CPA Auditing and Attestation (AUD) : Performing Further Procedures

Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)

varsity tutors app store varsity tutors android store

All CPA Auditing and Attestation (AUD) Resources

61 Practice Tests Question of the Day Flashcards Learn by Concept

Example Questions

Example Question #1 : Inventory Cycle

A physical inventory is taken on a “cut-off date”. This procedure is necessary to ensure.

Possible Answers:

ownership

authorization

reasonableness

completeness

Correct answer:

completeness

Explanation:

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 : Performing Further Procedures

A ___________ inventory system is best used for high dollar items

Possible Answers:

recurring

concurrent

perpetual

periodic

Correct answer:

perpetual

Explanation:

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 : Performing Further Procedures

Inquiries of warehouse personnel concerning possible obselete or slow moving inventory items provide assurance about management's assertion of:

Possible Answers:

Presentation

Completeness

Existence

Valuation

Correct answer:

Valuation

Explanation:

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 : Performing Further Procedures

The warehouse manager is responsible for ensuring that high-end merchandise is in the locked section of the building. This is an example of

Possible Answers:

A reconciliation procedure

A physical control

A review procedure

An authorization procedure

Correct answer:

A physical control

Explanation:

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 #2 : Inventory Cycle

An auditor generally tests the segregation of duties related to inventory by:

Possible Answers:

Analytical procedures and invoice recomputation

Test counts and cutoff procedures

Document inspection and reconciliation

Personal inquiry and observation

Correct answer:

Personal inquiry and observation

Explanation:

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 : Performing Further Procedures

Of the following duties included in the inventory cycle, which should be segregated to maintain proper internal controls?

Possible Answers:

Warehousing

All of the answer choices are correct

Purchasing

Receiving

Correct answer:

All of the answer choices are correct

Explanation:

All of these duties, in addition to shipping, would need to be segregated in order to maintain proper internal controls.

Example Question #7 : Performing Further Procedures

The investment financing cycle refers to:

Possible Answers:

Firms operating fund

Firms portfolio of investment assets both current and long term

Fixed asset section of the balance sheet

Cash and cash equivalents

Correct answer:

Firms portfolio of investment assets both current and long term

Explanation:

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 #8 : Performing Further Procedures

In auditing the investment cycle the auditor would most likely

Possible Answers:

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.

ensure that the investments were reasonably secure from loss

Correct answer:

All of the answer choices are correct.

Explanation:

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 #9 : Performing Further Procedures

An important review procedure for investments is to

Possible Answers:

Read the Wall Street Journal

Review detail records and compare to actual investment-related asset

None of the answer choices are correct.

Make sure the investment return is reasonable

Correct answer:

Review detail records and compare to actual investment-related asset

Explanation:

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 #10 : 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:

Possible Answers:

Completeness

Valuation and allocation

Existence

Rights and obligations

Correct answer:

Valuation and allocation

Explanation:

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.

All CPA Auditing and Attestation (AUD) Resources

61 Practice Tests Question of the Day Flashcards Learn by Concept
Learning Tools by Varsity Tutors