Soal EY

In establishing the existence and ownership of an investment held by corporation in the form of publicity traded stock, an auditor should inspect the securities or

• Determine that investment is carried at the lower of cost or market

• inspect the audited financial statements of the investee company

• obtain written representation from management confirming that the securities are properly classified as trading securities

• confirm the number of shares owned that are held by an independent custodian

The sale of a depreciable asset resulting in a loss, indicating that the proceeds from the sale were

• Less than book value

• Greater than book value

• Greater than cost

• Less than current market value

Which of the following features of preferred stock makes it more like a debt than an equity instruments?

• Non-Cummulative

• Voting

• Participating

• Redeemable

Which of the following comparisons will be most useful to an auditor in auditing and entity's income and expense accounts?

• Current year warranty expense to current year contingent liabilities

• Current year revenue to budgeted current year revenue

• Prior year accounts payable to current year accounts payable

• Prior year payroll expense to budgeted current year payroll expense

As general IT controls weaken, the auditor is most likely to

• expand testing of automated application controls used to reduce control risk to cover greater portions of the fiscal year under audit

• Ignore obtaining knowledge about the design of general IT controls and whether they have been implemented

• reduce testing of automated application controls done by the computer

• increase testing of general IT controls to conclude whether they are operating effectively

In May 2015, ABC Inc. became involced in litigation. As a result, it is probable that ABC will have to pay $1,400,000. In july 1, 2015, a competitor commenced a suit against ABC alleging violation of antitrust laws seeking damages of $2,200,00. ABC denies the allegations and the likelihood ABC paying any damaged is remote. In September 2015, the city of ZZ brought action against ABC for $1,800,000 for polluting the city. It is reasonable possible that the city will be successful bit the amount of damages. What amount, if any, should be accrued by a charge to income in 2015?

• $1,400,000

• $3,200,000

• $5,400,000

• $0

Inherent risk and control risk differ from planned detection risk in that they

• Arise from the misapplication of auditing procedures

• May be assessed in either quantitative or nonquantitative terms

• exist independently of the financial statement audit

• Can be changed at the auditor's discretion

On January 1, 2015, ABC Company changed its inventory cost flow method to FIFO from weighted-average for both financial statement and income tax reporting purposes. The change resulted in a $600,000 increase in the beginning inventory at January 1, 2015. Ignoring income taxes, the accounting changes should be reported by ABC Company in its 2015:

• income statement as a $600,000 credit

• retained earning statement as a $600,000 debit adjustment to the beginning balance

• retained earning statement as a $600,000 credit adjustment to the beginning balance

• income Statement as a $600,000 debit

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial assertion of

• rights and obligations

• existence or occurence

• valuation or allocation

• Completeness

A control risk is the risk that material misstatements in an account will not be prevented or detected on a timely basis by the client's internal controls. The best control to prevent or detect fictitious payroll transactions is to

• Conduct periodic independent bank reconciliations of the payroll bank account

• Verify internally authorized pay rates, computations, and agreement with they payroll registered

• Use and account for pre-numbered payroll checks

• Obtain authorization from human resources for hiring, pay rate, job status and termination