2-8 FINAL

For public companies, a relative percentage for establishing overall materiality is typically __. 3% to 5% of income before taxes 5% to 10% of total revenue 3% to 5% of total assets 5 to 10% of total equity

3%-5% of income before taxes

If 3 deviations are found in a sample of 60, the sample deviation rate is ______%

5

The value of an action is determined solely by the consequences of the action on the welfare of individuals under the ______ approach. A. utilitarian theory B. rights-based C. justice-based approach D. professionalism-based approach

A

Which act regulates ongoing reporting by companies whose companies securities are listed and traded on a stock exchange or that possess assets greater than $10 million and its equity securities are held by 500 or more persons? A. securities exchange act of 1934 B. securities exchange act of 1933 C. dodd-frank act of 2010 D. sarbanes-oxley act of 2002

A

Which of the following statements is correct? The way a company achieves its control objectives is not affected by company size and complexity. A small, less-complex company may achieve control objectives differently than a large company. An auditor should not consider the size of the company when considering the company's internal control effectiveness.

A small, less-complex company may achieve control objectives differently than a large company.

The major portion of the AICPA's Code of Professional Conduct identifies actions that may impair auditors' ______. A. training B. fee schedules C. competency D. independence

D

The AICPA's Auditing Standards Boards recently completed a major project to converge its auditing standards with the standards of the ______ to the extent possible. - IASB - IFAC - IAASB - IIA - IEIFT

IAASB

The international counterpart to the FASB is the ________

IASB

The SEC delegates its authority to set standards for audits of public companies to the ______. PCAOB FASB AICPA ASB

PCAOB

The FASB's Accounting Standards Codifications (ASC) is recognized as the source of the US GAAP by the _________ - PCAOB - IFAC - AICPA - SEC

PCAOB, AICPA, SEC

Which of the following are standards produced by some of the several standing committees housed by the AICPA? -Attestation Standards -Financial Statement Preparation Standards -Compilation and Review Standards -Tax Standards -The Code of Professional Conduct -Quality control and peer review Standards

The Code of Professional Conduct Attestation Standards Compilation and Review Standards Quality control and peer review standards

Which of the following statements are true about the financial statement and ICFR audits? Tests of controls should be done separately for the audits. They have different objectives. Work must be planned to achieve both objectives. They must be performed at different times.

They have different objectives. Work must be planned to achieve both objectives.

Using a systemic selection approach to select a sample means ______. a starting number is selected first and then every nth item is selected items may be selected for a sample multiple times high-value items have a higher chance of selection

a starting number is selected first and then every nth item is selected

when determining whether to use the work of the entity's internal auditors, the external auditor must obtain certifications held by the internal auditors an understanding of the internal audit function working papers from the internal auditors resumes of the internal auditors

an understanding of the internal audit function

When the aggregated misstatement are greater than overall materiality the auditor should ______. withdrawal from the audit and refuse to issue an opinion ask the entity to adjust the financial statements issue an unqualified opinion with reservation issue a qualified or adverse opinion

ask the entity to adjust the financial statements

Auditors assess the risk of material misstatement at the ______ level. materiality assertion disclosure financial statement

assertion

The process of evaluating the effectiveness of an entity's internal control in preventing, or detecting and correcting, material misstatements in the financial statements is called ________ control risk

assessing

Auditors should perform audits to reduce _________ risk to a sufficiently low level before expressing an opinion on the financial statements business audit inherent control

audit

The risk of material misstatement is also referred to as _______ risk because it stems from decisions made by the entity

client

The risk of material misstatement is also referred to as __________ risk because it stems from decisions made by the entity

client

The risk that a misstatement could occur in an assertion and would not be prevented, or detected and corrected, on a timely basis by the entity's internal control is known as ________ risk audit inherent control detection

control

Based upon risk assessment, management determines which relevant business processes require

control activities

important information on the ability of the entity to continue as a going concern are provided by ______ ratios

coverage

Controls over data preparation, work flow control and library functions are included in ______ controls. processing output access security data center and network

data center and network

Misstatements arising from the misappropriation of assets is sometimes referred to as __________

defalcation

A fee is not considered a contingent fee if it is ___________

determined by judicial proceedings based on the complexity of the audit

The auditor ______ need to test all controls. does does not

does not

In applying attribute sampling to tests of controls, the auditor normally attempts to determine the operating ______ of a control in terms of ______ from a prescribed internal control. effectiveness; deviations deviations; samples completeness; proportions

effectiveness, deviations

Knowledge of the information system is important to understand the related accounting records when they are electronic electronic or manual manual

electronic or manual

The auditor must test the effectiveness of ______ - ______ controls because they can have a pervasive effective on the entity's ability to meet the COSO control criteria

entity level

True or false: An entity's external auditor does not need to be concerned about the internal control system at service organizations used by the entity.

false

Controls that relate to the overall information processing environment, have a pervasive effect on the entity's computer operation and are sometimes referred to as supervisory, management or information technology controls are called __________ controls

general

the two broad categories of information systems controls are ________ controls and _________ controls

general, application

An effective accounting system establishes methods and records that will ______. identify and record all valid transactions determine the proper time period in which transactions occurred present transaction and disclosures in a manner than ensures profitability for the entity describe transactions in sufficient detail to permit proper classification

identify and record all valid transactions determine the proper time period in which transactions occurred describe transactions in sufficient detail to permit proper classification

In assessing material weaknesses in ICFR management must ______. notify the auditor of locations to include in the evaluation consider which locations to include in the evaluation identify financial reporting risks and related controls centralize processing of controls evaluate evidence about the operating effectiveness of ICFR

identify financial reporting risks and related controls consider which locations to include in the evaluation evaluate evidence about the operating effectiveness of ICFR

Differences identified by substantive analytical procedures indicate a(n) ______ likelihood of misstatements. increased definite decreased

increased

If detection risk is set too high, the risk that the auditor will fail to detect an actual material misstatement ______. will not be affected increases decreases

increases

the process of _________ and ____________ - ___________ provides a trail from the financial statements to the individual audit documents that a reviewer can easily follow

indexing, cross-referencing

The infrastructure, software, people, procedures and data used to support the functioning of internal control is known as

information system

Counting cash on hand and examining inventory are examples of ___________ of tangible assets

inspection

A CPA who is honest and candid and honors both the form and the spirit of ethical standards is said to have ______. due care objectivity independence integrity

integrity

Auditors may test controls at a(n) ___________ date because the assertion being tested may not be significant, the control has been effective in prior audits, or it may be more efficient to conduct the tests at that time

interim

Duplicate copies of invoices and shipping remittances are examples of _________ documents internal external

internal

An active and qualified board of directors, proper authorization of transactions and procedures to ensure assets exist are all examples that may be part of an entity's ______ ______

internal control

The entity's policies and procedures designed to provide reasonable assurance about the achievement of the entity's objectives is labeled _______ _______

internal control

The "nitty gritty" details in implementing the rules in Part 1 of the Code of Professional Conduct are found in the ______ of each rule

interpretations

Disadvantages of GAS include ______ it provides limited ability to verify programming logic it requires advance programming skills the time required to develop the application is usually short data that is audited must be available in electronic form

it provides limited ability to verify programming logic data that is audited must be available in electronic form

Which of the following make an approach nonstatistical? -Judgment is used to determine the sample size. -A random sample selection technique is used. -A haphazard sample selection technique is used. -Sample results are evaluated judgmentally.

judgment is used to determine the sample size a haphazard sample selection technique is used sample results are evaluated judgmentally

An auditor determines that the percentage of allowance for bad debts set by management is unreasonably low based on past experience. This is an example of a ______ misstatement. factual projected judgmental

judgmental

Controls that are important to the auditor's conclusion about whether the entity's controls sufficiently address the assessed risk of misstatement are often referred to as ___________ controls

key

All else being equal, the less risk that the auditor is willing to accept, the ______ the sample size must be. smaller less material larger more robust

larger

The smaller the difference between tolerable error and expected error, the ______ the sample size needed. larger smaller

larger

Audit sampling for tests of controls is generally appropriate when the completion of a control procedure ______. is transmitted wirelessly includes a value for the transaction can be accessed via electronic methods leaves documentary evidence

leaves documentary evidence

The severity of a control deficiency depends on ______. likelihood & magnitude number of misstatements & magnitude likelihood & number of misstatements

likelihood & magnitude

The severity of a control deficiency depends on ______. likelihood & magnitude likelihood & number of misstatements number of misstatements & magnitude

likelihood and magnitute

Select all that apply Advantages of GAS include ______ limited IT expertise is required entire populations can be examined auditing can be done as the entity processes data ease of use

limited IT expertise is required entire populations can be examined ease of use

Virtually all states have passed laws that allow CPAs to practice as ___________ ___________ partnerships

limited liability

When audit risk is low and the risk of material misstatement is high, detection risk will be set at ______. moderate high low

low

If the auditor determines that internal controls are properly designed or not implemented the auditor will ______. set the level of control risk at high make an assessment of control risk based on the result of tests of controls perform tests of controls to obtain audit evidence that controls are operating effectively use substantive procedures to reduce the risk of material misstatement to an acceptable level

make an assessment of control risk based on the result of tests of controls perform tests of controls to obtain audit evidence that controls are operating effectively

Management's documentation of ICFR ______. must be in electronic form must be in hard copy form may exist in any form must be in machine readable format

may exist in any form

To perform an audit of an entity's financial statements a CPA ______ be independent

must

Select all that apply In documenting the overall audit strategy and audit plan, auditors should document the ______. prior audit fees extent of audit tests outcomes of prior audit tests nature of audit tests timing of audit tests

nature of audit tests timing of audit tests extent of audit tests

A direct relationship exists between __________ which reflect what an entity is trying to achieve, ___________ which represent what the entity needs to do to achieve them, and the _________ of the entity

objectives, components, structure

If the work of others is to be used, the auditor should assess the ______ and ______of the persons whose work will be used.

objectivity compentence

Looking at a process or procedure being performed by others is referred to as _________

observation

This is useful in helping auditors understand the entity's processes but is generally not considered very reliable confirmation inspection observation inquiry

observation

Tests of controls for _____________ effectiveness include procedures such as inquiry, documentation inspection, observation and reperformance of the application of the control.

operating

Tests of controls directed toward __________ ___________ are concerned with assessing how the control was applied, the consistency with which it was applied during the audit period and by whom it was applied

operating effectiveness

How authority and responsibility are delegated and monitored and the framework within which the entity's activities for achieving entity wide objectives are planned, executed, controlled and reviewed are defined by the entity's __________ __________

organizational structure

Report distribution logs, transmittal sheets, reasonableness reviews and reconciliations to control or batch totals are examples of ______ controls. error processing output data validation

output

Commonly categorized control activities include - segregation of duties - performance reviews - physical controls - fraud controls - risk identification controls - information processing controls

performance reviews physical controls segregation of duties information processing controls

The primary concern of ______ is simply whether the relationship used to test the assertion makes sense. reliability disaggregation plausibility predictability

plausibility

flowcharting systems are divided into three groups: input/output symbols, ________ symbols, and ___________ flow and ________ symbols

processing, data, storage

The auditor's consideration of materiality on an audit is a matter of ______. fees charged for the audit financial statement analysis industry related benchmarking professional judgment

professional judgement

the consideration of materiality is a matter of _________ professional judgement audit fees charged cost effectiveness engagement efficiency

professional judgement

An attitude that includes a questioning mind and a critical assessment of audit evidence is the definition of

professional skepticism

the entity's success or failure for a given period is measure by _______ ratios

profitability

Select all that apply The auditor's report on the effectiveness of internal control must ______. be addressed to the management of the company provide an opinion on effective ICFR as of the specified date have the same date as the financial statement audit report contain the basis of management's opinion on the effectiveness of ICFR

provide an opinion on effective ICFR as of the specified date have the same date as the financial statement audit report

An internal control __________ is generally used for entities with a relatively complex internal control structure.

questionnaire

Checking the mathematical accuracy of documents or records is referred to as ____________

recalculation

If an entity's response to identified risks is adequate, the risk of material misstatement may be ______. increased eliminated reduced

reduced

auditor's should attempt to identify all ________ _______ because transactions with them may not be at "arms length"

related parties

According to COSO, a system of internal controls is designed to provide reasonable assurance about the achievement of entity objectives in which of the following categories? - effectiveness and efficiency of operations - reliability, timeliness and transparency of internal and external financial and non-financial reporting - compliance with applicable laws and regulations - accuracy of internal and external financial and non-financial reporting - maximization of management compensation

reliability, timeliness and transparency of internal and external financial and non-financial reporting effectiveness and efficiency of operations compliance with applicable laws and regulations

when the auditor intends to depend on the entity's controls, a ________ strategy is chosen

reliance

The audit documentation needs to be organized so that _______ can find the audit evidence that supports each financial statement account - reviewers - the board of directors - any member of the audit team - entity management

reviewers, any member of the audit team

The number of deviations found in the sample divided by the number of items in the sample is the ______ rate. true population deviation sample deviation expected deviation attribute sampling

sample deviation

Auditor's will tolerate deviation and still consider a control to be effective because there is a risk that the _________ deviation rate differs from the ___________ deviation rate.

sample, population

Confidence level, is the complement of ______. tolerable error sampling risk expected error desired level of assurance

sampling risk

If circumstances beyond the control of management or the auditor limit the _______ of the auditor's work, the auditor should disclaim an opinion or withdraw from the engagement.

scope

If the auditor is interested in examining the effectiveness of a control designed to ensure that all shipments to customers are billed, the correct population to test is the population of ______. sales invoices shipping records vendors customers

shipping records

Test data ______. is a time-effective method of testing is not used to test processing-logic controls should include both valid and invalid data ensures the accuracy of computer processing of transactions

should include both valid and invalid data ensures the accuracy of computer processing of transactions

Discreditable acts under the Acts Discreditable Rule include ______. solicitation of CPA Examination questions and answers failure to comply with records requests performing services for contingent fees failure to file a tax return

solicitation of CPA examination questions and answers failure to comply with records requests failure to file a tax return

coverage ratios provide information on the long-term _____ of the entity

solvency

Auditing standards recognize and permit both _________ and _________ methods of audit sampling.

statistical, nonstatistical

The two general approaches to audit sampling are _______ and _______

statistical, nonstatistical

Processing steps and computer processing are included in a ______ flowchart. document systems program

systems

Select all that apply Traditionally, value added services have included ______. internal reporting processes financial statement preparation tax planning system design and integration internal auditing services

tax planning system design and integration internal reporting processes

In order to provide evidence to support the lower level of control risk when using a reliance strategy, the auditor performs

test of controls

Operating effectiveness is checked using ______. neither tests of controls nor substantive tests tests of controls only both tests of controls and substantive tests substantive tests only

tests of controls only

When the auditor has decided to rely on controls, the confidence level is set at 90 or 95 percent, meaning that the auditor is willing to accept a 10 or 5 percent risk of accepting ______. the control as ineffective when in fact it is the control as effective when in fact it is not material misstatements of the account balance

the control as effective when in fact it is not

the second step in the analytical procedures decision process is to define a __________ difference

tolerable

True of false: CPAs can offer a variety of services that provide assurance but are not considered auditing or attestation

true

True of false: an entity's mix of manual and automated controls varies with the nature and complexity of the entity's use of IT

true

In evaluating audit evidence, the auditor must _________ - remain objective - understand the types of evidence available - only consider evidence that is 100% reliable - be unbiased

understand the types of evidence available be unbiased remained objective

substantive procedures

used to detect material misstatements at the relevant assertion level

To identify significant accounts and disclosures and their relevant assertions, the auditor assesses risk factors including ______. related party transactions volume of activity reporting complexities gains from asset disposals changes from prior periods

volume of activity reporting complexities related party transactions changes from prior periods

To perform a(n) ______ the auditor traces a transaction from origination all the way to its reflection in the entity's financial statements.

walkthrough

the reliability of inspection of records and documents depends primarily on when the record or document was prepared the dollar amount involved in the record whether the document is internal or external who prepared the document

whether the document is internal or external

If the scope of the auditor's work is limited because of circumstances beyond the control of management or the auditor, the auditor's option are to ______. issue an unqualified opinion withdraw from the engagement issue an adverse opinion disclaim an opinion

withdraw from the engagement disclaim an opinion

The extent of an entity's use of ______ can affect internal controls because this function affects the way transactions are initiated, authorized, recorded, processed and reported. internal auditors industry specialists information technology managerial estimates

information technology

The susceptibility of a material account or disclosure assertion to a misstatement due to fraud or error, before considerations of any related controls is _______ risk

inherent

The susceptibility of an assertion in an account or disclosure to a misstatement due to error or fraud that could be material is known as ________ risk detection inherent business control

inherent

Select all that apply Examples of tests of controls include ______. copying prior year auditing working papers reperformance of the application of the control inspecting documents, reports and electronic files inquiries of management, supervisory and staff personnel observation of the application of specific controls

inquiries of management, supervisory and staff personnel inspecting documents, reports and electronic files observations of the application of specific controls reperformance of the application of the control

The auditor's understanding of ______ is used to identify the controls that are likely to prevent, or detect and correct, material misstatement in specific assertions. fraudulent activities the control environment internal controls management objectives

internal controls

When an auditor considers management's selection of an accounting policy to be inappropriate, a(n) ______________ misstatement arises.

judgmental

If a company has income before taxes of $15,000,000 and the auditor decides that 7% of that amount would be material, what would be the overall materiality for the audit engagement.

1,050,000

the sarbanes-oxley act and the PCAOB standards required that audit documentation be retained for ____ years from the date of completion of the engagement

7

If you examine a sample of 100 transactions and find 8 with errors, this suggests a transaction error rate of ______%

8

When a significant event occurs that may be of interest to investors, the SEC requires a publicly traded company to file a(n) ______. 10Q 8Q 10K 8K

8k

To identify significant accounts and disclosures and their relevant assertions, the auditor assesses risk factors including ______. nature of the disclosure susceptibility to misstatement account size and composition target earnings per share range of values

nature of the disclosure susceptibility to misstatement account size and composition

The auditor should obtain information about the conduct of operations, joint ventures, planned acquisitions, and major subsidiaries as part of learning about the ______. objectives, strategies and related business risks entity's internal control nature of the entity industry, regulatory and other external factors

nature of the entity

Risk factors relating to incentives/pressures to report fraudulently include ______. - significant related party transactions - need to obtain debt or equity financing - profitability expectations of external parties - known history to violations of security laws and regulations - high degree of competition or market saturation

need to obtain debt or equity financing high degree of competition or market saturation profitability expectations of external parties

Audit evidence is subject to human error which is referred to as _______ risk

nonsampling

The difference between a control deficiency, a significant deficiency, and a material weakness is determined solely based on ______. A. magnitude B. management judgment C. likelihood D. auditor judgment

A

Because the entity's personnel might have incentives to record fictitious transactions, the ___________ assertion is relevant for revenue transactions

occurrence

The __________ assertion relates to whether all recorded transactions and events have happened and pertain to the entity authorization occurrence accuracy completeness

occurrence

Interim tests of controls give auditors time to inform the ______ so that likely misstatements can be located and corrected before the rest of the audit is performed. internal auditors audit committee board of directors management

management

Reports accepting responsibility for establishing and maintaining adequate ICFR are issued by ________ of public companies

management

Who addresses business risks by implementing a risk assessment process? the audit committee auditors the board of directors management

management

The auditor should gain sufficient knowledge about the control environment to understand the attitudes, awareness, and actions concerning the control environment of the ______. non-management employees internal auditors management board of directors

management board of directors

When audit evidence supports ______________ _________________, the auditor can issue an unqualified report

management's assertions

Direct test of controls

performed by objective individuals

Ongoing monitoring

performed by people using controls

The best way to identify potential sources of misstatements is often ______. testing entity-level controls identifying controls management has implemented to address misstatements performing walkthroughs using professional judgment to assess management's controls

performing walkthroughs

Which of the following statements is correct? A single set of audit procedures should be used to test both the design and operating effectiveness of controls. Evidence about the operating effectiveness of controls should never be based on procedures used to test design effectiveness. Audit procedures to test and evaluate the design effectiveness of controls might also provide some evidence about operating effectiveness.

Audit procedures to test and evaluate the design effectiveness of controls might also provide some evidence about operating effectiveness.

Auditors should attempt to identify all related parties during the ______ phase of the audit. planning client acceptance testing evaluation

planning

the quality of an expectation is referred to as the _________ of the expectation

precision

Many factors, including changes in the business or industry, influence the _________ of relationships among financial and nonfinancial data

predictability

Random-number selection is used in many statistical sampling applications because the auditor is required to be able to measure the __________ of selecting the sampling units selected.

probability

Statistical sampling uses the laws of _______________ to compute sample size and evaluate the sample results.

probability

The most important function of the _____ is the promulgation of rules and standards that guide audits and related services provided by nonpublic companies, governmental, and other entities. A. american accounting association (AAA) B. public company accounting oversight board (PCAOB) C. financial accounting standards board (FASB) D. american institute of certified public accountants (AICPA)

D

Which act prohibits external auditors from providing many forms of non-audit services and consulting work to public companies for which the auditor also provides a financial statement audit? A. the dodd-frank act of 2010 B. the securities exchange act of 1933 C. the securities exchange act of 1934 D. the sarbanes-oxley act of 2002

D

The formula auditors use to determine the appropriate level of detection risk is DR = AR / RMM AR = RMM x IR AR = DR x CR DR = CR / AR

DR = AR / RMM

Which group was established within the FASB to meet acountants' needs for timely guidance on accounting practices and methods? - IFAC - EITF - AICPA - ASC

EITF

A privately funded body whose mission is to establish standards for financial accounting and reporting is known by the initials ________

FASB

Which organizations work closely with the SEC when formulating accounting and auditing standards? - IASB - FASB - PCAOB - AICPA

FASB, PCAOB

An unqualified opinion regarding the effectiveness of the entity's ICFR provides ______ assurance that the entity's controls are designed and operating effectively in all material respects as of the balance sheet date. absolute reasonable limited

reasonable

When filling the "assurance bucket", existence or validity is typically more important for accounts _________ than for accounts _________

receivable, payable

The two fundamental qualitative characteristics for external financial reporting are __________ - comparability - relevance - faithful representation - understandability - timeliness

relevance faithful representation

The independence of the source of the evidence, the effectiveness of internal controls and the auditor's direct personal knowledge all affect the ______ of data for developing expectations. precision aggregation reliability reasonableness

reliability

the ability to develop precise expectations is influenced by ___________ of the available data

reliability

As it relates to the external financial reporting objective, the entity's _____________ ______________ process should consider internal and external events and circumstances that may arise and adversely affect the entity's ability to initiate, authorize, record, process and report financial data consistent with management's financial statement assertions

risk assessment

The auditor should obtain sufficient information about the entity's _________ __________ process to understand how management considers risks relevant to financial reporting and decides on appropriate actions to address those risks.

risk assessment

The combination of inherent risk and control risk is referred to in auditing standards as the risk of ________ ________

material misstatement

tests of controls

Used to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level

Management's assessment of the entity's ICFR must be based on ______. the PCAOB framework a recognized control framework a framework consistent with industry peers prior year's deficiencies

a recognized control framework

Checks, invoices, contracts, ledgers, worksheets and spreadsheets are all part of auditing evidence referred to as _____________ ____________

accounting records

The presence of a material weakness in ICFR at the end of the period necessitates a(n) ______ assessment by management and a(n) ______ opinion by the auditor. adverse, qualified qualified, qualified qualified, adverse adverse, adverse

adverse, adverse

PCAOB standards require that audit documentation contain - only documents that are consistent with the final conclusion of the audit team - only documents that the auditor feels are needed to support his or her conclusion - all documents that form the basis of the audit - all documents requested by the audit committee

all documents that form the basis of the audit

Under the Form of Organization and Name Rule, a firm may designate itself "Members of the American Institute of Certified Public Accountants" if ______. the firm name is not misleading its form of organization is permitted by both the laws and regulations of the Council all of the CPAs in the firm are members of the Institute all of its CPA owners are members of the Institute

all of its CPA owners are members of the institute

Controls that are part of the computer programs used in the accounting system are ________ controls.

application

The measure of the quality of audit evidence is referred to as ________

appropriateness

Expressed or implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures are referred to as __________________

assertions

Select all that apply: A public accounting firm may disassociate itself from an auditing client due to ______. manufacturing issues corporate social responsibility issues auditing issues disputes over fees accounting issues

auditing issues disputes over fees accounting issues

an individual or organization possessing expertise in a field other than accounting or auditing whose work is used to assist the auditor in obtaining sufficient, appropriate evidence is defined by auditing standards as a _____________ ______________

auditor specialist

An audit of internal control is ______ for private entities. available but not required neither available nor required required

available but not required

when should the audit committee meet with external auditors to discuss the auditor's responsibilities and significant accounting policies? at the end of the engagement during the engagement before the engagement starts

before the engagement starts

In practice, auditors commonly set tolerable misstatement for each account at ______. 100% of overall materiality between 50% and 75% of overall materiality less than 25% of overall materiality between 25% and 50% of overall materiality

between 50% and 75% of overall materiality

Internally generated performance measures include ______. - financial analysis by credit rating agencies - budgets - comparisons to industry competitors - departmental performance reports - variance analysis

budgets comparisons to industry competitors departmental performance reports variance analysis

Threats from significant events that could adversely affect an entity's ability to achieve its objectives and execute its strategies are __________ ___________

business risk

When deciding whether substantive procedures are to be performed at an interim date, the auditor should consider the ______. purpose of the substantive procedures desired risk of material misstatement nature of the relevant assertions control environment

control environment purpose of the substantive procedures nature of the relevant assertions

short-term liquidity ratios include the ______ ratio quick operating cash flow debt to equity current financing cash flow

current quick operating cash flow

When auditors want to perform specific audit tasks, ______ audit software is generally written.

custom

The maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decision of users is overall _________

materiality

AS 2201 specifies that the "size and complexity of the company, its business processes and business units, ______ affect(s) the way in which the company achieves many of its control objectives." always may should not

may

The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists is known as ________ risk inherent detection control acceptable

detection

For tests of controls, a departure from adequate performance of the internal control is called a(n) ______. deviation attribute error frame

deviation

According to the Confidential Client information rule the auditor _____ the entity's consent to disclose confidential information to meet disclosure and performance requirements under GAAP.

does not need

Systematic selection provides a sample where ______. high value sampling units have a higher chance of being selected every sampling unit has an equal chance of being selected high value sampling units have a lower chance of being selected

every sampling unit has an equal chance of being selected

A management statement that the property, plant, and equipment shown on the balance sheet was owned and available for sale at the balance sheet date is an example of the __________ assertion existence completeness rights and obligations valuation and allocation

existence

Observation and inspection audit procedures include ______. - reading management reports - tracing transactions through the information system - visits to the entity's premises and plant facilities - tracking historical stock prices of the entity

tracing transactions through the information system reading management reports visit the entity's premises and plant facilities

the comparison of financial statement amounts between the current period and prior period can be done using absolute amounts which is _________ analysis or by converting the financial statement amounts to common-sized statements which is __________

trend, ratio

True or false: The COSO definition of ICFR includes reasonable assurance regarding the safeguarding of assets.

true

True or false: audit evidence includes information developed by the auditor that permits him or her to reach conclusions through valid reasoning

true

The Advertising and Other Forms of Solicitation Rule prohibits members in public practice from advertising in a manner that is ______, ______, or _______

false misleading deceptive

When a CPA has such a close, long-standing relationship with a client that it has become difficult to maintain objectivity it is called a(n) ______ threat. self interest advocacy undue influence familiarity

familiarity

Which of the following statements are correct? - Industry averages are always the best way to analyze an entity's financial ratios. - Financial ratios should not be evaluated in isolation. - Material misstatement may not significantly affect some ratios. - Accounting principle choices can impact some ratios.

financial ratios should not be evaluated in isolation material misstatement may not significantly affect some ratios accounting principle choices can impact some ratios

An intentional act involving the use of deception that results in an misstatement in the financial statements is referred to as _________

fraud

Which of the following conditions are generally present when material misstatements due to fraud occur? Incentive Optimism Integrity Greed Rationalization Opportunity

incentive opportunity rationalize

Information about an auditor's financial or business relationships with the firm's clients is documented by having all personnel complete an annual ________________ _________________

independence, questionnaire

Audit documentation is the property of the ____________ independent auditors board of directors internal auditors company management audit committee

independent auditors

Steps auditors perform as part of the fraud risk assessment process include ______. - understanding the entity's period-end closing process - identification and assessment of fraud risk factors - inquiries of management about their views on the risks of fraud - brainstorming sessions with the internal auditors

- understanding the entity's period-end closing process - identification and assessment of fraud risk factors - inquiries of management about their views on the risks of fraud

Which of the following statements are correct? -Research suggests that only statistical methods of sampling are common in practice. -Steps and techniques for both statistical and nonstatistical sampling are more similar than different. -Auditing standards indicate that sample sizes for nonstatistical sampling should be larger than sample sizes for statistical sampling. -Auditing standards recognize and permit both statistical and nonstatistical methods of audit sampling.

Auditing standards recognize and permit both statistical and nonstatistical methods of audit sampling. Steps and techniques for both statistical and nonstatistical sampling are more similar than different.

The IASB is responsible for the development and publication of _________ A. generally accepted auditing standards B. international financial reporting standards C. international auditing principles D. generally accepted accounting principles

B

To provide reasonable assurance, a control system, ______. A. must prevent fraud and most material misstatements B. must prevent all large errors from occurring C. allows for a remote likelihood of material misstatement D. must be perfect and not allow any material misstatements

C

Which of the following parts of the AICPA Code of Professional Conduct applies only to CPAs in public practice? A. part 2 B. part 3 C. part 1 D. the preface

C

Which organization issues International Standards of Auditing (ISA) and is the predominantly recognized international auditing standards setter outside of the United States? - IASB - IFAC - IEIFT - IAASB - IIA

IAASB

A significant aspect of most audit engagements is the use of a(n) ______ specialist. IT valuation legal tax environmental

IT

Which of the following statements are correct? The assessment of the significance of a control deficiency depends on whether or not a misstatement has occurred. The severity of a control deficiency depends on its likelihood and magnitude. Auditors are required to evaluate the severity of each control deficiency.

The severity of a control deficiency depends on its likelihood and magnitude. Auditors are required to evaluate the severity of each control deficiency.

If the auditor assesses the ________ level of audit risk as being less than or equal to the ________ level of audit risk, an unqualified report can be issued

achieved/actual, planned

how effectively the entity's assets are managed is indicated by ________ ratios

activity

to effectively help the auditor determine if asset accounts contain material misstatements, _______ ratios may be used

activity

steps that should be performed as part of audit planning activities include ______________ identify non-related parties establish materiality assess the need for an audit partner consider violations of laws and regulations assess business risk

assess business risk establish materiality consider violations of laws and regulations

The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated is known as ________ risk audit control business inherent

audit

An active role in the oversight of the assessment of the risk of fraud should be assumed by the ______. board of directors external auditors audit committee internal auditors

audit committee

once the audit strategy has been established, the auditor develops a more detailed ________ _________

audit plan

the documentation that outlines the auditor's understanding of the entity and potential risks as well as the strategy to be followed by the auditor is called the _________ _________

audit plan

Specific acts performed by the auditor to gather evidence about whether specific assertions are being met are referred to as ________________ ________________

audit procedures

The audit procedures that will be conducted by the auditor are contained in the __________ ___________

audit programs

Selecting and evaluating less than 100% of the items in an audit population is such a way that the auditor expects a representative group to provide a reasonable basis for conclusions about the population is ______. audit sampling sampling risk confidence sampling

audit sampling

The selection and evaluation of less than 100% of the items in a population that is expected to be representative of the population to provide a reasonable basis for a conclusion is the definition of _________ ________-

audit sampling

The SEC has the authority to establish standards for ______. -audits of public companies -financial accounting -the preparation of income tax returns -professional conduct of public accountants -audits of nonpublic companies

audits of public companies financial accounting professional conduct of public accountants

The reliability of analytical procedures is a function of the ____________ - precision of the expectation and the rigor of the investigation - assertions made by management - recalculation of analytical procedures and confirmation of tangible assets - plausibility and predictability of the relationship being tested - availability and reliability of the data used in the calculations

availability and reliability of the data used in the calculations plausibility and predictability of the relationship being tested precision of the expectations and the rigor of the investigations

The auditor's report on the effectiveness of internal control must ______. be issued as a separate report from the financial statement audit report provide an opinion on whether the entity maintained effective ICFR throughout the financial statement audit period be addressed to the shareholders and board of directors contain the basis of the auditor's opinion

be addressed to the shareholders and board of directors contain the basis of the auditor's opinion

Integrity requires that a CPA ______

be candid be honest honor both the form and spirit of ethical standards

Inquiry may ______ - provide a new audit evidence - provide corroborative audit evidence - be considered sufficient evidence on its own in most cases - be formal or informal

be formal or informal provide corroborative audit evidence provide a new audit evidence

Memberships in the AICPA can be terminated without a hearing if the member has _________

been convicted of certain criminal offenses had his or her CPA certificate suspended or revoked by a government agency

If identified controls are operating effectively, control risk may be set ______. at the maximum below the maximum at the minimum

below the maximum

If a material weakness cannot be corrected and/or properly tested before the "as of" date, ______. neither management or the auditor should issue a report on the effectiveness of ICFR the auditor should issue a report that the ICFR is not operating effectively and the management should not issue an opinion both management and the auditor should issue a report that the ICFR is not operating effectively management should issue a report that the ICFR is not operating effectively and the auditor should disclaim an opinion

both management and the auditor should issue a report that the ICFR is not operating effectively

The audit team is required to hold discussions, referred to as ___________ ___________, about the entity's financial statements' susceptibility to fraud.

brainstorming sessions

based on the understanding of the entity and environment, the auditor identifies those _________ risks that may result in material misstatements

business

To understand the nature of the entity, auditors should obtain information about the entity's: ______. - investments - business operations - market and competitors - financing and financing activities - financial reporting

business operations investments financing and financing activities financial reporting

The auditor ______ use the work performed by internal auditors, entity personnel, and third parties hired by management or the audit committee. must can cannot should

can

The PCAOB ______. -can impose sanctions for rule violations -was established by the American Accounting Association -requires registration of all public accounting firms providing public company audits -is overseen by the SEC

can impose sanctions for rule violations requires registration of all public accounting firms providing public company audits is overseen by the SEC

If the auditor fails to obtain written representations from management, the auditor ______ opinion of ICFR. must disclaim an must issue an adverse cannot issue an unqualified

cannot issue an unqualified

under current auditing standards, management assertions fall into categories of assertions about _________ account balances and related disclosures at the period end stock performance and market valuations for the period under audit the internal control in place to prevent errors and fraud classes of transactions and events an related disclosures for the period audit

classes of transactions and events and related disclosures for the period audited account balances and related disclosures

the first phase of the audit process that relates to audit planning is __________ client acceptance and continuance planning the audit preliminary engagement activities

client acceptance and continuance

Within an entity, there is always a risk of the fraud of __________ between individuals will destroy the effectiveness of segregation of duties

collusion

In deciding on the nature and extent of the understanding of internal control needed for the audit, the auditor should consider the entity's operations and systems ______. accuracy complexity effectiveness sophistication

complexity, sophistication

Assignment of authority and responsibility for operating activities and the establishment of reporting relationships and authorization hierarchies are part of the ___________ environment principles control financial detection risk

control

The risk that a material account or disclosure assertion will not be prevented, detected or corrected on a timely basis by the entity's internal control is _________ risk

control

This exists in internal controls when the design or operation of a control does not allow management or employees to prevent, detect or correct misstatements on a timely basis. material weakness significant deficiency control deficiency

control deficiency

To understand management's and the board of directors' attitudes, awareness, and actions concerning it, the auditor should gain sufficient knowledge about the

control environment

The components of internal controls are defined by the COSO Framework are _________ - information and communication - control environment - monitoring activities - detection activities - entity's risk assessment

control environment entity's risk assessment information and communication monitoring activities

Entity-level controls that require specific evaluation by the auditor are the ______. interim financial reporting process control environment period-end financial reporting process management compensation and evaluation processes

control environment period-end financial reporting process

The auditor uses the combination of the achieved level of ___________ risk and the assessed level of __________ risk to determine the required level of _____________ risk needed to bring audit risk to an acceptably low level.

control, inherent, detection

For lower-risk, well controlled accounts, the assurance bucket may be filled entirely with tests of ___________ and substantive analytical procedures

controls

In regards to applying the audit testing hierarchy, starting with tests of __________ is generally more effective and efficient than starting with tests of ____________

controls, details

The Advertising and Other Forms of Solicitation Rule prohibits members in public practice from ______.

creating false expectations of favorable results implying an ability to influence a court of regulatory agency

If control risk is mistakenly set at a low level ______. detection risk will be set too high it will be easy to detect a material misstatement detection risk will be set too low acceptance risk will be set too high

detection risk will be set too high

For tests of controls, a(n) ___________ is a departure from adequate performance of the internal control.

deviation

Auditors should consider laws and regulations that are generally recognized as having ______ effects on the determination of financial statement amounts. indirect and immaterial indirect and material direct and immaterial direct and material

direct and material

According to the Confidential Client information rule the auditor ______ the entity's consent to disclose confidential information to comply with an investigative or disciplinary proceeding.

does not need

A system of code of conduct based on moral duties and obligations that indicate how we should behave is referred to as _________

ethics

The successful functioning of nearly every aspect of society, from law to medicine, family life to government is underpinned by ______. ethics professionalism quality control regulation

ethics

true or false: inspecting tangible assets provides significant assurance for the rights and obligations assertion

false

True or false: Auditors of publicly traded companies must issue a report that accepts responsibility for establishing and maintaining adequate ICFR.

false *management must issue the report

True or false: A control deficiency is defined as an existing control that is not properly designed to meet control objectives even if it operates as designed.

false *this is DESIGN DEFICIENCY

Section 404 of the Sarbanes-Oxley Act requires that management report on the effectiveness of its internal control over _________ _________

financial reporting

The risk that a misstatement could result in a material misstatement of the financial statements is called a(n) ___________ ___________ risk

financial reporting

The approach followed by management in choosing which locations to include in its assessment of internal control is a function of ______. when the locations were previously assessed financial reporting risks at the locations entity-level controls the number and size of existing locations

financial reporting risks at the locations entity-level controls

On a flowchart, the movement of documents, records or information is shown using ______. flow arrows online storage display annotation

flow arrows

From the auditor's perspective, a(n) __________ is a diagrammatic representation of the entity's accounting system.

flowchart

the auditor's understanding of an entity's internal control over financial reporting are documented using diagrammatic representation known as a(n)

flowchart

These provide a diagrammatic representation of the entity's accounting system procedures manuals organizational charts internal control questionnaires flowcharts

flowcharts

When it comes to ICFR documentation management should ______. focus on controls deemed adequate to address financial reporting risk document all of the the business processes impacting ICFR identify and document every control in a process

focus on controls deemed adequate to address financial reporting risk

When it comes to ICFR documentation management should ______. focus on controls deemed adequate to address financial reporting risk identify and document every control in a process document all of the the business processes impacting ICFR

focus on controls deemed adequate to address financial reporting risk

The physical representation of the population is referred to as the

frame

Incentive, opportunity and rationalization are three conditions that are sometimes referred to as the __________ __________ triangle.

fraud risk

When deciding on the extent of testing, the auditor should consider the ______. frequency of operation other audit evidence importance of the control nature of the control timing of the audit

frequency of operation importance of the control nature of the control

The primary purpose of sampling is to draw ___________ about the whole population based on the results of testing only a subset of the population.

inferences

Symbols used in flowcharts are divided into ______ symbols. data flow and storage input/output error correction processing

input/output processing data flow and storage

The auditor should ______. - inquire about management's knowledge of fraud within the entity - make inquiries of the internal audit function to assess their risk of fraud. - not consider inquiries from third parties when assessing risk of fraud within the entity - make direct inquiries of the audit committee when assessing risk of fraud

inquire about management's knowledge of fraud within the entity make inquiries of the internal audit function to assess their risk of fraud. make direct inquiries of the audit committee when assessing risk of fraud

Select all that apply Risk assessment procedures include ______. preliminary analytical procedures establishing materiality completing industry benchmarking comparisons inquiries of management and others observation and inspection

inquiries of management and others preliminary analytical procedures observation and inspection

The audit of internal control uses ______ extensively, but it does not provide sufficient evidence to support the operating effectiveness of a control. inquiry reperformance inspection walkthrough

inquiry

This is an important audit procedure that is used extensively throughout the audit and is often complementary to performing other audit procedures recalculation inquiry observation confirmation

inquiry

The sample size is ______ related to the tolerable deviation rate. inversely not positively

inversely

The phrase "All material respects" means that the entity's ICFR ______. is free of any material weakness does not have any significant deficiencies has prevented and/or detected all material errors

is free of any material weakness

Monitoring of internal controls - is intended to assess quality of performance over time - should be done to determine operating effectiveness - has received decreased attention in recent years - may identify the need for control redesign

is intended to assess quality of performance over time may identify the need for control redesign should be done to determine operating effectiveness

If an entity's response to identified risks are inadequate, the auditor's assessment of the risk of _______ _______ may increase

material misstatement

When compared to automated controls, manual controls should be subjected to ______ testing less extensive more extensive the same level of

more extensive

Evidence obtained from a source outside the entity is generally considered _______ evidence obtained solely from within the entity equally reliable to more reliable than less reliable

more reliable than

the _____ precise the expectation, the ______ the likelihood that the difference is actually a misstatement

more, greater

Determining the sample size is typically one of the ______ steps of an audit sampling application. first few easiest and fastest final most difficult

most difficult

Auditor risk assessment procedures are used to ______. determine whether or not to accept a client set audit fees determine the type of opinion to issue obtain an understanding of the entity and its environment

obtain and understanding of the entity and its environment

Data capture controls are concerned primarily with the ______ assertions. accuracy completeness occurrence authorization reliability

occurrence completeness accuracy

An effective system of internal controls allows management to focus on _______ while maintaining compliance with relevant laws and minimizing surprises - operations - compensation maximization - financial performance goals - stock price fluctuations

operations financial performance goals

The General Standards Rule of the Code of Professional Conduct Addresses -planning and supervision -compliance with disciplinary proceedings -confidential client information -sufficient relevant data -professional competence

planning and supervision professional competence due professional care sufficient relevant data

If the auditor believes that the expected ____________ deviation rate exceeds the ____________ deviation rate, statistical testing should not be performed.

population, tolerable

The fact that no system of internal controls is perfect and that there is a remote likelihood that material misstatement will not be prevented or detected in a timely matter even with effective controls is the concept of __________ assurance

reasonable

The controls that are of most direct relevance to a financial statement audit are those that contribute to financial statement _______________ - reliability - accuracy - transparency - timeliness - effectiveness

reliability timeliness transparency

When auditing a company with multiple locations, the amount of audit attention devoted to various locations depends upon the ______. risk of material misstatement revenue generated at each location size of various locations number of locations recommendations of the audit committee

risk of material misstatement

Searching for large and unusual items in the accounting records and reviewing transactions for errors are examples of

scanning

the auditor's exercise of professional judgement to review accounting data to identify significant or unusual items to test is referred to as

scanning

A member in public practice ______. may prepare an amended tax return for a contingent fee, but not an original tax return may prepare both amended and original tax returns for a contingent fee may claim a tax refund for a client on contingent fee basis shall not prepare an original or amended tax return for a contingent fee

shall not prepare an original or amended tax return for a contingent fee

an entity's ability to meet its current obligations can be evaluated using _________ - _____________ ___________ ratios

short-term liquidity

Identify the categories of financial ratios that are used by auditors as analytical procedures. activity materiality solvency profitability coverage short-term liquidity earnings

short-term liquidity activity profitability coverage

A deficiency or combination of deficiencies in ICFR that is less severe than a material weakness yet important enough to merit attention is a ______ deficiency. remote significant reasonable possible

significant

A deficiency or combination of deficiencies in ICFR that is less severe than a material weakness yet important enough to merit attention is a(n) ________ deficiency

significant

Risk factors relating to opportunities to report fraudulently include ______. communication of inappropriate values or ethical standards significant declines in customer demand financial numbers based on subjective judgments or uncertainties significant related party transactions complex or unstable organizational structure

significant related party transactions financial numbers based on subjective judgements or uncertainties complex or unstable organizational structure

In evaluating the risk of material misstatement due to fraud and the risk of management override of controls, the auditor should consider controls over ______. recurring transactions that are recorded monthly significant, unusual transactions resulting in unusual journal entries journal entries and adjustments made in the period-end financial close

significant, unusual transactions resulting in unusual journal entries journal entries and adjustments made in the period-end financial close

Assume an entity has 2,500 customers. If the auditor mails confirmation to 25 of the largest customers and only 20 respond the auditor must ________ still gather sufficient evidence on each of the 25 accounts discard the sample and select a different set of 25 customers base his or her evaluation on the 20 accounts that responded

still gather sufficient evidence on each of the 25 accounts

When an auditor decides to follow a ________ strategy, little work is done on understanding specific control activities

substantive

When the auditor has decided not to rely on the entity's controls and instead use procedures as the main source of evidence about the assertions in the financial statements, the auditor will choose a(n) _____________ audit strategy.

substantive

To detect material misstatements in a class of transactions, account balance and disclosure component of the financial statements, the auditor designs

substantive procedures

The measure if the quantity of audit evidence is referred to as ______________

sufficiency

Tests of controls are performed to ______. determine the type of audit opinion to issue test the operating effectiveness of controls increase the audit fees charged to the client comply with accounting standards

test the operating effectiveness of controls

Select all that apply Which of the following statements are correct? Tests of controls check the operating effectiveness of controls. Substantive tests of transactions are concerned with monetary misstatements. Tests of controls are concerned with monetary misstatements. Dual-purpose tests can improve audit efficiency. An audit procedure should either be a test of controls or a substantive test of transactions. Substantive tests of transactions check the operating effectiveness of controls.

tests of controls check the operating effectiveness of controls substantive tests of transactions are concerned with monetary misstatements dual-purpose tests can improve audit efficiency

In establishing an understanding about the terms of the engagement with potential clients, ______ should be discussed. the engagement letter the role of the client's audit committee using the work of internal auditors the type of opinion the audit firm expects to issue

the engagement letter the role of the client's audit committee using the work of internal auditors

Audit documentation related to the audit of internal controls must include ______. the extent of reliance on work performed by others the scope of testing the evaluation of deficiencies discovered a discussion of PCAOB documentation standards

the extent of reliance on work performed by others the scope of testing the evaluation of deficiencies discovered

the amount of difference that can be accepted will generally always be lower than __________ __________

tolerable misstatement

the amount of overall materiality used to plan and perform audit procedures at the account or disclosure level is called _________ _________

tolerable misstatement

True or false: Although the auditor owns the audit documents, they cannot be shown to outside parties without the entity's consent, except under certain circumstances.

true

True or false: Sample results can only be projected to the population from which the sample was selected.

true

true or false: a public accounting firm should investigate a prospective client prior to accepting the engagement

true

S.M. Mintz suggested three overlapped theories of ethical behavior including the _________ theory which recognizes that decision making involves trade-offs between the benefits and burdens of alternative actions

utilitarian

Which of the following statements are correct? -A nonstatistical approach can involve random selection and a judgmental evaluation. -Haphazardly selected samples should not be formally evaluated statistically. -If a sample size is not statically derived, it cannot be statistically evaluated.

A nonstatistical approach can involve random selection and a judgmental evaluation. Haphazardly selected samples should not be formally evaluated statistically.

Unless a longer period of time is required, PCAOB standards require the auditor to retain audit documentation for the ICFR and financial statement audit for ______ years. 10 3 7 5

7

A material weakness is a deficiency or combination of deficiencies in ICFR such that there is a(n) ______ possibility that a material financial statement misstatement will not be prevented or detected on a timely basis. A. reasonable B. significant C. absolute D. remote

A

Section 404 of the Sarbanes-Oxley Act requires management to report on ______. A. gaps in internal control B. the effectiveness of internal control over financial reporting C. the effectiveness of the audit D. the effectiveness of financial reporting to stockholders

B

The Sarbanes-Oxley Act prohibits external auditors from ____________ A. providing tax preparation and management advisory services to nonaudit clients B. auditing the same client more than 2 years in a row C. providing many times of consulting work for its auditing clients D. performing any type of compilation and review services

C

When an auditor is hired to authenticate the nature and quality of inventory stored in a warehouse, the auditor is providing ______ services. A. review and compilation B. assurance C. attest D. auditing

C

Which of the following statements are correct? - During planning the auditor determines whether planned procedures need to be revised due to preliminary analytical procedures. - Entity personnel may be asked to explain unexpected differences. - Differences are investigated in the same way for both planning and final analytical procedures. - Unexpected differences may be addressed by reviewing the working papers for sufficient evidence.

During planning the auditor determines whether planned procedures need to be revised due to preliminary analytical procedures. Entity personnel may be asked to explain unexpected differences. Unexpected differences may be addressed by reviewing the working papers for sufficient evidence.

Which of the following statements are correct? - Internal performance measures provide information about progress towards meeting entity objectives. - A deviation in the entity's performance measures may indicate a risk of misstatement in the related financial information. - Comparing an entity's performance with competitors is an example of an external performance measure. - Auditors must consider the reliability of internal performance measures before using them for purposes of the audit.

Internal performance measures provide information about progress towards meeting entity objectives. A deviation in the entity's performance measures may indicate a risk of misstatement in the related financial information. Auditors must consider the reliability of internal performance measures before using them for purposes of the audit.

The ultimate authority to set standards for audits of public companies lies with the ______.

SEC

The PCAOB conducts a program of regular inspections to assess the degree of compliance of registered accounting firms with the rules and professional standards of the ______. - AICPA - SEC - AAA - SOX - PCAOB

SEC, SOX, PCAOB

Which of the following statements are correct? Violations of control activities by senior management are easy to detect with normal audit procedures. Senior management may override an entity's internal controls. Violations of internal control raise serious questions about management integrity.

Senior management may override an entity's internal controls. Violations of internal control raise serious questions about management integrity.

Which of the following statements are correct? - The engagement partner or manager should communicate the potential for misstatements from fraud to the audit team. - The audit team is encouraged but not required to hold discussions about the entity's financial statements' susceptibility to fraud. - All audit team members should be included in the fraud brainstorming session. - The fraud discussion can be part of the discussion of understanding the entity and its environment.

The engagement partner or manager should communicate the potential for misstatements from fraud to the audit team. The fraud discussion can be part of the discussion of understanding the entity and its environment.

Which of the following statements are correct? The severity of a control deficiency depends on its likelihood and magnitude. The assessment of the significance of a control deficiency depends on whether or not a misstatement has occurred. Auditors are required to evaluate the severity of each control deficiency.

The severity of a control deficiency depends on its likelihood and magnitude. Auditors are required to evaluate the severity of each control deficiency.

Risk assessment procedures

Used to obtain an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement at the financial statement and relevant assertion levels

Which of the following statements are correct? The auditor must learn about each business process that affects all account balances in the financial statements. The auditor should understand the control procedures used by the entity to provide financial statement assurance. Understanding the information system requires knowing how IT is involved in data processing.

Understanding the information system requires knowing how IT is involved in data processing. The auditor should understand the control procedures used by the entity to provide financial statement assurance.

If the auditor believes that the expected population deviation rate exceeds the tolerable deviation rate ______. -additional substantive procedures should be performed -statistical testing should not be performed -the control should not be relied on -sampling should be increased to reduced the population rate below the tolerable rate

additional substantive procedures should be performed statistical testing should not be performed the control should not be relied on

Materiality is assessed in terms of potential effect of a misstatement on decisions made by ______. a reasonable user of financial statements employees and suppliers all stockholders of the corporation any potential lender or creditor

a reasonable use of financial statements

If one or more unremediated material weaknesses is identified, the auditor issues a(n) ______ opinion on the entity's internal control. disclaimer of qualified unqualified adverse

adverse

An auditor tests an invoice for services provided and determines that the amount charged is incorrect. This is an example of a ______ misstatement. projected judgmental factual

factual

After planned tests of controls have been completed, the auditor should reach a conclusion on the ______ level of control risk. appropriate achieved planned assessed

achieved

When considering financial reporting risks, management should generally include ______ business units. only the smallest all the two major business only the largest

all

If a small number of large transactions make up a large percentage of an account, auditors will typically test ______. all the transactions greater than a particular dollar amount use analytical procedures instead of testing balances all the transactions less than a particular dollar amount the two largest transactions

all the transactions greater than a particular dollar amount

Data capture controls must ensure that ______. every transaction entered has appropriate source documentation transactions are only recorded once rejected transactions are identified, controlled, corrected and reentered all transactions are recorded in the application system

all transactions are recorded in the application system transactions are only recorded once rejected transactions are identified, controlled, corrected and reentered

Misstatements about which there is no doubt are called ___________ misstatements.

factual

When the auditor issues an adverse opinion on internal control, ______ be issued on the financial statement audit. at least a qualified opinion must an unqualified opinion may an adverse opinion must a disclaimer of opinion must

an unqualified opinion may

Evaluations of financial information made through the study of plausible relationships among both financial and non-financial data are referred to as ___________ ___________

analytical procedures

The auditor should develop expectation about plausible relationships that are expected to exist when performing preliminary

analytical procedures

This consists of evaluations of financial information through the examination of plausible relationships among both financial and non-financial data analytical procedures reperformance reclalculation inquire of tangible assets

analytical procedures

Data capture, data validation, processing, output and errors controls are all categories of ___________ controls.

application

Ensuring the completeness and accuracy of transaction processing, authorization, and validity is the goal of

application

Nonstatistical sample sizes are determined by ______. applying professional judgment formulas or tables audit firm policy

applying professional judgment audit firm policy

In testing an internal control, the risk that the sample supports a conclusion that the control is not operating effectively when, in truth, the control is operating effectively is the risk of ______. -overreliance -assessing control risk too high -incorrect acceptance -incorrect rejection

assessing control risk is too high incorrect rejection

Identify the three steps involved in the auditor's use of the audit risk mode at the assertion level - solving the audit risk equation for the appropriate level of detection risk - assessing the risk of immaterial misstatement - setting a controlled level of audit risk - assessing the risk of material misstatement - setting a planned level of audit risk

assessing the risk of material misstatement setting a planned level of audit risk solving the audit risk equation for the appropriate level of detection risk

Auditing and attestation are specialized forms of the general category of __________ service

assurance

Management asserts that ICFR is effective ______. as of the report date of the audit from the prior year's audit through the current one throughout the period as of the end of the fiscal year

at of the end of the fiscal year

A statistical sampling method used to estimate the proportion of a characteristic in a population is called __________ sampling

attribute

Auditors should perform audits to reduce ________ risk to a sufficiently low level before expressing an opinion on the financial statements control audit inherent business

audit

The risk that the auditor expresses an inappropriate audit opinion when the financial statement are materially misstated is known as ___________ risk inherent audit control business

audit

The basic framework for the auditor's understanding of audit evidence and its use in supporting the auditor's opinion on the financial statement is generally accepted accounting principles generally accepted auditing principles auditing standards management assertions regarding the financial statement

auditing standards

How management identifies risks relevant to the preparation of financial statements, estimates their significance, assesses the likelihood of their occurrence and decides on how to manage them is most directly relevant to the ______. auditors the CFO audit committee board of directors

auditors

Select all that apply The terms of the audit engagement should include ______. auditor's responsibilities management's responsibilities the role of the board of directors limitations of the engagement the objectives of the engagement

auditors responsibility management's responsibility limitations of the engagement the objectives of the engagement

People that significantly influence the control consciousness of the entity and must take their fiduciary responsibilities seriously and actively oversee the entity's accounting and reporting policies and procedures include the ______. - internal auditors - board of directors - audit committee - external auditors

board of directors audit committee

People that significantly influence the control consciousness of the entity and must take their fiduciary responsibilities seriously and actively oversee the entity's accounting and reporting policies and procedures include the _______ - board of directors - external auditors - audit committee - internal auditors

board of directors audit committee

Evidence on the operating effectiveness of a control may be obtained from ______. ongoing monitoring only both direct testing and ongoing monitoring neither direct testing nor ongoing monitoring direct testing of the control only

both direct testing and ongoing monitoring

If a material weakness cannot be corrected and/or properly tested before the "as of" date, ______. management should issue a report that the ICFR is not operating effectively and the auditor should disclaim an opinion neither management or the auditor should issue a report on the effectiveness of ICFR the auditor should issue a report that the ICFR is not operating effectively and the management should not issue an opinion both management and the auditor should issue a report that the ICFR is not operating effectively

both management and the auditor should issue a report that the ICFR is not operating effectively

Professional standards indicate that sample sizes for nonstatistical applications should be ______ sample sizes for statistical applications. less than greater than comparable to

comparable to

Perhaps the most commonly used analytical procedure is ______. - relationship among elements of the financial statements within the current period - relationships of financial data to nonfinancial data - comparison of current-year financial information with budgets, projections and forecasts - comparison of current-year financial information with industry averages - comparison of current-year financial information with comparable prior periods

comparison of current-year financial information with comparable prior periods

Select all that apply During the documenting stage, the auditor ______. compiles his or her knowledge about the entity's business objectives and strategies ensures that the identified risks have been addressed records how the entity is managing its risks decides upon the nature, timing and extend of audit tests

compiles his or her knowledge about the entity's business objectives and strategies records how the entity is managing its risks ensures that the identified risks have been addressed

In determining whether an IT specialist is needed, the auditor should consider the ______. existence of the entity's participation in electronic commerce entity's use of existing, common IT technologies extent to which data are shared among systems total revenue the entity generates in a typical year complexity of the IT systems and controls and how they are used

complexity of the IT systems and controls and how they are used existence of the entity's participation in electronic commerce extent to which data are shared among systems

which of the following is NOT a factor that auditors should consider when evaluating the reliability of the internal audit function? systematic and disciplined approach competence objectivity composition

composition

Written representations from management related to the audit of ICFR include management ______. reliance on the work of the auditor in forming its assessment of ICFR effectiveness conclusion about the effectiveness of the entity's ICFR as of a specified date responsibility for establishing and maintaining effective ICFR disclosure to the audit committee of all design and operational deficiencies

conclusion about the effectiveness of the entity's ICFR as of a specified date responsibility for establishing and maintaining effective ICFR

The amount of reliance to be placed on audit tests and the consequences of a decision error must be considered in determining ______. confidence level expected error whether statistical or nonstatistical sampling should be used tolerable error

confidence level

Audit evidence obtained by the auditor as a direct written response to the auditor from a third party in paper form or by electronic or other medium is called a ______________

confirmation

In addition to material weaknesses and significant deficiencies, the auditor should communicate, in writing, to management all _______ deficiencies identified during the audit.

control

Rotation of duties and mandatory vacations, review of the operating system log and regular updates of anti-virus software are examples of ______ controls.

data center and network

Controls that can be applied at various stages and are mainly concerned with the accuracy assertion are ______ controls. data capture data validation output processing

data validation

Auditing standards distinguish between illegal acts that have __________ and material effects on the financial statements and those that have material but _________ effects.

direct, indirect

Audit documentation should - include a detailed breakdown of how the fees were set for the engagement - demonstrate how the audit complied with appropriate standards - show that standards of fieldwork have been followed - enable a knowledgeable reviewer to determine who performed the work

demonstrate how the audit complied with appropriate standards show that standards of fieldwork have been followed enable a knowledgeable reviewer to determine who performed the work

Once key controls have been identified, the auditor starts with evaluating their ___________ effectiveness, which may also provide some evidence about __________ effectiveness.

design operating

When a control necessary to meet the relevant control objective is missing, a __________ ________ exists

design deficiency

When a control necessary to meet the relevant control objective is missing, a(n) _________ __________ exists.

design deficiency

The effectiveness of the audit procedures and how well the procedures are applied by the auditor determines the ________ risk

detection

The level of _________ risk is used to determine the nature, timing, and extent of substantive tests.

detection

The Contingent Fees Rule applies to member firms in public practice ______. for all professional services, regardless of the type or time in which the services are provided during the period in which a firm actually provides audit services only and not for any prior periods during the period in which a firm provides audit services and the period covered by any historical financial statements involved in such services

during the period in which a firm provides audit services and the period covered by any historical financial statements involved in such services

The integrity and ethical values of management personnel heavily influence the ______ of an entity's internal controls. efficiency effectiveness accuracy suffciciency

effectiveness

The integrity and ethical values of management personnel heavily influence the __________ of an entity's internal controls effectiveness sufficiency accuracy efficiency

effectiveness

Examples of misappropriation of assets include ______. - stealing physical assets and intellectual property - using an entity's assets for personal use - embezzling cash received - the incorrect use of an accounting estimate. - purposely misstating account balances

embezzling cash received stealing physical assets and intellectual property using an entity's assets for personal use

serving as a contract, the _________ __________ outlines the responsibilities and prevents misunderstandings between the auditor and client

engagement letter

the arrangements reached between the auditor and the entity are formalized in an ________ _______

engagement letter

Select all that apply: Factors that should be considered in the determination of staffing requirements for an audit include: personnel availability engagement complexity engagement size level of certainty timing of the work

engagement size engagement complexity personnel availability timing of the work

In assessing financial reporting risks, management must evaluate ______. planned controls entity-level controls other pervasive elements of ICFR internal audit department management

entity-level controls other pervasive elements of ICFR

Test data can be used to check ______. error detection routines the exclusion of transactions in records, files and reports arithmetic calculations data validation controls

error detection routines arithmetic calculations data validation controls

Unintentional misstatements of amounts or disclosures in financial statements are referred to as

errors

Auditor's responsibility for detecting illegal acts having a direct and material effect on the financial statements is the same as that for _______ and _________

errors, fraud

The risk of material misstatement refers to misstatements caused by ____________ or ___________.

errors, fraud

The objectives of attribute sampling when used for tests of controls are to ______. -determine the degree of reliance that can be placed on controls for a financial statement audit -evaluate the compliance with policies about internal control by accounting staff -determine the level of substantive testing for a financial statement audit -evaluate the operating effectiveness of the internal control for purposes of the internal control audit

evaluate the operating effectiveness of the internal control for purposes of the internal control audit determine the degree of reliance that can be placed on controls for a financial statement audit

A management statement that the inventory shown on the balance sheet was available for sale at the balance sheet date is an example of the __________ assertion

existance

Factors that can impact the effectiveness of the board of directors or audit committee include - experience of members - nature and extent of interactions with auditors - compensation packages - information availability - stock performance

experience of members nature and extent of interactions with auditors information availability

Large public companies are required to engage an _______ auditor to express an opinion as to the effectiveness of their systems of internal control over financial reporting

external

When the aggregated misstatements are less than the overall materiality, the auditor can conclude that the financial statements are presented ______. accurately without error fairly

fairly

True or false: AICPA professional standards require a public accounting firm and all of the accounting firm's partners, professional and administrative employees to be independent whenever the firm performs an attest service.

false

True or false: Audit sampling is always appropriate, regardless of the level of risk.

false

True or false: Observation and inspection audit procedures should be limited to current activities performed inside the organization without considering outside sources.

false

True or false: The audit team a public accounting firm uses for an engagement does not tend to vary from client to client.

false

True or false: The auditor is required to obtain corroborative evidence for planned analytical procedures.

false

True or false: professional skepticism is not a way to reduce judgement errors

false

True or false: the extent of effort that goes into evaluating a new client is normally much less than the decision to continue with an existing client

false

true or false: auditing standards dictate how audit documentation should be organized

false

Sampling units are selected without any conscious bias when a(n) ____________ selection approach is used.

haphazard

Selection methods for nonstatistical sampling include ______. -haphazard sampling -random-sample -materiality sampling -large-dollar sampling -systematic-sample (with random start)

haphazard sampling random-sample systematic-sample (with random start)

Important components of effective internal controls for an entity include _________ - having an effective board of directors - a strong internal audit function - removing performance dependent rewards - setting unrealistic performance targets

having an effective board of directors a strong internal audit function removing performance dependent rewards

Select all that apply Factors that would cause the auditor to use a lower percentage for tolerable misstatement include a ______. lower number of accounting issues requiring judgment or estimates history of material weaknesses in internal control low turnover of senior management high risk of misstatement within the account balance

high risk of misstatement within the account balance history of material weaknesses in internal control

An effective accounting system establishes methods and records that will ______. present transaction and disclosures in a manner than ensures profitability for the entity describe transactions in sufficient detail to permit proper classification identify and record all valid transactions determine the proper time period in which transactions occurred

identify and record all valid transactions describe transactions in sufficient detail to permit proper classification determine the proper time period in which transactions occurred

In order to set control risk below a high level, the auditor must ______. rely upon the work of the internal audit function identify specific controls that will be relied upon conclude on the achieved level of control risk confer with the audit committee perform test of the identified controls

identify specific controls that will be relied upon perform test of the identified controls conclude on the achieved level of control risk

The auditor may decide to follow a substantive strategy for some or all assertions because ______. implemented controls do not pertain to the assertion under consideration tests of controls have been used to assess control risk implemented controls are assessed as ineffective testing the operating effectiveness of the controls would be inefficient

implemented controls do not pertain to the assertion under consideration implemented controls are assessed as ineffective testing the operating effectiveness of the controls would be inefficient

in order to evaluate profitability ratios, each should be interpreted by comparison to _______ data

industry

Risk factors relating to attitudes/rationalizations to report fraudulently include ______. claims against board members alleging fraud ineffective monitoring of management operating losses making the threat of bankruptcy imminent excessive management interest in increasing entity stock prices ineffective communication and enforcement of ethical values

ineffective communication and enforcement of ethical values excessive management interest in increasing entity stock prices claims against board members alleging fraud

Tests of controls - may allow the auditor to gain a degree of assurance over thousands of transactions - are more costly to perform than tests of details - influence the scope of substantive testing

influence the scope of substantive testing may allow the auditor to gain a degree of assurance over thousands of transactions

To obtain an understanding of an entity's internal controls auditors may use ______. inspection of entity documents and reports reperformance of control activities inquiry of appropriate personnel observation of entity activities and operations recalculation of account balances

inquiry of appropriate personnel inspection of entity documents and reports observation of entity activities and operations

Which of these processes are generally considered highly reliable because the auditor has direct knowledge about them? - inspection of tangible assets - analytical procedures - reperformance of tangible assets - recalculation of tangible assets - inspection of records and documents

inspection of tangible assets reperformance of tangible assets recalculation of tangible assets

Auditors should ask the ______ about its assessment of the risk of fraud, including whether management has satisfactorily responded to internal audit findings during the year. board of directors internal audit function audit committee chief financial officer's team

internal audit function

Business risk ______. - must be identified and responded to by the auditors - can adversely affect an entity's ability to execute its strategies - is a broader concept than the risk of material misstatement - has the potential to affect financial statements in the future only

is a broader concept than the risk of material misstatement can adversely affect an entity's ability to execute its strategies

the precision of the expectation _______________ - may lead to a cost benefit trade off due to an increase in testing - needs to be very precise if the assertion being tested requires a high level of detection risk - is a function of materiality and required detection risk - is a measure of potential effectiveness

is a measure of potential effectiveness is a function of materiality and required detection risk may lead to a cost benefit trade off due to an increase in testing

The ______ the tolerable deviation rate, the ______ the sample size. higher; larger lower; larger lower; smaller

lower; larger

If a control deficiency is a material weakness, management must disclose it in its assessment of the effectiveness of ICFR, including ______. management's current plans, if any, for remediating the weakness the cost of management's current plans for remediating the weakness its impact on the entity's financial reporting and its ICFR the nature of the material weakness(es)

management's current plans, if any, for remediating the weakness its impact on the entity's financial reporting and its ICFR the nature of the material weakness(es)

The combination of inherent risk and control risk is referred to in auditing standards as the risk of __________ _________

material misstatement

A deficiency in ICFR, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis is defined as a ___________ __________ by the PCAOB

material weakness

A deficiency, or combination of deficiencies, in internal controls, such that there is a reasonable possibility that a material misstatement of the entity's financial statement will not be prevented, or detected and corrected on a timely basis is a ______. significant deficiency material weakness control deficiency

material weakness

Evidence about the operating effectiveness of controls at service organizations that are relevant to management's assessment and the auditor's opinion ______. must be obtained from a service auditor's report on the design and operating effectiveness of controls in operation at the service organization may be obtained by performing tests or obtaining a service auditor's report must be obtained by performing tests of the user organization's controls over the activities of the service organization must be obtained by performing tests of controls at the service organization

may be obtained by performing tests or obtaining a service auditor's report

The failure of a preventive control (such as inventory tags) to safeguard assets ______ result in a significant deficiency or material weakness. may or may not will always will never

may or may not

Auditors ______. should only rely on controls that affect an individual assertion should only rely on controls that have a pervasive effect on many assertions may rely on any control likely to prevent or detect and correct material misstatements

may rely on any control likely to prevent or detect and correct material misstatements

If the frame and the population differ, the auditor ______. might draw the wrong conclusion about the population may draw separate conclusions about the frame and the population might draw the wrong conclusion about the frame

might draw the wrong conclusion about the population

assessing the quality of internal control performance overt time is the intention of _____ of controls creation monitoring enforcement communication

monitoring

When audit risk is low and the risk of material misstatement is high, substantive tests should be performed ______. consistently thought the year at interim dates and year end mostly at year-end mostly at interim dates throughout the year

mostly at year-end

select all that apply Under Section 301 of the Sarbanes-Oxley Act, the audit committee of a public company ______. is directly responsible for the hiring, paying and oversight of the public accounting firm employed by the company must have the authority to engage independent counsel to carry out duties as necessary must consist of members who are part of the company's upper management must preapprove all audit and nonaudit services provided by the auditors

must preapprove all audit and nonaudit services provided by the auditors must have the authority to engage independent counsel to carry out duties as necessary is directly responsible for the hiring, paying and oversight of the public accounting firm employed by the company

Select all that apply When net income is fluctuating, the auditor should consider basing materiality on ______ the lowest net income for the past three years a benchmark other than net income normalized earnings for the past three years the highest net income for the past three years

normalized earnings for the past 3 years a benchmark other than net income

If an entity's accounting system has control weaknesses that result in a high level of assessed control risk, substantive procedures will probably ______. only be conducted at interim dates be conducted at both interim dates and year end not be conducted at interim dates

not be conducted at interim dates

auditors can reduce audit risk to an acceptable low level by ________ consulting with top-level management increase the amount charged for performing the audit using the internal audit function as part of the audit team obtaining an understanding of the entity and its environment

obtaining an understanding of the entity and its environment

What should be used when it is necessary to show the movement of a document or report back to a previous function? Communication link Off-page connector On-page connector Off-line storage

on-page connector

Unrestricted random sampling without replacement means ______. once an item is selected, it cannot be selected a second time items may be selected for a sample multiple times a starting number is selected first and then every nth item is selected

once an item is selected, it cannot be selected a second time

Professional competence as defined in the General Standards Rules states that a member should _______ adequately plan and supervise the performance of professional services only undertake those professional services for which he or she has a technical knowledge and skill exercise due professional care in the performance of professional services obtain sufficient data to afford a reasonable basis for conclusions or recommendations in relation to professional services performed

only undertake those professional services for which he or she has technical knowledge and skill

If a misstatement is detected by substantive procedures, the auditor should consider whether the control deficiency might affect the ___________ on the audit of ICFR.

opinion

The main concern of ______ controls is that computer reports, checks, documents or other printed or displayed information may be distributed or displayed to unauthorized users. processing output data validation error

output

If the achieved level of audit risk is greater than the planned level, auditor options include: - performing additional audit work - issuing an unqualified audit opinion - modifying the audit opinion

performing addition audit work modifying the audit opinion

Public accounting firms should ______. only evaluate continuing their relationship with current clients when conflicts arise periodically evaluate whether to continue their relationship with current clients not continue their relationship with current clients when conflicts arise

periodically evaluate whether to continue their relationship with current clients

Authorization requirements for access to computer programs and periodic counting and comparison with amounts shown on control records are examples of ______. risk identification controls segregation of duties controls fraud controls information processing controls physical controls

physical controls

when a client has multiple locations, the auditor determines which locations or business units to audit and the extent of the audit procedures to be performed during the ______ process planning implementation client acceptance fee setting

planning

Part 1 of the Code of Professional Conduct has the most stringent rules because it applies to CPAs who ______. make financial and investing decisions provide assurance to the broader public work in the private sector audit nonprofit entities

provide assurance to the broader public

The functions of audit documentation are to -provide justification for the fees charged for audit services rendered - provide the basis for the review of the quality of work - provide principal support that the audit was conducted in accordance with GAAP - aid in the planning, performance and supervision of the audit - provide principal support that the audit was conducted in accordance with GAAS

provide principal support that the audit was conducted in accordance with GAAS aid in the planning, performance and supervision of the audit provide the basis for the review of the quality of work

Confirmations __________ - provide reliable evidence for the existence assertion - are used extensively on audits - do not provide evidence about the rights and obligations assertion - may provide evidence about the completeness assertion

provide reliable evidence for the existence assertion are used extensively on audits may provide evidence about the completeness assertions

An internal control questionnaire ______. is generally used for entities with a relatively simplistic internal control structure is one of many types of questionnaires used by auditors contains questions about the five internal control components provides a systematic means to investigate internal control

provides a systematic means to investigate internal control is one of many types of questionnaires used by auditors contains questions about the five internal control components

The COSO definition of ICFR is designed to provide __________ assurance regarding the reliability of financial reporting and GAAP financial statement presentation.

reasonable

All types of analysis are used for substantive analytical procedures, but ______ analysis is not commonly used for preliminary or final analytical procedures. predictability ratio trend reasonableness

reasonableness

The AICPA can discipline members for violating the Code of Professional Conduct by _________

referring the case to a hearing panel of the Trial Board suspending or revoking membership in the AICPA

Materiality is a(n) __ concept. absolute relative statistical analytical

relative

Information that is capable of making a difference in use decisions has the characteristic of

relevance

The independence of the source of the evidence, the effectiveness of internal controls and the auditor's direct personal knowledge all affect the ______ of data for developing expectations. aggregation reliability precision reasonableness

reliability

The auditor intends to depend on the entity's controls and may need a more detailed understanding of internal controls to develop a preliminary or "planned" assessment of control risk when following a ______ strategy. reliance substantive differentiation benchmarking

reliance

When an auditor decides to follow a(n) __________ strategy, he or she has to understand the control activities that relate to assertions for which a lower level of control risk is expected.

reliance

When an entity has a material weakness, it should take steps to correct it, which is referred to as

remediation

A control issue does not rise to the level of control deficiency if the likelihood is ______. remote probable reasonably possible likely

remote

The Acts Discreditable Rules allows the AICPA to ______ a member for committing acts that may affect the profession's reputation

remove

The auditor's independent execution of procedures or controls that were originally performed by company personnel is referred to as ____________

reperformance

The independent execution by the auditor of procedures or controls that were originally performed by company personnel is called

reperformance

A major premise of AS 2201 is that _____ _____ underlies the entire audit of ICFR.

risk assessment

The auditor should obtain sufficient information about the entity's __________ _________process to understand how management considers risks relevant to financial reporting and decides on appropriate actions to address those risks.

risk assessment

AS5 defines policies and procedures that "provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposal of the entity's assets that could have a material effect on the financial statements as the _______ of assets.

safeguarding

Management's internal control assessment process involves special consideration of ______. service organizations hiring practices safeguarding assets internal audit procedures

service organizations safeguarding assets

If the auditor determines that internal controls are not properly designed or not implemented the auditor will ______. set the level of control risk at high make an assessment of control risk based on the result of tests of controls perform tests of controls to obtain audit evidence that controls are operating effectively use substantive procedures to reduce the risk of material misstatement to an acceptable level

set the level of control risk at high use substantive procedures to reduce the risk of material misstatement to an acceptable level

Select all that apply Prior to the issuance of the auditor's report on ICFR, the auditor must communicate in writing to both management and the audit committee identified ______. compensating controls significant deficiencies control deficiencies material weaknesses

significant deficiencies material weaknesses

Select all that apply: An auditor's independence would be considered impaired if the _________ - spouse of the auditor is an accounting supervisor of the entity - auditor received a casual lunch paid by the client being audited - cousin of the auditor is a maintenance worker for the entity - client owes money to the auditor that has the characteristics of a loan

spouse of the auditor is an accounting supervisor for the entity client owes money to the auditor that has the characteristics of a loan

Audit documentation should ______. - support the auditor's conclusions for each material financial statement assertion - enable an ordinary person to understand the nature, timing, extent, results, evidence and conclusions reached - demonstrate the underlying accounting records agreed with the financial statements - include an audit program for the engagement

support the auditor's conclusions for each material financial statement assertion demonstrate the underlying accounting records agreed with the financial statements include an audit program for the engagement

Processing steps and computer processing are included in a ______ flowchart. systems program document

systems

Steps auditors perform as part of the fraud risk assessment process include ______. - identification and assessment of control risk factors - team member discussions regarding the risk of material misstatement - consideration of unusual or unexpected relationships - inquiries of the audit committee about their views on the risks of fraud

team member discussions regarding the risk of material misstatement inquiries of the audit committee about their views on the risks of fraud consideration of unusual or unexpected relationships

Select all that apply The categories of substantive procedures are ______. tests of financial statements tests of details substantive analytical procedures inquiries of management

test of details substantive analytical procedures

Select all that apply When an auditor is asked to accept a new client, ______. the auditor must ask permission of the client before contacting the predecessor auditor an entity acceptance questionnaire, checklist or memo is generally prepared to document the investigation an investigation of the client should be conducted after the engagement has been accepted

the auditor must ask permission of the client before contacting the predecessor auditor an entity acceptance questionnaire, checklist or memo is generally prepared to document the investigation

The risk of incorrect rejection is also commonly known as the risk of ______. -underreliance -assessing control risk too low -overreliance -assessing control risk too high

underrealiance assessing control risk too high

When companies use service organizations to process transactions, ______. the service organization is considered part of the information and communication component of the entity's ICFR the auditor cannot express an opinion about the effectiveness of operating controls both management and the auditor must consider the service organization activities an audit only can only be expressed if the auditor performs tests of controls at the service organization

the service organization is considered part of the information and communication component of the entity's ICFR both management and the auditor must consider the service organization activities

When a service organization provides accounting services to an entity and those services affect the entity's accounting records, ______. control risk must be assessed at high the entity's external auditor must be concerned with the internal control system at the service organization the entity's external auditor must rely on the control assessment provided by the service organization's auditor they are considered part of the entity's information system

they are considered part of the entity's information system the entity's external auditor must be concerned with the internal control system at the service organization

notations that are made by the auditor near, or next to, an item or amount on an audit document that are used to document work performed are called __________ ___________

tick marks

The maximum deviation rate from a prescribed control that the auditor is willing to accept and still consider the control effective is called the ______ rate materiality tolerable deviation material deviation tolerable control

tolerable deviation

Once the desired confidence level is set, the appropriate sample size is determined by how much ______. expected error exceeds tolerable error tolerable error exceeds expected error

tolerable error exceeds expected error

in general, ______ analysis is the least precise method to form an expectation while _______ analysis is the most precise

trend, reasonableness

True or false: Auditors need to understand how management considers risks because many types of risk can impact financial reporting objectives.

true

Output documents from the application that are used as source documents in later processing are called

turnaround

After auditing the effectiveness of an entity's internal control, an auditor issues a(n) _________ _________ if the entity's internal control is designed and operating effectively in all material respects

unqualified opionion

Risk assessment, benchmarking and recommendations based on the assessment of business risk are all examples of ________ - __________services.

value added

audit documentation is referred to as __________ ____________ or the audit file

working papers

When an entity's computer system is not compatible with the auditor's GAS, the auditor should ______. write custom audit software rely on the entity's computer software not use software to conduct testing

write custom audit software