Chapter $17$ Completing an Audit

Answer each question.

$1.$ Tests of details, rather than analytical procedures, are appropriate when:

a$.$ Control risk is below the maximum.

b$.$ Transaction volume for the account or class of transactions is high.

c$.$ Analytical procedures reveal unexpected results.

d$.$ The account does not require special attention.

$2.$ Among the tests of details to audit royalty income, an auditor would likely:

a$.$ Compare amounts received to industry competitors.

b$.$ Examine royalty contracts.

c$.$ Trace to cash disbursement records.

d$.$ Review minutes of board of director meetings

$3.$ Among the tests of details to audit advertising expense, an auditor would likely:

a$.$ Examine advertising copy.

b$.$ Review advertising industry data.

c$.$ Trace to cash receipts records.

d$.$ Compare to alternative advertising media.

$4.$ Comparing current$-$ and prior$-$year revenues and expenses and investigating all changes exceeding $10$ percent would most likely reveal that:

a$.$ Management's capitalization policy for small tools changed in the current year.

b$.$ Declining economic conditions caused an inadequate provision for uncollectible receivables.

c$.$ Fourth$-$quarter payroll taxes were not paid.

d$.$ Higher current rates have not been recognized in property tax accruals.

$5.$ Under Statement on Auditing Standards No$.57,$ "Auditing Accounting Estimates," an

auditor is responsible for:

a$.$ Making accounting estimates.

b$.$ Evaluating the reasonableness of management's estimates.

c$.$ Auditing transactions in the subsequent period that lend insight into estimates

recorded at the balance sheet date.

d$.$ Including accounting estimates within the letter of audit inquiry sent to all attorneys of record.

$6.$ Which of the following would not likely be a related$-$party transaction?

a$.$ Sales to another corporation with a similar name.

b$.$ Purchases from an entity controlled by the purchasing entity's majority

shareholder.

c$.$ Loan from an entity to a major shareholder.

d$.$ Sale of land to an entity by a director's spouse.

$7.$ Subsequent events occur after the:

a$.$ Balance sheet date.

b$.$ Date of the auditor's report.

c$.$ Balance sheet date but on or before the date of the auditor's report.

d$.$ Date of the auditor's report but on or before the date of a registration

statement.