1. Which of the following types of risk is of critical importance to auditors in performing tests of controls?

1. The risk of incorrect rejection
2. The risk of assessing control risk too low
3. The risk of assessing control risk too high
4. The risk of incorrect acceptance

2. Which of the following procedures should be performed to verify deposit in transit on bank reconciliation as of 12/31/2015?

1. Inspect bank issued credit memo.
2. Confirm directly with bank on standard form
3. Inspect bank issued debit memo.
4. Compare to 1/10/2016 cutoff statement.

3. The client made the following credit sales and received cash from customers as follows during the last two days of 20X8 and the first two days of 20X9.

Sales Cost of Goods Sold Cash Receipts

12/30/X8 $5,000 $2.500 $8.000

12/31/X8 1,000 500 3,500

1/ 1/X9 6,500 3,200 5,600

1/ 2/X9 2,300 1,000 3,200

Select the answer that best explains the financial statement effect of the situation described.

The client left both the sales journal and the cash receipts journal open after year end and included January 1&2 transaction in December 20X8. The client uses the Perpetual Inventory method. What effect would this have on 20X8?

1. Income will be overstated by $8,800
2. Cost of Goods Sold will be understated by $4,200
3. Cash will be understated by $8,800
4. Accounts receivable will not be overstated or understated