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Correct Answer: C

Explanation:

Choice "c" is correct. A review consists of inquiries and analytical procedures. Comparison of current year

and prior year account balances is an analytical procedure that would often be performed as part of a

review.

Choice "a" is incorrect. Examining board minutes is an audit procedure that would not typically be

performed in a review.

Choice "b" is incorrect. Confirmations of cash and accounts receivable are audit procedures that would not

typically be performed in a review.

Choice "d" is incorrect. Recalculation of expenses is an audit procedure that would not typically be

performed in a review.

Correct Answer: C

Explanation:

Choice "c" is correct. An auditor most likely would perform substantive tests of details on payroll

transactions and balances when analytical procedures indicate unusual fluctuations in recurring payroll

entries. Generally an auditor can audit the payroll accounts utilizing mostly analytical procedures; however

if the results of such procedures indicate unusual fluctuations, the auditor would employ more persuasive,

substantive tests of details.

Choice "a" is incorrect. A substantial amount of accrued payroll expense would not necessarily cause the

auditor to perform substantive tests of details on payroll transactions, since the balance may be effectively

tested using analytical procedures.

Choice "b" is incorrect. When the assessed level of control risk relative to payroll is low, the auditor would

probably perform only analytical procedures to test the related balances. If control risk rose to a high level,

then substantive tests of details would probably be utilized.

Choice "d" is incorrect. Unpaid commissions may be tested effectively with analytical procedures.

Correct Answer: D

Explanation:

Choice "d" is correct. The most effective control in assuring that recorded purchases are free of material

errors is the independent matching of the purchase order, receiving report, and vendor's invoices in

preparing the vouchers on which the disbursement check is based.

Choice "a" is incorrect. The receiving department should not have access to the quantity ordered on the

purchase order. This forces receiving department employees to actually perform an independent count.

Choice "b" is incorrect. It is not enough to compare only vendor invoices and purchase orders, as this will

still allow payment for goods that were not received.

Choice "c" is incorrect. Requiring that receiving reports be authorized by the individual who authorized the

purchase does not ensure that the invoice and the related payment will be properly recorded.

Correct Answer: A

Explanation:

Choice "a" is correct. $10,000. Float is the difference between the balance of checks outstanding, which

have not cleared the bank and deposits made but which have not yet cleared the bank here.

Choices "b", "c", and "d" are incorrect, per the above calculation.

Correct Answer: A

Explanation: Choice "a" is correct. The cash basis for financial reporting is not a generally accepted accounting basis of accounting (GAAP); therefore, it is an error. Correction of an error from a prior period is a reported as prior period adjustment to retained earnings. Choice "b" is incorrect. Cash basis reporting is not an accounting principle under accrual accounting principles. Thus, the change from cash basis is not reported as a change in accounting principle. In addition, changes in accounting principle are not prior period adjustments; instead, they are treated retrospectively. Choices "c" and "d" are incorrect. Correction of prior period errors has no effect on the current year's income statement.