Question 1

Management's statement that a marketable security is a long-term investment may be the only evidence available to support classifying the investment as a non-current asset.

Accepted Answer

A) True 
 B)False

Question 2

The inherent risk associated with the finance and investment cycle is less than that associated with other cycles, especially given the low number of transactions typically involved.

Accepted Answer

A) True 
 B)False

Question 3

What is a compensating control as it relates to the finance and investment function?

Accepted Answer

A compensating control is a control feat...

Question 4

The auditor's tests of controls over the appropriateness of accounting estimates consist primarily of enquiry and observation.

Accepted Answer

A) True 
 B)False

Question 5

Auditors should expect to find the authorizing signatures of the CEO, CFO, chair of the board of directors, and perhaps other high-ranking officers on financing documents.

Accepted Answer

A) True 
 B)False  True

Question 6

It is very common for auditors to perform substantive procedures on 100 percent of the transactions and general ledger balances for investment accounts and loan accounts.

Accepted Answer

A) True 
 B)False

Question 7

In the finance and investment cycle, which of the following controls would be most effective in ensuring that proper custody of assets has been maintained?

Accepted Answer

A)  Direct access to securities in the safety deposit box is limited to only one corporate officer.
B)  Personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger.
C)  The purchase and sale of investments are executed on the specific authorization of the board of directors.
D)  The recorded balances in the investment subsidiary ledger are periodically compared with the contents of the safety deposit box by independent personnel.E) A) and B)
F) B) and D)

Question 8

In the area of finance and investment, the involvement of two or more persons in each important functional responsibility could be considered a compensating control.

Accepted Answer

A) True 
 B)False  True

Question 9

If the auditor suspects that the financial statements are intentionally misstated, he or she should perform procedures to confirm or dispel that suspicion.

Accepted Answer

A) True 
 B)False

Question 10

It is easier to segregate functional responsibilities in middle management than in upper- level management.

Accepted Answer

A) True 
 B)False

Question 11

Letters of credit are an example of "off-balance-sheet" financing.

Accepted Answer

A) True 
 B)False

Question 12

The auditor's primary concern in the verification of long-term liabilities is that all liabilities are recorded and that the interest expense is properly paid or accrued.

Accepted Answer

A) True 
 B)False

Question 13

Transactions in debt and shareholder equity are typically handled by:

Accepted Answer

A)  Payroll
B)  Accounting Staff
C)  Accounting Supervisors
D)  Upper ManagementE) None of the above
F) All of the above

Question 14

This internal control questionnaire item "Are interest payments and accruals monitored for due dates?" relates to the control objective of:

Accepted Answer

A)  Validity.
B)  Completeness.
C)  Accounting.
D)  Proper period recording.E) A) and D)
F) A) and C)

Question 15

In Cassette 14.3, Verity Distillery used the product repurchase ploy to

Accepted Answer

A)  Overstate assets and understate liabilities by borrowing money and not recording the liability.
B)  Increase owners' equity by recording the sale of inventory without recording any cost of goods sold.
C)  Understate assets and understate liabilities by borrowing money through an undisclosed related party transaction and disguising it as a sale.
D)  Understate assets and understate liabilities by loaning money to its officers.E) B) and D)
F) B) and C)

Question 16

Accounting estimates include which of the following:

Accepted Answer

A)  Trade payable balances
B)  Cash balances
C)  Capital Assets at cost
D)  Amortization expenseE) All of the above
F) B) and C) D

Question 17

Which of the following questions is an auditor most likely to include on an internal control questionnaire?

Accepted Answer

A)  Are the assets that secure notes payable critically needed for the entity's continued existence?
B)  Are two or more authorized signatures required on cheques that repay notes payable?
C)  Are the proceeds from notes payable used for the purchase of non-current assets?
D)  Are direct borrowings on notes payable authorized by the board of directors?E) None of the above
F) A) and B)

Question 18

Selecting a sample of paid notes and tracing interest costs to the general ledger expense account is a test of the control objective of

Accepted Answer

A)  Accounting.
B)  Accuracy.
C)  Completeness.
D)  Validity.E) B) and C)
F) All of the above

Question 19

Off balance sheet means that:

Accepted Answer

A)  Obligations and commitments are recorded only in the income statement accounts.
B)  Obligations and commitments are recorded only in the statement of cash flows.
C)  Capital budgets are properly authorized and approved.
D)  Obligations and commitments are not recorded in the accounts of the company.E) A) and B)
F) B) and D)

Question 20

Discuss the custody of investments and intangible assets.

Accepted Answer

Custody of investments and intangible as...

Exam 14: Finance and Investment Process

Management's statement that a marketable security is a long-term investment may be the only evidence available to support classifying the investment as a non-current asset.

Correct AnswerverifiedShow Answer

The inherent risk associated with the finance and investment cycle is less than that associated with other cycles, especially given the low number of transactions typically involved.

Correct AnswerverifiedShow Answer

What is a compensating control as it relates to the finance and investment function?

Correct AnswerverifiedA compensating control is a control feat...View AnswerShow Answer

The auditor's tests of controls over the appropriateness of accounting estimates consist primarily of enquiry and observation.

Correct AnswerverifiedShow Answer

Auditors should expect to find the authorizing signatures of the CEO, CFO, chair of the board of directors, and perhaps other high-ranking officers on financing documents.

Correct AnswerverifiedTrue

It is very common for auditors to perform substantive procedures on 100 percent of the transactions and general ledger balances for investment accounts and loan accounts.

Correct AnswerverifiedShow Answer

In the finance and investment cycle, which of the following controls would be most effective in ensuring that proper custody of assets has been maintained?

Correct AnswerverifiedShow Answer

In the area of finance and investment, the involvement of two or more persons in each important functional responsibility could be considered a compensating control.

Correct AnswerverifiedTrue

If the auditor suspects that the financial statements are intentionally misstated, he or she should perform procedures to confirm or dispel that suspicion.

Correct AnswerverifiedShow Answer

It is easier to segregate functional responsibilities in middle management than in upper- level management.

Correct AnswerverifiedShow Answer

Letters of credit are an example of "off-balance-sheet" financing.

Correct AnswerverifiedShow Answer

The auditor's primary concern in the verification of long-term liabilities is that all liabilities are recorded and that the interest expense is properly paid or accrued.

Correct AnswerverifiedShow Answer

Transactions in debt and shareholder equity are typically handled by:

Correct AnswerverifiedShow Answer

This internal control questionnaire item "Are interest payments and accruals monitored for due dates?" relates to the control objective of:

Correct AnswerverifiedShow Answer

In Cassette 14.3, Verity Distillery used the product repurchase ploy to

Correct AnswerverifiedShow Answer

Accounting estimates include which of the following:

Correct AnswerverifiedD

Which of the following questions is an auditor most likely to include on an internal control questionnaire?

Correct AnswerverifiedShow Answer

Selecting a sample of paid notes and tracing interest costs to the general ledger expense account is a test of the control objective of

Correct AnswerverifiedShow Answer

Off balance sheet means that:

Correct AnswerverifiedShow Answer

Discuss the custody of investments and intangible assets.

Correct AnswerverifiedCustody of investments and intangible as...View AnswerShow Answer

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Custody of investments and intangible as...
View Answer