2024 – Question 1 On the balance sheet the cash and investment process includes A ending

Question 1 On the balance sheet, the cash and investment process includes
A. ending balance in the cash account
B. interest and dividends
C. gains and losses on sale of investments
D. trading securities
E. unrealized gains and losses on investment securities classified as trading securities
F. both A and D
G. both B and C
H. both D and E
Question 2 The most common misstatements that an auditor is likely to see in the cash and investment process accounts involves
A. misclassification of trading and available-for-sale securities
B. misclassification of held-to-maturity investments
C. overstatement of unrealized gains
D. understatement of cash
E. overstatement of cash
F. both A and B
G. both C and D
H. both A and E
Question 3 The client may use a variety of methods to overstate investment securities and cash. These include
A. companies may manipulate the particular securities in the holding security account and the available for sale account to overstate unrealized gains from trading securities and to increase income
B. companies may manipulate the particular securities in the trading security account and the available for sale account to overstate realized gains from holding securities and to increase income
C. misstating the amount of cash by manipulating the adjustments done to the year-end bank reconciliation
D. companies may manipulate the particular securities in the trading security account and the available for sale account to overstate unrealized gains from holding securities and to increase income
E. misstating the amount of cash by manipulating the adjustments done to the year-end account reconciliation
F. both A and B
G. both C and D
H. both D and E
Question 4 Management asserts that
A. the company has the right to the assets of cash and investments
B. all balances related to the investment account have been accurately recorded
C. all cash and investment transactions that should be presented in the financial statements are relevant
D. transactions related to the investment process have been properly classified
E. the investment accounts are reliable according to the rules of the applicable financial reporting framework at year-end
F. both A and D
G. both B and C
H. both D and E
Question 5 Although management may have designed internal controls, the auditor may choose not to test them because
A. the auditor believes it is more efficient to use analytical procedures to gather evidence
B. the auditor believes it is more effective to use substantive testing to gather evidence
C. the auditor believes it is more efficient to use substantive testing to gather evidence
D. the auditor believes it is more effective to use analytical procedures to gather evidence
Question 6 IT controls that the auditor might expect to find in the cash process are
A. IT system restricts access to individuals authorized to adjust cash balances
B. IT system restricts access to individuals authorized to input investment purchases and investment sales
C. Trading and available-for-sale investments must have a broker’s advice number to be entered into the accounting system
D. Bank transfer report is generated daily (weekly or monthly) and is reviewed by an individual one level above the level making the transfer
E. Held-to-maturity investments must have a face value, which includes the stated amount of the bond and the discount or premium on the bond
F. both A and D
G. both B and C
H. both C and E
Question 7 Key control procedures for cash are
A. segregation of duties
B. authorization procedures
C. documented transaction trails
D. physical controls
E. both A and B
F. both C and D
Question 8 The bank confirmation is the most important procedure for the auditor because
A. it allows the auditor to verify from the company that the amount of cash listed by the company is valid
B. it allows the auditor to inquire from a source independent from the company that the amount of cash listed by the company is valid
C. it allows the auditor to verify from a source independent from the company that the amount of cash listed by the company is on hand
D. it allows the auditor to verify from a source independent from the company that the amount of cash listed by the company is valid
Question 9 Although cash is fairly easy to audit, it may also be easy to misstate cash for companies using checks to disburse cash. In this case, the correct cash amount at the end of the year is found by
A. taking the confirmed balances from the banks and adjusting these amounts by subtracting the checks outstanding and subtracting the deposits in transit
B. taking the confirmed balances from the banks and adjusting these amounts by the checks outstanding and the deposits in transit
C. taking the confirmed balances from management and adjusting these amounts by the checks outstanding and the deposits in transit
D. taking the confirmed balances from the banks and adjusting these amounts by adding the checks outstanding and the deposits in transit
Question 10 On the income statement, the long-term debt and owner’s equity process includes
A. interest expense accounts
B. gains and losses on the purchase of investments
C. interest and dividends
D. all long-term debt and owner’s equity accounts
Question 11The auditor is likely to review all transactions in the long-term debt and owner’s equity process because
A. there is usually only a few transactions in this account
B. some transactions are likely to be significant in determining the ending balance
C. each transaction is likely to be significant in determining the ending balance
D. most transactions are likely to be insignificant in determining the ending balance
Question 12 The documents in the long-term debt and owner’s equity business process include
A. bond agreement
B. note receivable agreement
C. depreciation table for long-term debt agreements
D. stock register or stock certificate book
E. adjusting journal evaluation report
F. both A and D
G. both B and C
H. both D and E
Question 13 According to FASB Statement of Financial Accounting Standards No 130, Reporting Comprehensive Income, companies are required to include
A. a long-term debt account titled “Accumulated Other Comprehensive Income” on the balance sheet
B. an owner’s equity account titled “Accumulated Other Comprehensive Income” on the income statement
C. an owner’s equity account titled “Accumulated Other Comprehensive Income” on the balance sheet
D. a long-term debt account titled “Accumulated Other Comprehensive Income” on the income statement
Question 14 The client may use a variety of methods to understate liabilities, interest expense and long-term debt. These include
A. Recording operating leases as capital leases to avoid putting the liability on the balance sheet.
B. Designing off-balance sheet debt agreements with the sole purpose of keeping the debt off the books of the company.
C. Failing to disclose loan covenants on long-term agreements. These loan covenants may restrict dividend payments or limit the amount of additional debt taken on by the company.
D. Failing to disclose special arrangements, such as transactions with special purpose entities.
E. Failing to disclose nonrelated-party transactions.
F. both A and B
G. both B and C
H. both D and E
Question 15 Which of the following are management assertions about the accounts in long-term debt and owner’s equity process?
A. existence or occurrence – for account balances
B. completeness – for both classes of transactions and account balances
C. valuation and allocation – for both classes of transactions and account balances
D. rights and obligations – for account balances
E. accuracy – for account balances
F. both A and C
G. both B and D
H. both D and E
Question 16 The auditor uses substantive tests of transactions in the long-term debt and owner’s equity business process to
A. test the reliability of transactions during the year
B. test the reliability of balances at the end of the year
C. test the recording of balances at the end of the year
D. test the recording of transactions during the year
Question 17 The key substantive tests of balances for the long-term debt and owner’s equity process include
A. obtain a listing of the ending balance of notes payable, long-term debt, and lines of credit
B. obtain a listing of ending balance in the capital stock accounts
C. obtain a schedule showing the beginning balance in the retained earnings account and the accumulated other comprehensive income
D. obtain a listing of the recent payments of notes payable, long-term debt, and lines of credit
E. obtain a schedule showing the transactions in the retained earnings account and the accumulated other comprehensive income
F. both A and B
G. both C and E
H. both D and E
Question 18 The disclosures in the long-term debt and owner’s equity process related to the financial statements are usually found in
A. the auditor’s work papers
B. the footnotes to the financial statements
C. a separate report attached to the financial statements
D. in the “Management’s Discussion and Analysis” section of the annual report
E. in the internal control report
F. both A and B
G. both B and D
H. both C and E