When Designing Tests of Controls and Substantive Tests of Transactions

question 66

Multiple Choice

When designing tests of controls and substantive tests of transactions for cash receipts, it is important to remember that

• A) the test of controls are designed to test for monetary misstatements.
• B) auditors use the same methodology for designing tests of controls and substantive tests of transactions for cash receipts as they use for sales.
• C) the tests of controls are not dependent on the controls the auditor identifies.
• D) the tests of controls are not dependent on whether the company being audited is publicly traded.

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Definitions:

Equal Monthly Payments

Fixed payments made every month, as in a loan or mortgage, ensuring that the loan is paid off over a specified period.

Compounded Monthly

A method where interest earnings are calculated and added to the principal amount each month, allowing the interest to then earn interest in subsequent months.

Compounded Semi-annually

A method of calculating interest where the earned interest is added to the principal balance twice a year, affecting the total interest earned over time.

Semi-annual Withdrawals

Withdrawals from an account or investment that occur twice a year.