In computing its predetermined overhead rate, Marple Company inadvertently left its indirect labor costs out of the computation

In computing its predetermined overhead rate, Marple Company inadvertently left its indirect labor costs out of the computation. This oversight will cause:

A. Manufacturing Overhead to be overapplied.
B. the Cost of Goods Manufactured to be understated.
C. the debits to the Manufacturing Overhead account to be understated.
D. the ending balance in Work in Process to be overstated.


Answer: B

Which of the following is the correct formula to compute the predetermined overhead rate?

A. Estimated total units in the allocation base divided by estimated total manufacturing overhead costs.
B. Estimated total manufacturing overhead costs divided by estimated total units in the allocation base.
C. Actual total manufacturing overhead costs divided by estimated total units in the allocation base.


Answer: D. Estimated total manufacturing overhead costs divided by actual total units in the allocation base.

Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves?

A. Machine-hours
B. Power consumption
C. Direct labor-hours
D. Machine setups

Answer: C

If the auditors encounter a significant scope limitation in evaluating a public company`s internal control over financial reporting

If the auditors encounter a significant scope limitation in evaluating a public company`s internal control over financial reporting, which of the following types of opinions on the effectiveness of the company`s internal control over financial reporting would be appropriate?

a. qualified opinion or adverse opinion
b. unqualified opinion or adverse
c. unqualified opinion or disclaimer of opinion
d. disclaimer of opinion


Answer: d. disclaimer of opinion

What document is used to determine the actual amount of direct labor to record on a job cost sheet?

A. Time ticket
B. Payroll register
C. Production order
D. Wages payable account


Answer: A

Which of the following statements is not true with respect to the auditor's report on internal control over financial reporting?

a. the report may be presented with the report on the entity's financial statements as a combined report
b. the auditor will issue an adverse opinion if one or more material weaknesses exist
c. the report will be dated as of the date of the financial statements
d. the report will express an opinion on the effectiveness of internal control over financial reporting


Answer: c. the report will be dated as of the date of the financial statements

Which of the following information would be included in the introductory paragraph of the auditor's report on internal control over financial reporting

Which of the following information would be included in the introductory paragraph of the auditor's report on internal control over financial reporting if the report is presented separately from the auditor's report on the entity's financial statements?

a. the fact that the auditors conducted an audit of the entity's financial statements
b. statements identifying the responsibility of the auditors and management for internal control over financial reporting
c. a reference to the auditors` report and opinion on the entity's financial statements
d. the definition of material weakness in internal control over financial reporting


Answer: b. statements identifying the responsibility of the auditors and management for internal control over financial reporting

When completing the audit of internal controls for an issuer, the PCAOB requires auditors of public companies to audit internal controls over

a. all of the answers are correct
b. compliance with regulations
c. financial reporting
d. operations

Answer: c. financial reporting

When completing the audit of internal controls for an issuer, AS5 requires auditors of public companies to report on

a. management's report on internal control- no; an audit of internal control- no
b. management's report on internal control- yes; an audit of internal control- yes
c. management's report on internal control- no; an audit of internal control- yes
d. management's report on internal control- yes; an audit of internal control- no


Answer: c. management's report on internal control- no; an audit of internal control- yes

Which report would not be appropriate for a public accounting firm to provide on financial reporting controls?

Which report would not be appropriate for a public accounting firm to provide on financial reporting controls?

a. unqualified-- no material weaknesses found
b. disclaimer of opinion-- significant deficiencies exist
c. adverse-- material weaknesses exist
d. disclaimer of opinion-- unable to perform all necessary procedures


Answer: b. disclaimer of opinion-- significant deficiencies exist

A material weakness is a situation in which

a. it is reasonably possible that a material misstatement would not be detected on a timely basis
b. it is reasonably possible that an immaterial misstatement would not be detected on a timely basis
c. there is a remote likelihood that a material misstatement would not be detected on a timely basis
d. it is probable that an immaterial financial statement misstatement would not be detected on a timely basis


Answer: a. it is reasonably possible that a material misstatement would not be detected on a timely basis

When planning the audit of internal controls for an issuer, the audit team should

a. identify significant accounts, locations, and assertions
b. re-perform control activities performed by client employees to determine their effectiveness
c. conduct a walkthrough of the internal control process
d. make inquiries of employees regarding the existence of control activities


Answer: a. identify significant accounts, locations, and assertions

When completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends on:

When completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends on:

a. neither answer is correct
b. both answers are correct
c. whether there is a reasonable possibility that the company's controls will fail to prevent or detect a misstatement of an account balance or disclosure
d. whether the account has a history of errors


Answer: c. whether there is a reasonable possibility that the company's controls will fail to prevent or detect a misstatement of an account balance or disclosure

A bridge work-paper shows the connection between

a. management objectives and accounting system procedures
b. control evaluation findings and subsequent audit procedures
c. financial statement assertions and tests of controls
d. management objectives and entity control activities


Answer: b. control evaluation findings and subsequent audit procedures

Which of the following does not accurately summarise auditor's requirements regarding internal control?

a. test controls- public entity yes; non public entity yes
b. documenting- public entity yes; non public entity yes
c. evaluating control risk- public entity yes; non public entity yes
d. understanding- public entity yes; non public entity yes


Answer: a. test controls- public entity yes; non public entity yes

The purpose of separating the duties of hiring personnel and distributing payroll checks is to separate the

The purpose of separating the duties of hiring personnel and distributing payroll checks is to separate the

a. administrative controls from the internal accounting controls
b. authorisation of transactions from the custody of related assets
c. human resources function from the controllership function
d. operational responsibility fro, the record-keeping responsibility


Answer: b. authorisation of transactions from the custody of related assets

Tests of controls in a GAAS audit are required for

a. obtaining evidence about the financial statement assertions
b. obtaining evidence about the operating effectiveness of client control activities
c. accomplishing control over the occurrence of recorded transactions
d. applying analytical procedures to financial statement balances


Answer: b. obtaining evidence about the operating effectiveness of client control activities

A transaction-level internal control activity is best described as

a. a method for recording, summarising, and reporting financial information
b. an action taken by auditors to obtain evidence
c. the functioning of the board of directors in support of its audit committee
d. an action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions to eliminate or mitigate risks identified by the company


Answer: d. an action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions to eliminate or mitigate risks identified by the company

According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal

According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal controls is to

a. determine that the company's employees are processing the controls according to the policy and procedure manuals at the company
b. determine whether the company's controls are processing company data effectively
c. determine that the company's controls will satisfy the company's control objectives and can effectively prevent or detect errors and fraud that could result in material misstatements, if they operate as prescribed
d. none of the answers are correct


Answer: c. determine that the company's controls will satisfy the company's control objectives and can effectively prevent or detect errors and fraud that could result in material misstatements, if they operate as prescribed

Which of the following is a preventative control?

a. detailed fluctuation analysis completed by the CFO for revenue
b. separation of duties between the payroll and personnel departments
c. recalculation of a sample of payroll entries by internal auditors
d. reconciliation of a bank account


Answer: b. separation of duties between the payroll and personnel departments

In most audits of large entities, control risk assessment contributes to audit efficiency, which means that

a. auditors will be able to reduce the cost of substantive procedures by an amount less than the costs of tests of controls
b. the cost of control evaluation will exceed the cost of substantive procedures
c. the cost of substantive procedures will exceed the cost of control evaluation work
d. auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs


Answer: d. auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs