1. Managements operating, investing, and financing decisions and strategies

A. have no bearing on cash balances

B. should be approved by the clients vendors before implementation

C. have relatively little effect on cash balances

D. significantly affect cash balances

2. Controls over cash receipts and cash disbursements _______.

A. are usually tested as part of testing controls in the financing process and the purchasing process

B. should not be tested as part of the external audit

C. are usually tested as part of testing controls in the revenue process and the purchasing process

D. receive relatively little auditor attention due to their low inherent risk

3. Tests of inventory controls often involve

A. observing the client's controls and reperforming the auditor's controls

B. observing the client's controls and reperforming the client's controls

C. observing the auditor's controls and reperforming the client's controls

D. determining that the inventory is correctly valued on the statement of cost of goods sold

4. The computer manufacturing industry

A. is not subject to technological obsolescence

B. is very profitable for the auditor due to high inherent risk and the greater extent of needed audit procedures

C. is subject to technological obsolescence

D. is subject to high inherent risk, and should be avoided by the auditor

5. The auditor should be alert to cutoff problems

A. which relate to expenses being misclassified

B. which relate to revenues being valued improperly

C. that might have resulted in correct inventory balances

D. that might have resulted in overstating inventory

6. An inventory markdown by a client

A. could indicate obsolescence

B. means the client has violated the accounting principle of conservatism

C. is required every three years as part of GAAP

D. is not the responsibility of the auditor to check