Multiple Choice Question 1 of 14 During an audit, the internal auditor should consider the fellowing factor(s) in determining the extent to which analytical procedures should be used: 1. Adequacy of zhe system of internal control 11, Significance of the area being examined mr t zion with which the results of anelyteal audit procedures can be predicted (All of the above om. on.Multiple Choice (Question 2 of 14 Analytical procecures in which curr nt Financial statements are compared wi th budgets o- previous statements are intenced primarily to determine Adecuacy of financial statement disclosure, Existence of specific errors or omissions. (Overall reasonableness of statement contents, Use of an erroneous cutoff dete.Multiple Choice Question 3 of 14 Pap3qzi1 ‘The aucltor of a construction company that builds foundations for bridges and large buildings performed a review of the expense accounts fo- equipment (augers) used to dril holes in rocks to set the foundaton for the bullcincs. During tie review, the aucitar noted that the expenses related to some of the auger accounts had increased dramatically during the yaar. The aucitor spoke to the construction manager, who explained that the augers last two te thrae years and are expanced when Durchased. Thus, the aucito” shoulc sae 2 decrease in the expense accounts for these augers in the next year but auld expect an increase in the expenses of cther augers. The auditor also feund out that the conetructien manager i responsible for the invantorying and receiving of augers and le a part owner of = company thet supplies augers to the company. To improve the quality of equipment, the president of the company approved the supplier. Wich of the following procedures would be t jeast appropriate cudit procedure to address th © analytical findings? © Arrange to take an inventory of augers to determine if the augers purchased this year were on hand and would be avaiable for use in the next two years. Note the explanation in the working papers for investigation during the next audit end perform no further work at this time. Take © sample of debts to tre auger expense account, and trace to independent shipping documents and te invoices for the augers. Develep 2 comparative analysis of auger expense over the past few years to determine ifthe relationship held in previous years.Multiple Choice Question 4 of 14 Pipsq213, fn auditer performs an analytical raview by comparing the graze merging of various divisional operations with thaee of ether divisions and with the individual divisicn’s performance in previous years. The cuditor notes = significant increase in the gross marcin at che civision. The auditor does some preliminary investigation and alzo nates that there ware ro changes in preducts, production methods, er divicienal management durng the year. Baced on the above information, tha most likely cause of the increase in gress margin would be © An increase in the number of competitors selling similar products. © A cecrease in the number cf supcliers of the material used in manufacturing the product. fan understatement of year-end accounts receivable. An overstatement of year-end inventory.Multiple Choice Question 5 of 14 Pipsqz08 ‘An intemal auditor plars to use an analytical review to verily the correciness of various operating expenses in 2 division. The use of an analytical review as a Usrifeation technique sculd nat be = preferred apnraach F ‘The company haz relatively stable operations that have net changed much over the aact year. The aucitor notes strong indicators of a speotfc fraud involving this acccunt. ‘The operating expenses vary in relation to other operating expenses bur notin relation to revenue. The aucitor would ike to idertify large, unusual, or nonrecurring transactions during the yeer: cMultiple Choice Question 6 of 14 P1p3q217 \Vihich of the following contrel procedures, if properly implemented, would best decease the lke hood of fraud in the environment described above? © Require that the receiving department make the updates tot © Requice periodic rotation of purchases among differant vendors. © Require rotation of duties ameng the thee purchasing agents © Require receiving reports be sent cirectly 10 accounts payable rpetual inventory record.Multiple Choice Question 7 of 14 1D39207 Management has requested an aucit of promotional expenses. The sales depariment has been giving aviay expensive items in conjunction with new preduct sales to imulaze demand, The promotion seems successful, but management believes the cost may be too high. Which of the following audit procedures would be the least Useful to deiermine the effectiveness of tre prometion” ‘A comparison of procuct sales curing the promotion period with sales during « similar nonpromation period, © An analysis of marginal revenue and marginal cost for the promotion peried compared te the period before the premetion. © A comparison of the unt cost of the products sold before and curing the promotion period. © A review of the sales denartment’s reasons for believing that the promotion has been successfulMultiple Choice Question 8 of 14 130210 ‘A restaurant food chain has over 680 restaurants. All food orders for each restaurant are recuired to be out into an electronic device that records all o-ders ay food cervers and trenemts she erder to the leicnen far preparstion. All foad servare sre responsible for eol eating cazh for sil tneir ordars and must turn in czsh Of therr snft equal to the sales value of food ordered for their 1D number. The manacer then reccnciles the cash received for the day with the computer: food erders ganerated. Al differences ars invest gated immediately by the restaurant. Corporats headquarters has established monitoring contrels to determine when an individual rastaurant might net be racording all ts revanue and t-anemitting the applicable cash to the corporate headquerters. Which one of the folowing NoUld be the best example of a moritoring control? © Management arepares a detailed analysis of gross margin per store and in © Cash is trensmitied to corporate headquarters on 3 daily basis. © The cesteurant menager reconciles the cash re mputer. All Food orders must be entered cn the computer, and there i segregation of duties between the feed servers and the gates any store that shons a significantly lower gross marar. socksMultiple Choice Question 9 of 14 1039212 The auditor of a construction company that builds foundations for bridges and large buildings perfermed a raviaw of the exoance accounts for equipmert (augers) Used to dnil holes in rocks to set the foundation for the buldings. Dunia the review, the auditar ncted that the exoenses velated to scme of the auger acccunts had increased dramatically during the year. The auditor spoke te the construction manager, who explained that the augars last two te three years and are expercad when purchased. Thus, the aucito” should sae a decrease in the expense accounts for these augers in the rex: year but would expect an increase in the expenses cf ather augers. The aucito~ also found out that the construction manager ie responsible for the invantarying and raceiving of augers and ie a part owner ef a company 1 Supplies augers to the company. To improve the quality of equipment, the president of the company approved the suppiter. Assume the aucitor did not find a satisfactory explanation for the results of the analytical procedures perforrmed and has conducted the appropriate follow-up procedures. The aucit of the area is otheraise complete. Which ofthe fellowing would be the most appropriate action to tale? Report the findings, as they are, to management, and racemmend an investigation for possible iregulsrtiae. © Note the actions and follow-up next yaar. Defer the reporting to management untl a satisfactory explanation can be obtained Report the findings to the construction manager and insist that appropriate internal controls, such as independent receiving resorts, be implemented. Follow uo te © tes ifthe contrcle are properly implemented Expand aucit procedures ky cbzerving the recsiot ofall sugers during a reazonable periad of time, and trace the cecsipte to the appropriate accounts, Datecmine causes of any discrepancies,Multiple Choice Pipsq2is Question 10 of 14 Analytical procedures: Are considered direct evidence of the assertion being evaluated. ‘Are compelling evidence when they invelve recomputaten. May provide the best available evidence far the complateneze assertion Are not sufficient by themselves for management assertions but should be used for fraud.Question 11 of 14 Pip3Q2zi6e During an audit ofa smaller division, the audito- nates the follening regarding the purchasing function ‘+ There are three purchasing agents. agert 1 is responsible for ordering all large component parts, Agent 2 is responsible for electric motors, and agert 3 is responsible for smaller parts, such as fasteners. + There are separate zccount payable and receiving departments In rder to hold vandars more raspensibie, al invoices are sant to the purchasing agent placing the order. The purchasing agent matches the vendor invaice, receiving slip, and purchese order. fal maich, the purchasing agent sends the documents forward to the accounts payeble department. The purchesing ef investigates differences Only the accounts payable department has the abllty to authorize an tem for payment All recordee receints are immediately recerded into @ peroetual inventory record by t lepariment to which the goods are transferred ater receiat. ‘The auditor interviewed both management and the purchasing agerts. Eoth groups were very satisfied with the currert system because it helped maintain vendor accountabiity end provided sufficient segregation of duties since only the accounts payable department can author 2e an item for payment ‘The auditor is responsible for evaluat the mast licely undetectec fraud, Pany? the contol structure to determine ifthe struetu would allow for undetected fraud. Based on the above scenario, what is © The production dapariment could be deflating the prica of products purchased and thereby increasing the reportad gross margin of eales. © The purchasing agents could be purchasing the majorty of products from a faverte vendor since rotation amang purchasing agents is nat mandatary © The receiving department could be diverting receipts to cifferent locations ard failing to create receiving repo! ‘The purchasing agents could be sending fake purchase oders to a dummy vender, inserting a receiving slip, and having payments made to the dummy, vanconPipsg2i4 Multiple Choice Question 12 of 14 During an operational cud, en auditer compares the inventory turnover rate of 2 subsidiary with established industry standards in order to racy of the subsidiary's internal financiel reports ) Evaluate the a ) Test the eubcidiary’s controle davigned to eafeguard ascete, ) Assess the performance of the subsidiary and indicate where additional aucit werk may be needed corperate procedures recarcing inventory levels, termine ifthe subsidiary is complying wit‘Multiple Choice Question 13 of 14 1039219 A company makes ¢ practice of investing excess short-term cash in marketable equity securities. A reliable test of the veluation of those securities vould be & (© Confirmation of securities held by the bro © Calculation of premium er discourt amo-tzation. © Comparigon of cost data with current marist quotations, Recaleuiation of investment carrying value uzing the equity method eoee: Question 14 of 14 1039215 During en audit of a smaller division, the auditor netes the following regerding the purchasing function + There ave three purchasing agents. agent | is responsible for ord responsible for emaller parte, euch as fasteners. + There are ceparate accounts payatle anc receiving departments. + In ardarto hold vendars more receiving sip, and purchase or Investigates differences. ‘+ Only the accounts payable department has the abilty to authorize an item for payment. + All recorded receipts sre immediately recorced into a perpetual inventory record by the departmer ing all large component parts, Agent 2 Is responsible for electric motors, ang agent 3 Is ‘onsible, all invcices are sert to the purchasing agent placing the order. The purchasing agent matches the vendo invaice, Tall match, the purchasing agent sends the documents forward to the accourts payable department. The purchesing agent 10 which the goods are transferred after receipt ‘The auditor interviewed both management and the purchasing agents. Sath groups were very satisfied with the current system because t helped maintain vendor accourtabilty and provided sufficient segregation ef duties since only the accounts payeble department can auihorize an ter for payment Which of the following audit procedures would be most effective in determining whether material fraud wes taking place? ) Take a random sample of cash disbursements and trace to approved purchase orders and receiving slips. the perpetual inventory to the general ledger and investigate any differences. ‘Take a random sample of purchase o-dere, Trace each aurchass order to a receiving clip, vendor inveize, and azproval by the accounts payable department Perform an analytical review of inventory by product line to determine whether a particular product line has increased. Inquire of the purchasing agent as to ‘enson for the inventory insrease, ) Recon