Auditing Exam Question

CPA Examination Questions - Assertions and Procedures

1. An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of

a) Valuation or allocation.

b) Completeness.

c) Existence or occurrence.

d) Rights and obligations.

2. Which of the following audit procedures would an auditor most likely perform to test controls relating to management's assertion concerning the completeness of sales transactions?

a) Verify that extensions and footings on the entity's sales invoices and monthly customer statements have been recomputed.

b) Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal.

c) Compare the invoiced prices on prenumbered sales invoices to the entity's authorized price list.

d) Inquire about the entity's credit granting policies and the consistent application of credit checks.

3. Which of the following internal control procedures most likely would assure that all billed sales are correctly posted to the accounts receivable ledger?

a) Daily sales summaries are compared to daily posting to the accounts receivable ledger.

b) Each sales invoice is supported by a prenumbered shipping document.

c) The accounts receivable ledger is reconciled daily to the control account in the general ledger.

d) Each shipment on credit is supported by a prenumbered sales invoice.

4. Two assertions for which confirmation of accounts receivable balances provides primary evidence are

a) Completeness and valuation.

b) Valuation, rights and obligations.

c) Rights & Obligations and existence.

d) Existence and completeness.

5. An auditor's purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management's assertions about

a) Existence or occurrence.

b) Presentation and disclosure.

c) Completeness.

d) Valuation or allocation.

6. In testing the existence assertion for an asset, an auditor ordinarily works from the

a) Financial statements to the potentially unrecorded items.

b) Potentially unrecorded items to the financial statements.

c) Accounting records to the supporting evidence.

d) Supporting evidence to the accounting records.

7. An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about

a) Presentation and disclosure.

b) Existence or occurrence.

c) Rights and obligations.

d) Valuation or allocation.

8. To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would

a) Inspect the stock certificates evidencing the investment.

b) Examine the audited financial statements of the investee company.

c) Review the broker's advice or canceled check for the investment's acquisition.

d) Obtain market quotations from financial newspapers or periodicals.

9. Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of

a) Presentation.

b) Completeness.

c) Rights.

d) Existence.

10. Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide assurance about management's assertion of

a) Completeness.

b) Existence.

c) Presentation.

d) Valuation.

11. Which of the following control procedures most likely would assist in reducing control risk related to the existence or occurrence of manufacturing transactions?

a) Perpetual inventory records are independently compared with goods on hand.

b) Forms used for direct material requisitions are prenumbered and accounted for.

c) Finished goods are stored in locked limited-access warehouses.

d) Subsidiary ledgers are periodically reconciled with inventory control accounts.

12. Which of the following audit procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?

a) Trace test counts noted during the entity's physical count to the entity's summarization of quantities.

b) Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens. c) Select the last few shipping advices used before the physical count and determine whether the shipments were recorded as sales.

d) Inspect the open purchase order file for significant commitments that should be considered for disclosure.

13. During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements or state law. This audit procedure most likely is intended to verify management's assertion

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