ࡱ> BDAM bjbj== !FWWlppppppp( ( ( 8` t ,7  $# Cp Fpp FFF "p p F FTFpp p݂] ( b07FFpppp _______________________________ NAME ______________________________________ DATE & CLASS TIME(1:00 OR 7:00) ACCT 460 - AUDITING FINAL EXAMINATION SPRING 2004 DIRECTIONS Respond to the essay questions on separate sheets of paper and to the multiple choice questions on the test paper. On the essay questions, be as concise, neat and to the point as possible. Remember that the quality of your ability to communicate is important as well as the content of your answers. Answer ALL BUT ONLY the question asked. Remember to SIGN AND DATE the front page of the test paper and EACH PAGE of your answer sheets. Please note that you do not have to answer all the essay questions, but you do have to answer all the multiple choice questions. ESSAY QUESTIONS YOU MUST ANSWER THIS QUESTION. (100 POINTS) 1. List the typical phases of the audit process. For EACH phase, explain the most significant ways in which the concept of materiality impacts the audit process in each phase. ANSWER TWO OF THE FOUR ESSAY QUESTIONS. (75 POINTS EACH) 2. During the final work on your audit of BuildStuff, Inc. for the year ended December 31, 2003, you found that the client had failed to properly inventory and capitalize its factory supplies. The CEO and CFO decided to not record an adjustment for this supplies inventory as of December 31, 2003, to be consistent with the way this item was treated in the past. The total amount of the inventory at year-end would be about $3 million and the effect on Cost of Goods Sold would be about $500 thousand, since the equivalent inventory at December 31, 2002, was about $2.5 million. The last day you were at the clients offices was February 13, 2004. On February 16, 2004, when you returned to your offices at Dewey, Checkham & Howell, you discussed the situation with the partner on this engagement, Kristine Dekreon. She considered the situation, agreed with your proposed solution and signed off on the last of her partner review points on February 18, 2004. Draft the appropriate form of auditor's report for this client's 2003 and 2002 financial statements included in the 2003 annual report to shareholders. Then, explain briefly why you selected that form of report considering this situation. At December 31, 2003, the financial statements reflect total assets of $15 billion, current assets of $6 billion, and net income of $480 million. Your firm has audited this client for years. CONTINUE TO NEXT PAGE. 1 3. List what you consider to be the five most significant ways the audit of fixed assets differs from the audit of accounts payable. For each way selected, explain why it is so important to you and how it affects the audit process. 4. Explain the three most significant audit procedures typically performed in the count portion of a physical inventory count process. Why do you consider each of these procedures so important? (Do not discuss any audit procedures related to the compilation and book-to-physical adjustment portions of the clients physical inventory process.) 5. List the specific audit procedures typically involved in the search for unrecorded liabilities and significant subsequent events. What kinds of economic events are these procedures designed to discover? For the three procedures you consider to be the most important, explain why they are so significant. MULTIPLE CHOICE ANSWER ALL THESE QUESTIONS. (5 POINTS EACH) 1. Purchase cutoff procedures should be designed to test that merchandise is included in the inventory of the company at the end of the year, if the company: _____ a. Had paid for the merchandise. __X__ b. Held legal title to the merchandise. _____ c. Had physical possession of the merchandise. _____ d. Included the merchandise in the physical inventory count. 2. The date of the management representation letter should coincide with the date of the: __X__ a. Auditors report. _____ b. Balance sheet. _____ c. Engagement letter. _____ d. Latest legal letter received. 3. Audit procedures after year-end for most expense accounts are limited to: _____ a. Vouching individual transactions. _X___ b. Investigating any significant unexplained variations from the prior year. _____ c. Analyzing individual transactions. _____ d. Performing detailed tests of ending balances. 4. Which of the following significant events occurring after year-end but before the issuance of the auditors report would not require disclosure in the financial statements? __X__ a. Increase in the interest rates for the economy. _____ b. Capital stock issuance. _____ c. Destruction of plant, equipment and inventory by earthquake or fire. _____ d. Settlement of litigation. CONTINUE TO NEXT PAGE. 2 5. The auditor normally analyzes the current years repairs and maintenance expense account to provide evidence that: _X___ a. Expenditures for fixed assets have not been expensed. _____ b. Noncapitalizable expenditures have not been capitalized. _____ c. Expenditures for fixed assets have been recorded in the correct period. _____ d. Capital expenditures have been properly authorized. 6. Quigley Corporations physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record: _____ a. Sales returns. _____ b. Purchases. _X___ c. Sales. _____ d. Purchase discounts. 7. In deciding to issue an unqualified audit opinion, an auditor must be satisfied that the audit adjustments the client decided not to record are immaterial: _____ a. Individually. _____ b. In the aggregate. _____ c. To net income. _X___ d. Individually and in the aggregate. 8. The most effective procedure for revealing unrecorded disposals of fixed assets is: _____ a. To analyze the miscellaneous gains and losses account. _____ b. Review an analysis of the repairs and maintenance expense account. _____ c. Review cash receipts for miscellaneous proceeds from disposals. __X__ d. Take a physical count of fixed assets. 9. Which of the following audit procedures is least likely to detect an unrecorded liability? _____ a. Analysis and recomputation of interest expense. _____ b. Receiving a standard bank confirmation. ___X_ c. Analysis and recomputation of depreciation. _____ d. Reading minutes of meetings of the Board of Directors. 10. Observing for rust, dust & dents is an important audit procedure primarily to assure that: _____ a. Furniture and equipment continue to be usable. _____ b. Assets no longer in service have been removed from fixed asset records. ___X_ c. Obsolete inventory has been properly identified in the inventory count. _____ d. Client personnel have cleaned up the warehouse and factory prior to the inventory count to facilitate an accurate count. END OF TEST 3 PAGE 4 "qr"IR,/3bfz 48Z`&e-../OROghKLFGw>*CJ5CJ 6>*CJCJ 5>*CJCJX"*+Rr@&$a$$@&a$3$Z &#$$d%d&d'd+D1/NOPQa$0Z &#$$d%d&d'd+D1/NOPQjk+, %&67de1$$a$$@&a$@&e+Y,G_{n,OPg$@&a$ 0^`0$a$ ^`@&gi`sIyz 0^`0 ^`@&$a$CxRPwxyz&`#$$Z]Za$$@&a$$a$ ^`@&CJ0JmHnHu0J j0JU0/ =!"8#$% i0@0 Normal_HmH sH tH <A@< Default Paragraph Font, @, Footer  !&)@& Page Number,@, Header  !JY@"J Document Map-D M OJQJ^J F"*+Rrjk+, % & 6 7 d e +Y,G_{n,OPgi`sIyzCxRPwxyz000000000 00' 008 00f 0f f f 00000000Q00jjjj0000000000{{0{{0000{{0{ "eg ! !PT_d' / 8 / 5  +X_`,FMNef$1tu+23 $%fgyzCw~ !XYPU3333333333333333333333333333333333333333333333333James H. Macklin>C:\MSOffice\Winword\CSUN\460\97FALL\460 FINAL EXAM FALL 97.dotJames H. Macklin>C:\MSOffice\Winword\CSUN\460\97FALL\460 FINAL EXAM FALL 97.dotJames H. MacklinBC:\MSOffice\Winword\CSUN\460\98SPRING\460 FINAL EXAM SPRING 98.dotJames H. 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