AUDITING
When an auditor increases the risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the
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Extent of tests of details. |
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Levels of inherent risk. |
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Extent of tests of controls. |
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Level of detection risk. |
In the consideration of internal control, the auditor is basically concerned that internal control provides reasonable assurance that
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Controls have not been circumvented by collusion. |
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Misstatements have been prevented or detected. |
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Operational efficiency has been achieved in accordance with management plans. |
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Management cannot override controls. |
Which of the following statements concerning audit evidence is true?
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A client’s accounting data can be sufficient audit evidence to support the financial statements. |
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To be competent, audit evidence should be either persuasive or relevant, but it need not be both |
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The measure of the validity of audit evidence lies in the auditor’s judgment. |
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The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for omitting the test |
Which of the following is not an objective of a well-designed system of internal control?
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Accurate reliable financial statements |
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Safeguarding of assets. |
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Adherence with applicable laws and regulations. |
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Maintaining proper segregation of duties |
The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the risk that
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Entity policies may be inappropriately overridden by senior management. |
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Specified controls requiring segregation of duties may be circumvented by collusion. |
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Tests of controls may fail to identify procedures relevant to assertions. |
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Material misstatements may exist in the financial statements |
Although the quantity and content of audit working papers vary with each particular engagement, an auditor’s permanent files most likely include
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Schedules that support the current year’s adjusting entries. |
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Prior years’ accounts receivable confirmations that were classified as exceptions. |
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Documentation indicating that the audit work was adequately planned and supervised. |
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Analyses of capital stock and other owners’ equity accounts. |
Although the quantity and content of audit working papers vary with each particular engagement, an auditor’s permanent files most likely include
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Schedules that support the current year’s adjusting entries. |
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Prior years’ accounts receivable confirmations that were classified as exceptions. |
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Documentation indicating that the audit work was adequately planned and supervised. |
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Analyses of capital stock and other owners’ equity accounts. |
Although the quantity and content of audit working papers vary with each particular engagement, an auditor’s permanent files most likely include
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Schedules that support the current year’s adjusting entries. |
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Prior years’ accounts receivable confirmations that were classified as exceptions. |
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Documentation indicating that the audit work was adequately planned and supervised. |
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Analyses of capital stock and other owners’ equity accounts. |
Which of the following procedures is least likely to be performed as a part of obtaining an understanding during an audit engagement of a new audit client previously audited by another CPA?
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Communication with the predecessor auditor. |
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Performing analytical procedures. |
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Obtaining confirmation of cash balances. |
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Considering internal control. |
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to
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Verify that cash disbursements were for goods actually received. |
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Test whether payments were for goods actually ordered. |
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Determine that purchases were properly recorded. |
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Identify unusually large purchases that should be investigated further |
Which audit assertion ensures that all recorded sales are valid?
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Documentation. |
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Vouching. |
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Existence or occurrence. |
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Valuation or allocation |
Which of the following did not have substantive changes under the new clarification standards?
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evidence |
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internal control |
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reporting |
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related parties |
During the process of confirming receivables as of December 31, 2007, a positive confirmation was returned indicating the “balance owed as of December 31 was paid on January 9, 2008.” The auditor would most likely
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Determine whether there were any changes in the account between January 1 and January 9, 2008 |
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Determine whether a customary trade discount was taken by the customer. |
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Reconfirm the zero balance as of January 10, 2008. |
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Verify that the amount was received. |
Which of the following has the lowest authoritative status but may be useful in assisting the auditor in applying the SASs?
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Statements on Auditing Standards |
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Auditing Statements of Position. |
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Journal of Accountancy articles. |
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Auditing Interpretations |
When auditing related party transactions, an auditor places primary emphasis on
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Ascertaining the rights and obligations of the related parties. |
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Evaluating the disclosure of the related party transactions. |
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Verifying the valuation of the related party transactions. |
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Confirming the existence of the related parties |
Which of the following is true?
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the auditor must document the reasons for assessing control risk at the maximum |
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detection risk is equal to audit risk divided by the product of inherent risk and control risk |
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the auditor has no control over detection risk, control risk or inherent risk |
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the auditor should not accept an engagement when inherent risk is set at maximum |
Which of the following controls would an auditor be least likely to review
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Segregation of the asset-handling and recordkeeping functions. |
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Company policy regarding credit and collection efforts. |
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Cost records classified by date of product introduction |
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Authorization of additions to plant and equipment |
When tests of controls reveal that controls are not operating as anticipated, it is most likely that the assessed level of the risk of material misstatement will
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Be less than the planned level. |
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Equal the planned level. |
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Be greater than the planned level. |
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Be less than the actual level.
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Which of the following gives, as Dr.
described, a “warm and fuzzy feeling” when an auditor determines that the client has
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a requirement that two signatures are required on checks |
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a budget and variance analysis system |
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an annual quality control review |
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an internal audit staff |
Of the following, which is the least persuasive type of audit evidence?
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Documents mailed by outsiders to the auditor. |
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Correspondence between auditor and vendors. |
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Copies of sales invoices inspected by the auditor. |
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Computations made by the auditor |
A weakness in internal control over recording retirements of equipment may cause an auditor to
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Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year. |
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Select certain items of equipment from the accounting records and locate them in the plant. |
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Inspect certain items of equipment in the plant and trace those items to the accounting records. |
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Trace additions to the “other assets” account to search for equipment that is still on hand but no longer being used |
If internal control is properly designed, the same employee should not be permitted to
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Sign checks and cancel supporting documents. |
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Receive merchandise and prepare a receiving report. |
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Prepare disbursement vouchers and sign checks. |
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Initiate a request to order merchandise and approve merchandise received. |
When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining
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Whether the predecessor’s work should be utilized. |
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Whether the company follows the policy of rotating its auditors. |
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Whether in the predecessor’s opinion internal control of the company has been satisfactory. |
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Whether the engagement should be accepted. |
Which of the following is least likely to be a procedure used for planning/acceptance of an engagement?
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Contacting the predecessor auditor |
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communicating with the client’s attorney and other third parties |
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review financial statements |
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determine internal control risk |
Which of the following is not an interrelated component of internal control?
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Control activities |
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Risk assessment |
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Monitoring |
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Management integrity |
An auditor’s decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the
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Availability of data aggregated at a high level. |
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Relative effectiveness and efficiency of the tests. |
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Timing of tests performed after the balance sheet date. |
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Auditor’s familiarity with industry trends |
Factors or components of the control environment include all except
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Organizational structure |
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Human resources |
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Integrity and ethical values |
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All of the above are factors |
Which of the following is not a typical analytical procedure?
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Study of relationships of the financial information with relevant nonfinancial information. |
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Comparison of the financial information with similar information regarding the industry in which the entity operates. |
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Comparison of recorded amounts of major disbursements with appropriate invoices. |
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Comparison of current year’s financial statement with last years |
Failure to detect material dollar misstatements in the financial statements is a risk which the auditor primarily mitigates by
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Performing substantive procedures. |
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Performing tests of controls. |
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Assessing internal control. |
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Obtaining a client representation letter. |
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