1
Q
What is the assertion:
Trace receiving reports to the accounts payable ledger.
A
Completeness (AP)
2
Q
What is the assertion:
Confirm accounts receivable directly with customers.
A
Existence (primarily), also rights
3
Q
What is the assertion:
Observe physical inventory count and test counts.
A
Existence (primarily), completeness (secondary)
4
Q
What is the assertion:
Review subsequent cash disbursements.
A
Completeness of liabilities
5
Q
What is the assertion:
Recalculate depreciation expense.
A
Valuation / allocation (PP&E)
6
Q
What is the assertion:
Inspect loan agreements for restrictive covenants.
A
Rights & obligations; presentation/disclosure
7
Q
What is the assertion:
Trace shipping documents to sales journal.
A
Completeness (revenue)
8
Q
What is the assertion:
Vouch sales journal entries to bills of lading.
A
Existence (revenue)
9
Q
What is the assertion:
Obtain market quotes for investments.
A
Valuation
10
Q
What is the assertion:
Send attorney letters.
A
Completeness (contingent liabilities)
11
Q
What is the assertion:
Review board minutes for stock issuances.
A
Completeness (equity)
12
Q
What is the assertion:
Inspect consignment agreements.
A
Rights & obligations (inventory)
13
Q
What is the assertion:
Reperform bank reconciliation.
A
Existence & completeness (cash)
14
Q
What is the assertion:
Test subsequent collections of AR.
A
Valuation (collectibility)
15
Q
What is the assertion:
Trace payroll timecards to payroll register.
A
Completeness (payroll expense)
16
Q
What is the assertion:
Compare current year warranty expense to prior years.
A
Valuation (estimate reasonableness)
17
Q
What is the assertion:
Inspect title documents for land.
A
Rights & obligations
18
Q
What is the assertion:
Review cutoff of receiving reports around year-end.
A
Completeness (inventory/AP)
19
Q
What is the assertion:
Confirm securities with custodian.
A
Existence (investments)
20
Q
What is the assertion:
Inspect credit memos issued after year-end.
A
Valuation (AR) and cutoff (revenue)
21
Q
What is the assertion:
Trace customer orders to shipping documents.
A
Occurrence / existence of revenue process control
22
Q
What is the assertion:
Review subsequent payroll tax filings.
A
Completeness (accrued payroll liabilities)
23
Q
What is the assertion:
Inspect lease agreements for embedded leases.
A
Completeness (lease liabilities)
24
Q
What is the assertion:
Recalculate interest expense.
A
Valuation (debt)
25
What is the assertion:
Compare financial statement disclosures to GAAP checklist.
Presentation & disclosure
26
Management asserts that accounts payable is complete.
A. Confirm recorded AP balances
B. Vouch recorded payables to vendor invoices
C. Examine subsequent cash disbursements after year-end
D. Perform analytical procedures on AP
Correct Answer: C
Why: Reviewing subsequent disbursements identifies payments made for obligations incurred before year-end but not recorded — strongest test of completeness.
27
Management asserts that recorded accounts receivable exist.
A. Trace shipping documents to sales journal
B. Confirm balances directly with customers
C. Review subsequent credit memos
D. Perform gross margin analytics
Answer: B
Why: External confirmations provide strong evidence that recorded receivables are real (existence).
28
Management asserts revenue is complete.
A. Confirm AR balances
B. Inspect sales contracts
C. Trace shipping documents to sales journal
D. Review AR aging
Answer: C
Why: Tracing from source documents (shipping docs) to accounting records tests completeness.
29
Management asserts inventory quantities exist.
A. Trace receiving reports to inventory listing
B. Confirm vendors
C. Observe physical inventory and perform test counts
D. Perform inventory turnover analytics
Answer: C
Why: Observation and test counts directly support existence of recorded inventory.
30
Management asserts fixed assets recorded are not overstated.
A. Inspect recorded assets physically
B. Review repairs expense account
C. Recalculate depreciation
D. Confirm related debt
Answer: A
Why: Physical inspection of recorded assets supports existence and prevents overstatement.
31
Management asserts accrued liabilities are complete.
A. Confirm recorded accruals
B. Review subsequent cash disbursements
C. Recalculate accrual estimates
D. Perform analytics
Answer: B
Why: Subsequent payments may relate to prior-period obligations not recorded.
32
Management asserts inventory is properly valued.
A. Observe physical count
B. Trace receiving reports
C. Test lower of cost or net realizable value
D. Confirm quantities
Answer: C
Why: Valuation is addressed by testing cost vs NRV.
33
Management asserts payroll expense is complete.
A. Trace timecards to payroll register
B. Confirm wages with employees
C. Recalculate payroll taxes
D. Perform payroll analytics
Answer: A
Why: Tracing from source documents ensures all earned wages were recorded.
34
Management asserts cash exists.
A. Review bank cutoff statement
B. Confirm balances directly with bank
C. Reperform reconciliation
D. Trace deposits in transit
Answer: B
Why: Bank confirmations provide strong external evidence of existence.
35
Management asserts debt obligations are complete.
A. Confirm recorded debt
B. Recalculate interest expense
C. Review board minutes for new borrowings
D. Inspect amortization schedule
Answer: C
Why: Board minutes often authorize borrowings that may not be recorded.
36
Management asserts allowance for doubtful accounts is reasonable.
A. Confirm AR
B. Inspect sales contracts
C. Trace invoices
D. Review subsequent collections
Answer: D
Why: Subsequent collections provide evidence of collectibility (valuation).
37
Management asserts inventory cutoff is proper.
A. Inspect shipping and receiving documents before and after year-end
B. Confirm vendors
C. Observe count
D. Perform analytics
Answer: A
Why: Cutoff testing ensures transactions recorded in proper period.
38
Management asserts investments are properly valued.
A. Inspect certificates
B. Confirm securities
C. Obtain market prices at year-end
D. Trace purchases
Answer: C
Why: Market quotations directly address valuation.
39
Management asserts related party transactions are disclosed.
A. Confirm balances
B. Review board minutes and conflict-of-interest disclosures
C. Perform analytics
D. Trace transactions
Answer: B
Why: Governance documentation helps identify related parties for disclosure.
40
Management asserts lease liabilities are complete.
A. Confirm lessors
B. Review lease agreements and board minutes
C. Recalculate amortization
D. Trace rent expense
Answer: B
Why: Reviewing contracts identifies unrecorded lease obligations.
41
Management asserts recorded sales occurred.
A. Trace shipping documents
B. Review AR aging
C. Vouch sales journal entries to bills of lading
D. Perform analytics
Answer: C
Why: Vouching recorded sales to shipping documents tests occurrence.
42
Management asserts accrued payroll is complete.
A. Confirm with employees
B. Recalculate payroll
C. Trace payroll register to GL
D. Review payments after year-end
Answer: D
Why: Reviewing payments made after year-end helps identify payroll expenses that relate to the prior period but were not recorded (i.e., completeness). It ensures all payroll liabilities that existed at the balance sheet date are included.
Incorrect - C. Trace payroll register to GL — Tests completeness of recording payroll transactions in the GL but doesn’t confirm all accrued payroll is included.
43
Management asserts long-term debt classification is proper.
A. Confirm balances
B. Review debt agreements for maturity terms
C. Recalculate interest
D. Perform analytics
Answer: B
Why: Classification depends on contractual maturity.
44
Management asserts prepaid expenses are not overstated.
A. Confirm vendor balances
B. Perform analytics
C. Recalculate amortization schedule
D. Trace payments to GL
Answer: C
Why: Recalculation verifies proper allocation and prevents overstatement.
45
Management asserts litigation contingencies are complete.
A. Review legal expense
B. Inspect board minutes
C. Confirm AR
D. Send attorney inquiry letters
Answer: D
Why: Attorney letters identify pending or unrecorded litigation.
46
Management asserts inventory held by third parties exists.
A. Observe count
B. Confirm quantities with custodian
C. Review turnover
D. Trace receiving
Answer: B
Why: External confirmation supports existence.
47
Management asserts revenue cutoff is accurate.
A. Inspect shipping documents before and after year-end
B. Confirm AR
C. Review contracts
D. Perform analytics
Answer: A
Why: Cutoff testing verifies correct period recognition.
48
Management asserts goodwill impairment estimate is reasonable.
A. Confirm balance
B. Inspect acquisition agreement
C. Evaluate management’s valuation model
D. Trace journal entries
Answer: C
Why: Evaluating valuation models tests reasonableness of estimate.
49
Management asserts equity issuances occurred.
A. Review board minutes
B. Recalculate shares
C. Confirm with transfer agent
D. Inspect certificates
Answer: C
Why: Transfer agent confirmation provides strong evidence of issuance.
50
Management asserts deferred tax assets are realizable.
A. Inspect tax return
B. Evaluate future taxable income projections
C. Confirm with IRS
D. Recalculate depreciation
Answer: B
Why: Realizability depends on future taxable income (valuation).
51
Management asserts AP cutoff is proper.
A. Confirm vendors
B. Inspect receiving reports near year-end
C. Perform analytics
D. Recalculate aging
Answer: B
Why: Receiving reports determine when liability should be recorded.
52
Management asserts construction in progress exists.
A. Inspect significant projects and supporting documentation
B. Confirm debt
C. Review board minutes
D. Trace invoices
Answer: A
Why: Physical inspection plus documentation supports existence.
53
Management asserts bond premium amortization is accurate.
A. Confirm bonds
B. Inspect agreements
C. Recalculate amortization
D. Perform analytics
Answer: C
Why: Recalculation tests valuation/allocation.
54
Management asserts unearned revenue is complete.
A. Trace cash receipts
B. Confirm AR
C. Review customer contracts
D. Perform analytics
Answer: C
Why: Contracts identify performance obligations not yet recorded.
55
Management asserts inventory is owned.
A. Observe count
B. Inspect consignment agreements
C. Perform analytics
D. Trace receiving
Answer: B
Why: Consignment terms determine rights & obligations.
56
Management asserts sales returns are completely recorded.
A. Review subsequent credit memos
B. Confirm AR
C. Inspect invoices
D. Perform analytics
Answer: A
Why: Post-year-end credit memos may relate to prior-period returns.
57
Management asserts notes receivable exist.
A. Confirm with borrower
B. Review board minutes
C. Recalculate interest
D. Inspect contract
Answer: A
Why: External confirmation supports existence.
58
Management asserts payroll liabilities exist.
A. Confirm with employees
B. Trace recorded liabilities to payroll register
C. Recalculate payroll
D. Inspect filings
Answer: B
Why: Tracing recorded liability to payroll register supports existence.
59
Management asserts intangible assets are properly valued.
A. Inspect agreement
B. Confirm balance
C. Recalculate amortization
D. Perform analytics
Answer: C
Why: Recalculation addresses valuation/allocation.
60
Management asserts inventory shrinkage is properly recorded.
A. Compare physical count to perpetual records
B. Confirm vendors
C. Review turnover
D. Trace receiving
Answer: A
Why: Comparing counts identifies unrecorded shrinkage (completeness/accuracy).
61
Management asserts bill-and-hold revenue occurred.
A. Confirm AR
B. Trace shipment
C. Inspect customer request and contract terms
D. Perform analytics
Answer: C
Why: Bill-and-hold requires specific contractual criteria to support occurrence.
61
Management asserts accrued bonuses are complete.
A. Recalculate payroll
B. Review compensation approvals and agreements
C. Confirm with employees
D. Inspect timecards
Answer: B
Why: Compensation agreements identify obligations not yet recorded.
62
Management asserts cash cutoff is proper.
A. Confirm bank
B. Reperform reconciliation
C. Review bank cutoff statement
D. Trace deposits
Answer: C
Why: Cutoff statements identify checks clearing after year-end.
63
Management asserts restricted cash is properly disclosed.
A. Confirm bank
B. Inspect agreements
C. Recalculate reconciliation
D. Review financial statement disclosures
Answer: D
Why: Disclosure assertion addressed by reviewing financial statements.
64
Management asserts prepaid insurance is complete.
A. Trace insurance payments to prepaid ledger
B. Confirm insurer
C. Recalculate amortization
D. Perform analytics
Answer: A
Why: Tracing payments ensures all prepaids recorded (completeness).
65
Management asserts inventory in transit is recorded properly.
A. Confirm vendor
B. Inspect shipping terms (FOB shipping vs destination)
C. Observe count
D. Perform analytics
Answer: B
Why: Shipping terms determine ownership and proper recording.
66
Management asserts accrued interest expense is accurate.
A. Confirm debt
B. Review minutes
C. Recalculate interest using contractual terms
D. Perform analytics
Answer: C
Why: Recalculation tests valuation.
67
Management asserts treasury stock transactions occurred.
A. Inspect certificates
B. Confirm with transfer agent
C. Recalculate shares
D. Review board minutes
Answer: B
Why: Transfer agent confirmation supports occurrence/existence.
68
Management asserts sales discounts are completely recorded.
A. Review subsequent cash receipts
B. Confirm AR
C. Inspect invoices
D. Perform analytics
Answer: A
Why: Cash receipts reveal discounts taken but not recorded.
69
Management asserts contingent liabilities are properly valued.
A. Send attorney letters
B. Evaluate management’s estimate using attorney responses
C. Inspect minutes
D. Perform analytics
Answer: B
Why: Attorney responses support valuation of contingencies.
69
Management asserts fixed asset additions exist.
A. Trace repairs expense
B. Inspect additions physically
C. Perform analytics
D. Confirm debt
Answer: B
Why: Physical inspection supports existence.
70
Management asserts AR is complete.
A. Confirm AR
B. Review aging
C. Trace shipping documents to sales journal
D. Inspect contracts
Answer: C
Why: Tracing from shipments ensures all sales recorded.
71
Management asserts liabilities are properly classified.
A. Confirm balances
B. Review contractual maturity terms
C. Perform analytics
D. Inspect invoices
Answer: B
Why: Classification depends on contractual terms.
72
Management asserts goodwill exists.
A. Confirm with prior auditor
B. Inspect acquisition agreement and recompute goodwill
C. Perform analytics
D. Trace journal entries
Answer: B
Why: Acquisition documentation supports existence of recorded goodwill.
73
Management asserts deferred revenue cutoff is proper.
A. Confirm AR
B. Review contracts and cash receipts before and after year-end
C. Perform analytics
D. Trace invoices
Answer: B
Why: Examining timing of cash and contract performance tests cutoff.
74
What is the assertion:
Examine consignment agreements.
Rights and obligations
The audit assistant would examine consignment agreements to ensure that the client has legal title or similar rights of ownership to inventory, and that inventory excludes items owned by others.
75
What is the assertion:
Examine check register for the month following year-end for disbursements relating to the current period.
Completeness (account balances)
The audit assistant would examine subsequent cash disbursements to determine whether any such disbursements relate to liabilities that should have been included in the current period financial statements.
76
What is the assertion:
Review bond indenture agreement and ascertain that the client has complied with any restrictive covenants.
Completeness (presentation and disclosure)
GAAP requires disclosure of noncompliance with restrictive debt covenants.
77
What is the assertion:
Inspect major new additions to furniture and fixtures during the current period.
Existence
The auditor's direct personal observation of assets provides reliable evidence corroborating management's assertion about the existence of those assets.
78
What is the assertion:
Ascertain that the financial statements comply with GAAP requirements surrounding the classification of investment securities as current or noncurrent assets.
Understandability and classification
GAAP requires that investment securities be classified into one of three categories, and as current or noncurrent assets, depending on the intent of the company.
79
What is the assertion:
Test the aging of accounts receivable, discussing long-overdue accounts with the client's credit manager.
Allocation and valuation
Overdue accounts should be considered for write-downs or write-offs.
80
What is the assertion:
Observe procedures, including segregation of duties, for approving sales orders.
Occurrence
The auditor's direct personal observation regarding the approval of sales orders provides evidence that sales really occurred.
81
What is the assertion:
Trace shipping documents to sales invoices.
Completeness (transactions and events)
Tracing from shipping documents to sales invoices tests whether all shipments have been properly recorded in the client's Year 2 financial statements.
82
What is the assertion:
Reperform check on accuracy of vendor invoice pricing.
Allocation and valuation
Reperforming mathematical computations verifies that inventory is properly valued.
83
What is the assertion:
Trace beginning balance for inventory to prior year's audit documentation.
Allocation and valuation
Agreeing the opening balance of inventory to the prior year's (audited) ending balance provides evidence regarding valuation of the opening balance.
84
What is the assertion affected:
The assistant noted on a cash confirmation from a bank that there was an outstanding short-term loan at December 31, which was not recorded by the client.
Completeness (account balances)
Failure to record a loan means that payables are incomplete.
85
What is the assertion affected:
The current portion of long-term debt was excluded from the current liabilities section of the balance sheet, and was included with long term liabilities instead.
Understandability and classification
GAAP requires that the current portion of long-term debt be included in the current liabilities section of the balance sheet.
86
What is the assertion affected:
The assistant found a number of shipping documents for which there were no related sales invoices.
Completeness (transactions and events)
Shipping documents that lack corresponding sales invoices may be indicative of a situation where goods were shipped but not billed. Sales would therefore be incomplete.
87
What is the assertion affected:
During the year the client purchased a truck from a private individual, but legal title was not obtained.
Rights and obligations
If legal title for the truck was not transferred to the client, then the client does not technically have ownership rights to that asset.
88
What is the assertion affected:
During her observation of the client's inventory, the assistant noted a few items in the back of the storeroom that appeared to be rather old. Upon further investigation, the items were deemed to be obsolete and worthless.
Allocation and valuation
Obsolete or worthless assets should be written down to net realizable value or written off, as appropriate.
89
What is the assertion affected:
The assistant selected several older assets from the client's asset ledger, but was unable to locate those assets for physical inspection. The accounting manager indicated that the assets had been disposed of during the year.
Existence
Assets which are included in the client's books and records, but which have actually been retired, are not considered to "exist" for financial statement purposes as of year-end.
90
What is the assertion affected:
The client bought a piece of property five years ago for investment purposes. The property has quadrupled in value since that time, so the client has written up the investment to more closely reflect its current market value. The client uses U.S. GAAP.
Allocation and valuation
GAAP requires that land held for investment purposes be shown at historical cost.
91
What is the assertion affected:
The assistant noted that the accounts receivable subsidiary ledger does not reconcile with the control account due to a transposition error. In posting to the subsidiary ledger, $4,293 was inadvertently posted as $4,239.
Accuracy
The transposition error means that the amount posted to the subsidiary ledger was not recorded appropriately.
AUD Exam - CPA
flashcards
Decks in class (33)
# Cards
-
Initial Weak Areas66
-
Final Review Weak Areas86
-
Auditing Standards and Governing Bodies11
-
Quality Management System5
-
SQM (REAL MICE) Rapid Fire7
-
COSO Rapid Fire - L134
-
COSO Rapid Fire 264
-
COSO Drills - L211
-
COSO Identification Drills - L350
-
Accounting Cycles4
-
Procedures & Evidence20
-
Analytic Type Drills20
-
Accounting Cycle Drills78
-
Accounting Cycle Drills Part 245
-
Sampling Drills45
-
Sampling L23
-
High-value Assertions11
-
Assertions5
-
Assertion Drills93
-
Assertions Rapid Fire6
-
Assertion Rapid Fire73
-
Engagements10
-
Report Drills L115
-
Reporting Drills18
-
SPF7
-
Communications11
-
Paragraph & Opinion Drills34
-
SSARS SSAE Audit Drills16
-
Paragraph Rapid Fire33
-
SOC10
-
Government10
-
Ethics26
-
Compliance6
