Question

1. A client suffered a billing system failure near year-end. Invoices were not prepared or processed until after year-end. If S-Sale, AR-Accounting Receivable, COS-Cost of sales and INV-Inventory, how will the following ratios appear to behave?

COS/S S/AR COS/INV

a. higher lower same

a. higher higher same

a. lower lower   lower

a. lower lower higher

2. The risk of overreliance [acceptable risk of assessing control risk too low] is the risk that?

a. the auditor incorrectly concludes that controls are ineffective

b. is calculated based on the sample results

c. depends on the expected deviation rate

d. does not affect the risk of material mistatement

3. Confirmation of individual accounts receivable balances directly with debtors will, of itself normally provide the strongest evidence concerning the?
a. Collectability of the balances confirmed
b. Ownership of the balances confirmed
c. Existence of the balances confirmed
d. Internal control over balances confirmed

4. Which one of the following is incompatible with the cashier receiving customer payments?

a. The cashier posts the receipt to the accounts receivable subsidiary ledger cards

b. the cashier makes the daily deposit at a local bank

c. the cashier endorses the checks

d. the cashier prepares the daily deposits.

Answer 1

1) answer : a. higher lower same
Because sales are not booked and COS & Inv are correctly accounted.
2) answer : a. the auditor incorrectly concludes that controls are ineffective.
Because at risk occurance, the auditor has a upper limit rate of deviation which is lesser than the tolerable deviation rate.
3) answer: b. Ownership of the balances confirmed.
Because confirmation from the Debtors confirms the amount balance ownership on Debtors.
4) answer : c. the cashier endorses the checks
because Incompatible with cashier to endorse the check to someone.