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Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal accounting control system that provides for:
Choice 'a' is correct. Investigation of variances in a formal budget might show maintenance costs over budget or acquisition costs under budget, either of which would trigger an investigation.
Choice 'b' is incorrect. Review of journal entries relating to depreciation would not disclose acquisitions misclassified as maintenance expense, since no depreciation would be recorded for the misclassified items.
Choice 'c' is incorrect. Segregation of duties in the accounts payable department would have no effect on the account classification of an approved invoice.
Choice 'd' is incorrect. Since the internal auditor would be looking at invoices and checks related to recorded property acquisitions, he or she would not be likely to identify payments that were erroneously excluded from the property account.
Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases?
Choice 'd' is correct. A question related to whether purchase orders, receiving reports and vouchers are prenumbered and periodically accounted for would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases. A gap in recorded purchase order numbers might indicate an unrecorded purchase.
Choice 'a' is incorrect. Requiring an authorized purchase order before accepting a shipment would relate to whether the purchase was valid, not whether it was properly accounted for.
Choice 'b' is incorrect. Having prenumbered purchase requisitions independently matched with vendor invoices does not indicate whether all purchases are accounted for since these documents do not show that the purchase has been recorded.
Choice 'c' is incorrect. Reconciling the unpaid voucher file with inventory records does not indicate whether all purchases are accounted for since these documents do not show that all purchases have been recorded.
Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of internal control?
This question consists of an item pertaining to possible deficiencies in an accountant's review report. Jordan & Stone, CPAs, audited the financial statements of Tech Co., a nonissuer, for the year ended December 31, 20X1, and expressed an unqualified opinion. For the year ended December 31, 20X2, Tech issued comparative financial statements. Jordan & Stone reviewed Tech's 20X2 financial statements and Kent, an assistant on the engagement, drafted the accountants' review report below.
Land, the engagement supervisor, decided not to reissue the prior year's auditors' report, but instructed Kent to include a separate paragraph in the current year's review report describing the responsibility assumed for the prior year's audited financial statements. This is an appropriate reporting procedure.
Land reviewed Kent's draft and indicated in the Supervisor's Review Notes below that there were several deficiencies in Kent's draft.
Accountant's Review Report
We have reviewed and audited the accompanying balance sheets of Tech Co. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants and generally accepted auditing standards. All information included in these financial statements is the representation of the management of Tech Co.
A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements. Because of the inherent limitations of a review engagement, this report is intended for the information of management and should not be used for any other purpose.
The financial statements for the year ended December 31, 20X1, were audited by us and our report was dated March 2, 20X2. We have no responsibility for updating that report for events and circumstances occurring after that date.
Jordan and Stone, CPAs
March 1, 20X3
Supervisor's Review Notes
There should be a statement that no opinion is expressed on the current year's financial statements in the second (scope) paragraph.
Correct. Because the auditors do substantially less work in a review than in an audit, the auditors should state that they do not express an opinion.
This question consists of an item pertaining to possible deficiencies in an accountant's review report. Jordan & Stone, CPAs, audited the financial statements of Tech Co., a nonissuer, for the year ended December 31, 20X1, and expressed an unqualified opinion. For the year ended December 31, 20X2, Tech issued comparative financial statements. Jordan & Stone reviewed Tech's 20X2 financial statements and Kent, an assistant on the engagement, drafted the accountants' review report below.
Land, the engagement supervisor, decided not to reissue the prior year's auditors' report, but instructed Kent to include a separate paragraph in the current year's review report describing the responsibility assumed for the prior year's audited financial statements. This is an appropriate reporting procedure.
Land reviewed Kent's draft and indicated in the Supervisor's Review Notes below that there were several deficiencies in Kent's draft.
Accountant's Review Report
We have reviewed and audited the accompanying balance sheets of Tech Co. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants and generally accepted auditing standards. All information included in these financial statements is the representation of the management of Tech Co.
A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements. Because of the inherent limitations of a review engagement, this report is intended for the information of management and should not be used for any other purpose.
The financial statements for the year ended December 31, 20X1, were audited by us and our report was dated March 2, 20X2. We have no responsibility for updating that report for events and circumstances occurring after that date.
Jordan and Stone, CPAs
March 1, 20X3
Supervisor's Review Notes
There should be a reference to "conformity with generally accepted accounting principles" in the third paragraph.
Correct. There should be reference to conformity with generally accepted accounting principles in the third paragraph.
