ACCT 131 Chapter 5

Which of the following approaches to an audit is most likely to result in a detailed analysis of one or more characteristics of an entire population?

A data analytical approach.

Which of the following documentation is NOT required for an audit in accordance with generally accepted auditing standards?

A flowchart depicting the auditor's understanding of the design of internal control.

Which of the following business characteristics is not indicative of high inherent risk?

A large amount of assets.

Reply to the following questions relating to analytical procedures. Performing analytical procedures may help an auditor to:

Achieve audit objectives related to a particular assertion.

Audit documentation should be prepared in enough detail so that:

An experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 2. Starting with an initial belief and then insufficiently adjusting that belief when contrary information is encountered.

Anchoring bias

Reply to the following questions relating to analytical procedures. In developing an expectation for analytical procedures, the auditors are least likely to consider:

Anticipated costs of audit completion.

Which of the following is not true about documentation?

Audit documentation should include a separate page for each material account balance or transaction class.

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 6. Information used by the auditor that corroborates or contradicts the assertions in the financial statements.

Audit evidence

In using the work of a specialist, the auditors referred to the specialist's findings in their report. This would be an appropriate reporting practice if the:

Auditors, as a result of the specialist's findings, give a qualified opinion on the financial statements.

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 1. Overvaluing information that quickly comes to mind.

Availability bias

Which of the following factors would most likely influence the form and extent the auditor's documentation of an entity's internal control environment?

Complexity and size of the entity.

Which of the following is not a primary approach to auditing an accounting estimate?

Confirm the amounts.

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 3. Seeking and treating as more persuasive information that is consistent with one's beliefs.

Confirmation bias

Seeking and treating as more persuasive information that is consistent with one's initial beliefs describes which cognitive bias?

Confirmation bias.

Reply to the following questions relating to analytical procedures. Analytical procedures performed near the end of the audit to assist the auditor in forming an overall conclusion on the financial statements are aimed primarily at:

Considering unusual or unexpected account balances that were not previously identified.

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 9. The risk that a material misstatement that could occur will not be prevented or detected on a timely basis.

Control risk

Of the following, which is the least reliable type of audit evidence?

Copies of sales invoices inspected by the auditors.

State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk. b. Inherent risk is the possibility of material misstatement before considering the client's internal control.

Correct

State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk. d. Detection risk does not exist when no audit is performed.

Correct

The permanent (continuing) file of audit documentation most likely would include copies of the:

Debt agreement

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably:

Document the assistant auditor's position and how the difference of opinion was resolved.

Which of the following is not a financial statement assertion made by management?

Effectiveness of internal control

Which best describes the documentation completion date?

Forty-five days from the report release date, based on PCAOB standards.

State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk. a. The risk of material misstatement is composed of the three components of audit risk.

Incorrect

State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk. c. Less control risk means an increase in the risk of material misstatement.

Incorrect

State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk. e. Rather than restrict detection risk through the performance of more substantive procedures, auditors assess it.

Incorrect

State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk. g. Audit risk refers to the possibility that the auditors may express an inappropriate opinion on financial statements that are materially or immaterially misstated.

Incorrect

Which of the following groups are not considered a specialist by AICPA Professional Standards?

Internal auditors.

A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial balance as a single amount, is referred to as a:

Lead schedule.

Reply to the following questions relating to analytical procedures. The cost of analytical procedures in terms of time needed to perform, when compared to other tests, is ordinarily considered:

Low.

Which of the following is least likely to be included in a client's representation letter?

Management acknowledges responsibility for illegal actions committed by employees.

Which of the following best describes the reason that auditors are concerned with the detection of related party transactions?

Material related party transactions must be disclosed in the notes to the financial statements.

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 10. A financial statement assertion that is probable of misstatement given the nature of the further audit procedures performed.

No term applies

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 12. A financial statement assertion that has a reasonable possibility of containing a misstatement or misstatements that would cause the financial statements to be materially or immaterially misstated.

No term applies

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 14. An attitude that includes a subjective mind and a detailed assessment of audit evidence.

No term applies

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 15. Every assumption relating to a significant financial statement assertion.

No term applies

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 4. Overestimating one's abilities.

No term applies

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 5. All information prepared within the audited organization.

No term applies

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 7. Information used by the auditor that corroborates the assertions in the financial statements.

No term applies

Financial statement assertions are established for classes of transactions and which of the following: Account Balances Disclosures A. Yes Yes B. No No C. Yes No D. No Yes

Option A

Applying substantive tests to the details of asset and liability accounts as of an interim date, rather than as of the balance sheet date:

Potentially increases the risk that errors which exist at the balance sheet date will not be detected.

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 13. An attitude that includes a questioning mind, and a critical assessment of audit evidence.

Professional skepticism

Reply to the following questions relating to analytical procedures. What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts?

Ratio analysis.

Which of the following would NOT be considered a significant audit finding that should be included in audit documentation?

Retirement of the accounts payable manager and subsequent hiring of a replacement.

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 16. As related to an accounting estimate, an assumption for which a reasonable variation would materially affect the measurement of that accounting estimate.

Significant assumption

Which of the following statements is most accurate regarding sufficient and appropriate documentation?

Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.

At the completion of an audit, which of the following entities has ownership of the audit working papers?

The CPA firm that performed the audit.

Which of the following factors would LEAST likely affect the nature and extent of audit documentation?

The content of the representation letter.

Which of the following statements best describes why auditors investigate related party transactions?

The substance of related party transactions may differ from their form.

As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter?

To increase the efficiency of the audit by eliminating the need for other audit procedures.

Analytical procedures are most likely to detect:

Unusual transactions.

A primary purpose of the audit working papers is to:

Support the auditors' opinion.

State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk. f. Absent any other changes, an increase in the risk of material misstatement results in an increase in audit risk.

Correct

State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk. h. Both inherent risk and control risk exist independently of the audit of financial statements.

Correct

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 8. The risk that the auditors' procedures will lead them to conclude that a misstatement does not exist when in fact it does exist.

No term applies

In what section of the audit working papers would a long-term lease agreement be filed?

Permanent working paper file.

For each partial (or complete) definition or illustration in the first column, select the applicable term. If no term is suitable select "No term applies". 11. A financial statement assertion that has a reasonable possibility of containing a misstatement or misstatements that would cause the financial statements to be materially misstated.

Relevant assertion