Ch 7 Solutions

Ch 7 Solutions - Multiple Choice Questions From CPA...

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Unformatted text preview: Multiple Choice Questions From CPA Examinations 7-25 a. (2) b. (2) c. (4) d. (4) 7-26 a. (3) b. (3) c. (4) d. (4) 7- 1 7-35 (Continued Discussion Questions And Problems 7-27 a. 1. External 7. Internal 13. Internal 2. Internal 8. Internal 14. External 3. External 9. External 15. Internal 4. External 10. Internal* 16. External 5. Internal* 11. External 17. External 6. Internal 12. External** 18. External * Even though these may be signed or initialed by employees, they are still internal documents. ** Bills of lading are ordinarily signed by the freight company. That signature will be included on the top of the bill of lading, therefore, it is an external document. b. External evidence is considered more reliable than internal evidence because external evidence has been in the hands of both the client and another party, implying agreement about the information and the conditions stated on the document. 7-28 1. (5) inquiry of client b.2. (3) documentation b.3. (6) recalculation b.4. (1) physical examination b.5. (2) confirmation b.6. (6) recalculation b.7. (2) confirmation b.8. (3) documentation b.9. (4) analytical procedures b.10. (5) inquiry of client b.11. (7) reperformance b.12. (8) observation b.13. (1) physical examination b.14. (4) analytical procedures b.15. (3) documentation b.16. (5) inquiry of client b.17. (4) analytical procedures b.18. (2) confirmation ) 2 7-29 Examples of audit evidence the auditor can use to support each of the functions are: a. Examine invoice from vendor Direct confirmation with vendor b. Physical examination Direct confirmation with custodian c. Direct confirmation with customer Examine cash receipts journal and bank deposits for subsequent cash receipts d. Examine title for ownership of asset Examine invoice from vendor e. Direct confirmation with vendor Examine client's copy of vendor's statement f. Physical examination Examine sales invoice of subsequent sale of goods showing marked down sale price g. Count petty cash Direct confirmation with custodian 7-30 a. Confirmations are normally more reliable evidence than inquiries of the client because of the independence of the outside party confirming the information. b. Confirmation of bank balances is considered highly reliable whereas confirmation of a department store charge account is often not considered reliable. Banks are accustomed to confirmations from auditors and normally maintain excellent accounting records, whereas most customers of department stores have neither characteristic. c. If an auditor is not qualified to distinguish between valuable inventory (e.g., diamonds) and worthless inventory (e.g., glass), the physical examination of inventory would not be considered to be reliable evidence....
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This note was uploaded on 01/19/2012 for the course ACCT 2301 taught by Professor Moore,j during the Spring '08 term at HCCS.

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Ch 7 Solutions - Multiple Choice Questions From CPA...

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