ACCT - Exam 3 Flashcards

Terms Definitions
Constitution- Article II
Executive Powers
Constitution - Article V
Amendment Process
provides information about financing and investing activities such as the issuance or retirement of debt and equity instruments and the purchase or sale of investment securities
negligent homicide
unintentional killing resulting from criminal negligence
structured decision
decisions that are repetitive, routine, and understood well enough that they can be delegated to the lower-level employees of an organization
More Competition = ?
Lower Gross Margins
EOQ (economic order quantity)
optimal order size
Expenses are decreases in retained earnings (and, therefore, Stockholders' Equity) from using resources to deliver goods and services to customers. A business needs a separate account for each type of expense, such as Insurance Expense, Rent Expense, Wages Expense, and Utilities Expense. Businesses often have numerous expense accounts because many different types of costs are associated with providing goods and services to customers.
Accounting system
a planned process for providing financial information that will be useful to management.
Fraudulent Financial Reporting
Intentional or reckless conduct, whether by act or omission, that results in materially misleading financial statements
What is Prozac?
It is the first SSRI.
municipal bond interest, employment related exclusions (fringe benefits); education related exclusions; gifts/inheritances; lifes insurance proceeds (lump sum); workers' compensations; personal injury pyaments; health care reimbursements; disabillity insu
exclusions from income
ERP system
integrates all aspects of an organization's activities into one system
B. Completeness
35. An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to satisfy the audit objective ofA. AccuracyB. CompletenessC. ExistenceD. Control
Audit Documentation
the principal record of auditing procedures applied, evidence obtained, and conclusions reached by the auditor in the engagement
marketing and sales
activities help customers buy the organization's products or services
accounts receivable aging schedule
report listing customer account balances by length of time outstanding; report provides useful information for evaluating current credit policies, for estimating bad debt, and for deciding whether to increase the credit limit for specific customers
What is the useful life of a Trademark?
journal voucher
Contains the information that would be found in the general journal in a manual AIS; by product of posting process
A. Valuation and allocation
1. In auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of management's financial statement assertion ofA. Valuation and allocationB. ExistenceC. CompletenessD. Rights & Obligations
any information used by the auditor to determine whether the information being audited is stated in accordance with established criteria
board of directors
selected by stockholders to set policy and appoint officers
Retained Earnings statement
shows the amounts and causes of changes in retained earnings during the period
Gross Profit
Net Sales - Cost of Goods SoldNet Income + Expenses
div per share/stock price
dividend yield eq. young growing companies tend to pay little if any cash divs. mature companies w/ limited growth prospects are likely to pay a substantial portion of earnings as divs.
A. Completeness of recorded investment income
80. In testing long-term investments, an auditor ordinarily would use analytical procedures to ascertain the reasonableness of theA. Completeness of recorded investment incomeB. Classification between current and non-current portfoliosC. Valuation of marketable equity securitiesD. Existence of unrealized gains or losses in the portfolio
economic conditions; computers/autos/industrial equip.; food/some clothing
Sales of certain goods are sensitive to __, such as __. __ are not as sensitive.
Credit Card (CC) Sales:(1) Journal entry for when cash is received immediately (upon deposit of credit card receipt)(2) Journal entry for when the cash receipt is delayed (until credit card company makes payment)
(1) Cash XX
Credit Card Expense XX
Sales XX

step1: Accts Receivable--CC Co. XX
Credit Card Expense XX
Sales XX

step2: (when cash is received)
Cash XX
Accts Receivable--CC Co. XX
Accounting Period Concept
The concept that a statement of income is always presented for a period of time.
outsourcing the costs associated with inventory management; reduce likelihood of stock outs
benefits of VMI to retailers
B. Plant assets were retired during the year
56. Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts?A. The estimated remaining useful lives of plant assets were revised upward.B. Plant assets were retired during the year.C. The prior year's depreciation expense was erroneously understated.D. Overhead allocations were revised at year-end.
D. An opinion by the auditor
9. The first standard of reporting requires that the report must state whether the financial statements are presented in conformity with GAAP. This should be construed to require:A. A statement of fact by the auditorB. An implied measure of fairnessC. An objective measure of complianceD. An opinion by the auditor
What are two types of inventory systems?
Periodic System
Perpetual System
What is a Sales Discount?
A reduction in sales revenue because of prompt payment by customers.
11 internal controls over revenue cycle
1. control customers' orders with segregation of duties 2. approve credit prior to sale 3. control and use prenumbered documents 4. control access to assets 5. clerical accuracy checks on invoices 6. control billing 7. use of control listing of cash receipts 8. adjusting for sales and receivables 9. use of chart of accounts and review of account codings 10. reconciling AR subsidiary ledger to GL as an independent check 11. use of budgets and analysis of variances
a. The auditor has no responsibility for searching for indirect-effect illegal acts
5. Which of the following statements is correct with respect to the auditor’s responsibilities relative to the detection of indirect-effect illegal acts?a. The auditor has no responsibility for searching for indirect-effect illegal acts.b. The auditor has the same responsibility for searching for indirect-effect illegal acts as any other potential misstatement that may occur.c. Auditors have responsibility for searching for any illegal act, whether direct-effect or indirect-effect.d. None of the above is correct.
C. Obtain additional evidence regarding the valuation of inventory
50. At the conclusion of an audit, an auditor is reviewing the evidence gathered in support of the financial statements. With regard to the valuation of inventory, the auditor concludes that the evidence obtained is not sufficient to support management's representations. Which of the following actions is the auditor most likely to take?A. Consult with the audit committee and issue a disclaimer of opinionB. Consult with the audit committee and issue a qualified opinionC. Obtain additional evidence regarding the valuation of inventoryD. Obtain a statement from management supporting their inventory valuation
Departures from an Unqualified Opinion:
1. Scope imitation 2. GAAP departure 3. Auditor not independent
What is the lifespan of a Copyright?
The author's life and 70 years.
D. Entity's ability to process and summarize financial data
85. An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about theA. Methods of assigning production tasks to employeesB. Appropriate prices the entity should charge for its productsC. Efficiency of management's decision-making processD. Entity's ability to process and summarize financial data

There are five key elements that affect an organization’s internal control system.  The complexity of, and the effectiveness of, the internal control system depends upon these elements. They include:

- The control environment
• Risk assessment
• Control activities
• Information and communication
• Monitoring
whenthe income ahs been credited to the TP's account or when the income is undconditionally available to the TP, the TP is aware of the income's availability, and there are nor estrictions on the TP's control over the income
when is constructive receipt deemed to occur?
A. Win because there was no privity of contract between Hark and Third
Hark, CPA, negligently failed to follow generally accepted auditing standards in auditing Long Corporation's financial statements. Long's president told Hark that the audited financial statements would be submitted to several, at this point undetermined, banks to obtain financing. Relying on the statements, Third Bank gave Long a loan. Long defaulted on the loan. In jurisdiction applying the Ultramares decision, if Third sues Hark, Hark will: A. Win because there was no privity of contract between Hark and Third.B. Lose because Hark knew that a bank would be relaying the financial statements.C. Win because Third was contributory negligent in granting the loan.D. Lose because Hark was negligent in performing the audit.
____ states that in unusual situations, a departure from GAAP may not require a qualified, or adverse opinion.
Rule 203 of the AICPA Code of Professional Conduct
A. That the audit was performed in accordance with GAAS
Dexter and Co., CPAs, issued an unqualified opinion on the 20X3 financial statements of Bart Corp. Late in 20X4, Bart determined that its treasurer had embezzled over $1,000,000. Dexter was unaware of the embezzlement. Bart has decided to sue Dexter to recover the $1,000,000. Bart's suit is based upon Dexter's failure to discover the missing money while performing the audit. Which of the following is Dexter's best defense? A. That the audit was performed in accordance with GAAS.B. Dexter had no knowledge of the embezzlement.C. The financial statements were presented in conformity with GAAP.D. The treasurer was Bart's agent and as such had designed the controls which facilitated the embezzlement.
D. More than the deviation rate in the auditor's sample
115. As a result of tests of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population wasA. Less than the risk of assessing control risk too low, based on the auditor's sampleB. Less than the deviation rate in the auditor's sampleC. More than the risk of assessing control risk too low, based on the auditor's sampleD. More than the deviation rate in the auditor's sample
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