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Which of the following would probably not be considered an indication of a material weakness?

Selected Answer:Overproduction by the manufacturing plant.

Answers: Evidence of a material misstatement.

Ineffective oversight by the audit committee.

Immaterial fraud committed by senior management.

Overproduction by the manufacturing plant.

Question 2

2.4 out of 4 points

Audit Risk components - Matching

Question Answers Selected Match

A client fails to discover employee fraud on a timely basis because bank accounts are not reconciled monthly.

C.Control risk

A.Detection risk

Cash is more susceptible to theft than an inventory of coal. D.Inherent risk

D.Inherent risk

An auditor complies with GAAS on an audit engagement, but the shareholders sue the auditor for issuing misleading financial statements.

E.Engagement risk

E.Engagement risk

Confirmation of receivables by an auditor fails to detect a material misstatement.

A.Detection risk

C.Control risk

The risk that an auditor will issue an unqualified opinion on materially misstated financial statements.

B.Audit risk

B.Audit risk

Question 3

1 out of 1 points

Which of the following is not a typical analytical procedure?

Selected Answer: Comparison of recorded amounts of major disbursements with appropriate

invoices.

Answers: Study of relationships of the financial information with relevant nonfinancial

information.

Comparison of the financial information with similar information regarding the industry in which the entity operates.

Comparison of recorded amounts of major disbursements with appropriate invoices.

Comparison of the financial information with budgeted amounts.

Question 4

0 out of 1 points

The figure below illustrates the Accounts Payable Example of Filling the Assurance Buckets for Each Assertion.Based on the figure, which assertion does not require the use of tests of details?

Selected Answer:

Cutoff

Answers: Completeness

Accuracy

Cutoff

Presentation & disclosure

Existence & Occurrence

Valuation

Rights and obligations

Question 5

5 out of 5 points

Audit Report for ICFR


Q1 (= Type of deficiency)

H.Type of Deficiency

H.Type of Deficiency

Q2 F.Scope Limitation

F.Scope Limitation

Q3 C.Control deficiency or significant deficiency

C.Control deficiency or significant deficiency

Q4 G.Unqualified Opinion

G.Unqualified Opinion

Q5 D.Material weakness

D.Material weakness

Q6 E.Adverse Opinion

E.Adverse Opinion

Q7 B.Minor effect

B.Minor effect

Q8 G.Unqualified Opinion

G.Unqualified Opinion

Q9 I.More than Minor effect

I.More than Minor effect

Q10 A.Disclaim opinion or withdraw

A.Disclaim opinion or withdraw

Question 6

1 out of 1 points

S&H Associates has just performed an audit of Bob's Bikes. S&H was unable to obtain a written representation from management about internal control. Which of the following is true?

Selected Answer: S&H should consider this situation a limitation on the scope of the audit.

Answers: S&H must still assume that management has assessed the effectiveness of internal control.

Depending on other factors in the audit, S&H can still issue an unqualified opinion.

S&H should consider this situation a limitation on the scope of the audit.

Management does not need to give S&H a letter if they have disclosed all known internal control deficiencies.

Question 7

0 out of 5 points

Match each Question with correct answers provided in the list.


Q1 2.Tracing

1.Vouching

Q2 6.Completeness

5.Occurrence

Q3 4.Understatement

3.Overstatement

Q4 1.Vouching

2.Tracing

Q5 5.Occurrence

6.Completeness

Q6 3.Overstatement

4.Understatement

Question 8

1 out of 1 points

As lower acceptable levels of both audit risk and materiality are established, the auditor should plan more work on individual accounts to

Selected Answer:

Find smaller misstatements.

Answers: Decrease the risk of assessing control risk too low.

Find larger misstatements.

Find smaller misstatements.

Increase the tolerable misstatement in the accounts.

Question 9

2 out of 5 points

An entity's internal controls consist of five interrelated components. Please identify the component to which each of the following items pertains.


control activities B.Examples include information processing controls to check accuracy, completeness, and authorization of transactions.

A.It includes accounting system and procedures and records established to initiate, authorize, record, process and report transactions.

monitoring D.It can be done via ongoing activities or separate evaluations.

D.It can be done via ongoing activities or separate evaluations.

information system and communication

A.It includes accounting system and procedures and records established to initiate, authorize, record, process and report transactions.

E.It includes code of ethics.

risk assessment C.It includes identifying risks

C.It includes identifying risks

relevant to the preparation of fi nancial statements

relevant to the preparation of fi nancial statements

control environment

E.It includes code of ethics.

B.Examples include information processing controls to check accuracy, completeness, and authorization of transactions.

Question 10

1 out of 1 points

To test for unsupported entries in the ledger, the direction of audit testing should start from the

Selected Answer:Ledger entries.

Answers:Ledger entries.

Journal entries.

Externally generated documents.

Original source documents.

Question 11

1 out of 1 points

After obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. The auditor most likely decided that:

Selected Answer: It would be efficient to perform tests of controls that would result in a

reduction in planned substantive procedures.

Answers: Additional evidence to support a reduction in the assessed level of control risk is not available.

An increase in the assessed level of control risk is justified for certain financial statement assertions.

It would be efficient to perform tests of controls that would result in a reduction in planned substantive procedures.

There were many internal control deficiencies that would allow misstatements to enter the accounting system.

Question 12

1 out of 1 points

The independent auditor should acquire an understanding of the internal audit function as it relates to the assessment of control risk because

Selected Answer: The work performed by internal auditors may be a factor in determining the

nature, timing, and extent of the independent auditor's procedures.

Answers: Internal auditors' audit programs, audit documents, and reports can eliminate the need for the independent auditor's staff.

The procedures performed by the internal audit staff may eliminate the independent auditor's need for an extensive study and evaluation of internal control.

The work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures.

The understanding of the internal audit function is an important substantive procedure to be performed by the independent auditor.

Question 13

0 out of 1 points

An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable. What type of audit procedure was performed?

Selected Answer:Test of controls.

Answers: Test of transactions.

Analytical procedures.

Test of controls.

Test of details.

Question 14

1 out of 4 points

Each of the five cases illustrates specific control activities from a client's revenue cycle (accounts receivable/sales). For each of the procedures, identify what potential category of errors and frauds can be prevented.


Credit sales > $1000 require prior approval by credit manager

C.Unauthorized transactions are executed and recorded.

A.Transaction amounts are inaccurate.

All shipping documents are prenumbered and matched with sales invoices daily.

D.Valid transactions are omitted from the accounts.

D.Valid transactions are omitted from the accounts.

Recorded sales are supported by invoices, shipping documents, and customer orders.

B.Invalid transactions are recorded.

C.Unauthorized transactions are executed and recorded.

Sales invoices are reviewed for correct quantities and mathematical accuracy.

A.Transaction amounts are inaccurate.

B.Invalid transactions are recorded.

Question 15

0 out of 1 points

Which of the following would most likely be classified as a material weakness?

Selected Answer: Absence of appropriate separation of duties.

Answers: Absence of appropriate separation of duties.

Absence of appropriate reviews and approvals of transactions.

Evidence of failure of control activities.

Ineffective oversight of the financial reporting process by the company's audit committee.

Question 16

1 out of 1 points

Assessing control risk at below the maximum most likely would involve

Selected Answer: Identifying specific internal controls relevant to specific assertions.

Answers: Changing the timing of substantive procedures by omitting interim testing and performing the tests at year-end.

Identifying specific internal controls relevant to specific assertions.

Performing more extensive substantive procedures with larger sample sizes than originally planned.

Reducing inherent risk for most of the assertions relevant to significant account balances.

Question 17

1 out of 1 points

Management's written representations concerning internal control are

Selected Answer:Signed by the CEO and CFO.

Answers: Addressed to the users of the financial statements.

Normally drafted by management.

Included in the auditor's final report.

Signed by the CEO and CFO.

Question 18

0 out of 1 points

In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate?

Selected Answer:Ratio.

Answers: Variables.

Stratified.

Ratio.

Attributes.

Question 19

1 out of 1 points

The control environment component of internal controls includes all of the following except:

Selected Answer:Access to computer programs.

Answers: Management's operating style.

Access to computer programs.

Organizational structure.

Human resource policies and practices.

Question 20

0 out of 1 points

Which of the following is not an objective of internal controls over financial reporting as defined by the Sarbanes-Oxley Act?

Selected Answer: Policies and procedures that provide reasonable assurance regarding prevention

or timely detection of unauthorized acquisition, use, or disposition of the registrant's assets that could have a material effect on the financial statements.

Answers: Policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant.

Policies and procedures that provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant.

Policies and procedures that provide reasonable assurance regarding the compliance with applicable laws and regulations.

Policies and procedures that provide reasonable assurance regarding prevention

or timely detection of unauthorized acquisition, use, or disposition of the registrant's assets that could have a material effect on the financial statements.

Question 21

1 out of 1 points

To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques including

Selected Answer:Inquiry.

Answers:Inquiry.


Calculation.

Confirmation.

Question 22

1 out of 1 points

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is that

Selected Answer: The deviation rate in the auditor's sample is less than the tolerable rate of

deviation, but the deviation rate in the population exceeds the tolerable rate of deviation.

Answers: The deviation rates of both the auditor's sample and the population exceed the tolerable rate of deviation.

The deviation rates of both the auditor's sample and the population are less than the tolerable rate of deviation.

The deviation rate in the auditor's sample is less than the tolerable rate of deviation, but the deviation rate in the population exceeds the tolerable rate of deviation.

The deviation rate in the auditor's sample exceeds the tolerable rate of deviation, but the deviation rate in the population is less than the tolerable rate of deviation.

Question 23

1 out of 1 points

An auditor's purpose for performing tests of controls is to provide reasonable assurance that:

Selected Answer: Controls are operating effectively.

Answers:Controls are operating effectively.

The risk that the auditor may unknowingly fail to modify the opinion on the financial statements is minimized.

Transactions are executed in accordance with management's authorization and access to assets is limited by a segregation of functions.

Transactions are recorded as necessary to permit the preparation of the financial statements in conformity with generally accepted accounting principles.

Question 24

1 out of 1 points

Which of the following is intended to detect deviations from prescribed controls?

Selected Answer: Tests of controls designed specifically for the client.

Answers: Substantive procedures specified by a standardized audit program.

Tests of controls designed specifically for the client.

Analytical procedures as set forth in an industry audit guide.

Computerized analytical procedures tailored for the configuration of the computer equipment in use.

Question 25

1 out of 1 points

Examples of entity-level controls include

Selected Answer:All of the above are examples of entity-level controls.

Answers: Management's risk assessment process.

Controls to monitor results of operations.

The period-end financial reporting process.

All of the above are examples of entity-level controls.

Question 26

1 out of 1 points

Which of the following matters would an auditor most likely consider to be a significant deficiency to be communicated to the audit committee?

Selected Answer: Evidence of a lack of objectivity by those responsible for accounting

decisions.

Answers: Management's failure to renegotiate unfavorable long-term purchase commitments.

Recurring operating losses that may indicate going concern problems.

Evidence of a lack of objectivity by those responsible for accounting decisions.

Management's current plans to reduce its ownership equity in the entity.

Question 27

1 out of 1 points

Which of the following audit tests would be regarded as a test of a control?

Selected Answer: Tests of the signatures on canceled checks to board of director's

authorizations.

Answers: Tests of the specific items making up the balance in a given general ledger account.

Tests confirming receivables.

Tests of the signatures on canceled checks to board of director's authorizations.

Tests of the additions to property, plant, and equipment by physical

inspection.

Question 28

0 out of 1 points

For non-public companies with preliminary control risk assessments set at the maximum, auditors are likely to

Selected Answer:Test controls extensively.

Answers: Use a reliance strategy.

Complete little or no tests of controls.

Complete interim testing of account balances.

Test controls extensively.

Question 29

1 out of 1 points

An "integrated audit" as stated in Section 404 of the Sarbanes-Oxley Act means

Selected Answer: The auditor must conduct two audits, one on the effectiveness of internal

control and one on the financial statements, in an integrated way.

Answers: The auditor must consider the integrated thoughts and ideas of everyone on the audit staff.

The auditor must conduct two audits, one on the effectiveness of internal control and one on the financial statements, in an integrated way.

The auditor must integrate the same objectives whether auditing internal control or auditing the financial statements.

Two independent CPA firms must work together on the audit.

Question 30

1 out of 1 points

According to the COSO definition of safeguarding of assets

Selected Answer: Controls over financial reporting are effective if they provide reasonable

assurance that losses are properly reflected in the financial statements.

Answers: Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur.

Controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements.

Both A and B.

Neither A nor B.

Question 31

1 out of 1 points

Assessing control risk below maximum involves all of the following except:

Selected Answer: Concluding that controls are ineffective.

Answers: Identifying specific controls to rely on.

Concluding that controls are ineffective.

Performing tests of controls.

Analyzing the achieved level of control risk after performing tests of controls.

Question 32

1 out of 4 points

Top-Down, Risk-Based Approach to the Audit of ICFR


1 D.

Identify entity-level controls

B.

Understand likely sources of misstatements

2 A.

Identify significant accounts and

A.

Identify significant accounts and

disclosures and their relevant assertions disclosures and their relevant assertions

3 B.

Understand likely sources of misstatements

D.


4 D.


C.

Select controls to test.

Question 33

1 out of 1 points

The independent auditor selects several transactions in each functional area and traces them through the entire system, paying special attention to evidence about whether or not the control activities are in operation. This is an example of a(n)

Selected Answer:Test of controls.

Answers: Analytical procedure.

Test of controls.

Substantive procedure.

Functional test.

Question 34

1 out of 1 points

An organizational structure is important for all of the following reasons except:

Selected Answer:Ensuring a proper commitment to controls.

Answers: Ensuring proper monitoring.

Defining areas of authority.

Creating clear lines of reporting.

Ensuring a proper commitment to controls.

Question 35

0.8 out of 4 points

Match each question with the assertion that it relates to.


Discussions with the owner-manager of an audit client reveal to the auditor that the company is more concerned with minimizing their income tax payments than maximizing income. Based on this information, which management assertion will the auditor be most concerned about verifying with regard to sales revenue?

C.Completeness

A.Rights and obligations

Which of the following primary assertions is satisfied when an auditor observes the client's physical count of inventory?

D.Existence

B.Accuracy

Recompute financial information on a sample of sales invoices

B.Accuracy

B.Accuracy

You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment. Which account balance assertion for inventory should you be most concerned about verifying?

A.Rights and obligations

C.Completeness

Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for transactions within the purchasing process are you most concerned with?

C.Completeness

D.Existence

Question 36

1 out of 3 points

For each of the following independent situations relating to the audit of internal control, indicate the type of audit report you would issue.


A disclaimer of opinion

B.You agreed to perform an audit for Rodriguez & Co., after the client’s year-end. Due to time constraints, your audit firm could not complete a full audit of internal control. However, the evidence you did collect suggests that the company has

A.George & Diana Company’s internal audit function identified a material weakness in the company’s ICFR. The client corrected this weakness about four months prior to the end of the annual reporting period. Management reassessed controls in

exceptionally strong ICFR. You seriously doubt that a material weakness would have been found if time had permitted a more thorough audit. Management’s written assessment concludes that the company’s internal control was effective as of the report date.

the area and found them effective. After reevaluating and retesting the relevant controls, you believe the controls to have been effective for a sufficient period of time to provide adequate evidence that they were designed and operating effectively as of the end of the client’s reporting period. However, the controls clearly were not effective for the first eight months of the reporting period. Management’s written assessment concludes that the company’s internal control was effective as of the report date.

Unqualified opinion

A.George & Diana Company’s internal audit function identified a material weakness in the company’s ICFR. The client corrected this weakness about four months prior to the end of the annual reporting period. Management reassessed controls in the area and found them effective. After reevaluating and retesting the relevant controls, you believe the controls to have been effective for a sufficient period of time to provide adequate evidence that they were designed and operating effectively as of the end of the client’s reporting period. However, the controls clearly were not effective for the first eight months of the reporting period. Management’s written assessment concludes that the company’s internal control was effective as of the report date.

B.You agreed to perform an audit for Rodriguez & Co., after the client’s year-end. Due to time constraints, your audit firm could not complete a full audit of internal control. However, the evidence you did collect suggests that the company has exceptionally strong ICFR. You seriously doubt that a material weakness would have been found if time had permitted a more thorough audit. Management’s written assessment concludes that the company’s internal control was effective as of the report date.

adverse opinion

C.Reynolds’ Distilleries identified what you agree a material weakness and made an adverse assessment in its report on internal control. The company had not corrected the material weakness as of the end of the

C.Reynolds’ Distilleries identified what you agree a material weakness and made an adverse assessment in its report on internal control. The company had not corrected the material weakness as of the end of the

reporting period. reporting period.

Question 37

1 out of 1 points

I will comply with the university rules, regulations, and other requirements stipulated in the Honor Code. I will bear the consequence for any violations.

I will turn off my cell phone, i-phone or any other type of communication devices.

I WILL NOT DO THE FOLLOWING:- access any course materials, any web sites, except for this exam that I am taking.- share any exam information with anyone.- use any books, notes, or any materials.- leave the computer before final submission.

I will report any type of violations that I am aware of to the instructor or via ANONYMOUS HOTLINE.

If you agree, please select [I AGREE]. Thank you.Selected Answer:

I Agree!

Answers:

I Agree!

I do not agree and will leave the room now.

Question 38

4 out of 4 points

Please match the following Examples of Internal Controls (1st column) with their respective Tests of Controls (2nd column),


Agree sales invoices to shipping document and

B.Recompute the information

B.Recompute the information

customer order for product types, price, and quantity.

on a sample of sales invoices. on a sample of sales invoices.

Billing Department personnel account for the numerical sequence of sales invoices.

D.Inquire responsible personnel about missing sales invoice numbers.

D.Inquire responsible personnel about missing sales invoice numbers.

Credit Department personnel initial sales orders, indicating credit approval.

C.Inspect a sample of sales orders for presence of proper authorization.

C.Inspect a sample of sales orders for presence of proper authorization.

Create a separation of duties between the shipping function and the order entry and billing functions.

A.Observe and evaluate whether shipping personnel have access to the order entry or billing activities.

A.Observe and evaluate whether shipping personnel have access to the order entry or billing activities.

Question 39

0 out of 1 points

Which of the following statements concerning noncompliance by clients is correct?

Selected Answer: An audit in accordance with generally accepted auditing standards normally

includes audit procedures specifically designed to detect noncompliance that has an indirect but material effect on the financial statements.

Answers:An auditor's responsibility to detect noncompliance that has a direct and material effect on the financial statements is the same as that for errors and frauds.

An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect noncompliance that has an indirect but material effect on the financial statements.

An auditor considers noncompliance from the perspective of the reliability of management's representations rather than their relation to audit objectives derived from financial statement assertions.

An auditor has no responsibility for noncompliance that has an indirect effect on the financial statements.

Question 40

1 out of 1 points

A high detection risk strategy includes all of the following except:

Selected Answer:Audit work only completed at year-end.

Answers: Interim testing.

Reduced testing of transactions.

Heavy reliance on analytical procedures as substantive procedures.

Audit work only completed at year-end.

Question 41

1 out of 1 points

An auditor who increases the assessed level of control risk because certain control procedures were determined to be ineffective would most likely increase the

Selected Answer:Extent of substantive procedures.

Answers: Extent of tests of controls.

Level of detection risk.

Extent of substantive procedures.

Level of inherent risk.

Question 42

1 out of 1 points

Audit evidence concerning proper segregation of duties ordinarily is best obtained by

Selected Answer: Direct personal observation of the employees who apply control activities.

Answers: Preparation of a flowchart of duties performed by available personnel.

Inquiring whether control activities operated consistently throughout the period.

Reviewing job descriptions prepared by the Personnel Department.

Direct personal observation of the employees who apply control activities.

Question 43

1 out of 1 points

Which of the following would be least likely to be included in an auditor's tests of controls?

Selected Answer:Analytical procedures.

Answers: Inspection.

Observation.

Inquiry.


Question 44

1 out of 1 points

Failure to detect material dollar errors in the financial statements is a risk which the auditors primarily mitigate by:

Selected Answer:Performing substantive procedures.

Answers: Performing tests of controls.

Obtaining a client representation letter.

Performing substantive procedures.

Assessing control risk.

Question 45

1 out of 1 points

Prior to issuing a report on internal controls over financial reporting, an auditor is required to

Selected Answer: Communicate to management, in writing, all control deficiencies identified

during the audit and inform the audit committee when such a communication has been made.

Answers: Perform procedures sufficient to identify all control deficiencies.

Communicate to management, in writing, all control deficiencies previously

included in written communication from the internal auditors.

Communicate to management, in writing, all control deficiencies identified during the audit and inform the audit committee when such a communication has been made.

Represent that no significant deficiencies were noted during the audit of internal control.

Question 46

1 out of 1 points

Which of the following is false?

Selected Answer: The absence of misstatements in financial statements is considered convincing

evidence that existing controls are effective.

Answers: Regardless of the achieved level of control risk in connection with the audit of the financial statements, auditing standards require the auditor to perform some substantive procedures for all significant accounts and disclosures.

The absence of misstatements in financial statements is considered convincing evidence that existing controls are effective.

The audit of internal control is intended to draw conclusions about the effectiveness of internal control over financial reporting as of a specific date.

The auditor is required by AS5 to evaluate the implications of the financial statement audit for the effectiveness of internal control over financial reporting.

Question 47

1 out of 1 points

A retailing entity uses the Internet to execute and record its purchase transactions. The entity’s auditor recognizes that the documentation of details of transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would

Selected Answer: Perform tests several times during the year, rather than only at year end.

Answers: Compare a sample of paid vendors’ invoices to the receiving records at year end.

Plan for a large measure of tolerable misstatement in substantive tests.

Perform tests several times during the year, rather than only at year end.

Increase the sample of transactions to be selected for cutoff tests.

Question 48

1 out of 1 points

Statistical sampling generally may be applied to test internal control when the client's internal control procedures:

Selected Answer: Leave an audit trail in the form of evidence of compliance.

Answers: Depend primarily on appropriate segregation of duties.

Are carefully reduced to writing and are included in client accounting manuals.

Leave an audit trail in the form of evidence of compliance.

Enable the detection of material fraud in the accounting records.

Question 49

1 out of 1 points

Which of the following best illustrates the concept of sampling risk?

Selected Answer: A randomly chosen sample may not be representative of the population as a

whole (regarding the characteristic being tested).

Answers:A randomly chosen sample may not be representative of the population as a whole (regarding the characteristic being tested).

An auditor may select audit procedures that are not appropriate to achieve the specific objective.

An auditor may fail to recognize errors in the documents examined for the chosen sample.

The documents related to the chosen sample may not be available for inspection.

Question 50

1 out of 1 points

An auditor's primary consideration regarding an entity's internal controls is whether the policies and procedures

Selected Answer:Affect the financial statement assertions.

Answers:Affect the financial statement assertions.

Prevent management override.

Relate to the control environment.

Reflect management's philosophy and operating style.

Question 51

1 out of 1 points

An audit team uses the assessed risk of material misstatement to

Selected Answer: Determine the acceptable level of detection risk for financial statement

assertions.

Answers: Evaluate the effectiveness of the entity's internal control policies and activities.

Identify transactions and account balances where inherent risk is at the maximum.

Indicate whether materiality thresholds for planning and evaluation purposes are sufficiently high.

Determine the acceptable level of detection risk for financial statement assertions.

Question 52

1 out of 1 points

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to

Selected Answer:

Measure the sufficiency of the evidential matter obtained.

Answers: Reduce audit risk and materiality to a relatively low level.

Minimize the failure to detect errors and fraud.

Measure the sufficiency of the evidential matter obtained.

Eliminate the risk of nonsampling errors.

Question 53

1 out of 1 points

The risk assessment component of internal controls refers to

Selected Answer: The entity's identification and analysis of risks relevant to achievement of

its objectives.

Answers: The auditor's assessment of control risk.

The auditor's assessment of client risk.

The entity's identification and analysis of risks relevant to achievement of its objectives.

The entity's monitoring of the potential for material misstatements.

Question 54

1.6 out of 4 points

Components of Internal Control


control environment B.Organizational structure

A.internal audit

risk assessment C.Entity's process for identifying and responding to business risks.

C.Entity's process for identifying and responding to business risks.

information system and D. D.

Communication infrastructure (Hardware components)

infrastructure (Hardware components)

Control activities E.Performance reviews

B.Organizational structure

Monitoring of Controls A.internal audit

E.Performance reviews

Question 55

1 out of 1 points

A substantive strategy differs from a reliance strategy in that a substantive strategy includes

Selected Answer:Increased implementation of detailed tests of transactions and balances.

Answers:Increased implementation of detailed tests of transactions and balances.

Extra tests of controls.

Increased emphasis on verbal representations from management.

Setting control risk at a minimum level.

Question 56

1 out of 1 points

Which of the following presumptions does not relate to the appropriateness of audit evidence?

Selected Answer: An auditor's opinion, to be economically useful, is formed within a reasonable

time and based on evidence obtained at a reasonable cost.

Answers: The more effective the internal control system, the more assurance it provides about the accounting data and financial statements.

An auditor's opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost.

Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity.

The independent auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained

indirectly.

Question 57

4 out of 4 points

Filling the Assurance Bucket2


Q1 A.Remaining assurance needed from tests of details

A.Remaining assurance needed from tests of details

Q2 B.Substantive Analytical Procedures

B.Substantive Analytical Procedures

Q3 D.Tests of Controls

D.Tests of Controls

Q4 C.Risk Assessment Procedures

C.Risk Assessment Procedures

Question 58

1 out of 1 points

The acceptable level of detection risk is inversely related to the

Selected Answer:Assurance provided by substantive tests.

Answers:Assurance provided by substantive tests.

Risk of misapplying audit procedures.

Preliminary judgment about materiality levels.

Risk of failing to discover material misstatements.

Question 59

0 out of 1 points

The application of statistical sampling techniques is least related to which of the following generally accepted auditing standards?

Selected Answer:

The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud and to design the nature, timing, and extent of further audit procedures.

Answers: The auditor must adequately plan the work and must properly supervise any assistants.

In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor.

The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.

The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud and to design the nature, timing, and extent of further audit procedures.

Question 60

1 out of 1 points

The risk of material misstatement differs from detection risk in that it

Selected Answer:Exists independently of the financial statement audit.

Answers: Arises from the misapplication of audit procedures.

May be assessed in either quantitative or nonquantitative terms.

Exists independently of the financial statement audit.

Can be changed at the auditor's discretion.

Question 61

1 out of 1 points

A confirmation is used to

Selected Answer:

Verify a representation from a third party.

Answers: Verify the inventory count is correct.

Verify that a control is being observed.

Verify a representation from a third party.

Verify that a specific trend is correct.

Question 62

1 out of 1 points

An entity's control activities include all of the following except:

Selected Answer:External auditor's tests of controls.

Answers: Performance reviews.

Information processing.

External auditor's tests of controls.

Segregation of duties.

Question 63

1 out of 1 points

Monitoring is a major component of the COSO Internal Control—Integrated Framework. Which of the following is not correct in how the company can implement the monitoring component?

Selected Answer: The independent auditor can serve as part of the entity’s control

environment and continuous monitoring.

Answers: Monitoring can be conducted as a separate evaluation.

Monitoring and other audit work conducted by internal audit staff can reduce external audit costs.

The independent auditor can serve as part of the entity’s control

environment and continuous monitoring.

Monitoring can be an ongoing process.

Question 64

0 out of 1 points

As the acceptable level of detection risk increases, an auditor may change the

Selected Answer: Nature of substantive procedures from less effective to more effective

procedures.

Answers: Assessed level of control risk from below the maximum to the maximum level.

Assurance provided by tests of controls by using a larger sample size than planned.

Timing of substantive procedures from year-end to an interim date.

Nature of substantive procedures from less effective to more effective procedures.

Question 65

1 out of 1 points

The figure below illustrates the Accounts Payable Example of Filling the Assurance Buckets for Each Assertion. Which assertion is the auditor most concerned with?

Selected Answer:Completeness

Answers: Occurrence/Existence

Rights and Obligations

Completeness

Authorization

Accuracy/Valuation and Allocation

Cutoff

Question 66

0 out of 1 points

Which of the following is not a concern as to whether a misstatement is qualitatively material?

Selected Answer: The misstatement increases management's compensation.

Answers: The misstatement hides a failure to meet analysts' expectations.

The misstatement is less than 5% of pretax income.

The misstatement increases management's compensation.

The misstatement changes a small amount of profit to a small reported loss.

Question 67

1 out of 1 points

Regardless of the assessed level of control risk, an auditor of a nonpublic company would perform some

Selected Answer: Substantive tests to restrict detection risk for significant transaction classes.

Answers: Tests of controls to determine the effectiveness of internal control policies.

Analytical procedures to verify the design of internal control activities.

Substantive tests to restrict detection risk for significant transaction classes.

Dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.

Question 68

1 out of 1 points

Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the:

Selected Answer:Difficulty and expense involved in testing a particular item.

Answers:Difficulty and expense involved in testing a particular item.

Assessment of control risk at a low level.

Low inherent risk involved.

Relationship between the cost of obtaining evidence and its usefulness.

Question 69

1 out of 1 points

Audit procedures are designed to obtain evidence about relevant assertions. Which of the following is a false statement about audit procedures?

Selected Answer: The relationship between audit procedures and relevant assertions should be

one-to-one.

Answers:The relationship between audit procedures and relevant assertions should be one-to-one.

Audit procedures should be developed in light of assertions about the financial statement components.

Selection of procedures should depend upon the understanding of internal control.

The auditor should resolve any substantial doubt about any of management’s material financial statement assertions.

Question 70

1 out of 1 points

After considering the client's internal control the auditors have concluded that it is well designed and is functioning as anticipated. Under these circumstances the auditors would most likely:

Selected Answer: Reduce substantive procedures in areas where the internal control was

found to be effective.

Answers: Cease to perform further substantive procedures.

Reduce substantive procedures in areas where the internal control was found to be effective.

Increase the extent of anticipated analytical procedures.

Perform all tests of controls to the extent outlined in the preplanned audit program.

Question 71

1 out of 1 points

All of the following are significant deficiencies except:

Selected Answer:Inventory is highly subject to obsolescence.

Answers: Absence of appropriate reviews of transactions.

Evidence of willful wrongdoing by lower-level employees.

Inadequate provisions for safeguarding assets.

Inventory is highly subject to obsolescence.

Question 72

0 out of 4 points

Risk in test of control


Loss of Effectiveness

B.Risk of Assessing Control Risk Too Low

A.Risk of Assessing Control Risk Too High

Loss of Efficiency A.Risk of Assessing Control Risk Too High

B.Risk of Assessing Control Risk Too Low

Question 73

1 out of 1 points

Which of the following statements concerning control risk is correct?

Selected Answer: Assessing control risk and obtaining an understanding of an entity's internal

controls may be performed concurrently.

Answers:Assessing control risk and obtaining an understanding of an entity's internal controls may be performed concurrently.

When control risk is at the maximum level, an auditor is required to document the basis for that assessment.

Control risk may be assessed sufficiently low to eliminate substantive procedure for significant transaction classes.

When assessing control risk, an auditor should not consider evidence obtained in prior audits about the operation of control activities.

Question 74

1 out of 1 points

In designing written audit programs, an auditor should plan specific audit procedures to test

Selected Answer:Management assertions.

Answers: Timing of audit procedures.

Cost-benefit of gathering evidence.

Selected audit techniques.

Management assertions.

Question 75

1 out of 1 points

Proper monitoring within an internal control framework includes all of the following except:

Selected Answer:The internal revenue service.

Answers: An external auditor.

An effective audit committee.

An internal audit department.

The internal revenue service.

Question 76

1 out of 1 points

Which of these statements concerning illegal acts by clients is correct?

Selected Answer:

An auditor’s responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and fraud.

Answers: An auditor has no responsibility to detect illegal acts by clients that have an indirect effect on the financial statements.

An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect illegal acts that have an indirect but material effect on the financial statements.

An auditor’s responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and fraud.

An auditor considers illegal acts from the perspective of the reliability of management’s representations rather than their relation to audit objectives derived from financial statement assertions.

Question 77

1 out of 1 points

Analytical procedures are

Selected Answer: Required for planning and overall review of the financial statements.

Answers: Never required.

Required for planning, substantive testing, and overall review of the financial statements.

Required for planning and overall review of the financial statements.

Required during planning only.

Question 78

1 out of 1 points

When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the

Selected Answer:Extent of substantive tests.

Answers: Extent of tests of controls.

Level of detection risk.

Extent of substantive tests.

Level of inherent risk.

Question 79

1 out of 1 points

In determining the extent to which the auditor may use the work of others in the audit of ICFR, the auditor should do all of the following except:

Selected Answer: All of the above are required.

Answers: Test some of the work performed by others to evaluate the quality and effectiveness of their work.

Evaluate the nature of the controls subjected to the work of others.

Evaluate the competence and objectivity of the individuals who performed the work.

All of the above are required.

Question 80

5 out of 5 points

Auditor's Decision Process for Substantive Analytical ProceduresNote: A diamond symbol indicates a decision is necessary, e.g., a Yes/No question or True/False test.


Q1 (= Develop an expectation)

1.Develop an Expectation

1.Develop an Expectation

Q2 7.Define a Tolerable Difference

7.Define a Tolerable Difference

Q3 3.Compare the Expectation to the Recorded Amount

3.Compare the Expectation to the Recorded Amount

Q4 2.Investigate Differences Greater Than the Tolerable Difference

2.Investigate Differences Greater Than the Tolerable Difference

Q5 5.Are explanation(s) and corroborative evidence adequate?

5.Are explanation(s) and corroborative evidence adequate?

Q6 6. 6.

Conduct other audit procedures or propose an audit adjustment

Conduct other audit procedures or propose an audit adjustment

Q7 4.Document results

4.Document results

Question 81

1 out of 1 points

Analytical procedures are audit methods of evaluating financial statement accounts by studying and comparing relationships among financial and nonfinancial data. The primary purpose of analytical procedures conducted during the planning stages is to

Selected Answer:Identify unusual conditions that deserve additional audit effort.

Answers: Identify the appropriate schedules to be prepared by the client.

Identify the types of errors or frauds that can occur in transactions.

Identify unusual conditions that deserve additional audit effort.

Determine the existence of unrecorded liabilities or overstated assets.

Question 82

1 out of 1 points

The likelihood of assessing control risk too high is the risk that the sample selected to test controls

Selected Answer: Does not support the auditor's planned level of control risk when the true

operating effectiveness of the control justifies such an assessment.

Answers:Does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment.

Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes.

Contains proportionally fewer monetary errors or deviations from prescribed control procedures than exist in the balance or class as a whole.

Does not support the tolerable misstatement for some or all of management's

assertions.

Question 83

3 out of 5 points

Auditor's Consideration of Internal Control and Its Relation to Substantive Procedures


1 4.Reliance Strategy

4.Reliance Strategy

2 1.Plan & perform tests of controls

1.Plan & perform tests of controls

3 6.Set control risk based on tests of controls

6.Set control risk based on tests of controls

4 2.Revise planned level of substantive procedures

5.Perform substantive procedures based on level of assessed control risk

5 5.Perform substantive procedures based on level of assessed control risk

2.Revise planned level of substantive procedures

Question 84

1 out of 1 points

For which of the following audit tests would an auditor most likely use attributes sampling?

Selected Answer:Inspecting employee time cards for proper approval by supervisors.

Answers: Making an independent estimate of the amount of a LIFO inventory.

Examining invoices in support of the valuation of fixed asset additions.

Selecting accounts receivable for confirmation of account balances.

Inspecting employee time cards for proper approval by supervisors.

Question 85

1 out of 1 points

The scope of substantive procedures as compared to the scope of tests of controls generally vary:

Selected Answer:Inversely.

Answers: In a parallel manner.

Inversely.

Directly.

Equally.

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