The primary objective of auditing is to add credibility to the financial statements prepared by management

AUDITING - True or False / Multiple Choice / Matching Type

1. The primary objective of auditing is to add credibility to the financial statements prepared by management. True or False

2. Auditing is not possible in the absence of verifiable data. True or False

3. Compliance with “Statements on Auditing Standards” is mandatory for all auditors. True or False

4. The training called for by the first general standard comes solely from practical experience. True or False

5. The second general standard likens the auditor’s role in an audit to the role of an attorney in a legal case. True or False

6. The susceptibility of an assertion to a material misstatement, assuming that there are no controls, is: (Multiple Choice)

7. The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated is: (Multiple Choice)

8. The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity’s internal controls is: (Multiple Choice)

9. The least costly form of testing is usually: (Multiple Choice)

10. In practice, the use of analytical procedures has proven to be: (Multiple Choice)

11. Assume the preliminary audit strategy was based on a planned assessed level of control risk at a low level. Based on the final assessed level of control risk, the auditor would need to move substantive tests from interim to year-end and increase the extent of tests of details in order to accommodate a lower acceptable level of detection risk if: (Multiple Choice)

12. Tests of details of transactions generally use evidence from: (Multiple Choice)

13. The auditor would prepare a bank reconciliation using the bank statement obtained from the client and verify major reconciling items and mathematical accuracy when detection risk is: (Multiple Choice)

REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provided.
A. Existence or occurrence
B. Completeness
C. Valuation or allocation
D. Rights and obligations
E. Presentation and disclosure

14. Examine consignment agreements.

15. Examine check register for the month following year end for disbursements relating to the audit period.

16. Select high dollar items from the perpetual inventory records for inspection/counting during the physical inventory.

17. Select vendor accounts with high activity during the year, and low balance at year-end for confirmation.

18. Examine vehicle registration forms to determine the registered owner.

19. Measuring the amount of monetary errors in transactions and balances is a primary purpose of substantive tests. True or False

20. The extent of substantive tests, in practice means the length of time during which substantive tests are to be performed. True or False

Click here for the solution: AUDITING - True or False / Multiple Choice / Matching Type

Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation

ACC 560 Week 3 Assignment

P4-5A Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.

Activity Cost Pool Cost Driver Estimated Overhead Expected Use of Cost Drivers Expected Use of Cost Drivers per Service Audit Tax
Employee training Direct labor dollars $216,000 $1,800,000 $1,000,000 $800,000
Typing and secretarial Number of reports/forms 76,200 2,500 600 1,900
Computing Number of minutes 204,000 60,000 25,000 35,000
Facility rental Number of employees 142,500 40 22 18
Travel Per expense reports 81,300 Direct 56,000 25,300 $720,000

Instructions:
a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Hy and Lowe.
b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers.
c. Classify each of the activities as a value-added activity or a non-value added activity.
d. Comment on the comparative overhead cost for the two services under both traditional costing and ABC.

Click here for the solution: Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation

Assume that Banc One receives a primary deposit of $1 million

P5-1 Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.

Click here for the solution: Assume that Banc One receives a primary deposit of $1 million