Select the necessary words from the list of possibilities to complete the following statements.

cost or market balance sheet planning confirmed

test counts pricing purchase orders receiving document

existence obsolescence

1. To help ensure that the physical inventory is taken accurately and completely, early in the audit the auditors should participate in the ___________________ of the count of physical inventory.

2. The auditors observe the inventory taking primarily to obtain evidence of the ________________________ assertion and to a certain extent the client's rights to the inventories.

3. The details of the auditors ____________________ made during the observation of the physical inventory should be recorded in their working papers to later check the accuracy of the final inventory listing.

4. Inventories stored in public warehouses should be __________________ with the custodians.

5. The auditors' review of purchase invoices is generally performed in connection with tests of the ____________________ of the inventories.

6. As a general rule, inventories are carried at the lower of ________________________.

7. Tracing ____________________ for several days before and after year-end to recorded purchases is designed to test the proper cutoff of purchase transactions.

8. A decreasing rate of inventory turnover suggests the possibility of inventory _______________________.

9. Even though the auditors are unable to obtain evidence regarding the fairness of beginning inventories, they may still issue an unmodified opinion on the client's ______________________________ .

10. Serially numbered ___________________________ should be prepared and sent to vendors when goods are ordered

For questions 11-25, circle the best answer.

11. A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner?

1. Footing the purchases journal.
2. Reconciling vendors monthly statements with subsidiary payable ledger accounts.
3. Tracing totals from the purchases journal to the ledger accounts.
4. Sending written quarterly confirmation to all vendors.

12. For effective internal control, the accounts payable department should compare the information on each vendors invoice with the:

1. Receiving report and the purchase order.
2. Receiving report and the voucher.
3. Vendors packing slip and the purchase order.
4. Vendors packing slip and the voucher.

13. In an audit, the valuation of year-end accounts payable is most likely addressed by:

1. Confirmation.
2. Examination of cash disbursements immediately prior to year-end.
3. Examination of cash disbursements immediately subsequent to year-end.
4. Analytical procedures applied to vouchers payable at year-end.

14. Ordinarily, the most significant assertion relating to accounts payable is:

1. Completeness.
2. Existence.
3. Presentation.
4. Valuation.

15. To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the:

1. Authorized members of the audit committee.
2. Accounting department.
3. Individual who signs the checks.
4. Chief executive officer.

16. In performing a test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test?

1. Completeness.
2. Existence.
3. Valuation.
4. Rights.

17. Which of the following is the best way for the auditors to determine that every name on a companys payroll is that of a bona fide employee presently on the job?

1. Examine human resources records for accuracy and completeness.
2. Examine employees names listed on payroll tax returns for agreement with payroll accounting records.
3. Make a surprise observation of the companys regular distribution of paychecks on a test basis.
4. Visit the working areas and verify that employees exist by examining their badge or identification numbers.

18. The search for unrecorded liabilities for a public company includes procedures usually performed through the:

1. Day the audit report is issued.
2. End of the clients year.
3. Date of the auditors report.
4. Date the report is filed with the SEC.

19. A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n):

1. Analytical process.
2. Loss contingency.
3. Probable loss.
4. Unasserted claim.

20. Which of the following procedures is most likely to be included near completion of an audit?

1. Obtaining an understanding of internal control.
2. Confirmation of receivables.
3. Observation of inventory.
4. Performing analytical procedures.

21. A material departure from generally accepted accounting principles will result in auditor consideration of:

1. Whether to issue an adverse opinion rather than a disclaimer of opinion.
2. Whether to issue a disclaimer of opinion rather than a qualified opinion.
3. Whether to issue an adverse opinion rather than a qualified opinion.
4. Nothing, because none of these opinions is applicable to this type of exception.

22. The auditors report should be dated as of the date the:

1. Report is delivered to the client.
2. Auditors have accumulated sufficient appropriate evidence.
3. Fiscal period under audit ends.
4. Peer review of the working papers is completed.

23. An audit report for a public client indicates that the audit was performed in accordance with:

1. Generally accepted auditing standards (United States).
2. Standards of the Public Company Accounting Oversight Board (United States).
3. Generally accepted accounting principles (United States).
4. Generally accepted accounting principles (Public Company Accounting Oversight Board).

24. An audit report for a public client indicates that the financial statements were prepared in conformity with:

1. Generally accepted auditing standards (United States).
2. Standards of the Public Company Accounting Oversight Board (United States).
3. Generally accepted accounting principles (United States).
4. Generally accepted accounting principles (Public Company Accounting Oversight Board).

25. Which of the following is least likely to result in inclusion of an additional paragraph being added to an audit report?

1. The company is a component of a larger business enterprise.
2. An unusually important significant event.
3. A decision not to confirm accounts receivable.
4. A risk or uncertainty.