Question

A CPA examines a sample of copies of December and January sales invoices for the initials of the person who verified the quantitative data. This is an example of a:

1) Test of a control.
2) Substantive test.
3) Cutoff test.
4) Statistical test.

Answer 1

A CPA checking initials on sales invoices is performing a test of a control to verify the effectiveness of internal procedures. This is distinct from substantive, cutoff, or statistical tests which have different auditing objectives.

Step-by-step explanation:

The CPA examining samples of sales invoices for verification initials is conducting a test of a control. A test of control assesses the effectiveness of internal control procedures within an organization, such as the process of verifying quantitative data on sales invoices. Verification by an individual is part of the company's procedures to ensure the accuracy and legitimacy of its financial records, and checking these initials is a way to confirm those procedures are being followed consistently.

A substantive test focuses more on the verification of the amounts and other data to detect material misstatement in financial statements. A cutoff test is performed to determine whether transactions have been recorded in the correct accounting period. Lastly, a statistical test involves using statistical methods to infer conclusions about a population, based on sample data.