ACCT 422 Quiz 2 (UMUC)

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ACCT 422 Quiz 2 (UMUC)

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question (3 points each).  (30 points)

1. Which of the following statements concerning audit evidence is true
2. The permanent file of an auditor’s working papers most likely would include copies of the
3. In assessing whether to accept a client for an audit engagement, a CPA should consider
4. Which of the following is least likely to be comparable between similar corporations in the same industry line of business?
5. An auditor uses assessed control risk to
6. Which of the following is an account that is not affected by the sales and collection cycle
7. In many audits, no substantive tests of transactions are made for the ________ assertion on the grounds that understatement of sales is not a concern
8. When assessing planned control risk for sales
9. Which one of the following is of the least concern to the auditor when designing substantive tests of transactions for the sales/collection cycle?
10. Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

ESSAY.  Write your answer in the space provided or on a separate sheet of paper (15 points

Problems

The following audit procedures are taken from an audit program.  (20 points)

1. 1.         Foot the accounts payable trail balance and compare the total with the general ledger.
2. 2.         Multiply the commission rate by total sales and compare the result with the commission expense.
3. 3.         Inquire about the accounts payable supervisor’s monthly review of computer generated exception report of receiving reports and purchase orders that have not been matched with a vendor invoices.
4. 4.         Discuss the duties of the cash disbursement clerk with the clerk and observe whether the clerk has responsibility for handling cash or preparing the bank reconciliation

Examine vendor’s invoices and other documentation in support of recorded transactions in the acquisition journal.

1. I.                  Below are five independent risk factors:   (10 points)
1. 1.         The company is publicly traded.
2. 2.         The assigned staff on the audit engagement lack the necessary skills to identify actual errors in an account balance when examining audit evidence accumulated.
3. 3.         The client is one of the industry’s largest based on its size and market share.
4. 4.         The allowance for doubtful accounts is based on significant assumptions made by management

The client fails to reconcile bank accounts to recorded cash balances. 

1. I.                  For the five internal controls listed below indicate which of the five COSO internal control components best represent by each internal control. (10 points)

Ex. The company has an organizational hart that established the forma lines of reporting and authorization protocols. 

1. 1.         Each quarter, department managers are required to perform a self-assessment of the department’s compliance with company policies.  Reports summarizing the results are to be submitted to the senior executive overseeing that department.
2. 2.         On a monthly basis, department heads review a budget to actual performance report and investigate unusual differences.
3. 3.         Before a cash disbursement can be processed, all payee information must be verified by matching the payee to the company’s approved vendor listing.
4. 4.         Senior management obtains data about external events that might affect the entity and evaluates the impact of that information on its existing accounting processes.

The company had developed a detailed series of accounting policy and procedures manuals to help provide detailed instructions to employees about how controls are to be performed

1. I.                  Below are four activities that occurred at a nonpublic company, identify which of these activities are frauds.  For each Fraud, state whether it is a misappropriation of assets or fraudulent financial reporting.(15 points)

1. 1.         The accountant did not record check written in the last few days of the year until the next accounting period to avoid a negative cash balance in the financial statements.
2. 2.         The factory superintendent routinely takes scrap metal home in his pickup and sells it to scrap dealer to a make a few extra dollars.
3. 3.         Discounts on checks to the nonpublic’s company largest vendor are never taken, even though the bills are paid before the discount period expires.  The president of the vendor’s company provides free use of his ski lodge to the accountant who process the checks in exchange for lost discounts.

The accountant recorded cash received in the first few days of the next accounting period in the current accounting period to avoid a negative cash balances