MULTIPLE CHOICE QUESTIONS

AUDIT PROCEDURES: REVENUE ACCOUNTING CYCLE

1. When scheduling the work to be performed on an audit, the auditor should consider
confirming accounts receivable balances at an interim date if which of the following
situations exist?
a. Subsequent collections are to be reviewed
b. Internal controls over receivables are good
c. Negative confirmations are to be used
d. A simultaneous audit of cash and accounts receivable will occur

2. An auditor is testing sales transactions. One step is to trace a sample of debit entries
from the account receivable subsidiary ledger back to the supporting sales invoices.
What would the auditor intend to establish by this step?
a. The sales invoices represent bona fide sales
b. All sales have been recorded
c. All sales invoices have been properly posted to customer accounts
d. Debit entries in the accounts receivable subsidiary ledger are properly supported by
sales invoices

3. When determining the adequacy of the allowance for uncollectible accounts, the least
reliance should be placed upon which of the following?
a. The credit manager’s opinion
b. An aging schedule of past-due accounts
c. Collection experience of the client’s collection agency
d. Ratios calculated showing the past relationship of the valuation allowance to net
credit sales

4. Which of the following procedures ordinarily would be expected to best reveal

unrecorded sales at the balance sheet date?
a. Compare shipping documents with sales records
b. Apply gross margin rates to inventory disposed of during the period
c. Trace payments received subsequent to the balance sheet date
d. Send accounts receivable confirmation requests

5. Customers having substantial year-end past-due balances fail to reply after second
request confirmation forms have been mailed directly to them. Which of the following is
the most appropriate audit procedure?
a. Examine shipping documents
b. Review collections for the year being examined
c. Extend tests of controls for assertions related to receivables
d. Increase the balance in the accounts receivable allowance (contra) account

6. To verify that all sales transactions have been recorded, a test of transactions should
be completed on a representative sample drawn from which of the following?
a. Entries in the sales journal
b. The billing clerk’s file of sales orders
 c. A file of duplicate copies of sales invoices for which all prenumbered forms in the
series have been accounted for
d. The shipping clerk’s file of duplicate copies of bills of lading

7. During the process of confirming receivables as of December 31, 2022, a positive

confirmation was returned indicating the ‘balance owed as of December 31 was paid on
January 9, 2023. The auditor most likely would
a. Determine whether any changes in the account occurred between January 1 and
January 31, 2023
b. Determine whether the customer took a customary trade discount
c. Reconfirm the zero balance as of January 10, 2023
d. Verify that the amount was received

8. Which of the following is not a primary objective of the auditor in the audit of accounts
receivable?
a. To determine the approximate realizable value
b. To establish existence of the receivables
c. To determine the approximate time of collectibility of the receivables
d. To determine that receivables are from trade customers, not officers or employees

9. For the confirmation of accounts receivable, the auditor most likely would
a. Request confirmation of a sample of the inactive accounts
b. Seek positive confirmation for at least 50% of the total peso amount of receivables
c. Require confirmation of all receivables from government agencies
d. Send confirmation requests within one month of the fiscal year-end

AUDIT PROCEDURES: EXPENDITURE CYCLE (ACUISITION AND PAYMENT)

10. Which of the following sets of duties would be considered an improper segregation of
duties in the expenditure cycle?
a. Receiving, counting, and inspecting goods and also preparing the receiving report
b. Preparing, approving, and issuing purchase orders and also following up on unfilled
orders
c. Approving vouchers for payment and also preparing and signing checks
d. Comparing vendor invoices with purchase orders, requisitions, and receiving reports
and also approving vouchers for payment

11. FULFILL Products, Inc., requires that an approved receiving report be prepared before
an entry is made in the voucher register to record a purchase and related account
payable. To test the effectiveness of this control, the auditor compares the date on the
receiving report with the date of the entry in the voucher register. The auditor would be
most likely to question the effectiveness of this control when the test of controls reveals
that
a. Voucher register entries are dated on or after the corresponding receiving report
dates
b. Receiving reports are dated on or before the corresponding voucher register
entry dates
c. Receiving reports are dated after the corresponding voucher register entry dates
d. Voucher register entries are dated after the corresponding receiving report dates
12. Which of the following internal controls would least likely prevent or detect a
misstatement of the existence or occurrence assertion for cash payments caused by the
duplicate payment of a voucher?
a. Cancelling documentation supporting the voucher immediately after the voucher is
paid
b. Reconciling monthly vendor statements with the accounts payable subsidiary ledger
c. Individuals responsible for signing checks also preparing and approving vouchers
d. Attaching a check copy to the voucher immediately after the voucher is paid

13. Why do the audit procedures used to verify accrued liabilities differ from those
employed for the verification of accounts payable?
a. Accrued liabilities usually pertain to services of a continuing nature, whereas
accounts payable are the result of completed transactions
b. Accrued liability balances are less material than accounts payable balances
c. Evidence supporting accrued liabilities is nonexistent, whereas evidence supporting
accounts payable is readily available
d. Accrued liabilities at year-end will become accounts payable during the following
year

14. Under which of the following circumstances would be advisable for the auditor to confirm
accounts payable with creditors?
a. Internal controls for accounts payable are adequate and sufficient evidence is on
hand to minimize the risk of a material misstatement
b. Confirmation response is expected to be favorable, and accounts payable balances
are of immaterial amounts
c. Creditor statements are not available, and internal control over accounts payable is
unsatisfactory
d. The majority of accounts payable balances are with associated companies

15. Which of the following audit procedures is least likely to detect an unrecorded liability?
a. Analysis and recomputation of interest expense
b. Analysis and recomputation of depreciation expense
c. Mailing standard bank confirmation forms
d. Reading the minutes of board of directors meetings

16. Which of the following internal controls would be least effective in preventing the
accumulation of obsolete or slow-moving inventory?
a. Using perpetual inventory records
b. Using secured storage areas for inventory
c. Using sales forecasts
d. Using authorized production orders

17. LOVE Manufacturing Corporation mass-produces 12 different products. The controller

interested in strengthening internal control for the existence assertion for finished
inventory would be most likely to implement which of the following?
a. A separation of duties among production personnel
b. The use of sales forecasts
c. A job-order cost accounting system
d. A perpetual inventory system
18. Holly, Inc., uses time clocks and time cards to help ensure that employee work time is
accurately recorded. Which internal control would be most effective for determining
whether production employees are properly recording their time on the payroll time cards
at a time clock station?
a. The production supervisor should approve daily time charged to job orders and
compare that time with hours recorded on the time cards
b. Payroll checks should be distributed by the internal auditing department
c. Hours recorded on the time cards should be compared to payroll computations by an
independent employee
d. The duties of hiring, payroll computation, and paying employees should be
segregated

19. Purchase cutoff procedures should be designed to test whether merchandise is included
in the client company’s inventory if the company
a. Has paid for the merchandise
b. Has physical possession of the merchandise
c. Holds legal title to the merchandise
d. Holds the shipping documents for the merchandise issued in the company’s name

20. The physical count of a retailer’s inventory was higher than shown by the perpetual
records. Which of the following could explain the difference?
a. 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
b. Credit memos for several items customers returned had not been recorded
c. No journal entry had been made on the retailer’s books for several items returned to
its suppliers
d. An item purchased F.O.B. shipping point had not arrived at the date of the inventory
count and had not been reflected in the perpetual records