ACCT 4080 Exam 2 (10-17)

A 95 percent confidence level in statistical sampling means there is more than a 5 percent sampling risk which the auditor needs to address in the sampling design. (T/F)

False

A medium-sized, nonpublic company has few effective controls and significant inherent risks. The auditor in this situation should emphasize tests of details and balances and substantive tests of transactions; no substantive analytical procedures should be performed in this situation by the auditor. (T/F)

False

Although systematic sample selection is easy to use, its primary disadvantage is that it is not a probabilistic sampling method. (T/F)

False

Auditors use substantive analytical procedures and tests of details of balances to satisfy planned control risk. (T/F)

False

Control risk is generally set at minimum for most private companies. (T/F)

False

Deficiencies in internal controls may cause significant losses, delay financial reporting, but cannot result in material misstatements in the financial statements. (T/F)

False

Enterprise resource planning (ERP) systems integrate limited aspects of an organization's business activities and transactions into one accounting information system. (T/F)

False

After the auditor is satisfied with the allowance for uncollectible accounts, it is easy to verify bad debt expense. (T/F)

True

An adequate system flowchart should include the same characteristics required for system narratives. (T/F)

True

An essential part of the auditor's responsibility in auditing cash receipts is to identify deficiencies in internal control that increase the likelihood of fraud. (T/F)

True

As Section 404 of the Sarbanes-Oxley Act requires management to assess and to document the design effectiveness of internal controls over financial reporting, management may have already prepared narratives and flowcharts which the auditor can the use in documenting their understanding of the design of such internal controls. (T/F)

True

At the completion of the tests of controls and substantive tests of transactions, auditors must analyze each exception to determine its cause and the implication of the exception on assessed control risk. (T/F)

True

Audit data analytics can be used to test accuracy of invoices outstanding at the end of the year by matching these invoices to subsequent cash receipts after year-end. (T/F)

True

Auditing standards require a written audit program. (T/F)

True

Auditors base their statistical inferences on sampling distributions. (T/F)

True

Auditors can state the conclusions drawn from a confidence interval using statistical inference in different ways. (T/F)

True

Auditors perform both planning and substantive analytical procedures for the entire sales and collection cycle, not just accounts receivable. (T/F)

True

Difference estimation frequently results in smaller sample sizes than any other variables sampling method. (T/F)

True

The auditor's responsibilities for internal control include understanding and testing the audit client's internal controls over financial reporting. (T/F)

True

The purpose of stratification is to permit auditors to emphasize certain aspects of a population and deemphasize others. (T/F)

True

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle. (T/F)

True

To determine if the client has rights to the accounts receivable on the trial balance, the auditor should inquire of management if any receivables are pledged or factored. (T/F)

True

When analytical procedures in the sales and collection cycle uncover unusual fluctuations, the auditor should make additional inquiries of management. (T/F)

True

Which of the following is most correct for audits of non-public companies? a) An audit of internal control is not required. b) An audit of the operational effectiveness of internal controls is required. c) An audit of internal control is required. d) An audit of the design of internal controls is required.

a) An audit of internal control is not required.

Most tests of accounts receivable are based on what schedule, file, or listing? a) aged accounts receivable trial balance b) accounts receivable general ledger account c) accounts receivable master file d) sales master file

a) aged accounts receivable trial balance

Customers that send their payments electronically directly to the billing company's bank are using a) electronic funds transfer (EFT). b) procurement cards. c) electronic data interchange (EDI). d) an electronic lockbox.

a) electronic funds transfer (EFT).

The reliance the auditor places on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily a) inverse. b) direct. c) parallel. d) equal.

a) inverse.

The most serious shortcoming of the haphazard sample selection method is a) it is difficult to remain completely unbiased in the selection. b) it is time consuming to use. c) it is costly to use. d) it is not subject to statistical sampling methods.

a) it is difficult to remain completely unbiased in the selection.

When auditing a client who uses a database management system, the auditor is principally aware of elevated risk due to the fact that a) multiple users can access and update data files. b) the accounting information is only in one place. c) the database administrator may lack appropriate accounting knowledge. d) multiple users could all access the data simultaneously causing a system shutdown.

a) multiple users can access and update data files.

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when a) no reply to a positive confirmation request is received. b) collectibility of the receivables is in doubt. c) pledging of the receivables is probable. d) no reply to a negative confirmation request is received.

a) no reply to a positive confirmation request is received.

Auditing standards require that auditors document a) results of the procedures performed to address the risk of management override of controls. b) specific risks of fraud identified at the financial statement level, but not at the assertion level. c) all of the above. d) all conversations with management.

a) results of the procedures performed to address the risk of management override of controls.

Which of the following audit tests is usually the least costly to perform? a) substantive analytical procedures b) tests of balances c) substantive tests of transactions d) tests of controls

a) substantive analytical procedures

The auditor's primary purpose in auditing the client's system of internal control over financial reporting is a) to evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements. b) to report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements. c) to prevent fraudulent financial statements from being issued to the public. d) to efficiently conduct the Audit of Financial Statements.

a) to evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements.

Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests? 1.risk assessment procedures 2.tests of controls 3.substantive tests of transactions 4.substantive analytical procedures 5.tests of details of balances a) 2, 3, and 5 b) 3, 4, and 5 c) 2, 3, and 4 d) 1, 2, and 3

b) 3, 4, and 5

Which of the following is a correct statement? a) The audit risk model is used determine the level of audit risk. b) The auditor uses the control risk assessment and results of tests of controls to determine planned detection risk. c) All of the above are correct statements. d) The auditor links the inherent risk assessments to the balance-related audit objectives.

b) The auditor uses the control risk assessment and results of tests of controls to determine planned detection risk.

Which of the following may represent the biggest challenge smaller public companies and nonpublic companies face in implementing effective internal control? a) a lack of competent, trustworthy personnel b) no adequate separation of duties c) a lack of adequate documents and records d) no clear lines of authority

b) no adequate separation of duties

A company uses the method for tracking accounts receivable where customers pay according to individual sales invoices. This describes the ________ method. a) cycle billing b) open-invoice c) balance forward d) monthly statement

b) open-invoice

Which of the following is the correct definition of "control deficiency"? a) A control deficiency exists if one or more deficiencies exist that adversely affect a company's ability to prepare external financial statements reliably. b) A control deficiency exists if the design or operation of controls results in a more than remote likelihood that controls will not prevent or detect misstatements. c) A control deficiency exists if the design or operation of controls results in a more than probable likelihood that controls will prevent or detect misstatements. d) A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstatements on a timely basis.

d) A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstatements on a timely basis.

Matching customer account numbers and inventory item numbers to the numbers in the customer and inventory master files is an example of a a) reasonableness test. b) completeness test. c) field check. d) validity check.

d) validity check.

For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve a) cash disbursements. b) employee overtime wages. c) credit granted to customers. d) write-offs of customer accounts.

d) write-offs of customer accounts.

Presentation and disclosure objectives are primarily addressed in the tests of details of balances phase of the audit. (T/F)

False

Sampling, not nonsampling risks, are important for tests of controls, substantive tests of transaction, and test of details of balances. (T/F)

False

Statistical sampling eliminates any professional judgment for the auditor. (T/F)

False

The COSO framework, updated in 2013, provides a rules-based approach that provides additional guidance on designing and implementing an effective system of internal controls. (T/F)

False

The population standard deviation has a significant effect on the computed precision interval. (T/F)

False

The upper limit of the interval estimate is also known as the confidence interval. (T/F)

False

The use of monetary unit sampling is most appropriate when the auditor expects to find many errors and when a monetary result is desired. (T/F)

False

When performing a proof of cash receipts, the auditor will test if the total cash receipts recorded in the cash receipts journal for a given period agree with the actual deposits made to the respective bank account for the same period. A difference found during this test generally signals to the auditor a potential weakness in internal controls. (T/F)

False

A higher confidence factor increases the sample size, which increases the "confidence" that the sample is representative of the population. (T/F)

True

A large portion of errors in IT systems result from data entry errors. (T/F)

True

An example of substantive testing and also a test of controls is using audit software to identify purchases where the vendor's invoice, the receiving report, and the purchase order did not match prior to payment of the vendor's invoice. (T/F)

True

As a result of the Dodd-Frank federal financial reform legislation passed by Congress in 2010, only larger public companies (accelerated filers) are now required to obtain an audit report from their auditors on internal control over financial reporting. (T/F)

True

Assume an important control is shipping documents being attached to invoices. An effective audit procedure for detecting exceptions to this control would be to examine a sample of shipping documents and determining whether each is attached to a duplicate sales invoice. (T/F)

True

Auditors prefer to use probabilistic sample selection methods for nonstatistical sample applications involving tests of controls and substantive tests of transactions to improve the likelihood of selecting a representative sample. (T/F)

True

Each client misstatement in accounts receivable must be analyzed to determine whether it was consistent with the original assessed level of control risk. (T/F)

True

For each significant internal control deficiency identified by the auditor, he or she should design one or more tests of controls to assess the extent of the deficiency and its effect on the financial statements. (T/F)

True

For integrated audits of large, publicly traded companies, the level of understanding of internal controls and the extent of testing of those controls need to be sufficient for the auditor to issue an opinion on the effectiveness of internal controls over financial reporting. (T/F)

True

For most audits, revenue recognition is considered to be a significant risk. (T/F)

True

Generalized audit software is used to test automated controls. (T/F)

True

If an auditor wishes to rely on the work of internal auditors (IA), the auditor must obtain satisfactory evidence related to the IA's competence, integrity, and objectivity. (T/F)

True

If control risk is assessed at maximum, only substantive tests of transactions will be used by the auditor, assuming the audit is of a smaller public company, a nonpublic company, or other type of entity. (T/F)

True

If sales returns and allowances and write-off of uncollectible accounts receivable are significant, the assessed control risk must be considered for these two classes of transactions. (T/F)

True

In IT systems, if general controls are effective, it increases the auditor's ability to rely on application controls to reduce control risk. (T/F)

True

In an audit of a nonpublic company, the less control risk there is, the smaller the amount of planned substantive evidence that is required. (T/F)

True

It is equally acceptable under professional auditing standards for auditors to use either statistical or nonstatistical sampling methods. (T/F)

True

LANs link equipment within a single or small cluster of buildings and are used within a company. (T/F)

True

Management has a legal and a professional responsibility to be sure external financial information, and the information contained therein, are fairly presented in accordance with generally accepted accounting principles and International Financial Reporting Standards, when required. (T/F)

True

Negative confirmations normally require a larger sample size than positive confirmations. (T/F)

True

One factor that determines the amount of additional evidence required for tests of controls is the planned reduction in control risk. (T/F)

True

One way to control sampling risk is to increase sample size. (T/F)

True

Only tests of details of balances involve physical examination and confirmation. (T/F)

True

Realizable value is an essential balance-related audit objective for accounts receivable. (T/F)

True

Sales returns and allowances are often ignored by auditors because they are often immaterial. (T/F)

True

The PCAOB issued guidance in May 2017 to assist auditors of public companies implementing the new revenue recognition standard. (T/F)

True

The accounts receivable balance-related audit objective net realizable value is not affected by assessed control risk for sales or cash receipts. (T/F)

True

The auditor assesses control risk for each related audit objective and supports control risk assessments with tests of controls. (T/F)

True

The auditor must do misstatement analysis to decide whether any modification of the audit risk model is needed. (T/F)

True

The sales and collection cycle applies to businesses that sell goods to customers or provide services to customers. (T/F)

True

To issue an unqualified opinion on internal control over financial reporting, there must be no identified material weaknesses and no restrictions on the scope of the audit. (T/F)

True

Tolerable misstatement is inversely related to sample size. (T/F)

True

When customers purchase goods by credit card, the issuer of the credit card uses EFT to transfer funds into the company's bank account. (T/F)

True

When the sample exception rate is greater than the tolerable exception rate in attributes sampling, one possible appropriate course of action is to increase sample size. (T/F)

True

When using sampling methods, the auditor is focused on obtaining results in dollar terms. (T/F)

True

It is inappropriate for the auditor to make written suggestions to management to improve business performance upon completion of the audit. (T/F)

False

In a small business, the daily involvement of the owner in the business is not sufficient to overcome significant deficiencies or material weaknesses in internal controls. (T/F)

False

If all transaction-related audit objectives are met, the auditor does not need to perform substantive test of balances to meet the realizable value audit objective. (T/F)

False

If internal controls are tested and are considered effective, the auditor generally will increase both substantive tests of transactions and tests of details of balances. (T/F)

False

Which of the following is an accurate statement regarding the risk assessment process of phase I of the audit process for the sales and collection cycle? a) Auditors must perform substantive tests related to assertions deemed to have significant risks. b) The auditor must relate control risk for transaction-related audit objectives to balance-related audit objectives in deciding planned inherent risk. c) All of the above are accurate statements. d) The realizable value balance-related audit objectives are affected by assessed control risk for classes of transactions.

a) Auditors must perform substantive tests related to assertions deemed to have significant risks.

Which of the following best describes the test data approach? a) Auditors process their own test data using the client's computer system and application program. b) Auditors process their own test data using their own computers that simulate the client's computer system. c) Auditors use client-controlled software to do the same operations that the client's software does, using auditor created data files. d) Auditors use auditor-controlled software to do the same operations that the client's software does, using the same data files.

a) Auditors process their own test data using the client's computer system and application program.

For which of the following audit procedures would audit sampling not be appropriate? a) Review sales transactions for large and unusual amounts. b) Examine a sample of duplicate sales invoices for credit approval. c) Audit sampling is appropriate for each of the above procedures. d) Compare the quantity on duplicate sales invoices with the quantity on related shipping documents.

a) Review sales transactions for large and unusual amounts.

Which of the following is not a key decision that needs to be made in the revenue cycle? a) Which vendor should inventory be purchased from? b) Should credit be extended to customers? c) How can customer payments be processed to maximize cash flow? d) How should merchandise be delivered to customers?

a) Which vendor should inventory be purchased from?

Typical controls developed for manual systems which are still important in IT systems include a) all of the above. b) competent personnel. c) management's authorization of transactions. d) adequate preparation of input source documents.

a) all of the above.

When designing the audit program and the particular audit tests, the auditor should keep in mind that a) analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning. b) auditing standards require that the tests contained in the audit program must be approved by the PCAOB. c) the audit program is broken down into two parts-the risk assessment procedures and the tests of details of balances. d) the tests of controls will not vary depending on assessed control risk.

a) analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning.

For strongest segregation of duties, a sales representative should never be allowed to a) approve a sale on credit. b) send a customer a gift. c) discuss the company's products. d) negotiate the sales price.

a) approve a sale on credit.

To determine if a sample is truly representative of the population, an auditor would be required to a) audit the entire population. b) never use sampling because of the expense involved. c) conduct multiple samples of the same population. d) use systematic sample selection.

a) audit the entire population.

The auditor will issue an unqualified opinion on internal control over financial reporting when a) both a and b b) there are no identified material weaknesses as of the end of the fiscal year. c) there have been no restrictions on the scope of the auditor's work. d) either a or b

a) both a and b

The auditor is reviewing the receivables listed on the aged trial balance for notes and related party receivables. Which balance-related audit objective is he trying to satisfy? a) classification b) detail tie-in c) all of the above d) existence

a) classification

Internal controls a) consist of policies and procedures designed to provide reasonable assurance that the company achieves its objectives and goals. b) are implemented by and are the responsibility of the auditors. c) only apply to SEC companies. d) guarantee that the company complies with all laws and regulations.

a) consist of policies and procedures designed to provide reasonable assurance that the company achieves its objectives and goals.

For clients with highly sophisticated computerized accounting systems, auditors perform tests throughout the year to identify significant or unusual transactions. This approach is called ________ and is frequently used in integrated audits of financial statements and internal control for public companies. a) continuous auditing b) continuous audit program c) continuous audit mix d) continuous analytical testing

a) continuous auditing

Regularly reviewing an accounts receivable aging report can help management do what? a) determine whether changes are needed in the firm's credit policies b) determine whether the firm's pricing policy is effective c) improve the speed which customers make payments d) identify customers who have not purchased anything lately

a) determine whether changes are needed in the firm's credit policies

Which of the following is least likely to uncover fraud? a) external auditors b) internal auditors c) internal controls d) management

a) external auditors

Which of the following is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings? a) income smoothing b) expense smoothing c) fraudulent financial reporting d) Each of the above is correct.

a) income smoothing

A monthly statement sent to customers serves a control purpose by a) providing an opportunity for customers to verify the balance owed and activity on the account. b) reminding customers of the balance due and due date. c) summarizing invoices and amounts due for customers. d) triggering the process to record a customer payment.

a) providing an opportunity for customers to verify the balance owed and activity on the account.

When assessing fraud risk, a) the auditor's assessment of fraud risk should be ongoing throughout the audit. b) if the auditor concludes that there is a risk of material misstatement due to fraud, auditing standards require that the risks be treated as pervasive. c) fraud risk is assessed only at the overall financial statement level. d) auditing standards require that the auditor presume there is a risk of fraud in the inventory account.

a) the auditor's assessment of fraud risk should be ongoing throughout the audit.

When testing manual or automated controls, a) the extent of testing depends on whether it is a manual or automated control. b) automated controls cannot be altered by making a change to the software application. c) when there are effective general controls and automated application controls, the auditor will need to select a larger sample size of transactions to verify. d) automated controls are always subject to random error or manipulation.

a) the extent of testing depends on whether it is a manual or automated control.

By using an ERP to merge the billing, sales, and marketing functions, the firm may be able to a) use customer's past purchase history to send information about related products and services the customer may be interested in. b) market products and services on bills sent to customers. c) eliminate the need for a firm to have a billing, sales, and marketing department. d) bill the customer right after the sale occurs.

a) use customer's past purchase history to send information about related products and services the customer may be interested in.

Which of the following statements is most correct concerning the quantification of sampling risk? a) Sampling risk cannot be quantified. b) Sampling risk can be quantified only when probabilistic selection techniques are used to select the sample. c) None of the above is correct. d) Sampling risk can be quantified only when nonprobabilistic selection techniques are used to select the sample.

b) Sampling risk can be quantified only when probabilistic selection techniques are used to select the sample.

Tests of controls and substantive tests of transactions are an important determinant of the extent of the auditor's use of tests of details of balances. Which of the following is true? a) They are likely to have no impact on the planned tests of details of balances. b) They are likely to be performed prior to the client's end of the fiscal year. c) They are likely to eliminate the need for tests of details of balances. d) They are likely to be used only in the audit of internal control.

b) They are likely to be performed prior to the client's end of the fiscal year.

Which of the following types of evidence is not available when using substantive tests of transactions? a) inspection b) confirmation c) inquiries of the client d) reperformance

b) confirmation

The most effective audit evidence gathered for accounts receivable is the a) analysis of the allowance for doubtful accounts. b) confirmation of accounts receivable. c) detail tie-in of the records. d) examination of sales invoices.

b) confirmation of accounts receivable.

Auditors are especially concerned with three aspects of internal control for the sales and collection cycle. Which of the following is not one of their major concerns? a) controls related to the allowance for uncollectible accounts b) controls over sales discounts c) controls that prevent or detect embezzlements d) controls over cutoff

b) controls over sales discounts

If the auditor finds extensive control test deviations and significant misstatements while performing substantive tests of transactions and substantive analytical procedures, a) all of the above. b) extensive tests of details of balances will need to be performed. c) the auditor will conclude that internal controls are effective. d) the cost of the audit should decrease.

b) extensive tests of details of balances will need to be performed.

The PCAOB places responsibility for the reliability of internal controls over the financial reporting process on a) the audit committee of the board of directors. b) management. c) the company's board of directors. d) the CFO and the independent auditors.

b) management.

When dealing with revenue frauds, a) premature revenue recognition involves recognizing the revenue after the accounting standards requirements have been met. b) side agreements can modify the terms of the sales transaction and should be analyzed carefully. c) premature revenue recognition is the same as cutoff errors. d) the most egregious form of revenue fraud involves premature revenue recognition.

b) side agreements can modify the terms of the sales transaction and should be analyzed carefully.

Which of the following represents a correct statement regarding internal control testing? a) When auditors plan to use evidence about the operating effectiveness of internal control contained in prior audits, auditing standards require tests of the controls' effectiveness at least every other year. b) The greater the risk, the less audit evidence the auditor should obtain that controls are operating effectively. c) The auditor uses control risk assessment and results of tests of controls to determine planned detection risk and the related substantive tests for the financial statement audit. d) Testing of internal controls can only be performed by the auditor at the end of the fiscal year.

c) The auditor uses control risk assessment and results of tests of controls to determine planned detection risk and the related substantive tests for the financial statement audit.

Auditors may identify conditions during fieldwork that change or support a judgment about the initial assessment of fraud risks. Which of the following is not a condition which should alert an auditor that the initial assessment should be changed? a) unusual relationships between the auditor and management b) discrepancies in the accounting records c) The subsidiary ledger agrees with the general ledger. d) missing or conflicting evidence

c) The subsidiary ledger agrees with the general ledger.

Which of the following statements is correct when dealing with sampling for exception rates? a) When used with sampling, the term deviation is synonymous with the term exception. b) The actual population exception rate is the same as the sample exception rate. c) The term exception refers to both deviations from the client's control procedures and amounts that are not monetarily correct. d) In using audit sampling for exception rates, the auditor is most concerned with the confidence interval.

c) The term exception refers to both deviations from the client's control procedures and amounts that are not monetarily correct.

Most frauds are detected by a) IT controls. b) law enforcement. c) a tip. d) a confession by the fraudster.

c) a tip.

Which of the following is not one of the three primary objectives of effective internal control? a) compliance with laws and regulations b) reliability of financial reporting c) assurance of elimination of business risk d) efficiency and effectiveness of operations

c) assurance of elimination of business risk

Without an effective ________, the other components of the COSO framework are unlikely to result in effective internal control, regardless of their quality. a) monitoring policy b) system of control activities c) control environment d) risk assessment policy

c) control environment

Rather than maintain an internal IT center, many companies outsource their basic IT functions such as payroll to an a) internal control service provider. b) external general service provider. c) independent computer service center. d) internal auditor.

c) independent computer service center.

The purpose of tests of controls is to provide reasonable assurance that the a) entity has complied with requirements of quality control. b) accounting treatment of transactions and balances is valid and proper. c) internal control procedures are functioning as intended. d) entity has complied with GAAP disclosure requirements.

c) internal control procedures are functioning as intended.

Which of the following is the risk that audit tests will not uncover existing exceptions in a sample? a) audit risk b) detection risk c) nonsampling risk d) sampling risk

c) nonsampling risk

Which of the following is not one of the elements to prevent, deter, and detect fraud according to the AICPA? a) audit committee oversight b) culture of honesty and high ethics c) performing analytical procedures d) management's responsibility to evaluate risks of fraud

c) performing analytical procedures

In the fraud triangle, fraudulent financial reporting and misappropriation of assets a) share little in common. b) share most of the same conditions. of the fraud triangle. c) share the same three conditions of the fraud triangle. d) share most of the same risk factors.

c) share the same three conditions of the fraud triangle.

The exception rate the auditor will permit in the population and still be willing to conclude that the control is operating effectively is the a) sample exception rate. b) acceptable risk of overreliance. c) tolerable exception rate. d) estimated population exception rate.

c) tolerable exception rate.

Which of the following statements is most correct with respect to separation of duties? a) Employees who authorize transactions should have recording responsibility for these transactions. b) A person who has temporary or permanent custody of an asset should account for that asset. c) Employees who open cash receipts should record the amounts in the subsidiary ledgers. d) Employees who authorize transactions should not have custody of the related assets.

d) Employees who authorize transactions should not have custody of the related assets.

Which of the following is an accurate statement regarding the misappropriation of assets? a) Asset misappropriation schemes are less common than fraudulent financial statement schemes. b) Management should not be concerned about minor misappropriations. c) In most cases, the amounts involved are material to the financial statements. d) Misappropriation of assets can easily increase in size over time and can lead to significant reputational harm.

d) Misappropriation of assets can easily increase in size over time and can lead to significant reputational harm.

The auditor has a balance-related audit objective to determine that accounts receivable are appropriately aggregated, and related financial statement disclosures are relevant and understandable. Which of the following audit procedures would the auditor not perform in connection with this audit objective? a) Trace receivables from related parties on the aged trial balance to proper disclosure in the footnotes to the financial statements. b) Read footnote disclosures made by management related to accounts receivable. c) Evaluate footnote disclosures made by management for related party receivables. d) Use audit software to foot and cross-foot the aged accounts receivable trial balance.

d) Use audit software to foot and cross-foot the aged accounts receivable trial balance.

Which of the following controls can minimize the threat of theft of cash? a) Restriction of access to master data. b) Bar-code and RFID technology. c) Separation of billing and shipping functions. d) Use of cash registers.

d) Use of cash registers.

Which is the best control to prevent invoicing customers for more than the actual quantity shipped? a) Use the information from the picking ticket to prepare the sales invoice. b) Use the information from the bill of lading to prepare the sales invoice. c) Use the information from the sales order to prepare the sales invoice. d) Use the information from the packing slip to prepare the sales invoice.

d) Use the information from the packing slip to prepare the sales invoice.

There is a direct relationship between the ________ transaction-related audit objective and the ________ balance-related audit objective. a) posting and summarization; detail tie-in b) occurrence; existence c) timing; cutoff d) all of the above

d) all of the above

The employee in charge of authorizing credit to the company's customers does not fully understand the concept of credit risk. This lack of knowledge would a) not constitute a deficiency. b) constitute a deficiency of management. c) constitute a deficiency in design of internal controls. d) constitute a deficiency in operation of internal controls.

d) constitute a deficiency in operation of internal controls.

Narratives, flowcharts, and internal control questionnaires are three common methods of a) testing the internal controls. b) documenting the auditor's understanding of a client's organizational structure. c) designing the audit manual and procedures. d) documenting the auditor's understanding of internal controls.

d) documenting the auditor's understanding of internal controls.

Controls which are designed to assure that the information entered into the computer is authorized, complete, and accurate are called a) general controls. b) processing controls. c) output controls. d) input controls.

d) input controls.

Simple random sampling a) requires both input and output parameters to be set when using a random number generator. b) is generally used with replacement sampling. c) is used when there is a need to emphasize one or more types of population items. d) is a probabilistic sampling method.

d) is a probabilistic sampling method.

An auditor is comparing the write-off of uncollectible accounts as a percentage of total accounts receivable with previous years. A possible misstatement this procedure could uncover is a) overstatement or understatement of sales. b) overstatement or understatement of accounts receivable. c) overstatement or understatement of sales returns and allowances. d) overstatement or understatement of bad debt expense.

d) overstatement or understatement of bad debt expense.

Analytical procedures are substantive tests and, if the results of the analytical procedures are favorable, the auditor would normally a) reduce all of the other tests. b) reduce the tests of transactions. c) reduce the extent of tests of controls. d) reduce the extent of tests of details of balances.

d) reduce the extent of tests of details of balances.

When choosing the appropriate acceptable risk of overreliance, the auditor needs to a) err on the side of conservatism. b) consult the professional standards. c) follow SEC guidelines. d) rely on his/her professional judgment.

d) rely on his/her professional judgment.

In using sampling distribution for attributes, which one of the following must be known to evaluate the sample results? a) standard exception of the values in the population b) actual exception rate of the attribute in the population c) estimated dollar value of the population d) sample size

d) sample size