Auditing - Substantive tests and tests for fraud

18 . An unenlightened management can increase the probability of fraud in the company by
A) Diversifying authority throughout divisions and subsidiaries in the organization.
B) Measuring performance and awarding bonuses based on short-term operating results.
C) Giving employees performance feedback that considers positive and constructive praise along with critical and negative observations on their work.
D) Establishing work teams that share responsibilities, performance, and bonuses based on collective efforts.

19. Which of the following procedures would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?
a. Observe the consistency of the employees' use of cash registers and tapes.
b. Inquire about employees' access to recorded but undeposited cash.
c. Trace the deposits in the cash receipts journal to the cash balance in the general ledger.
d. Compare the cash balance in the general ledger with the bank confirmation request.

20. Tracing shipping documents to prenumbered sales invoices provides evidence that
a. No duplicate shipments or billings occurred.
b. Shipments to customers were properly invoiced.
c. All goods ordered by customers were shipped.
d. All prenumbered sales invoices were accounted for.

21. Which of the following internal control procedures is not usually performed in the vouchers payable department?
a. Matching the vendor's invoice with the related receiving report
b. Approving vouchers for payment by having an authorized employee sign the vouchers
c. Indicating the asset and expense accounts to be debited
d. Accounting for unused prenumbered purchase orders and receiving reports





22.  Which of the following is not considered one of the three factors increasing the probability of fraud?
A) Motive.
B) Lack of training.
C) Opportunity.
D) Rationalization.


23. Which of the following is ordinarily considered an "extended procedure" in external auditors' independent audits of financial statements?
A) Send positive confirmations on recorded customer accounts receivable balances.
B) Perform physical observation and test-count during the client's inventory-taking.
C) Measure the time lag between the date of recording cash receipts in the books to the date of deposit credit in the bank.
D) Conduct interviews with the client's sales billing personnel to learn about sales recording control procedures.

24. A payroll manager was including fictitious employees on the payroll each month and taking the checks for himself. An audit procedure that would most likely lead to discovering this would be
A) recalculating the payroll amounts.
B) comparing the total payroll amount to the journal entry.
C) a surprise payroll distribution.
D) making sure all checks clear the bank.


25. The most effective audit procedure for determining the collectibility of an account receivable is the
A) Review of the subsequent cash collections.
B) Examination of the related sales invoice(s).
C) Confirmation of the account.
D) Review of authorization of credit sales to the customer and the previous history of collections.


26. In determining the effectiveness of an entity's policies and procedures relating to the existence or occurrence assertion for payroll transactions, an auditor most likely would inquire about and
A) observe the segregation of duties concerning personnel responsibilities and payroll disbursement.
B) inspect evidence of accounting for prenumbered payroll checks.
C) recompute the payroll deductions for employee fringe benefits.
D) verify the preparation of the monthly payroll account bank reconciliation.



27. Substantive tests of account balances in the payroll cycle are likely to include the following procedures, except
A) Analytical review procedures.
B) Recalculation of accruals.
C) Comparison of accruals to subsequent payments.
D) Detail vouching of payroll expense entries.

28. The focus of controls in the finance and investment cycle is on
A) proper authorizations and competent personnel.
B) computer controls over transactions.
C) physical security of assets.
D) prenumbered documents.

29. The focus of substantive tests in the finance and investment cycle is
A) reconciliation of detailed listings with general ledger amounts.
B) proper cut-off.
C) search for unrecorded items.
D) gaining an understanding and verifying amounts and calculations.




30. Loan covenants
A) describe the collateral of the loan.
B) require the borrower to maintain certain financial characteristics.
C) describe the lender's responsibilities.
D) include all the above.

    31.    Which of the following is not an off-balance-sheet item?
A) Purchase commitment.
B) Capitalized lease.
C) Loan commitment
D) Synthetic lease.