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CPA AUD Evidence Gathering and Transaction Cycles
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AUD evidence gathering focuses on obtaining sufficient, appropriate evidence (SAE) to support audit opinions, prioritized by reliability (external > internal, documentary > oral, direct > indirect). Auditors test transaction cycles (Revenue, Expenditure, Payroll, etc.) by evaluating internal controls (tests of controls) and performing substantive procedures to verify assertions like completeness, existence, and accuracy.  Audit Evidence Gathering Fundamentals (SAE) Sufficient (Quantity): Based on risk assessment and materiality. Appropriate (Quality): Relevance and... Show more
CPA AUD Evidence Gathering and Transaction Cycles
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25 Questions

1. Which of the following involves a theft of receivables followed by a delay in the posting of credits to specific customer accounts?
I. Kiting
II. Lapping
2. Which of the following circumstances most likely would cause an auditor to assess control risk at a high level for payroll?
I. Payroll checks generally are disbursed by the same person (or the same department) each payday.
II. Employee time cards are approved by individual departmental supervisors.
3. An auditor is concerned that sales are being made and shipped but are never billed or recorded. The auditor believes that employees may be stealing company assets in this way. Which of the following is correct?
I. The auditor should select a sample of bills of lading and verify that sales invoices do exist.
II. Shipments on consignment would not explain the missing sales invoices.
4. For which of the following may an independent auditor share responsibility with an entity’s internal auditor who is assessed to be both competent and objective?
I. Materiality levels
II. Evaluation of accounting estimates
5. In a purchasing cycle, which of the following departments reconciles the purchase order and receiving report and approves the purchase invoice for payment?
6. Which of the following documents are examples of audit evidence generated by the client?
I. Vendor invoices and packing slips
II. Bills of lading and accounts receivable confirmations
7. Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
I. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file
II. Trace a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices
8. Brunner is doing an audit of Tucker Corp. Tests designed to detect purchases made by Tucker before the end of the year that have been recorded in the subsequent year most likely would provide assurance about Tucker’s assertion regarding:
I. rights and obligations
II. cutoff
9. When gathering evidence regarding inventory, the auditor would begin with the client’s physical inventory listing and compare to the auditor’s test count. Which assertion would be tested by this procedure?
10. Segregation of duties between human resources and payroll departments is an important control to ensure that:
I. only valid employees receive paychecks
II. all payroll checks are printed unsigned
11. Within a proper segregation of duties for the revenue cycle, which of the following departments represents an example of custody?
12. In what order are these three forms usually generated in a credit sales system: bill of lading, sales invoice, sales order?
13. When an independent auditor hires a specialist to perform certain substantive tests, an understanding should exist among which of the following parties as to the nature of the work to be performed?
I. The auditor
II. The client
III. The specialist
14. Analytical procedures are required in which stage of the audit?
I. Evidence-gathering stage
II. Overall review stage
15. Which of the following statements is correct about the independent auditor’s use of the work of a specialist?
I. The appropriateness and reasonableness of methods and their application are the responsibility of the specialist.
II. The auditor is required to perform substantive procedures to verify the specialist’s assumptions and findings.
16. The auditor will read which of the following to gather evidence regarding contingencies?
I. Client contracts that contain a liquidated damages clause
II. Client loan agreements that contain debt covenants
17. In a cash disbursements cycle that employs a voucher system, which of the following departments cancels or perforates the voucher package so that the voucher cannot be paid more than once and then mails the check to the vendor?
18. Within the revenue and purchasing cycle of an organization, which of the following departments normally has the authority to move goods only within the organization?
I. Warehouse
II. Shipping department
III. Receiving room
19. An auditor must perform analytical procedures in the:
I. planning stage of an audit
II. internal control stage of an audit
20. Corey is the auditor for Arthur Inc. When a customer pays Arthur Inc. by check and mails the check to Arthur Inc., Carol, the secretary, gathers the customer checks from their envelopes. For good internal control, what should Carol NOT have the authority to do?
I. Deposit the customer checks into Arthur Inc.’s bank account
II. Prepare a listing of the checks received
III. Post the credits to the individual customer’s accounts
21. Which of the following is a substantive test for accounts receivable in the subsequent period?
I. Examining how much bad debt was written off shortly after year-end
II. Examining how much cash was actually collected shortly after year-end
22. The occurrence assertion as it relates to payroll transactions would correspond to which of the following audit objectives?
I. To determine that all payroll checks were issued to valid employees for hours actually worked
II. To determine if any payroll checks were missing
23. The auditor should obtain bank cutoff statements that include transactions for 10 to 15 days after year-end. The information on the bank cutoff statements should agree with:
I. the outstanding checks at year-end on the bank reconciliation
II. the deposits in transit at year-end on the bank reconciliation
24. When auditing inventories, an auditor would least likely verify that:
25. Tracing from the inventory schedule to the inventory tags verifies the:
I. validity (existence) of the items
II. completeness of the inventory schedule

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