Question: The following program has been prepared for

> In the verification of the amount of the inventory, one of the auditor's concerns is that slow-moving and obsolete items be identified. List the auditing procedures that can be used to determine whether slow-moving or obsolete items have been included i

> What major audit procedures are involved in testing for the ownership of inventory during the observation of the physical counts and as a part of subsequent valuation tests?

> At the completion of an inventory observation, the controller requested the auditor to give him a copy of all recorded test counts to facilitate the correction of all discrepancies between the client's and the auditor's counts. Should the auditor comply

> Before the physical examination, the auditor obtains a copy of the client's inventory instructions and reviews them with the controller. In obtaining an understanding of inventory procedures for a small manufacturing company, these deficiencies are ident

> Explain why most auditors consider the receipt of goods and services the most important point in the acquisition and payment cycle.

> Many auditors assert that certain audit tests can be significantly reduced for clients with adequate perpetual records that include both unit and cost data. What are the most important tests of the perpetual records that the auditor must make before redu

> State what is meant by cost accounting records and explain their importance in the conduct of an audit.

> It is common practice to audit the balance in notes payable in conjunction with the audit of interest expense and interest payable. Explain the advantages of this approach.

> Explain the relationship between the acquisition and payment cycle and the inventory and warehousing cycle in the audit of a manufacturing company. List several audit procedures in the acquisition and payment cycle that support your explanation.

> Give the reasons why inventory is often the most difficult and time consuming part of many audits.

> You are assigned to the December 31, 2011, audit of Sea Gull Airframes, Inc. The company designs and manufactures aircraft superstructures and airframe components. You observed the physical inventory at December 31 and are satisfied that it was properly

> Since 1938, when auditors failed to uncover fictitious inventory recorded by the McKesson & Robbins Company, auditors have been ordinarily required to physically observe the counting of inventory. It is important to recognize that auditors are not requir

> During the first-year audit of Jones Wholesale Stationery, you observe that commission’s amount to almost 25 percent of total sales, which is somewhat higher than in previous years. Further investigation reveals that the industry typically has larger sal

> Archer Uniforms, Inc., is a distributor of professional uniforms to retail stores that sell work clothing to professionals, such as doctors, nurses, security guards, etc. Traditionally, most of the sales are to retail stores throughout the United States

> The following are various asset misappropriations involving the payroll and personnel cycle. 1. The payroll clerk submitted payroll information for a fictitious employee and had the funds directly deposited to a bank account that he controlled. 2. An emp

> You are assessing internal control in the audit of the payroll and personnel cycle for Rogers Products Company, a manufacturing company specializing in assembling computer parts. Rogers employs approximately two hundred hourly and thirty salaried employe

> What is meant by a voucher? Explain how its use can improve an organization’s internal controls.

> In comparing total payroll tax expense with that of the preceding year, Merlin Brendin, CPA, observed a significant increase, even though the total number of employees increased only from 175 to 185. To investigate the difference, he selected a large sam

> The Securities and Exchange Commission (SEC) found that Centerpulse Ltd., a publicly traded company based in Switzerland, fraudulently misstated its 2002 third and fourth quarter financial statements filed with the SEC. Visit the SEC’s website (www.sec.g

> The following audit procedures are typical of those found in auditing the payroll and personnel cycle: 1. Scan journals for all periods for unusual transactions to determine whether they are recorded correctly. 2. Select a sample of 40 entries in the pay

> The following misstatements are included in the accounting records of Lathen Manufacturing Company: 1. Joe Block and Frank Demery take turns “punching in” for each other every few days. The absent employee comes in at noon and tells his foreman that he h

> Following are some of the tests of controls and substantive tests of transactions procedures often performed in the payroll and personnel cycle. (Each procedure is to be done on a sample basis.) 1. Reconcile the monthly payroll total for direct manufactu

> Items 1 through 8 are selected questions typically found in internal control questionnaires used by auditors to obtain an understanding of internal control in the payroll and personnel cycle. In using the questionnaire for a client, a “yes” response to a

> Explain how audit sampling can be used to test the payroll and personnel cycle.

> List several audit procedures that the auditor can use to determine whether payroll transactions are recorded at the proper amounts.

> Explain what is meant by an imprest payroll account. What is its purpose as a control over payroll?

> Explain why it is common to verify total officers’ compensation even when the tests of controls and substantive tests of transactions results in payroll are excellent. What audit procedures can be used to verify officers’ compensation?

> List five types of authorizations in the payroll and personnel cycle and state the type of misstatement that is likely to occur when each authorization is lacking.

> If an audit client does not have prenumbered checks, what type of misstatement has a greater chance of occurring? Under the circumstances, what audit procedure can the auditor use to compensate for the deficiency?

> Why are liability accounts included in the capital acquisition and repayment cycle audited differently from accounts payable?

> List the supporting documents and records the auditor will examine in a typical payroll audit in which the primary objective is to detect fraud.

> Distinguish among a payroll master file, a W-2 form, and a payroll tax return. Explain the purpose of each.

> Explain the circumstances under which an auditor should perform audit tests primarily designed to uncover fraud in the payroll and personnel cycle. List three audit procedures that are primarily for the detection of fraud and state the type of fraud the

> List several analytical procedures for the payroll and personnel cycle and explain the type of misstatement that might be indicated when there is a significant difference in the comparison of the current year with previous years’ results for each of the

> In auditing payroll withholding and payroll tax expense, explain why emphasis should normally be on evaluating the adequacy of the payroll tax return preparation procedures rather than the payroll tax liability. If the preparation procedures are inadequa

> Distinguish between the following payroll audit procedures and state the purpose of each: (1) Trace a random sample of prenumbered time cards to the related payments in the payroll register and compare the hours worked with the hours paid, (2) Trace a

> Evaluate the following comment by an auditor: “My job is to determine whether the payroll records are fairly stated in accordance with accounting standards, not to find out whether they are following proper hiring and termination procedures. When I condu

> Explain why the percentage of total audit time in the cycle devoted to performing tests of controls and substantive tests of transactions is usually far greater for the payroll and personnel cycle than for the sales and collection cycle.

> List five tests of controls that can be performed for the payroll and personnel cycle and state the purpose of each control tested.

> Explain the relationship between the payroll and personnel cycle and inventory valuation.

> List four examples of interest-bearing liability accounts commonly found in balance sheets. What characteristics do these liabilities have in common? How do they differ?

> What are the similarities and differences in the objectives of the following two procedures? (1) Select a random sample of receiving reports and trace them to related vendors’ invoices and acquisitions journal entries, comparing the vendor’s name, type

> Identify five general ledger accounts that are likely to be affected by the payroll and personnel cycle in most audits.

> Roost and Briley, CPAs, are doing the audit of Leggert Lumber Co., an international wholesale lumber broker. Because of the nature of their business, payroll and telephone expense are the two largest expenses. You are the in-charge auditor on the engagem

> Outsourcing the payroll function can provide many benefits, but there are also risks associated with outsourcing. The IRS (www.irs.gov) provides information on outsourcing payroll duties for employers who outsource the payroll function (search for “payro

> You are doing the audit of the UTE Corporation, for the year ended December 31, 2011. The following schedule for the property, plant, and equipment and related allowance for depreciation accounts has been prepared by the client. You have compared the ope

> Examine the tests of controls and substantive tests of transactions results, including the sampling application, for Ward Publishing Company. Assume that you have already reached several conclusions. 1. Your tests of details of balances for accounts paya

> While you are having lunch with a banker friend, you become involved in explaining to him how your firm conducts a typical audit. Much to your surprise, your friend is interested and is able to converse intelligently in discussing your philosophy of emph

> As part of the audit of different audit areas, auditors should be alert for the possibility of unrecorded liabilities. For each of the following audit areas or accounts, describe a liability that can be uncovered and the audit procedures that can uncover

> Your client, Edgartown Corporation, prepared the following schedule of land, buildings and equipment for the audit of financial statements for the year ended December 31, 2011: a. What type of evidence would you examine to support the beginning balances

> Many companies aspire to go public and have their shares traded on exchanges such as the New York Stock Exchange (NYSE) and NASDAQ. Visit the Website of the NYSE (www.nyse.com) and search for the “Guide to the NYSE Marketplace” to answer the following qu

> The following audit procedures were planned by Linda King, CPA, in the audit of the acquisition and payment cycle for Cooley Products, Inc.: 1. Review the acquisitions journal for large and unusual transactions. 2. Send letters to several vendors, includ

> List five asset accounts, three liability accounts, and five expense accounts included in the acquisition and payment cycle for a typical manufacturing company.

> The following types of internal controls are commonly used by organizations for property, plant, and equipment: 1. A fixed asset master file is maintained with a separate record for each fixed asset. 2. Written policies exist and are known by accounting

> For each of the following misstatements in property, plant, and equipment accounts, state an internal control that the client can implement to prevent the misstatement from occurring and a substantive audit procedure that the auditor can use to discover

> The following questions concern analytical procedures in the acquisition and payment cycle. Choose the best response. a. Which of the following comparisons will be most useful to an auditor in auditing an entity’s income and expense accounts? (1) Prior y

> The following questions concern internal controls in the acquisition and payment cycle. Choose the best response. a. Which of the following controls will most likely justify a reduced assessed level of control risk for the existence assertion for equipme

> List the factors that should affect the auditor’s decision whether to analyze an account balance. Considering these factors, list four expense accounts that are commonly analyzed in audits.

> How will the approach for verifying repair expense differ from that used to audit depreciation expense? Why will the approach be different?

> What is meant by the analysis of expense accounts? Explain how expense account analysis relates to the tests of controls and substantive tests of transactions that the auditor has already completed for the acquisition and payment cycle.

> List three expense accounts that are tested as part of the acquisition and payment cycle or the payroll and personnel cycle. List three expense accounts that are not directly verified as part of the cycle.

> You have been engaged for the audit of the Y Company for the year ended December 31, 2011. The Y Company is in the wholesale chemical business and makes all sales at 25% over cost. Following are portions of the client’s sales and purcha

> Explain the relationship between tests of the acquisition and payment cycle and tests of inventory. Give specific examples of how these two types of tests affect each other.

> In verifying accounts payable, it is common to restrict the audit sample to a small portion of the population items, whereas in auditing accrued property taxes, it is common to verify all transactions for the year. Explain the reason for the difference.

> Explain the relationship between accrued rent and substantive tests of transactions for the acquisition and payment cycle. Which aspects of accrued rent are not verified as part of the substantive tests of transactions?

> Evaluate the following statement by an auditor concerning tests of acquisitions and cash disbursements: “In selecting the acquisitions and cash disbursements sample for testing, the best approach is to select a random month and test every transaction for

> What are the major differences between the audit of prepaid expenses and other asset accounts such as accounts receivable or property, plant, and equipment?

> Distinguish between the evaluation of the adequacy of insurance coverage and the verification of prepaid insurance. Explain which is more important in a typical audit.

> Explain why the audit of prepaid insurance should ordinarily take a relatively small amount of audit time if the client’s assessed control risk for acquisitions is low.

> Explain the relationship between substantive tests of transactions for the acquisition and payment cycle and tests of details of balances for the verification of prepaid insurance.

> In auditing depreciation expense, what major considerations should the auditor keep in mind? Explain how each can be verified.

> List and briefly state the purpose of all audit procedures that might reasonably be applied by an auditor to determine that all property, plant, and equipment retirements have been recorded in the accounting system.

> What is the relationship between the audit of property, plant, and equipment accounts and the audit of repair and maintenance accounts? Explain how the auditor organizes the audit to take this relationship into consideration.

> As a part of your clerical tests of inventory for Martin Manufacturing, you have tested about 20% of the dollar items and have found the following exceptions: 1. Extension errors: 2. Differences located in comparing last year’s costs wi

> You are the manager in the audit of Vernal Manufacturing Company and are turning your attention to the income statement accounts. The in-charge auditor assessed control risk for all cycles as low, supported by tests of controls. There are no major inhere

> The physical inventory for Ajak Manufacturing was taken on December 30, 2011, rather than December 31, because the client had to operate the plant for a special order the last day of the year. At the time of the client’s physical count,

> As part of the June 30, 2011, audit of accounts payable of Milner Products Company, the auditor sent 22 confirmations of accounts payable to vendors in the form of requests for statements. Four of the statements were not returned by the vendors, and five

> List one possible control for each of the six transaction-related audit objectives for acquisitions. For each control, list a test of control to test its effectiveness.

> Even though Bergeron Wholesale Company is privately held, management has decided that it is worthwhile to have effective internal controls to the extent it is practical in a small company, as a way to reduce the likelihood of error and fraud. They have i

> You were in the final stages of your audit of the financial statements of Ozine Corporation for the year ended December 31, 2011, when you were consulted by the corporation’s president, who believes there is no point to your examining the year 2012 acqui

> The Broughton Cap Company requires that prenumbered receiving reports be completed when purchased inventory items arrive in the receiving department. At the time of receipt, the receiving clerk writes the date of receipt on the receiving document. The la

> Lecimore Company has a centralized purchasing department that is managed by Joan Jones. Jones has established policies and procedures to guide the clerical staff and purchasing agents in the day-to-day operation of the department. She is satisfied that t

> Haskin Company was founded 40 years ago and now has several manufacturing plants in the Northeast and Midwest. The evaluation of proposed capital expenditures became increasingly difficult for management as the company became geographically dispersed and

> Weston Corporation has an internal audit department operating out of the corporate headquarters. Various types of audit assignments are performed by the department for the eight divisions of the company. The following findings resulted from recent audits

> In an annual audit at December 31, 2011, you find the following transactions near the closing date: 1. Merchandise costing $1,822 was received on January 3, 2012, and the related acquisition invoice recorded January 5. The invoice showed the shipment was

> In testing cash disbursements for the Jay Klein Company, you obtained an understanding of internal control. The controls are reasonably good, and no unusual audit problems arose in previous years.Although there are not many individuals in the accounting

> Lajod Company has an internal audit department consisting of a manager and three staff auditors. The manager of internal audits, in turn, reports to the corporate controller. Copies of audit reports are routinely sent to the audit committee of the board

> What are the major differences between reporting for operational and financial auditing?

> Explain how planning for operational auditing is similar to and different from financial auditing.

> Identify the three phases of an operational audit.

> Explain what is meant by the criteria for evaluating efficiency and effectiveness. Provide five possible specific criteria for evaluating effectiveness of an IT system for payroll.

> Under what circumstances are external auditors likely to be involved in operational auditing? Give one example of operational auditing by a CPA firm.

> Explain the role of government auditors in operational auditing. How is this similar to and different from the role of internal auditors?

> Distinguish among the following types of operational audits: functional, organizational, and special assignment. State an example of each for a not-for-profit hospital.

> Distinguish between efficiency and effectiveness in operational audits. State one example of an operational audit explaining efficiency and another explaining effectiveness.

> The following are sales, cost of sales, and inventory data for Aladdin Products Supply Company, a wholesale distributor of cleaning supplies. Dollar amounts are in millions. Required a. Calculate the following ratios, using an electronic spreadsheet prog

> Identify the three major differences between financial and operational auditing.

> The following auditing procedures were performed in the audit of accounts payable: 1. Obtain a list of accounts payable. Re-add and compare with the general ledger. 2. Trace from the general ledger trial balance and supporting documentation to determine

> Identify the key required reports of the Single Audit Act and OMB Circular A-133.

> Identify the primary specific objectives that must be incorporated into the design of audit tests under the Single Audit Act.