CPA Auditing and Attestation (AUD) : Performing Further Procedures
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Example Questions
Example Question #1 : Performing Further Procedures
A physical inventory is taken on a “cut-off date”. This procedure is necessary to ensure.
ownership
authorization
reasonableness
completeness
completeness
Taking a physical inventory at a cut-off date ensures that all of the inventory that is appropriate to be reported will be included in the financial statements. The auditor sets the cut-off date and traces the amount to the accounting records to ensure that the records include all the inventory.
Example Question #2 : Inventory Cycle
A ___________ inventory system is best used for high dollar items
periodic
recurring
concurrent
perpetual
perpetual
A perpetual inventory provides a real time record of inventory values. Items purchased are recorded to the inventory account at the time of purchase. High dollar inventory items are particularly important to properly value the inventory account.
Example Question #3 : Inventory Cycle
Inquiries of warehouse personnel concerning possible obselete or slow moving inventory items provide assurance about management's assertion of:
Existence
Valuation
Presentation
Completeness
Valuation
Inquiries of warehouse personnel concerning possible obselete or slow moving inventory items provide assurance about management's assertion of valuation (has the inventory been properly valued and recorded.)
Example Question #4 : Inventory Cycle
The warehouse manager is responsible for ensuring that high-end merchandise is in the locked section of the building. This is an example of
An authorization procedure
A physical control
A review procedure
A reconciliation procedure
A physical control
Physical control provides a physical barrier to the asset. They consist of policies such as insurance, or kinetic barriers such as locks, secure areas, etc.
Example Question #5 : Inventory Cycle
An auditor generally tests the segregation of duties related to inventory by:
Document inspection and reconciliation
Analytical procedures and invoice recomputation
Test counts and cutoff procedures
Personal inquiry and observation
Personal inquiry and observation
The independent auditor's direct personal knowledge, based on personal inquiry and observation, are auditing procedures commonly used to test the segregation of duties.
Example Question #6 : Inventory Cycle
Of the following duties included in the inventory cycle, which should be segregated to maintain proper internal controls?
Receiving
All of the answer choices are correct
Warehousing
Purchasing
All of the answer choices are correct
All of these duties, in addition to shipping, would need to be segregated in order to maintain proper internal controls.
Example Question #2 : Performing Further Procedures
The investment financing cycle refers to:
Fixed asset section of the balance sheet
Firms operating fund
Firms portfolio of investment assets both current and long term
Cash and cash equivalents
Firms portfolio of investment assets both current and long term
The investment financing cycle covers the firm’s portfolio of assets on both a long term and short-term basis. This cycle covers the management of excess assets to create a return.
Example Question #3 : Performing Further Procedures
In auditing the investment cycle the auditor would most likely
All of the answer choices are correct.
ensure that the investments were reasonably secure from loss
ensure that the accounts were properly recorded
ensure that the investments were properly disclosed in the financial statements
All of the answer choices are correct.
All of the above are necessary when auditing the investment cycle. Every cycle needs controls to determine transactions are properly recorded, measured, and disclosed.
Example Question #4 : Performing Further Procedures
An important review procedure for investments is to
Make sure the investment return is reasonable
None of the answer choices are correct.
Review detail records and compare to actual investment-related asset
Read the Wall Street Journal
Review detail records and compare to actual investment-related asset
The purpose of the review procedures is to ensure that the transaction recorded follows policies and has an audit trail. The auditor will ensure that the underlying detail supports the asset being recorded.
Example Question #5 : Performing Further Procedures
In auditing intangible assets, an auditor would most likely review or recompute and determine whether the amortization period is reasonable in support of management's financial statement assertion of:
Existence
Completeness
Rights and obligations
Valuation and allocation
Valuation and allocation
Assertions about valuation and allocation deal with whether assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts. Recalculation of the amortization and review of the amortization period would test the valuation and allocation assertion.
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