Question

1. Which of the following audit procedures are usually performed to audit the allowance for doubtful accounts?

A) Test the aging of the accounts receivable balances
B) Compare the aging of the accounts receivable balance to prior years
C) Compare the ratio of the allowance for doubtful accounts to the accounts receivable balance to previous years D) All of the above

2. The accounts payable accounting clerk recorded the same purchase twice. Which of the following tests would most likely detect the duplicate entry?

A) Reconciling the vendors’ statements to the accounts payable trial balance B) Tracing monthly balances from the purchases journal to the general ledger C) Vouching from the general ledger to the purchases journal
D) Recalculating the purchases journal

3. Which of the following procedures would the auditor likely perform to test the completeness of accounts payable:

A) Vouch a sample of items from the accounts payable trial balance to invoices received from the client’s vendors B) Vouch a sample of items from the accounts payable trial balance to expenses recorded in the general ledger
C) Compare the year-end statements received from the client’s vendors to the accounts payable trial balance
D) Perform substantive analytical procedures comparing ending accounts payable balances by year

4. Which of the following audit procedures would the auditor use to test for the existence of equipment recorded in the property, plant and equipment accounting records?

A) Examine vendor invoices and receiving reports
B) Review transactions near the balance sheet date
C) Recalculate vendor invoices
D) Examine the company purchase order for authorization by an appropriate company employee

5. To audit the existence of cash, the auditor is most likely to confirm the bank balance with the bank and:

A) perform substantive analytical procedures
B) test the completeness and accuracy of the reconciling items on the bank reconciliation
C) inquire as to whether the balance per the bank agrees to the company’s general ledger balance D) count and observe the cash in the bank

6. The auditor normally does not need to test the existence, accuracy or classification of property, plant and equipment recorded in prior periods if the auditor is the continuing auditor (i.e., the auditor has previously audited one or more of the immediately preceding periods) because the related financial statement assertions:

A) usually have low inherent risk
B) don't affect the company’s net income
C) are not important to financial statement users D) were verified in previous audits

Answer 1

1.

To perform audit procedures one need to check the complete audit trail meaning from the origin of the transaction to the completion. Allowances are based on historical estimates of debts going bad. The weights are assigned to debtors on the basis of their age on past experiences. Later, the ratio is computed for present year and compared with past to get better analytics.

Hence, correct option is D) all of the above.

2.

In this scenario, purchases has been recorded twice in purchases account. That means accounts payable has also been doubled. So, the evidence required would be accounts payable balance and purchases account. To cross check, vendors statements should be checked with accounts payable on tick to tick basis. When a particular vendor balance do not match with his balance in the books, it is where the mistake is seen and should be corrected.

Hence, correct option is A) Reconciling the vendors’ statements to the accounts payable trial balance

3.

Testing the completeness of accounts payable mean to check if company records show all accounts payable and depicts the amount owed correctly. These balances are easily available in the trial balance and should be reconciled with the statements of balances received from vendors at year end.

Hence, the correct option is C) Compare the year-end statements received from the client’s vendors to the accounts payable trial balance

4.

To test the existence of asset, auditor among many other procedures need to check the vendor supplied invoices. The auditor shall extend this to other communications received from vendors as well.

Hence, correct option is A) Examine vendor invoices and receiving reports

5.

To verify the existence of asset, the best method is to physically verify the asset. The auditor in case of cash can easily count the cash and match the balances with books.

Hence, correct option is D) count and observe the cash in the bank

6.

One of important advantage of continuing auditor comes in the field of verification of assets importantly physical verification. When the continuing auditor is in the current period, if he has tested existence, accuracy and classification of asset in the previous audit period, the same procedure need not be followed and can be skipped.

Hence correct option is D) were verified in previous audits