions occurring during the year. c. Count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance-sheet date.d. Request the client to have the bank seal the safe deposit box until the auditors can count the securities at a subsequent date.arrow_forward
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