ACC 403 exam 2 quizzes

A management letter: A. contains recommendations for improving significant deficiencies and material weaknesses in internal control discovered during the course of the audit. B. lists only the material weaknesses discovered during the audit. C. is written by management to the auditor at the start of the audit. D. is only required for public company audits.

A

An advantage of statistical sampling _______. A. is that it allows an auditor to measure sampling risk, that is, the risk that the sample chosen by the auditor is not representative B. is that it allows an auditor to measure inherent risk, that is, the risk that the sample chosen by the auditor is not representative C. is that it is cheaper to perform, resulting in lower audit fees for the client D. is that it allows an auditor to measure control risk, that is, the risk that the sample chosen by the auditor is not representative

A

An audit testing strategy that can be used to allow evidence obtained in prior audit periods to support a conclusion about IT application controls in the current audit period is known as _______. A. benchmarking B. nonstatistical sampling C. prior period inference D. statistical benchmarking

A

Analytical procedures _______. A. are evaluations of financial information through analysis of plausible relationships among both financial and non-financial data B, are evaluations of financial information through analysis of plausible relationships using non-financial data only C. are optional, and generally unnecessary if the system of internal control is strong D. are evaluations of financial information through analysis of plausible relationships using financial data only

A

Audit sampling is defined as a situation where: A. the auditor tests a representative group that is less than 100% of the population for the purpose of drawing a conclusion about the entire population. B. the auditor screens 100% of the population to identify a subset with particular risk traits. C. the auditor tests a subset of the population to draw a conclusion about a subset of the population. D. the auditor screens less than 100% of the population to identify a subset with particular risk traits.

A

Designing substantive procedures responds to: A. the risk of material misstatement at the assertion level. B. the risk of material misstatement at the entity level. C. the risk of all types of misstatements at the assertion level. D. the risk of all types of misstatements at the entity level.

A

Determining fair value of a transaction or financial statement item for inclusion in the financial statements is a type of accounting estimate. A. True B. False

A

Documenting internal controls: A. can be handled with a combination of narratives and flowcharts or logic diagrams. B. is always handled through the use of checklists and preformatted questionnaires. C. is not done for smaller clients because of the risk of management override. D. is done after internal controls are tested so that the results can be included in the documentation.

A

Estimation uncertainty is defined as _______. A. the susceptibility of an accounting estimate and related disclosures due to an inherent lack of precision in its measurement B. the uncertainty surrounding the ultimate cost of the audit C. the uncertainty surrounding which staff members to assign to a particular audit D. the susceptibility of an accounting estimate and related disclosures to be accurate

A

For clients with multiple locations, the auditors_______. A. could vary which locations are tested each year and the type of audit procedures that are performed at the different locations B. could vary which locations are tested each year and not change the type of audit procedures that are performed at the different locations C. could not vary which locations are tested each year, but instead vary the type of audit procedures that are performed at the different locations D. should always hire another auditor to check other locations, and not attempt to do this themselves

A

If the assessed risk of material misstatement for an assertion is high, auditors need to gather more persuasive audit evidence. A. True B. False

A

If the control environment is assessed to be weak, _______. A. the auditors should address this by changing the audit plan to include more audit procedures and expanding the scope of the audit to include more of the client's locations B. the auditors should plan to increase their reliance on the internal audit function C. the auditors should immediately consider withdrawal from the engagement D. the auditors should plan to increase their reliance on the evidence generated by the system

A

In obtaining an understanding of an entity's internal control relevant to audit planning, an auditor is required to obtain knowledge about the A. Design of the controls pertaining to internal control components. B. Effectiveness of controls that have been implemented. C. Consistency with which controls are currently being applied. D. Controls related to each principal transaction class and account balance.

A

In which of the following circumstances must an auditor decide how best to select a sample that is representative of the entire population of items? A. There are numerous transactions or items within an account balance. B. An audit population is sufficiently small. C. A client has a large balance of notes payable and the notes payable are with several banks. D. There are few transactions or few items within an account balance.

A

Internal control is defined as: A. a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of the objectives related to operations, reporting, and compliance. B. the entity's system to prevent, or detect and correct, misstatements in the financial statements. C. the entity's system to ensure that management and those charged with governance of the entity have quality information for decision making. D. a process, implemented by management, to ensure the integrity of the entity's management information system.

A

Non-statistical sampling _______. A. involves any sample selection and evaluation method that does not have the characteristics of statistical sampling. B. may only be used for publicly traded companies with market capitalizations of less than a certain threshold C. may only be used for publicly traded companies with market capitalizations above a certain threshold D. involves any sample selection and evaluation method that has the characteristics of non-statistical sampling.

A

The internal control component that addresses how an organization holds an individual accountable for his or her internal control responsibilities in pursuit of objectives is related to: A. the control environment. B. risk assessment. C. control activities. D. information and communication.

A

The nature of an audit procedure refers to: A. its purpose and its type. B. the sample size required to perform the procedure. C. the assessed level of detection risk. D. when the procedure is performed.

A

When performing tests of controls, the auditor is making _______. A. a "yes or no" decision with respect to effectiveness sure that all controls are working perfectly, with no errors, material or immaterial B. certain that he or she will ultimately be in a position to render C. absolute assurance on the financial statements and internal control D. multiple decisions

A

When the entity's control environment has been assessed as effective, limited roll-forward procedures such as substantive analytical procedures are necessary. A. True B. False

A

Which of the following actions should the auditor take in response to discovering a deviation from the prescribed control procedure? A. Make inquiries to understand the potential consequence of the deviation. B. Report the matter to the next higher level of authority within the entity. C. Increase sample size of tests of controls. D. Assume that the deviation is an isolated occurrence without audit significance.

A

Which of the following procedures would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet? A. Observe the consistency of the employees' use of cash registers and tapes. B. Compare the cash balance in the general ledger with the bank confirmation request. C. Trace the deposits in the cash receipts journal to the cash balance in the general ledger. D. Inquire about employees' access to recorded but undeposited cash.

A

Which of the following refers to a deficiency where there is more than a remote possibility that a material misstatement could occur in the financial statements due to a breakdown in the system of internal control? A. Material weakness B. Control deficiency C. Insignificant deficiency D. Significant deficiency

A

Which of the following represents an example of an IT application control? A. The software application compares all sales invoices with underlying shipping information on the bills of lading and packing slips with sales invoices. If differences are revealed, a report is generated for review and follow-up by the billing supervisor. B. All changes to software applications must be reviewed and approved by the department affected by the application. C. The assistant controller performs a monthly bank reconciliation and follow-up of unexpected outstanding items. D. The accounts receivable manager reviews credit balances in accounts receivable quarterly to determine their causes.

A

Which of the following situations would most likely preclude an auditor from performing substantive procedures during an interim period? A. Internal controls are weak and the risk of material misstatement is high. B. Internal controls are weak and the risk of material misstatement is low. C. Internal controls are strong and the risk of material misstatement is low. D. Internal controls are strong and the risk of material misstatement is high.

A

Which of the following would not be a reason to increase the extent of a substantive test? A. Auditors have time to test more items. B. The risk of material misstatement is high. C. Qualitative factors suggest there may be errors in the account. D. Internal controls are weak.

A

Which of the following would require the auditor to increase the level of control testing for a particular control? A. A high degree of reliance is to be placed on the control to limit the amount of substantive testing required. B. The control is performed monthly instead of daily. C. The WCGW addressed by the control is not very important. D. There are several controls relating to a particular audit objective.

A

With regard to statistical sampling, _______. A. sample size is determined objectively, or quantitatively, using appropriate statistics B. management should be heavily involved with sample selection C. this function should be outsourced by the auditor to a qualified professional D. sample size is determined subjectively, or quantitatively, using appropriate statistics

A

Which of the following are indicators of possible management bias? (Select all that apply.) A. Changes in the method of making the accounting estimate that are based on subjective assumptions. B. Selecting an estimate that indicates a pattern of optimism or pessimism. C. Selecting or developing significant assumptions that yield an estimate more favorable for management's objectives. D. Inspecting the outcome of prior period accounting estimates.

A B C

In the context of the impact of risk of material misstatement (RMM) on the level of substantive testing, which of the following statements are true in the case of small sample sizes? (Select all that apply.) A. The acceptable level of detection risk is high. B. The combined assessed level of inherent risk and control risk is low. C. Evidence is collected at year-end. D. Substantive tests are less effective.

A B D

Which of the following are causes of misstatements? (Select all that apply.) A. Omission of an amount or disclosure B.Incorrect accounting estimate caused by a misinterpretation of facts C. Inaccurate substantive procedure used D. Inappropriate selection of accounting policies

A B D

Which two of the following principles are within the monitoring component of the seventeen COSO principles of internal control? (Select all that apply.) A. The organization selects, develops, and performs ongoing and/or separate evaluations to ascertain whether the components of internal control are present and functioning. B. The organization evaluates and communicates internal control deficiencies in a timely manner to those parties responsible for taking corrective action, including senior management and the board of directors, as appropriate. C. The organization communicates with external parties regarding matters affecting the functioning of internal control. D. The organization internally communicates information, including objectives and responsibilities for internal control, necessary to support the functioning of internal control.

A, B

Which three of the following are included in common inherent limitation in internal control? (Select all that apply.) A. Collusion by two or more individuals to circumvent a control B. Ineffective understanding of the purpose of a control C. Human error that results in a breakdown in internal control D. A control within a software that cannot be overridden or disabled

A, B, C

What does COSO define as a process effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of the objectives related to operations, reporting and compliance? A. Reporting B. Internal control C. Risk assessment D. Compliance

B

When an auditor asks management how it makes sure the reconciliation is prepared correctly and on a timely basis, this is an example of _______. A. interrogation B. inquiry C. professional skepticism D. audit scanning techniques

B

A letter issued regarding significant deficiencies relating to an entity's internal control observed during an audit of financial statements should include a A. Description of tests performed to search for material weaknesses. B. Restriction on the distribution of the report. C. Paragraph describing management's evaluation of the effectiveness of the control structure. D. Statement of compliance with applicable laws and regulations.

B

A primary objective of procedures performed to obtain an understanding of internal control is to provide an auditor with A. Information necessary to prepare flowcharts. B. Knowledge necessary to assess the risk of misstatement. C. Audit evidence to use in reducing detection risk. D. A basis from which to modify tests of controls.

B

AU-C 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures states the objective of the auditor is to obtain sufficient appropriate evidence that _______. A. disclosures are adequate B. accounting estimates are reasonable, and disclosures are adequate C. accounting estimates are reasonable, but disclosures are not adequate D. the accounting estimates are reasonable

B

Accounting estimates, by their nature _______. A. should cause little or no variance at the end of the period B. involve subjective decision making on the part of management C. involve objective decision making on the part of management D. should not be estimated by management, but rather by the auditor at the end of the period

B

Financial statements include _______. A. a variety of items that cannot be measured precisely and must be estimated by the internal auditors B. a variety of items that cannot be measured precisely and must be estimated by client management C. a variety of items that can be measured precisely and must be estimated by client management D. a variety of items that can be measured precisely and should not be estimated by client management

B

If the auditor is able to collect evidence that IT general controls are strong, then the auditor can conclude that: A. application controls function properly and put the correct transactions on exception reports. B. software applications are more likely to operate consistently over time. C. IT transactions are adequately supported by source documents. D. the risk of batch totals failing to detect misstatements is low.

B

In a good system of segregation of duties, which of the following duties should be segregated? A. Authorization of transactions, recording transactions, and management. B. Authorization of transactions, physical access to assets, and recording transactions. C. Authorization of transactions, physical access to assets, and management. D. Physical access to assets, recording of transactions, and consideration.

B

In order to determine the extent of testing of controls, _______. A. the auditor can use non nonstatistical techniques only B. the auditor can use either statistically based sampling techniques or nonstatistical techniques C. the auditor can use statistically based sampling techniques only D. the auditor should inquire of management as to their preferences

B

Risk of incorrect acceptance is defined as _______. A. the risk that an audit firm incorrectly issued an unmodified opinion B. the risk that the auditor concludes that a material misstatement does not exist when it does exist C. the risk that an audit firm incorrectly accepts a client D. the risk that the auditor concludes that a material misstatement does exist when it does exist

B

Sampling risk: A. applies only to samples for substantive testing. B. is the risk that the sample chosen by the auditor is not representative of the population of transactions. C. can be eliminated by taking a random sample. D. is the risk that the results of the test will be misinterpreted by the auditor.

B

The _______ clearly lays out the purpose of the test of the control, the nature and extent of the work performed at an interim date, the results of the audit tests, and the auditor's conclusion about control risk. A. controls testing paper B. working paper C. audit report D. audit documentation

B

The auditor begins selecting controls to test by _______. A. checking the same controls as the prior year B. by understanding the entity and the business and determining the risk of material fraud or error at the financial statement level C. asking management which controls they would prefer the auditor to test D. by understanding the entity and all other industries and determining the risk of material fraud or error at the financial statement level

B

The more judgment that is involved in conducting the substantive procedures and evaluating the results, the less documentation is needed. A. True B. False

B

The purpose of the management letter is to ________. A. request management confirm the makeup and composition of its board of directors and any associated conflicts of interest B. meet the auditor's responsibility for communicating internal control matters in writing on a timely basis with those charged with governance C. meet the auditor's responsibility for communicating external control matters in writing on a timely basis with those charged with governance D. inform management of the auditors pending desire to withdraw from the engagement

B

The risk accepted by the auditor with respect to the sample not being representative of the population is known as _______. A. control risk B. sampling risk C. audit risk D. inherent risk

B

When an auditor identifies internal control deficiencies, what levels of internal control deficiencies must be reported to those charged with governance of the entity? A. Deficiencies and significant deficiencies in internal control. B. Significant deficiencies and material weaknesses in internal control. C. Material weaknesses only. D. Significant deficiencies only.

B

When considering the internal control structure, an auditor should be aware of the concept of reasonable assurance, which recognizes that A. Internal control policies and procedures may be ineffective due to mistakes in judgment and personal carelessness. B. The cost of an entity's internal control structure should not exceed the benefits expected to be derived. C. Establishing and maintaining the internal control structure is an important responsibility of management. D. Adequate safeguards over access to assets and records should permit an entity to maintain proper accountability.

B

When evidence is collected at an interim date, substantive tests are more effective. A. True B. False

B

Which of the following is a good example of an IT application control over the occurrence of revenue transactions? A. Physical access to IT systems is limited only to specific personnel who work in the revenue cycle. B. The software application compares information on a sales invoice with information from the bill of lading to ensure that sales invoices are only prepared for actual shipments. Any exceptions are not processed and are set aside for manual follow-up. C. The software changes to the revenue program must be tested and authorized before they may be used with live data. D. Strong segregation of duties exists between IT operations and IT program development.

B

Which of the following is an example of data that needs to be cleaned before it can be analyzed? A. The data has information from customers in data files from two different divisions. B. The data has dates in two different formats (MM/DD/YY and DD/MM/YY). C. The data comes from a system with poor internal controls. D. The data contains misstatements.

B

Which of the following refers to a sampling technique used to reach a conclusion about a population in terms of a rate (frequency) of occurrence? A. Benchmarking B. Attribute sampling C. Tests of control D. Control exception

B

Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account? Expected amount of misstatements. Measure of tolerable misstatement A. Yes. No B. Yes. Yes C. No. No D. No. Yes

B

With respect to audit sampling, _______. A. the choice of which accounts to sample should be as non-random as possible B. there is a direct relationship between assurance and sample size C. there is no relationship between assurance and sample size D. the auditors should ideally select a sample size which is larger than the population

B

Which of the following are the conditions when limited tests of details of transactions occurring between the interim period and the year-end are necessary? (Select all that apply.) A. Major changes are required in internal controls. B. No significant changes in the control environment have occurred. C. The entity's control environment has been assessed as effective. D. Controls have been tested.

B C D

Which of the following initial procedures do auditors perform before applying substantive procedures when auditing an account balance? (Select all that apply.) A. Check if appropriate and understandable terminology is used, as prescribed by the applicable financial reporting framework. B. Scan the transactions in the account for unusual items. C. Trace the beginning balance of the prepaid insurance account to the auditor's working papers from the prior year's audit. D. Obtain a trial balance or other detailed report for the account.

B C D

The choice of using audit sampling versus audit data analytics (ADA) is often a matter of _______. A. determining which method management would prefer the auditor use B. which method will be more cost efficient for the client C. what is most effective and efficient in determining whether a control is presented fairly, in all material respects D. what is most effective and efficient in determining whether an assertion is presented fairly, in all material respects

D

A senior auditor conducted a dual-purpose test on a client's invoice to determine whether the invoice was approved and to ascertain the amount and other terms of the invoice. Which of the following lists two tests that the auditor performed? A. Tests of details and substantive procedures B. Substantive analytical procedures and tests of controls C. Tests of controls and tests of details D. Substantive procedures and analytical procedures

C

After auditors have completed testing controls and drawn a conclusion about control risk, _______. A. they should withdraw if control risk is assessed as high B. they are ready to issue the audit opinion C. they make decisions about the nature, timing, and extent of substantive testing D. they make decisions about the nature and timing of substantive testing

C

An accounting estimate is _______. A. a figure that should be left to the external auditor to determine at the end of the year B. prohibited by GAAP and should be questioned by the auditor C. an approximation of a monetary amount when a precise means of measurement is not available D. an exact monetary amount when a precise means of measurement is available

C

An auditor is going to test the client's controls over bank reconciliations. The auditor will perform which of the following audit procedures for this test of controls? A. Inquiry of the person performing the bank reconciliation. B. Software-based audit techniques using test data. C. Inquiry of the person performing the bank reconciliation and reperformance of the bank reconciliation procedure. D. Reperformance of the bank reconciliation procedure.

C

An auditor normally obtains an understanding of transaction-level controls by: A. testing the entity's risk assessment process. B. reading the prior year's management letter. C. performing a system walkthrough. D. conducting an interview with senior management.

C

Analytical procedures: A. can be used as substantive tests but cannot be used as primary tests of a balance. B. are used to test controls and are not substantive procedures. C. are required during the planning and substantive testing phases of the audit. D. are substantive procedures and cannot be used at any other stage of the audit.

C

Assessing control risk at below the maximum level most likely would involve A. Reducing inherent risk for most of the assertions relevant to significant account balances. B. Performing more extensive substantive tests with larger sample sizes than originally planned. C. Identifying specific internal control structure policies and procedures relevant to specific assertions. D. Changing the timing of substantive tests by omitting interim-date testing and performing the tests at year end.

C

Assume that a company has a control deficiency regarding the processing of cash receipts. Reconciliation of cash accounts by a competent individual otherwise independent of the cash function might make the likelihood of a significant misstatement due to the control deficiency remote. In this situation, reconciliation may be referred to as what type of control? A. Adjustive. B. Preventive. C. Compensating. D. Nonroutine.

C

Audit sampling is when _______. A. a client requests a sample of accounts be audited B. an auditor selects the total population C. an auditor selects less than 100% of a population D. the auditor selects certain accounts to audit from the client's chart of accounts

C

During the audit the independent auditor identified the existence of a weakness in the client's internal control and communicated this finding in writing to the client's senior management and those charged with governance. The auditor should A. Consider the weakness a scope limitation and therefore disclaim an opinion. B. Suspend all audit activities pending directions from the client's audit committee. C. Consider the effects of the condition on the audit. D. Withdraw from the engagement.

C

If an auditor of an issuer examines purchase orders obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting A. A confirmation. B. A reperformance. C. An inspection. D. An observation.

C

Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when A. The audit committee is active in overseeing the entity's financial reporting policies. B. Internal auditors have direct access to the board of directors and entity management. C. Management is dominated by one individual who is also a shareholder. D. External policies established by parties outside the entity affect its accounting practices.

C

The auditor testing the effectiveness of manual follow-up to see whether items put on an exception report were appropriately cleared is an example of _______. A. inspection of physical evidence B. observation C. reperformance D. inquiry

C

The choice of statistical or non-statistical sampling _______. A. does not affect the selection of procedures, or the competence of evidence obtained about individual population items B. is best determined by management, who know the company best C. does not affect the selection of procedures, or the competence of evidence obtained about individual sample items D. affects the selection of procedures, or the competence of evidence obtained about individual sample items

C

The control environment: A. is focused on how the entity addresses informationtechnology risks. B. directly addresses adequacy of segregation of duties. C. sets the tone of an entity with respect to internal control and influences the control consciousness of its people. D. only applies to public companies.

C

The objectives of internal control include: A. operations objectives, internal control objectives, and financial reporting objectives. B. operations objectives, control environment objectives, and financial reporting objectives. C. operations objectives, reporting objectives, and compliance objectives. D. risk assessment objectives, compliance objectives, and reporting objectives.

C

The software application compares all sales invoices with underlying shipping information on the bills of lading and packing slips with sales invoices. If differences are revealed, a report is generated for review and follow-up by the billing supervisor. This is an example of a(n): A. IT general control. B. IT-dependent manual control. C. detective control. D. preventive control.

C

The term "substantive" comes from _______. A. "insubstantial," which means auditors gather evidence to support the transactions, account balances, and disclosures provided by management in the financial statements B. the fact that the audit report is designed to assist stockholders with substantial stock holdings in the client C. "substantiate," which means auditors gather evidence to verify the transactions, account balances, and disclosures provided by management in the financial statements D. "insubstantial," which means auditors gather evidence to support only insubstantial transactions, account balances, and disclosures provided by management in the financial statements

C

The ultimate purpose of a substantive test is to _______. A. ensure that all controls are functioning properly B. guarantee that no error or fraud exists in the financial statements C. obtain reasonable assurance that an assertion is presented fairly in all material respects D. obtain absolute assurance that an assertion is presented fairly in all material respects

C

Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of an internal control procedure? A. Inquiry of client personnel. B. Recomputation of account balance amounts. C. Observation of client personnel. D. Confirmation with outside parties.

C

Which of the following is NOT a part of tests of control? A. Inquiry B. Inspection of physical evidence C. Performance D. Observation

C

Which of the following is an important consideration when deciding the nature of tests to use in a financial statement audit? A. The use of tests of controls should be considered without regard to the level of assurance required. B. Analytical procedures are an inefficient means of obtaining assurance. C. The procedures to be applied on a particular engagement are a matter of the auditor's professional judgment. D. Tests of details typically provide a low level of assurance.

C

Which of the following procedures would provide the most reliable audit evidence? A. Audit evidence provided by original documents is more reliable than audit evidence generated through a system of effective controls. B.Audit evidence provided by copies is more reliable than that provided by facsimiles. C. Audit evidence obtained from knowledgeable independent sources outside the client company is more reliable than audit evidence obtained from nonindependent sources. D. Audit evidence obtained from indirect sources rather than directly is more reliable than evidence obtained directly by the auditor.

C

Which of the following procedures would provide the most reliable audit evidence? A. Inquiries of the client's internal audit staff held in private. B. Inspection of prenumbered client purchase orders filed in the vouchers payable department. C. Inspection of bank statements obtained directly from the client's financial institution. D. Analytical procedures performed by the auditor on the entity's trial balance.

C

Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests? A. Transactions subject to management discretion B. Data subject to audit testing in the prior year C. Relationships involving income statement accounts D. Relationships involving balance sheet accounts

C

With respect to timing, tests of controls _______. A. are usually carried out after the firm's financial statement date B. are usually carried at the firm's financial statement date C. will usually be carried out at an interim date, often about three months prior to year-end D. will usually be carried out at an interim date, often about six months prior to year-end

C

A key aspect of preparing the data for ADA is: A. determining the validity of data obtained from an external source. B. determining the source of the data. C. evaluating the reliability of internally generated evidence. D. determining if the data is complete.

D

After obtaining an understanding of an entity's internal control structure, an auditor may assess control risk at the maximum level for some assertions because the auditor A. Performs tests of controls to restrict detection risk to an acceptable level. B. Determines that the pertinent internal control structure elements are not well documented. C. Identifies internal control policies and procedures that are likely to prevent material misstatements. D. Believes the internal control policies and procedures are unlikely to be effective.

D

An audit strategy can take _______. A. a reliance on procedures approach, a substantive approach, or a combination of both B. an approach whereby only internal control is audited C. neither a reliance on controls approach, nor a substantive approach D. a reliance on controls approach, a substantive approach, or a combination of both

D

An auditor of a nonissuer should design tests of details to ensure that sufficient audit evidence supports which of the following? A. The effectiveness of internal controls. B. Management's assertions that internal controls exist and are operating efficiently. C. The planned level of control risk. D. The planned level of assurance at the relevant assertion level.

D

An entity's risk assessment process: A. is established only if the entity is subject to unusually high risk. B. never allows management of an entity to decide to accept a risk without taking any action. C. is designed to help an entity think about risk in the same way that an auditor thinks about risk. D. is the entity's process for identifying and responding to business risks and the results of those risks.

D

An example of possible management bias would be _______. a. changes in the method of making the accounting estimate that are based on subjective assumptions b.. using management's own assumptions for fair value estimates when they are inconsistent with readily observable market assumptions c. selecting or developing significant assumptions that yield an estimate more favorable for management's objectives D.All of these answer choices are correct.

D

At the outset of substantive testing, the auditor needs to _______. A. determine the population being tested B. the assertion or assertions being tested C. if the auditor is trying to estimate the total dollar value of the population, or the total amount of misstatement that might exist in the population D. All of these answer choices are correct.

D

Before applying principal substantive tests to the details of accounts at an interim date prior to the balance sheet date, an auditor should: A. Obtain written representations from management that all financial records and related data will be made available. B. Determine that the accounts selected for interim testing are not material to the financial statements taken as a whole. C. Assess control risk at below the maximum for the assertions embodied in the accounts selected for interim testing. D. Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable.

D

If the auditor determines that an effective compensating control does not exist, or tests of controls show that the compensating control is not functioning as designed, _______. A. the auditor would lower inherent risk surrounding the engagement as a whole B. the auditor concludes that internal control is weak, and issues an appropriate opinion C. the auditor makes no changes to the overall audit risk assessment for the related account and assertion, and the planned audit strategy D. the auditor revises the overall audit risk assessment for the related account and assertion, and the planned audit strategy

D

If the test results do not confirm the preliminary evaluation of controls, _______. A. the auditor will consider whether there is a compensating control that might prevent and correct a misstatement missed by the original control being tested B. the auditor should consider withdrawing from the engagement C. the auditor should obtain additional written assurances from management D. the auditor will consider whether there is a compensating control that might detect and correct a misstatement missed by the original control being tested

D

Immediately upon receipt of cash, a responsible employee should A. Prepare a deposit slip in triplicate. B. Update the subsidiary accounts receivable records. C. Record the amount in the cash receipts journal. D. Prepare a remittance listing.

D

In non-statistical sampling, _______. A. the auditor determines sample size B. the auditor determines sample selection methods C. the auditor evaluates the sample results on the basis of the professional judgment and the auditor's own experience. D. All of these choices are correct

D

It is important for an auditor to understand a public company's system of internal control in order to: A. audit internal control over financial reporting. B. make a preliminary assessment of control risk. C. develop an audit strategy. D. All of these answer choices are correct.

D

Nonsampling risk: A. only occurs if you test every item of the population. B. only applies to samples taken for the purposes of substantive testing. C. does not occur if an auditor relies on unreliable evidence. D. is the risk that an auditor arrives at an inappropriate conclusion for a reason unrelated to sampling issues.

D

The amount of estimation uncertainty is affected by _______. A. the nature of the accounting estimate B. the subjectivity of the assumptions used to make the estimate C. the extent to which a generally accepted method or model is available to aid in developing the estimate D. All of these answer choices are correct.

D

The auditor always needs to investigate any control exceptions (deviations) that he or she identifies during testing to find out, to the extent practical, _______. A. the causes and the amounts involved. B. the financial statement accounts affected. C. the potential effect on other audit procedures. D. All of these answer choices are correct.

D

The auditor decides which controls to test by considering: A. the points at which fraud or error can occur. B. the nature of controls implemented by management. C. the significance of each control in achieving its control objective. D. All of these answer choices are correct.

D

The critical difference between statistical and nonstatistical sampling is: A. the elimination of nonsampling risk with statistical sampling. B. the required use of judgment in nonstatistical sampling. C. that more representative samples are attained with statistical sampling. D. the use of the laws of probability in statistical sampling to determine sample size and develop a confidence interval around the results of the sample.

D

The more complex the client's operations and its internal controls, _______. A. the lower inherent risk is assessed by the auditor B. the more inexperienced the auditor who performs the work needs to be C. the less audit staff should be assigned to the client engagement D. the more experienced the auditor who performs the work needs to be

D

The types of substantive procedures discussed in this chapter include _______. A. Analytical procedures B. Substantive tests to follow-up on notable items identified when performing audit data analytics C. Tests of details of transactions and balances including audit data analytics (ADA) used as a substantive test D. All of these answer choices are correct.

D

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the A. Operating effectiveness of internal control policies and procedures. B. Factors that raise doubts about the auditability of the financial statements. C. Possibility that the nature and extent of substantive tests may be reduced. D. Risk that material misstatements exist in the financial statements.

D

When an audit procedure is tested on an entire group of transactions, _______. A. the sample should be discarded, and a new random sample drawn B. non-statistical sampling is required C. statistical sampling is required D. sampling is not required

D

When performing ADA as a risk assessment procedure, a notable item: A. is indicative of a risk of material misstatement not previously identified by the auditor. B. is indicative of a higher risk of material misstatement than anticipated by the auditor. C. provides information useful in designing procedures to address the risk of material misstatement. D. All of these answer choices describe notable items.

D

When performing an integrated audit (to issue an opinion on the financial statements and an opinion on internal controls over financial reporting), _______. A. the auditor uses a bottom-up approach to determine which controls to select B. the auditor should be careful to issue the same audit opinion for both the financial statements and internal control C. the auditor should be careful to issue different audit opinions for the financial statements and internal control D. the auditor uses a top-down approach to determine which controls to select

D

Which assertion is typically related to income statement accounts rather than balance sheet accounts or presentation and disclosure? A. Completeness. B. Accuracy. C. Rights and obligations. D. Cutoff.

D

Which of the following can be used as both a risk assessment procedure and a substantive procedure for the audit of accounting estimates? A. Inspect documentation for proper approval of the accounting estimate. B. Inspect events happening after year-end and up to the date of the auditor's report. C. Gain an understanding of what is required by the applicable financial reporting framework. D. Inquire of management about the methods and assumptions used in developing the estimate.

D

Which of the following factors is most likely to affect the extent of the documentation of the auditor's understanding of a client's system of internal controls? A. The degree to which the auditor intends to use internal audit personnel to perform substantive tests. B. The industry and the business and regulatory environments in which the client operates. C. The relationship between management, the board of directors, and external stakeholders. D. The degree to which information technology is used in the accounting function.

D

Which of the following represent a common categorization of control activities? A. Authorization controls, control over human error, information-processing controls, physical controls, and segregation of duties. B. Authorization controls, information-processing controls, physical controls, and segregation of duties. C. Authorization controls, control over human error, information-processing controls, and segregation of duties. D. Authorization controls, performance reviews, information-processing controls, physical controls, and segregation of duties.

D

Which of the following situations increases the reliability of data being used for substantive analytical procedures? A. Controls over the data have not been tested. B. Broad industry averages will be used in comparison with the client's data. C. The source of the data is the client's internal budget reports. D. During the prior-year audit, the data was subjected to audit testing.

D