SOLVED

Learning Objective 19-5 1) Which of the following audit tests both have the effect of simultaneously verifying balance sheet and income statement accounts? A) Analytical procedures and substantive tests of transactions B) Tests of controls and substantive tests of transactions C) Tests of details of balances and substantive tests of transactions D) Tests of controls and analytical procedures 2) The most effective and efficient audit approach in the examination of the income statement would be which of the following? A) Examination of income statement accounts concurrently with the related balance sheet accounts. B) Compare company’s components of net income to other businesses in the same industry. C) Compare company’s components of net income to the previous two years. D) Examine changes in all balance sheet accounts. 3) The erroneous inclusion of transactions that should properly be recorded as assets into accounts such as repairs expense, lease expense, or supplies is a common client error. The auditor is most lkely to evaluate the likelihood of these types of misclassifications in conjunction with: A) obtaining an understanding of internal control. B) the tests of controls. C) the tests of transactions. D) the tests of details of balances. 4) Income statement accounts resulting from allocations are typically verified as a part of: A) tests of controls. B) substantive tests of transactions. C) analytical procedures. D) planning. 5) Explain the audit objective allocation and why it is important to have accurate allocation within the financial statements, particularly for property, plant, and equipment 6) In performing expense account analysis the focus is on substantive tests of transactions. How do these tests of transactions differ from tests to assess control risk. 7) While analytical procedures are commonly used when auditing balance sheet accounts, they are normally not very useful when auditing income statement accounts. A) True B) False 8) Tests of controls provide an indication of the likelihood of misstatements in both the income statement and the balance sheet, simultaneously. A) True B) False 9) Typically, analytical procedures are the primary means of verifying income statement accounts resulting from allocations. A) True B) False