Audit Exam 2 review

The auditor tests the control activities for the assertion by comparing the date on the receiving report with the date on the voucher. (Enter only one word per blank.)

Blank 1: cutoff

A control deficiency exists when the or of a control does not allow management or employees to prevent or detect misstatements on a timely basis. (Enter only one word per blank.)

Blank 1: design Blank 2: operation

Factors that affect whether the magnitude of a misstatement might result in a(n) include (1) the financial statement amounts or total of transactions exposed to the deficiency and the (2) volume of transactions involved or expected. (Enter only one word per blank.)

Blank 1: material Blank 2: weakness

The auditor is concerned with a misstatement caused by a cash disbursement being recorded in the entity's records when no payment has actually been made when considering the assertion. (Enter only one word per blank.)

Blank 1: occurrence

When items are out of stock or on backorder, the orders of the affected customers will appear on the - report. (Enter only one word per blank.)

Blank 1: open Blank 2: order

Tests of controls for effectiveness include procedures such as inquiry, documentation inspection, observation and reperformance of the application of the control.. (Enter only one word per blank.)

Blank 1: operating

If a misstatement is detected by substantive procedures, the auditor should consider whether the control deficiency might affect the on the audit of ICFR. (Enter only one word per blank.)

Blank 1: opinion

The auditor identifies what controls ensure that the assertions for transactions and events are being met when a(n) strategy is adopted for the revenue process. (Enter only one word per blank.)

Blank 1: reliance

The auditor needs to understand the controls that exist to assure that management's objectives are being met when a(n) strategy is adopted for the purchasing process. (Enter only one word per blank.)

Blank 1: reliance

When an entity has a material weakness, it should take steps to correct it, which is referred to as . (Enter only one word per blank.)

Blank 1: remediation

The sale of goods and services to customers is the focus of the process. (Enter only one word per blank.)

Blank 1: revenue

For virtually all entities, the and processes represent the two major business processes than affect the financial statements. (Enter only one word per blank.)

Blank 1: revenue Blank 2: purchasing or purchase

The purchasing function can achieve its objectives by using multiple and requiring competitive . (Enter only one word per blank.)

Blank 1: vendors Blank 2: bidding or bids

True or false: Revenue must be recognized in conformity with GAAP in order for an auditor to issue an opinion on the financial statements. True false question. True False

False

True or false: The best way to address sampling risk is to test 100% of the population. True false question. True False

False

True or false: The main objective of the general ledger function for the purchasing process is to ensure that all vendor invoices, cash disbursements, and adjustments are recorded in the accounts payable records. True false question. True False

False

a substantial weakness in internal controls that is less than material.

A significant deficiency in internal controls is best described as an inconsequential weakness in the internal controls. Correct! a substantial weakness in internal controls that is less than material. none of these. a material weakness in the internal controls.

Significant account or disclosure

An account or disclosure where there is a reasonable possibility that it could contain a misstatement that, individually or when aggregated with others, has a material effect on the financial statements, considering the risks of both overstatement and understatement.

none of these.

An audit of internal controls is required to be performed annually by a CPA for audit clients not subject to regulation by the SEC. Correct! none of these. all financial audit clients. privately held audit clients.

Reports accepting responsibility for establishing and maintaining adequate ICFR are issued by of public companies. (Enter only one word per blank.)

Blank 1: management or managers

Audit evidence that is a direct written response from a third party to the auditor, in paper form or by electronic or other medium is called . (Enter only one word per blank.)

Blank 1: confirmation

In addition to material weaknesses and significant deficiencies, the auditor should communicate, in writing, to management all deficiencies identified during the audit. (Enter only one word per blank.)

Blank 1: control

The cash disbursements journal usually has columns for ______. Multiple select question. debits to cash debits to accounts payable credits to cash credits to accounts payable

debits to accounts payable credits to cash

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

deviation

Which of the following accounts is affected by all types of purchasing process transactions? Multiple choice question. Inventory Cash Accounts payable Cost of goods sold

Accounts payable

Which of the following is not a SFAC 5 expense category? Multiple choice question. Period costs Systematic expenses Product costs Amortized expenses

Amortized expenses

If 3 deviations are found in a sample of 60, the sample deviation rate is %. (Enter your answer as a whole number.)

Blank 1: 5 or five

In addition to the control activities used for the occurrence assertion, accounting for the numerical sequence of checks helps ensure the assertion is met. (Enter only one word per blank.)

Blank 1: completeness

The converse of sampling risk is . (Enter only one word per blank.)

Blank 1: confidence Blank 2: level

The risk that a misstatement could result in a material misstatement of the financial statements is called a(n) risk. (Enter only one word per blank.)

Blank 1: financial Blank 2: reporting

Sampling units are selected without any conscious bias when a(n) selection approach is used. (Enter only one word per blank.)

Blank 1: haphazard

Auditors can set either a confidence level or . (Enter only one word per blank.)

Blank 1: sampling Blank 2: risk

the cost of the control should not exceed the benefit derived.

The concept of reasonable assurance as it applies to the design and implementation of internal controls is that auditors will have limited liability for their actions. Correct! the cost of the control should not exceed the benefit derived. the public requires the auditor to act as a reasonable person when providing assurance. management may override virtually all internal controls.

Monitoring is a major component of the COSO Internal Control-Integrated Framework. Which of the following is not correct in how the company can implement the monitoring component? Monitoring can be an ongoing process. Monitoring can be conducted as a separate evaluation. Monitoring and other audit work conducted by internal audit staff can reduce external audit costs. The independent auditor can serve as part of the entity's control environment and continuous monitoring.

The independent auditor can serve as part of the entity's control environment and continuous monitoring.

Control activities

The policies and procedures that help ensure that management's directives are carried out.

True or false: An industry's rate of technological changes can affect the potential for misstatements in this revenue process. True false question. True False

True

True or false: It is wise to be somewhat conservative when estimating the expected population deviation rate. True false question. True False

True

An auditor's flowchart of a client's accounting system is a diagrammatic representation that depicts the auditor's Program for tests of controls. Understanding of the system. Understanding of the types of fraud that are probable, giving the present system. Documentation of the study and evaluation of the system.

Understanding of the system

A voucher register normally ______. Multiple choice question. contains a column for a credit to accounts payable records receipt of vouchers from vendors contains a listing of inventory acquired for the period contains a column for a debit to accounts payable

contains a column for a credit to accounts payable

The auditor should document the achieved level of control risk for the revenue process using ______. Multiple choice question. quantitative amounts only both quantitative amounts or qualitative terms either quantitative amounts or qualitative terms qualitative terms only

either quantitative amounts or qualitative terms

The accounts payable department ______. Multiple select question. ensures that an appropriate liability is recognized processes invoices processes purchase requisitions and purchase orders ensures that all goods received are recorded as assets or expenses

ensures that an appropriate liability is recognized processes invoices ensures that all goods received are recorded as assets or expenses

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

increases

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

inquiry

A credit approval form ______. Multiple select question. establishes customer credit limits is an example of a source document documents a customer's creditworthiness

is an example of a source document documents a customer's creditworthiness

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

is free of any material weakness

Stealing cash and manipulating the accounting records to hide the misstatement is known as ______. Multiple choice question. lapping dipping forgery collusion

lapping

To test cutoff of accounts payable, the auditor examines the receiving reports contained in the voucher packets to determine if the receipt of the goods is consistent with the recording of a(n) ______. Multiple choice question. revenue expense asset liability

liability

Inherent risk may increase due to issues regarding recognition of revenue on ______. Multiple select question. long-term service contracts sale of goods for cash sale of goods on credit long-term construction contracts installment sales lease contracts

long-term service contracts long-term construction contracts installment sales lease contracts

Possible misstatements due to improper authorization of revenue transactions include ______. Multiple select question. making sales at unauthorized prices or terms performing services for customers who are bad credit risks billing for goods that are not shipped shipping goods that are not billed

making sales at unauthorized prices or terms performing services for customers who are bad credit risks

For entities that have specialized revenue or services that require separation, controls over the aggregation or disaggregation of transactions are paramount for proper ______. Multiple choice question. presentation accuracy completeness authorization

presentation

The auditor should ______ that there is a risk of material misstatement due to fraud relating to revenue recognition. Multiple choice question. presume not assume

presume

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

reasonable

Proper segregation of duties for purchasing include ______. Multiple select question. requisitioning from invoice processing receiving from invoice processing cash receipts from general ledger invoice processing from shipping requisitioning from general ledger

requisitioning from invoice processing receiving from invoice processing requisitioning from general ledger

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

significant

Revenue recognition poses a(n) ______ audit risk to auditors. Multiple choice question. insignificant medium significant

significant

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

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

Analyzing misstatements may lead the auditor to conclude that the original assessment of control risk was ______. Multiple choice question. too high too low tolerable

too low

If the entity fails to record a purchase that has been made, assets or expenses will be ______, and accounts payable will be ______. Multiple choice question. overstated; understated understated; overstated overstated: overstated understated; understated

understated; understated

if the entity fails to record a purchase that has been made, assets or expenses will be ______, and accounts payable will be ______. Multiple choice question. understated; understated understated; overstated overstated: overstated overstated; understated

understated; understated

The auditor often confirms balances with regular vendors that have small or zero balances because of concerns about ______. Multiple choice question. classification of payables unrecorded liabilities existence cutoff

unrecorded liabilities

The second major test of the completeness assertion for accounts payable and accruals is concerned with ______. Multiple choice question. unrecorded liabilities false payments to vendors unrecorded cash inflows

unrecorded liabilities

The purchasing function can achieve its objectives by ______. Multiple select question. changing vendors regularly using multiple vendors always seeking out the lowest possible price for goods and services requiring competitive bidding

using multiple vendors requiring competitive bidding

The tax provision and related balance sheet accounts are ______. Multiple choice question. usually material elements in the financial statements usually immaterial elements in the financial statements generally not audited

usually material elements in the financial statements

Reviewing a bill for an accrual provides the auditor evidence of the ______ assertion of accruals. Multiple choice question. occurrence classification cutoff valuation

valuation

Walkthrough

A transaction being traced by an auditor from origination through the entity's information system until it is reflected in the entity's financial reports.

Only the account is affected by all three types of purchase transactions. (Enter only one word per blank.)

Blank 1: accounts Blank 2: payable

Substantive analytical procedures are used to examine plausible relationships among and accrued expenses.(Enter only one word per blank.)

Blank 1: accounts Blank 2: payable

Proper posting of information to the purchases journal, accounts payable subsidiary records, and general ledger are concerns of the assertion. (Enter only one word per blank.)

Blank 1: accuracy

The auditor's test of controls for the assertion involves reperforming the accounts payable clerk's duties on a sample of voucher packets. (Enter only one word per blank.)

Blank 1: accuracy

The auditor's concern with proper is that a cash disbursement may be charged to the wrong general ledger account. (Enter only one word per blank.)

Blank 1: classification

The auditor should analyze accounts payable misstatements discovered through the application of substantive procedures because these misstatement may provide additional evidence as to the . (Enter only one word per blank.)

Blank 1: control Blank 2: risk

There is only a small possibility of cash being recorded in the wrong period if the entity uses a(n) system. (Enter only one word per blank.)

Blank 1: lockbox

Many companies use a(n) Blank 1Blank 1 a , Incorrect Unavailable system in which customer payments are sent directly to the entity's bank. (Enter only one word per blank.)

Blank 1: lockbox or lockboxes

A disadvantage of sampling is the auditor's judgment may diverge significantly from sampling theory. (Enter only one word per blank.)

Blank 1: nonstatistical

If the work of others is to be used, the auditor should assess the and of the persons whose work will be used. (Enter only one word per blank.)

Blank 1: objectivity Blank 2: competence

Auditors are concerned about the assertion for revenue transactions because clients are more likely to overstate sales than to understate them. (Enter only one word per blank.)

Blank 1: occurrence

The evaluation of the effectiveness of a control considers whether the person performing the control possesses the necessary authority and competence to perform the control effectively. (Enter only one word per blank.)

Blank 1: operating

The entity verifies the accuracy of its records by comparing with the accounts payable records. (Enter only one word per blank.)

Blank 1: vendor Blank 2: statements

To control payment for acquired goods and services, entities frequently use a(n) . (Enter only one word per blank.)

Blank 1: voucher

The auditor can develop an understanding of the revenue process by conducting a(n) . (Enter only one word per blank.)

Blank 1: walkthrough

The auditor develops an understanding of the purchasing process by conducting a(n) . (Enter only one word per blank.)

Blank 1: walkthrough

To perform a(n) the auditor traces a transaction from origination all the way to its reflection in the entity's financial statements. (Enter only one word per blank.)

Blank 1: walkthrough

General controls

Controls that relate to the overall information processing environment, and have a pervasive effect on the entity's computer operations.

Match the type of evidence with the most appropriate description. Direct tests of controls Direct tests of controls answer drop zone Performed by people using controls incorrect toggle button unavailable Performed by people using controls Ongoing monitoring Ongoing monitoring answer drop zone Performed by objective individuals incorrect toggle button unavailable Performed by objective individuals

Direct tests of controls matches Choice, Performed by objective individuals Performed by objective individuals Ongoing monitoring matches Choice, Performed by people using controls Performed by people using controls

Because each audit provides information relevant to the other, the auditor must integrate the audits of ______. Multiple select question. compliance with state wage laws ICFR financial statements Board of Directors' minutes

ICFR financial statements

Match the label for the control deficiency to the action that should be taken Drag and drop application. Material weakness Report externally, to audit committee, and to management Significant deficiency Report to audit committee and to management Control deficiency Report to management

Material weakness matches Choice, Report externally, to audit committee, and to management Report externally, to audit committee, and to management Significant deficiency matches Choice, Report to audit committee and to management Report to audit committee and to management Control deficiency matches Choice, Report to management Report to management

The independent auditor performs appropriate tests of internal controls for a privately held client and determines that the internal controls are weaker than expected. The auditor's appropriate response to this finding is to: Issue a qualified or adverse opinion on the financial statements taken as a whole. Correct! Reduce detection risk by increasing substantive tests of balances. Require management to improve the internal controls prior to completing the audit of the financial statements. Revise the estimate of inherent risk to compensate for the weakness in internal controls.

Reduce detection risk by increasing substantive tests of balances.

The accounts commonly affected by sales transactions are ______. Multiple select question. Sales Sales returns and allowances Bad-debt expense Allowance for uncollectible accounts Trade accounts receivable

Sales Bad-debt expense Allowance for uncollectible accounts Trade accounts receivable

The accounts commonly affected by sales returns and allowance transactions are ______. Multiple select question. Cash discounts Sales allowances Sales Allowance for uncollectible accounts Sales returns Trade accounts receivable

Sales allowances Sales returns Trade accounts receivable

The potential for theft and fraud in the revenue process makes this particularly important. Multiple choice question. Segregation of duties Segregation of entries Duties of managers

Segregation of duties

What impact do strong internal controls of an audit client have on the audit of a client's financial statements? Strong internal controls increase the amount of substantive testing required in the audit. They have no direct impact on the audit of transactions and balances. They may replace the audit of certain material transactions and/or balances. Correct! Strong internal controls may be relied upon to reduce substantive testing.

Strong internal controls may be relied upon to reduce substantive testing.

An adverse opinion.

The auditor of a publicly held corporation has noted one material weakness present in the internal controls over financial reporting at year end. The most appropriate opinion to be expressed on the internal controls of the corporation is which of the following? A disclaimer of opinion. Correct! An adverse opinion. An unqualified audit opinion. A qualified audit opinion.

Substantive strategy

The auditor's decision not to rely on the entity's controls and to audit the related financial statement accounts by relying more on substantive procedures.

Electronic data interchange

The transmission of business transactions over telecommunications networks.

Safeguarding of Assets

Those policies and procedures that provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity's assets that could have a material effect on the financial statements.

True or false: Related-party transactions is a common disclosure for revenue-related accounts. True false question. True False

True

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

adverse

Much of the substantive audit work in accounts receivables is done using the ______. Multiple choice question. accounts receivable subsidiary ledger open-order sales invoices report remittance advice report aged trial balance of accounts receivable

aged trial balance of accounts receivable

To monitor the collection of receivables and ensure that the details of the accounts receivable subsidiary ledger agree with the general ledger control account, managers use the ______. Multiple choice question. cash receipts journal remittance advice report aged trial balance of accounts receivable open-order sales invoices report

aged trial balance of accounts receivable

Estimating the portion of a population that possesses a specified characteristic is the basis of ______ sampling. Multiple choice question. classical variables attribute monetary-unit

attribute

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

audit sampling

It is the responsibility of ______ to ensure that all necessary financial statements disclosures are made. Multiple choice question. auditors both the auditors and management management

auditors

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

both direct testing and ongoing monitoring

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

can

If management remediates a material weakness after the "as of" date the auditor ______. Multiple choice question. can provide an interim opinion regarding ICFR should go back and revise the opinion originally issued as part of the audit must make the entity wait until the following year to receive a clean opinion regarding ICFR

can provide an interim opinion regarding ICFR

Disbursements made by check or EFT are recorded in the ______. Multiple choice question. purchases journal voucher register check disbursements journal cash disbursements journal

cash disbursements journal

Fraud risks related to revenue recognition include ______. Multiple select question. channel stuffing side agreements using multiple suppliers for a single product related party transactions

channel stuffing side agreements related party transactions

Recording purchases in the correct account is evidence regarding the ______ assertion. Multiple choice question. authorization classification cutoff completeness

classification

Segregating short-term and long-term payables is one of the major issues with respect to presentation and disclosure assertions about ______. Multiple choice question. completeness occurrence cutoff classification

classification

The use of a chart of accounts and proper codes for recording revenue transactions should provide adequate assurance for the ______ assertion. Multiple choice question. classification cutoff accuracy completeness

classification

If the auditor concludes that audit risk is unacceptably high, options include ______. Multiple select question. client adjustment of financial statement accounts issuing a qualified report performing additional audit procedures withdrawing from the audit

client adjustment of financial statement accounts issuing a qualified report performing additional audit procedures

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

comparable to

The auditor develops an understanding of the purchasing process by ______. Multiple select question. conducting a walkthrough reviewing general ledger contacting vendors reviewing prior year documentation

conducting a walkthrough reviewing prior year documentation

The three most important factors to determine sample size are ______. Multiple select question. confidence level risk level tolerable error risk tolerance expected error

confidence level tolerable error expected error

Typically public accounting firm guidelines for nonstatistical sample sizes are ______. Multiple select question. consistent with sampling theory designed to improve consistency designed to rely heavily on field auditor judgments

consistent with sampling theory designed to improve consistency

Understanding the nature and cause of a deviation helps the auditor better assess control risk and evaluate whether the deviations represent ______. Multiple choice question. control deficiencies revenue recognition issues substantive deviations improper assertions

control deficiencies

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

control environment period-end financial reporting process

This document is used to record credits for the return of goods in a customer's account or to record allowances that will be issued to the customer. Multiple choice question. remittance advice write-off authorization credit memorandum customer statement

credit memorandum

Controls to ensure that purchase transactions are recorded promptly and in the proper period are controls over ______. Multiple choice question. occurrence completeness authorization cutoff

cutoff

If the entity does not have adequate controls to ensure that revenue transactions are recorded on a timely basis, sales may be recorded in the wrong accounting period. This relates to the ______ assertion. Multiple choice question. accuracy completeness cutoff occurrence

cutoff

When it comes to cash receipt transactions, auditors seldom have major concerns about ______. Multiple choice question. proper authorizations completeness cutoff incorrect recording of receipts

cutoff

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

data validation controls arithmetic calculations error detection routines

Management may include additional information in its report on ICFR. In regards to such information the auditor should ______. Multiple choice question. only express an opinion the information includes a material misstatement of fact always express an opinion disclaim an opinion

disclaim an opinion

Testing automated IT controls ______ involve audit sampling. Multiple choice question. does does not may or may not

does not

The auditor ______ need to test all controls. Multiple choice question. does does not

does not

A voided document ______ if properly voided. Multiple choice question. represents a deviation even does not represent a deviation

does not represent a deviation

The risk of incorrect rejection (Type I) relates to the ______ of the audit. The risk of incorrect acceptance (Type II) relates to the ______ of the audit. Multiple choice question. effectiveness, efficiency efficiency, effectiveness

efficiency, effectiveness

The auditor has a responsibility to report on any changes in internal control that might affect financial reporting between the ______ and the date of the auditor's report. Multiple choice question. date of the audit of ICFR date of audit testing beginning of the reporting period end of the reporting period

end of the reporting period

To apply sampling there must be sufficient margin for ______. Multiple choice question. deviation error risk changes in population

error

Ways to test the aged trial balance include ______. Multiple select question. footing and crossfooting the use of CAATs testing each customer's account

footing and crossfooting the use of CAATs

The billing function is responsible for handling ______. Multiple choice question. the general ledger goods returned for credit cash receipts processing the accounts receivable sub ledger

goods returned for credit

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

larger

All else equal, an increase in expected defect rate will require a ______, because there is now less room for sampling risk to be accommodated and the sampling conclusion needs to be more precise. Multiple choice question. smaller sample size smaller materiality level larger sample size larger materiality level

larger sample size

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

may

If purchase transactions that do not occur are recorded, assets or expenses will be ______. Multiple choice question. understated overstated

overstated

In conducting a statistical sample for a test of controls, auditing standards require the auditor to properly ______ the sampling application. Multiple choice question. plan, evaluate, and document perform, evaluate and document plan, perform, and evaluate

plan, perform, and evaluate

According to FASB ASC Topic, "Contingencies", the likelihood of an event is a "reasonable possibility" if it is ______. Multiple select question. reasonably possible remotely probable of significant magnitude probable

reasonably possible probable

In evaluating the risk of material misstatement due to fraud and the risk of management override of controls, the auditor should consider controls ______. Multiple select question. related to significant management estimates over related party transactions that increase incentives for management to inappropriately manage financial results

related to significant management estimates over related party transactions

Because entities seldom have an incentive to record liabilities they are not responsible for, there is little risk related to the assertion of ______. Multiple choice question. completeness existence valuation and classification rights and obligations

rights and obligations

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

sample deviation

One reason why auditors must accept some detection and audit risk is ______. Multiple choice question. representative sampling representation risk sampling risk sampling choice

sampling risk

According to FASB, in order to recognize revenue an entity must ______. Multiple select question. satisfy a performance obligation transfer a good or service to a customer create a contract with a customer to provide a good or service receive payment for the transferred good or service

satisfy a performance obligation transfer a good or service to a customer

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

significant deficiencies material weaknesses

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

the control as effective when in fact it is not

Substantive analytical procedures are ______. Multiple choice question. only necessary if internal controls are not functioning properly used to examine plausible relationships among related accounts concerned with the presentation and disclosure related to accounts receivable and related accounts

used to examine plausible relationships among related accounts

To verify the existence of liabilities, the auditor can ______. Multiple choice question. vouch a sample of the items on the accounts payable listing to voucher packets test a sample of vouchers for an authorized purchase order test a sample of purchase requisitions for proper authorization

vouch a sample of the items on the accounts payable listing to voucher packets

Internal control over financial reporting

A process designed by, or under the supervision of, the entity's principal executive and principal financial officers, or persons performing similar functions, and effected by the entity's board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

is described by all of these.

A properly organized and effective audit committee of a publicly held company regularly communicates with the internal audit department. engages an independent auditor to perform financial audits. is composed of outside members of the board of directors. Correct! is described by all of these.

Internal control is a process designed to provide reasonable assurance regarding the achievement of which objective? Effectiveness and efficiency of operations. Reliability of financial reporting. Compliance with applicable laws and regulations. All of the above.

All of the above.

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

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

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

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

Once key controls have been identified, the auditor starts with evaluating their effectiveness, which may also provide some evidence about effectiveness. (Enter only one word per blank.)

Blank 1: design Blank 2: operating

Effectively identifying accounts payable and accrual accounts that are misstated and providing evidence regarding the fairness of recorded accounts can be done using procedures. (Enter only one word per blank.)

Blank 1: substantive Blank 2: analytical

To examine the fairness of revenue related accounts, procedures are useful audit tests because they provide sufficient evidence at low cost. (Enter only one word per blank.)

Blank 1: substantive Blank 2: analytical

Examining the loan agreement and the interest rate provide evidence of the of accruals. (Enter only one word per blank.)

Blank 1: valuation or value

Control to monitor the inventory taking process.

Entity-level controls can have a pervasive effect on the entity's ability to meet the control criteria. Which of the following is not an entry-level control? Controls to monitor results of operations. Management's risk assessment process. Control to monitor the inventory taking process. The period-end financial reporting process.

Which of the following was developed so that auditors could conduct computer-assisted audit techniques in different IT environments? Multiple choice question. Generalized audit software IT customized software Customized audit software Accounting software packages

Generalized audit software

Self-assessment processes in conjunction with entity-level controls.

If the financial reporting risks for a location are low and the entity has good entity-level controls, management may rely on which of the following for their assessment. Documentation and test controls over specific risks. Self-assessment processes in conjunction with entity-level controls. Documentation and test entity-level controls over the entire entity. Selective control test at that location.

none of these.

In auditing the internal controls of a publicly held audit client the auditor discovers that monthly reconciliations of bank accounts are not being performed by the client. The auditor believes that this audit finding merits the attention of those charged with governance. Considering existing compensating controls of separation of duties, review of documentation prior to making disbursements, and proper authorizations convince the auditor that there is a remote possibility of a material misstatement occurring on the financial statements due to this omitted internal control. In this scenario not performing monthly bank reconciliations most likely would be considered a(n) Correct Answer none of these. material weakness in internal control. other control deficiency. significant deficiency in internal control.

A CPA performing the audit of a private entity must disclose which of the following internal control weaknesses to management and those charged with governance? Only material weaknesses in internal controls. Correct! Significant deficiencies and material weaknesses in internal controls. All weaknesses existing in the client's internal controls. None of the above. Weaknesses need only be reported to management.

Significant deficiencies and material weaknesses in internal controls.

The auditor should provide recommendations for improving internal control in the audit report.

The Sarbanes-Oxley Act of 2002 requires management to include a report on the effectiveness of ICFR in the entity's annual report. It also requires auditors to report on the effectiveness of ICFR. Which of the following statements concerning these requirements is false? The auditor should evaluate whether internal controls are effective in accurately and fairly reflecting the firm's transactions. Management's report should state its responsibility for establishing and maintaining an adequate internal control system. Management should identify material weaknesses in its report. The auditor should provide recommendations for improving internal control in the audit report.

True or false: Some accounts are difficult to audit because of the lack of reliable evidence. True false question. True False

True

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

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

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

adverse, adverse

If purchase transactions that do not occur are recorded ______. Multiple select question. an incorrect payment will be made Reason: assets may be understated a liability will be recorded expenses may be overstated

an incorrect payment will be made a liability will be recorded expenses may be overstated

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

an unqualified opinion may

Substantive tests of transactions ______. Multiple select question. are often conducted at the same time as tests of controls may be difficult to distinguish from a test of controls are conduced to test the operation of a control procedure

are often conducted at the same time as tests of controls may be difficult to distinguish from a test of controls

Shipping documents ______. Multiple select question. are sent to customers are used to initiate the billing process are prepared when goods are received from vendors can serve as a bill of lading

are sent to customers are used to initiate the billing process can serve as a bill of lading

The receiving function is responsible for ______ goods. Multiple select question. counting authorizing ordering of paying for inspecting receiving

counting inspecting receiving

The __ assertion attempts to determine whether all purchase transactions and related accounts payable are recorded in the proper period. Multiple choice question. completeness existence cutoff valuation

cutoff

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

detection risk will be set too high

When analyzing deviations the auditor should ______. Multiple select question. determine if the deviation represents an unintentional error or fraud ignore deviations that involve misunderstanding of instructions always consider the deviations to be material weaknesses consider how the deviations may impact other phases of the audit

determine if the deviation represents an unintentional error or fraud consider how the deviations may impact other phases of the audit

If the auditor believes that additional management information in its report of ICFR contains a material misstatement of fact the auditor should immediately ______. Multiple choice question. discuss the matter with management notify the audit committee in writing consult his or her legal counsel

discuss the matter with management

Typically public accounting firm guidelines for nonstatistical sample sizes are designed to rely on _______ to make judgments. Multiple choice question. field auditor the audit senior and partner in charge experts at firm headquarters

experts at firm headquarters

The open-order report should be reviewed daily or weekly, and old orders should be investigated to determine ______. Multiple select question. inventory turnover time if any goods have been shipped but not billed why orders have not been filled the value of items in inventory

if any goods have been shipped but not billed why orders have not been filled

Because there are significant differences between how revenue and expenses are treated for GAAP financial statements and tax returns, there are significant differences between the current year tax provision and the current year ______. Multiple choice question. deferred revenue deferred income taxes income tax liability prepaid expenses

income tax liability

Due to the nature of spreadsheets, when an entity uses many of them as part of period-end closing financial statement preparation, there is a(n) ______ risk that controls over spreadsheets will not be effective. Multiple choice question. decreased minimal increased

increased

When compared to accounts receivable confirmations, accounts payable confirmations are used ______ frequently by auditors. Multiple choice question. more equally less

less

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

may exist in any form

The use of ______ also reduces the risk of revenue being recorded before goods are shipped or services are performed because customers are unlikely to recognize an obligation to pay in such a circumstance. Multiple choice question. specified terms of trade ratio analysis monthly customer statements authorized sales orders

monthly customer statements

Auditors are concerned about the ______ assertion for revenue transactions because clients are more likely to overstate sales than to understate them. Multiple choice question. occurrence authorization completeness accuracy

occurrence

Proper segregation of duties, independent reconciliation and review of vendor statements and monthly bank reconciliations are control activities related to the ______ assertion. Multiple choice question. occurrence cutoff classification

occurrence

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

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

For a negative confirmation, a response is required ______. Multiple choice question. only if the amount is incorrect whether the amount is correct or incorrect only if the amount is correct

only if the amount is incorrect

The auditor's written communication about control deficiencies may indicate ______. Multiple choice question. both that no material weaknesses were identified and no significant deficiencies were noted only that no significant deficiencies were noted during an audit of internal controls only that no material weaknesses were identified

only that no material weaknesses were identified

Classification of control deficiencies include ______ deficiencies. Multiple select question. operation design prevention material

operation design

For the occurrence assertion, the auditor is concerned with a misstatement caused by a cash disbursement being recorded in the entity's records when no ______ has actually occurred. Multiple choice question. sale authorization payment receipt of goods

payment

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

performing walkthroughs

Categories of expenses classified in SFAC 5 are ______. Multiple select question. period costs systematic expenses irregular expenses prepaid expenses product costs

period costs systematic expenses product costs

If the results of tests of controls do not support the ______ level of control risk, additional substantive procedures must be conducted. Multiple choice question. tolerable achieved planned expected

planned

Disclosures that are particularly important for accounts payable are ______. Multiple select question. cash discounts taken purchase commitments interest expense related-party purchases

purchase commitments related-party purchases

The ______ is not usually processed through the purchasing process. Multiple choice question. purchase of goods and services for credit purchase of equipment for credit return of goods to suppliers for cash payment of the liabilities arising from purchases

purchase of equipment for credit

The purchasing department prepares a(n) ______ for the purchase or goods or services from a vendor. Multiple choice question. invoice purchase order purchase requisition

purchase order

Information regarding which invoices are being paid by the customer are found on the ______. Multiple choice question. cash receipts statement credit memorandum customer statement remittance advice

remittance advice

Blank 1: inferences or conclusions

results of a sample are not representative of the population

The computed upper deviation rate is the sum of the ______. Multiple choice question. sample deviation rate and an appropriate allowance for population risk sample deviation rate and an appropriate allowance for sampling risk number of deviations found in the sample and appropriate allowance for sampling risk number of deviations found in the sample and appropriate allowance for population risk

sample deviation rate and an appropriate allowance for sampling risk

The main control that authorizes ______ is payment or proper credit authorization. Multiple choice question. shipping goods order entry cash receipts billing

shipping goods

When using audit sampling, the auditor __ select only items that are unusual or large or items that are the first or last items in the frame. Multiple choice question. should should not may or may not

should not

When using a reliance strategy, the auditor conducts ______ to ensure that the controls in the revenue process operate effectively. Multiple choice question. tests of controls documentation substantive testing analytical procedures

tests of controls

Haphazard selection may be useful for nonstatistical sampling, but it should not be used for statistical sampling because __. Multiple choice question. the auditor cannot measure the probability of an item being selected professional standards require a random sample systematic samples are much more effective for detecting fraud

the auditor cannot measure the probability of an item being selected

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

write custom audit software

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

A haphazard sample selection technique is used. Judgment is used to determine the sample size. Sample results are evaluated judgmentally.

An employee in the purchasing department routinely orders personal items in the name of the employer and has them delivered to his home address. The employing entity has routinely paid for all of these purchases without detecting that they were fraudulent. Which of the following internal control weaknesses could have contributed to the purchasing employee's ability to perpetrate this fraud? Paying invoices without collecting appropriate supporting documentation. Correct! All of the above internal control weaknesses could have contributed to the fraud. Not requiring authorizations for all purchases. Lack of separation of duties.

All of the above internal control weaknesses could have contributed to the fraud.

After obtaining an understanding of an entity's internal control system, an auditor may set control risk at high for some assertions because he or she Believes the internal controls are unlikely to be effective. Determines that the pertinent internal control components are not well documented. Performs tests of controls to restrict detection risk to an acceptable level. Identifies internal controls that are likely to prevent material misstatements.

Believes the internal controls are unlikely to be effective.

If you examine a sample of 100 transactions and find 8 with errors, this suggests a transaction error rate of % (Enter your answer as a whole number.).

Blank 1: 8

When the auditor has completed the planned substantive procedures, the misstatement for accounts receivable is determined and compared to the misstatement. (Enter only one word per blank.)

Blank 1: aggregate Blank 2: tolerable

There are two categories of substantive procedures: (1) substantive procedures and (2) tests of of classes of transactions, account balances and disclosures. (Enter only one word per blank.)

Blank 1: analytical Blank 2: details or detail

The auditor must understand how management weighs the risks that are relevant to the purchasing process, estimates their significance, assess the likelihood of occurrence and decides what actions to take to address them in order to understand the entity's risk process. (Enter only one word per blank.)

Blank 1: assessment

The size of the population is not an important factor in determining sample size for sampling. (Enter only one word per blank.)

Blank 1: attribute

The three major types of statistical sampling techniques are sampling, -unit sampling, and sampling. (Enter only one word per blank.)

Blank 1: attribute Blank 2: monetary Blank 3: classical Blank 4: variables

The selection and evaluation of less than 100% of the items in a population that is expected to be representative of the population to provide a reasonable basis for a conclusion is the definition of . (Enter only one word per blank.)

Blank 1: audit Blank 2: sampling or sample

The main responsibility of the function is to ensure that all goods shipped and all services provided are charged to customers at authorized prices and terms. (Enter only one word per blank.)

Blank 1: billing

Trade loading or is a marketing practice that suppliers use to induce distributors to buy more inventory than they can promptly resell. (Enter only one word per blank.)

Blank 1: channel Blank 2: stuffing

Having cash or checks stolen or lost before being recorded in the cash receipts records is a major misstatement related to the assertion. (Enter only one word per blank.)

Blank 1: completeness

Obtaining a listing of accounts payable, footing the listing, and agreeing it to the general ledger control account is done to determine the of accounts payable. (Enter only one word per blank.)

Blank 1: completeness

The three most important factors to determine sample size are: level, error, and expected . (Enter only one word per blank.)

Blank 1: confidence Blank 2: tolerable Blank 3: error

The form of a(n) is generally similar to that of a sales invoice and it may be processed through the system in the same way. (Enter only one word per blank.)

Blank 1: credit Blank 2: memorandum or memo

When auditors want to perform specific audit tasks, audit software is generally written. (Enter only one word per blank.)

Blank 1: custom

On most audits, purchase is coordinated with the entity's physical inventory count. (Enter only one word per blank.)

Blank 1: cutoff

Procedures to ensure that prepared cash disbursements are recorded on a timely basis in the cash disbursements journal and the accounts payable support the assertion. (Enter only one word per blank.)

Blank 1: cutoff

The attempt of the assertion is to determine whether all revenue transactions and related accounts receivable are recorded in the proper period. (Enter only one word per blank.)

Blank 1: cutoff

When a control necessary to meet the relevant control objective is missing, a(n) . exists. (Enter only one word per blank.)

Blank 1: design Blank 2: deficiency

When tests of controls support the planned level of control risk, no modifications are normally necessary to the planned level of and the auditor may proceed with the planned substantive procedures. (Enter only one word per blank.)

Blank 1: detection Blank 2: risk

Preparing and signing checks for paying vendors and authorizing electronic funds transfers is the responsibility of the function. (Enter only one word per blank.)

Blank 1: disbursement or disbursements

A common control to ensure proper presentation is the use of a(n) checklist. (Enter only one word per blank.)

Blank 1: disclosure

The auditor must test the effectiveness of - controls because they can have a pervasive effective on the entity's ability to meet the COSO control criteria. (Enter only one word per blank.)

Blank 1: entity Blank 2: level

One of the more important assertions regarding accounts receivables is because the auditor wants assurance that this account balance is not overstated through the inclusion of fictitious customer accounts or amounts. (Enter only one word per blank.)

Blank 1: existence

The major audit procedures for testing the assertion for accounts receivables are confirmation of customers' accounts balances and examination of subsequent cash receipts. (Enter only one word per blank.)

Blank 1: existence

The physical representation of the population is referred to as the . (Enter only one word per blank.)

Blank 1: frame

Many business risks are also risks. (Enter only one word per blank.)

Blank 1: inherent

Controls that are important to the auditor's conclusion about whether the entity's controls sufficiently address the assessed risk of misstatement are often referred to as controls (Enter only one word per blank.)

Blank 1: key

A strong control that prevents misstatement of cash receipts is the use of a(n) system where customers mail payments directly to the entity's bank account. (Enter only one word per blank.)

Blank 1: lockbox

The two general approaches to audit sampling are and . (Enter only one word per blank.)

Blank 1: nonstatistical Blank 2: statistical

The effect of expected deviation rate on sample size highlights the importance of a good estimate of the deviation rate. (Enter only one word per blank.)

Blank 1: population Blank 2: expected or anticipated

There are two types of confirmations: and . (Enter only one word per blank.)

Blank 1: positive Blank 2: negative

Random-number selection is used in many statistical sampling applications because the auditor is required to be able to measure the of selecting the sampling units selected. (Enter only one word per blank.)

Blank 1: probability

Because there are significant differences between how revenue and expenses are treated for GAAP financial statements and tax returns, there are significant differences between the current year tax and the current year income tax on the tax return. (Enter only one word per blank.)

Blank 1: provision or expense Blank 2: liability

The person who approved the purchase and the authorization to buy a good or service is included on the . (Enter only one word per blank.)

Blank 1: purchase Blank 2: order

A purchase transaction usually begins with a(n) being generated by a department or support function. (Enter only one word per blank.)

Blank 1: purchase Blank 2: requisition

Many accounting systems integrate the revenue process with the human resources, and processes. (Enter only one word per blank.)

Blank 1: purchasing Blank 2: inventory or inventories

Counting and inspecting goods delivered from vendors is the responsibility of the function. (Enter only one word per blank.)

Blank 1: receiving

To ensure an independent count of goods, the is normally a copy of the purchase order with quantities omitted. (Enter only one word per blank.)

Blank 1: receiving Blank 2: report

Two particularly important disclosures for accounts payable and accrued expenses are - purchase transactions and . (Enter only one word per blank.)

Blank 1: related Blank 2: party Blank 3: purchase Blank 4: commitments

The auditor needs to understand the controls that exist to ensure management's objectives are being met when a(n) strategy is adopted for the revenue process. (Enter only one word per blank.)

Blank 1: reliance

Classical variables sampling in auditing utilizes the techniques typically taught in an undergraduate class. (Enter only one word per blank.)

Blank 1: statistics

The auditor's treatment of a(n) event depends on whether the event reveals information about a material weakness that existed at the end of the reporting period or about a new condition that did not exist at the end of the reporting period. (Enter only one word per blank.)

Blank 1: subsequent

To test the accuracy assertion, the accounts receivable ledger should be periodically reconciled to the general ledger account. (Enter only one word per blank.)

Blank 1: subsidiary Blank 2: control

After auditing the effectiveness of an entity's internal control, an auditor issues a(n) if the entity's internal control is designed and operating effectively in all material respects. (Enter only one word per blank.)

Blank 1: unqualified Blank 2: opinion

In order for an auditor to issue a(n) , revenue must be recognized in conformity with GAAP. (Enter only one word per blank.)

Blank 1: unqualified Blank 2: opinion

The major issue related to accounts receivable is concerned with the net realizable value of accounts receivable. (Enter only one word per blank.)

Blank 1: valuation

Of the following, which best describes a test of internal controls that might be employed by an independent auditor? Vouching recorded sales transactions to test for overstatement. Recalculating bad debt expense and comparing it with the amount reported by the client. Observing a client's count of inventory at year end. Correct! Examining purchase orders to verify proper authorization of purchase transactions.

Examining purchase orders to verify proper authorization of purchase transactions.

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

False

True or false: Auditors normally test the cutoff assertion by conducting tests of controls only. True false question. True False

False

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

False

True or false: If the auditor determines that elements of management's annual report on ICFR are incomplete or improperly presented, the auditor cannot issue a report on ICFR. True false question. True False

False

True or false: If two samples of different sizes yield a similar defect rate, the smaller sample is associated with less risk. True false question. True False

False

True or false: If vendors do not respond to the accounts payable confirmation, the auditor should send another request. True false question. True False

False

True or false: In most entities, the treasurer's department is usually part of the credit function. True false question. True False

False

True or false: In planning an integrated audit, the auditor should design separate tests of controls to accomplish the objectives of the audit of ICFR and the audit of financial statements. True false question. True False

False

True or false: The size of an entity does not impact the need for a tax specialist to assist with the audit. True false question. True False

False

True or false: To be effective, most controls need to operate 100% of the time. True false question. True False

False

True or false: Technology will never totally eliminate the need for auditors to rely on sampling to some degree. True false question. True False

True

True or false: The purchasing system includes returns of goods to suppliers for cash or credit. True false question. True False

True

Which of the following statements are correct? Multiple select question. Typically other types of receivables are evaluated for collectibility. All notes receivables must be examined to determine if they were at arm's length. Receivables with related-party transactions cannot be confirmed and must be treated as exceptions. The auditor's concern with satisfying other types of receivables is similar to that of trade accounts receivables.

Typically other types of receivables are evaluated for collectibility. The auditor's concern with satisfying other types of receivables is similar to that of trade accounts receivables.

The systems analyst review output and controls the distribution of output from the IT department.

Which of the following most likely represents a weakness in internal control of an IT system? The systems analyst review output and controls the distribution of output from the IT department. The accounts payable clerk prepares data for computer processing and enters the data into the computer. The systems programmer designs the operating and control functions of programs and participates in testing operating systems. The control clerk establishes control over data received by the IT department and reconciles control totals after processing.

The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit.

Which of the following statements concerning control deficiencies is true? The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit. All significant deficiencies are material weaknesses. All control deficiencies are significant deficiencies. An auditor must immediately report material weaknesses and significant deficiencies discovered during an audit to the PCAOB.

When payments are sent directly to an entity ______. Multiple select question. a control listing should be prepared checks should be deposited no less than weekly all checks should be restrictively endorsed

a control listing should be prepared all checks should be restrictively endorsed

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

a recognized control framework

For a disbursement, adequate supporting documentation must verify that the ______. Multiple select question. account distribution is appropriate entire amount of the invoice is being paid disbursement is for a legitimate business purpose transaction was properly authorized vendor has been used by the organization before

account distribution is appropriate disbursement is for a legitimate business purpose transaction was properly authorized

An important general ledger function is the reconciliation of the ______ to the general ledger control account. Multiple choice question. accounts receivable company ledger accounts receivable subsidiary ledger individual sales transactions customer account statements

accounts receivable subsidiary ledger

To test the auditor's concern with accounts receivables completeness, the aged trial balance should be reconciled to the ______. Multiple choice question. accounts receivables subsidiary ledger cash general ledger account cash receipts journal accounts receivables general ledger account

accounts receivables general ledger account

The main accounts affected by the auditor's achieved control risk for the purchasing process include ______. Multiple select question. accrued expenses accounts receivable accounts payable cash

accrued expenses accounts payable

Control activities that ensure the ______ assertion include an authorized price list and proper verification of the information contained on the sales invoice. Multiple choice question. authorization cutoff accuracy occurrence

accuracy

Once the tests of controls in the revenue process have been completed, the auditor sets the ______ level of control risk. Multiple choice question. achieved expected planned tolerable

achieved

If an auditor does not receive responses to positive confirmations ______. Multiple choice question. additional requests can be sent the client should be asked to confirm the account(s) the account(s) should be considered misstatement(s)

additional requests can be sent

If the aggregate misstatement is greater than the tolerable misstatement, the auditor choices are to ______. Multiple select question. perform additional audit procedures adjust the accounts to reduce the misstatement qualify the audit report resign from the engagement

adjust the accounts to reduce the misstatement qualify the audit report

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

adverse

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

all

Auditing standards require that the sample items be selected so that the sample can be expected to represent the population. Thus, ______ opportunity to be selected. Multiple choice question. higher value items must have a lower higher value items must have a higher all items must have an equal

all items must have an equal

The risk of incorrect acceptance is also commonly known as the risk of ______. Multiple select question. underreliance assessing control risk too low assessing control risk too high overreliance

assessing control risk too low overreliance

A voucher is ______. Multiple select question. attached to the purchase requisition, PO, receiving report, and invoice used to control payment for purchases sent to a vendor the origination of the purchases process in most entities

attached to the purchase requisition, PO, receiving report, and invoice used to control payment for purchases

A statistical sampling method used to estimate the proportion of a characteristic in a population is called sampling. (Enter only one word per blank.)

attribute

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

audit firm policy applying professional judgment

Requiring that cash disbursements are not prepared unless all source documents are included in the voucher packet and approved ensures proper ______. Multiple choice question. classification authorization cutoff completeness

authorization

Failure to perform the credit authorization function properly may result in ______. Multiple choice question. bad-debt losses too few customers increased sales sales returns

bad-debt losses

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

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

A possible misstatement for the accuracy assertion is that purchase transactions may ______. Multiple choice question. be recorded at incorrect amounts be recorded for goods that were not purchased not be recorded

be recorded at incorrect amounts

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

below the maximum

Indicators that the auditor should involve a tax specialist include ______. Multiple select question. significant investments in government bonds business combinations significant changes in ownership multiple locations with significant foreign operations

business combinations significant changes in ownership multiple locations with significant foreign operations

Reconciling the daily remittance report to control listings of remittance advices provide reasonable assurance that ______. Multiple choice question. all sales were made at the correct selling price cash receipts were recorded at the correct amounts customers have paid for all outstanding purchases cash receipts were deposited on a timely basis

cash receipts were recorded at the correct amounts

Control activities that ensure the ______ assertion include accounting for the numerical sequence of shipping documents and sales invoices and matching shipping documents with sales invoices. Multiple choice question. occurrence accuracy completion authorization

completion

If goods are shipped or services are performed and no revenue is recognized, the ______ assertion has not been met. Multiple choice question. occurrence authorization accuracy completion

completion

Because the auditor does not know the true deviation rate, he or she calculates a ______. Multiple choice question. projected population rate computed lower deviation rate true population deviation rate computed upper deviation rate

computed upper deviation rate

The receiving function is responsible for receiving, ______ goods received from vendors. Multiple choice question. counting, and inspecting recording and requisitioning authorizing, and paying for

counting, and inspecting

The details of all sales, cash receipts, and credit memorandum transactions processed through the customer's account for the period are found in the ______. Multiple choice question. sales journal shipping document customer invoice customer statement

customer statement

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

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

If purchases are recorded through the voucher register or purchases journal, the only entries into the cash disbursements journal are ______ to accounts payable and ______ to cash. Multiple choice question. credits; debits debits; debits debits; credits credits; credits

debits; credits

The disadvantages of statistical sampling include additional costs of _____. Multiple select question. designing and conducting the sampling application training auditors in the proper use of sampling techniques designing an inefficient sample measuring the sufficiency of risk obtained through sampling procedures lacking consistent application across audit teams due to the complexity of the underlying concepts

designing and conducting the sampling application training auditors in the proper use of sampling techniques lacking consistent application across audit teams due to the complexity of the underlying concepts

One of the most difficult step of an audit sampling application is generally ______. Multiple choice question. determining the sample size defining control deviations defining the population characteristics setting the confidence level

determining the sample size

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

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

A shipping document should be prepared anytime ______. Multiple choice question. inventory is received a payment is made to the shipping company goods are sent to a customer an order is packaged for shipping

goods are sent to a customer

The evaluation of the operating effectiveness of a control considers whether the person performing the control ______. Multiple select question. is in a management or non-management position has the necessary authority to perform the control effectively has the necessary competence to perform the control effectively has the necessary level of experience with the company to perform the control effectively

has the necessary authority to perform the control effectively has the necessary competence to perform the control effectively

When the results of testing controls do not support the planned level of control risk, detection risk will ______. Multiple choice question. have to be set lower not be affected have to be set higher

have to be set lower

The major issues related to the classification for accounts receivable are ______. Multiple select question. identifying and reclassifying any material credits contained in accounts receivable ensuring that all cash receipts have been properly recorded in the accounts receivable subsidiary ledger segregating short-term and long-term receivables ensuring the correct value for the allowance for uncollectible accounts ensuring that different types of receivables are properly classified.

identifying and reclassifying any material credits contained in accounts receivable segregating short-term and long-term receivables ensuring that different types of receivables are properly classified.

For a financial statement audit, if the planned level of control risk is not supported by samples results and tests of control, the auditor may choose to ______. Multiple select question. increase the assessed level of control risk and modify substantive procedures inform management of the deficiencies and withdraw from the audit engagement test other control procedures that could support the level of risk

increase the assessed level of control risk and modify substantive procedures test other control procedures that could support the level of risk

A purchase order ______. Multiple select question. is an internal document indicates the authorization to purchase the goods or services is created by the purchasing department after the vendor is paid includes the description, quality and quantity of the goods being purchased

indicates the authorization to purchase the goods or services includes the description, quality and quantity of the goods being purchased

Audit procedures used to test controls in the revenue process include ______. Multiple select question. comparison of ratios to prior years inspection of documents and records walkthroughs confirmation of receivables balances reperformance by the auditor of the control activities

inspection of documents and records walkthroughs reperformance by the auditor of the control activities

Monitoring within a client's internal control system includes establishing a "tone at the top" which encourages high ethical conduct and performance. Correct! internal auditor review of compliance with internal controls. evaluating the risks within an organization and developing policies and procedures to reduce those risks. informing the appropriate individuals of ethical standards of behavior, risks, and non-compliance with internal controls.

internal auditor review of compliance with internal controls.

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

inversely

The auditor can test purchase cutoff of accounts payable by first obtaining the number of the ______ issued in the current period. Multiple choice question. last vendor invoice first vendor invoice last receiving report first receiving report

last receiving report

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

leaves documentary evidence

If the aggregate misstatement is ______ the tolerable misstatement, the auditor may accept the account as fairly presented. Multiple choice question. equal to greater than less than

less than

If the computed upper deviation rate is ______ the tolerable deviation rate, the auditor can conclude that the control tested can be relied upon. Multiple choice question. less than or equal to less than greater than greater than or equal to

less than or equal to

For control of the confirmation process, the auditor should ______. Multiple select question. ask the client to reach out to customers who have not responded to the confirmations call the customer to be sure that they will respond to the confirmation mail the confirmations outside the entity's facilities mail the confirmations in envelopes with the public accounting firm as the return address send return envelope addressed to the public accounting firm

mail the confirmations outside the entity's facilities mail the confirmations in envelopes with the public accounting firm as the return address send return envelope addressed to the public accounting firm

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

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

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

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

Factors particularly important when the auditor considers the control environment and the purchasing process are ______. Multiple select question. whether prices are significantly affected by swings number of vendors that supply the purchasing process methods of assigning authority and responsibility. organizational structure

methods of assigning authority and responsibility. organizational structure

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

might draw the wrong conclusion about the population

Substantive tests may be difficult to distinguish from a test of controls because the specific audit procedure may both test the operation of a control procedure and ______. Multiple choice question. inherent risk in the process monetary misstatement management overrides

monetary misstatement

If the auditor defines a deviation for a purchase as a vendor's bill not supported by a receiving report, and the auditor selects a telephone bill, the auditor should ______. Multiple select question. not report the lack of receiving report as a deviation follow up on the lack of receiving report replace the item with another purchase transaction report the lack of receiving report as a deviation

not report the lack of receiving report as a deviation replace the item with another purchase transaction

The auditor must perform tests of controls over a period of time that is adequate to determine whether the significant controls were ______ as of the date indicated in management's report. Multiple choice question. designed effectively operating effectively documented completely

operating effectively

Possible misstatements due to improper authorization include ______. Multiple select question. purchase of unauthorized goods purchase of goods from an alternate supplier return of goods without authorization purchase of services at unauthorized prices

purchase of unauthorized goods purchase of services at unauthorized prices

Audit evidence supporting effective internal control must be obtained at the level of ______. Multiple choice question. risk-based assurance reasonable assurance absolute assurance substantial completion

reasonable assurance

Effective control activities for preventing summarization and posting errors include ______. Multiple select question. accounting for the numerical sequence of checks reconciliation of the accounts payable subsidiary records to the general ledger control account independent approval and review of general ledger account on vendor packet agreement of monthly cash disbursements journal to general ledger postings

reconciliation of the accounts payable subsidiary records to the general ledger control account agreement of monthly cash disbursements journal to general ledger postings

For the revenue process, the auditor is concerned about material misstatements related to ______. Multiple select question. cash receipts not being properly authorized recording of revenue when services have not been performed recording of revenue when goods have not been shipped sales to fictitious customers a customer's inability to pay the amount they have been invoiced

recording of revenue when services have not been performed recording of revenue when goods have not been shipped sales to fictitious customers

A receiving report ______. Multiple select question. records the receipt of goods begins the purchases process is sent to a vendor contains the date and description of goods

records the receipt of goods contains the date and description of goods

By increasing sample size, the auditor can: Multiple choice question. increase uncertainty and risk increase uncertainty and reduce risk reduce uncertainty and increase risk reduce uncertainty and risk

reduce uncertainty and risk

This document is usually mailed with the customer's bill and returned with the customer's payment for goods or services. Multiple choice question. cash receipts statement customer statement credit memorandum remittance advice

remittance advice

Typical sampling applications include ______ Multiple select question. reperformance analytical procedures observation confirmation inspection of tangible assets

reperformance confirmation inspection of tangible assets

If a sample item selected is not appropriate for the definition of the control, the auditor should ______. Multiple choice question. generate a new sample discard the item and report a deviation replace the item with another sample item discard the item and reduce the sample size

replace the item with another sample item

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

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

To examine tests of controls related to the accuracy assertion, the auditor should ______. Multiple select question. review reconciliations of daily sales journal recordings with the posting to the accounts receivable subsidiary ledger. review the sales journal and test that entries have supporting credit authorization examine and test the application controls check the reconciliations between the accounts receivable subsidiary ledger and the general ledger control account review the shipping documents and bills of lading and trace to sales journal

review reconciliations of daily sales journal recordings with the posting to the accounts receivable subsidiary ledger. examine and test the application controls check the reconciliations between the accounts receivable subsidiary ledger and the general ledger control account

A review of the voucher packets for adequate supporting documents relating liabilities to the entity provides sufficient evidence to support the ______ assertion. Multiple choice question. existence rights and obligations valuation and classification completeness

rights and obligations

The document used to bill the customer is a ______. Multiple choice question. shipping document customer statement sales journal sales invoice

sales invoice

Columns for debiting accounts receivable and crediting the various sales accounts are found in the ______. Multiple choice question. cash receipts journal open-order report sales journal accounts receivable subsidiary ledger

sales journal

Before a sales order entry is made it is important that the ______. Multiple choice question. goods are available on hand and ready to ship to the customer customer does not have any outstanding accounts due credit authorization function has determined the customer is credit worthy sales or services be consistent with management authorization criteria

sales or services be consistent with management authorization criteria

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

sampling risk

A key control over unauthorized cash disbursements is ______. Multiple choice question. numerical sequence of checks bank reconciliations segregation of duties

segregation of duties

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

shipping records

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

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

If a large number of deviations are detected early in the tests of controls, the auditor should consider ______. Multiple choice question. continuing the test until all items planned to be sampled have been tested stopping the test as soon as it is clear that the results of the test will not support the planned assessed level of control risk selecting an additional sample to find enough sample observations that do not have deviations

stopping the test as soon as it is clear that the results of the test will not support the planned assessed level of control risk

Management's estimate for the allowance for uncollectible accounts and sales returns can be difficult to audit because of the ______ that may be involved in determining proper value. Multiple choice question. subjectivity complexity variance

subjectivity

To test the reasonableness of purchase returns, the auditor generally performs ______. Multiple choice question. tests of controls substantive analytical procedures reperformance tests on transactions

substantive analytical procedures

For each major class of transactions in the revenue process related to sales and cash receipts the auditor needs to determine the: Multiple select question. supporting documents involved process used to prepare estimates for the accounts initiation process for transactions accounts involved in processing

supporting documents involved initiation process for transactions accounts involved in processing

Factors affecting the reliability of accounts receivable confirmation include ______. Multiple select question. the intended respondent. prior experience with the client the account balance the type of confirmation request the dollar value of accounts receivable being confirmed

the intended respondent. prior experience with the client the type of confirmation request

The auditor's evaluation of the period-end financial reporting process should consider ______. Multiple select question. the number of locations involved the extent of IT involvement only the outputs of the processes used to produce financial statements management oversight of the process

the number of locations involved the extent of IT involvement management oversight of the process

The beginning step in the purchase process is usually ______. Multiple choice question. recording the liability receiving the goods the purchase order the purchase requisition

the purchase requisition

Control risk

the risk that material misstatements that could occur will not be prevented, or detected and corrected, on a timely basis by the entity's internal controls.

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

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

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

tolerable deviation

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

tolerable error exceeds expected error

To understand the entity's monitoring of controls in the revenue process, the auditor needs to ______. Multiple select question. understand how supervisory personnel review the personnel who perform the controls understand how management assesses the design and operation of controls walk a transaction through the accounting system and document the functions that process it understand how supervisory personnel evaluate the effectiveness of controls.

understand how supervisory personnel review the personnel who perform the controls understand how management assesses the design and operation of controls understand how supervisory personnel evaluate the effectiveness of controls.

The tests of details of account balances normally provides sufficient evidence as to the proper ______ of accounts payable. Multiple choice question. existence classification cutoff valuation

valuation

The bill from the supplier is called a ______. Multiple choice question. purchase order purchase requisition receiving report vendor invoice

vendor invoice

Because positive accounts receivable confirmations require customer responses, any accounts with no responses must be ______. Multiple choice question. pursued until the customer does confirm verified by the auditor using alternative procedures written off as uncollectible noted as material misstatements in the financial statements

verified by the auditor using alternative procedures

If management remediates a material weakness after the "as of" date, the auditor can provide a(n) Blank 1Blank 1 unqualified , Incorrect Unavailable opinion. (Enter only one word per blank.)

Blank 1: interim

When an employee steals cash and covers the shortage by applying cash from one customer's account against another customer's account, it is referred to as . (Enter only one word per blank.)

Blank 1: lapping

"Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events." is the definition of . (Enter only one word per blank.)

Blank 1: liabilities or liability

In judging the significance of a control deficiency, management and auditors must consider two dimensions, the and of misstatements that could result from the deficiencies. (Enter only one word per blank.)

Blank 1: likelihood or likeliness Blank 2: magnitude

The results of the auditor's testing of internal control for the revenue process directly impact risk and therefore the level of procedures that will be required for the accounts affected by this process. (Enter only one word per blank.)

Blank 1: detection Blank 2: substantive

The auditor's major concern with the assertion is whether the recorded liabilities are valid obligations of the entity. (Enter only one word per blank.)

Blank 1: existence

Outflows or other using up of assets from delivering or producing goods, rendering services, or carrying out other activities that constitute an entity's ongoing major or central operations are . (Enter only one word per blank.)

Blank 1: expenses

To test the aged trial balance the auditor may add each column and the column totals to ensure they agree with the total balance for the account. This technique is called and . (Enter only one word per blank.)

Blank 1: footing or foot Blank 2: crossfooting or crossfoot

Ensuring all revenues, collections and receivables are properly accumulated, classified, and summarized in the accounts is the objective of the function. (Enter only one word per blank.)

Blank 1: general Blank 2: ledger

Ensuring that all purchases, cash disbursements, and payables are properly accumulated, classified and summarized in the accounts is the main objective of the function for the purchasing process. (Enter only one word per blank.)

Blank 1: general Blank 2: ledger

Programs that allow the auditor to perform tests on computer files and databases are referred to as GAS or . (Enter only one word per blank.)

Blank 1: generalized Blank 2: audit Blank 3: software

Comparison of percentage to previous years' or industry data may provide valuable evidence on unrecorded revenues or fictitious revenue and related accounts receivable when this ratio is significantly changed. (Enter only one word per blank.)

Blank 1: gross Blank 2: profit

In substantive testing, the risk that the sample supports a material misstatement does not exist when a material misstatement actually does exist is the risk of . (Enter only one word per blank.)

Blank 1: incorrect Blank 2: acceptance

In substantive testing, the risk that the sample supports a material misstatement when it does not exist is the risk of . (Enter only one word per blank.)

Blank 1: incorrect Blank 2: rejection

The primary purpose of sampling is to draw about the whole population based on the results of testing only a subset of the population. (Enter only one word per blank.)

Blank 1: inferences or conclusions

The assessment of the potential effects of risk factors is one of the inputs for the assessment of the risk of material misstatement. (Enter only one word per blank.)

Blank 1: inherent

Whether the supply of raw materials is adequate and how volatile raw material prices are two important industry-related factors in assessing risk when auditing the purchasing process. (Enter only one word per blank.)

Blank 1: inherent

Walkthroughs and testing the design and operating effectiveness of internal controls over the income tax provision is required for a(n) audit. (Enter only one word per blank.)

Blank 1: integrated

A deficiency in ICFR, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis is defined as a(n) by the PCAOB. (Enter only one word per blank.)

Blank 1: material Blank 2: weakness

For a financial statement audit, if the auditor concludes the evidence supports the planned level of control risk, no modifications of planned procedures are necessary. (Enter only one word per blank.)

Blank 1: substantive

Using one depreciation method for tax purposes and another for book purposes is an example of a(n) difference, whereas interest on a municipal bond is a(n) difference between GAAP and tax accounting. (Enter only one word per blank.)

Blank 1: temporary Blank 2: permanent

Confirmation exceptions because of delays in recording transactions in either the client's or the customer's records are referred to as . (Enter only one word per blank.)

Blank 1: timing Blank 2: differences

In many cases confirmation exceptions result from what are referred to as . (Enter only one word per blank.)

Blank 1: timing Blank 2: differences

If the evidence does not support fair presentation, the auditor can adjust the accounts to reduce the misstatement to an amount less than the misstatement or the audit report. (Enter only one word per blank.)

Blank 1: tolerable Blank 2: qualify

The credit department normally initiates and the treasurer normally approves a(n) - authorization. (Enter only one word per blank.)

Blank 1: write Blank 2: off

True or false: Misstatements in previous audits are not good indicators that misstatements are likely to be present in the current audit. True false question.TrueFalse

False

True or false: Proper segregation of duties for purchasing mean that the individual who can requisition goods should receive the goods but not be responsible for invoice processing. True false question.TrueFalse

False

True or false: Substantive analytical procedures are inadequate audit tests for examining the fairness of revenue related accounts because such tests fail to provide sufficient evidence, even though they are low cost. True false question. True False

False

True or false: Substantive analytical procedures are rarely used to evaluate the reasonableness of accounts payable and accrued expenses. True false question.TrueFalse

False

True or false: The audit of Internal Control over Financial Reporting (ICFR) must be completed prior to the audit of the financial statements. True false question. True False

False

True or false: The auditor can only obtain assurance about the cutoff assertion for purchases by conducting tests of controls, not substantive tests of transactions. True false question. True False

False

True or false: The purchasing process is generally a source of contentious accounting issues. True false question. True False

False

True or false: Understanding how management assesses the design and operation of controls in the revenue process is part of understanding the the flow of each type of transaction from initiation to inclusion in the financial statements. True false question.TrueFalse

False

The term 2/10, net 30 means customers paying within ______ percent discount. Multiple choice question. 10 days are entitled to a 2 2 days are entitled to a 10 30 days are entitled to a 2 30 days are entitled to a 10

10 days are entitled to a 2

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

7

Deficiency in operation.

A control deviation caused by an employee performing a control procedure that he or she is not authorized to perform is always considered a Deficiency in design. Deficiency in operation. Significant deficiency. Material weakness.

Material weakness

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

Relevant assertion

A financial statement element or claim that has a reasonable possibility of containing a misstatement or misstatements that would cause the financial statements to be materially misstated.

Control deficiency

A weakness in internal control that exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis.

Computer-assisted audit techniques (CAATs)

Computer programs that allow auditors to test computer files and databases.

Assessing control risk below high involves all of the following except Identifying specific controls to rely on. Concluding that controls are ineffective. Performing tests of controls. Analyzing the achieved level of control risk after performing tests of controls.

Concluding that controls are ineffective

Entity-level controls

Controls that have a pervasive effect on the entity's system of internal control.

Which of the following is NOT a principal business objective of the purchasing process? Multiple choice question. Acquiring goods and services at the lowest cost based on quality requirements. Efficiently using cash resources to pay for goods and services

Efficiently using cash resources to pay for goods and services

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

False

The highest quality and most reliable audit evidence that segregation of duties is properly implemented is obtained by Inspection of documents prepared by a third party, but which contain the initials of those applying client controls. Observation by the auditor of the employees performing control activities. Inspection of a flowchart of duties performed and available personnel. Inquiries of employees who apply control activities.

Observation by the auditor of the employees performing control activities.

Which of the following audit tools, documentation, and/or procedures are primarily used in testing internal controls? Correct! Questionnaires, flowcharts, narrative descriptions, and organizational charts. Vouching, retracing, and recalculation. Analytical procedures. Analyst's reports, recalculation, and external confirmation.

Questionnaires, flowcharts, narrative descriptions, and organizational charts.

Which of the following is NOT a type of transaction typically processed through the revenue process? Multiple choice question. Sale of goods or services Return of goods by the customer for cash or credit Receipt of goods to be sold to customers Receipt of cash payment for goods or services

Receipt of goods to be sold to customers

Which of the following statements are correct regarding the timing of tests of controls? Multiple select question. Controls over significant nonroutine transactions must be tested continually throughout the year. The auditor may obtain evidence about the operating effectiveness of a control at an interim date. Some controls may operate after the "as of" date specified in the management report.

The auditor may obtain evidence about the operating effectiveness of a control at an interim date. Some controls may operate after the "as of" date specified in the management report.

Rendering an opinion on internal controls.

The auditor of a publicly held corporation has the primary responsibility for which of the following activities? Correct! Rendering an opinion on internal controls. Assuring compliance with internal controls. Designing and implementing internal controls. All of these.

Reliance strategy

The auditor's decision to rely on the entity's controls, test those controls, and reduce the direct tests of the financial statement accounts.

Which of the following statements about internal control is correct? A properly maintained internal control system reasonably ensures that collusion among employees cannot occur. The establishment and maintenance of internal control is an important responsibility of the internal auditor. An exceptionally strong internal control system is enough for the auditor to eliminate substantive procedures on a significant account balance. The cost-benefit relationship is a primary criterion that should be considered in designing an internal control system.

The cost-benefit relationship is a primary criterion that should be considered in designing an internal control system.

Which of the following statements are correct? Multiple select question. The revenue process is similar for all types of organizations. Many accounting systems integrate purchasing and human resources with revenue. In most systems the revenue process does not interact with the inventory management process.

The revenue process is similar for all types of organizations. Many accounting systems integrate purchasing and human resources with revenue.

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

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

Control environment

The tone of an organization, which reflects the overall attitude, awareness, and actions of the board of directors, management, and owners influencing the control consciousness of its people.

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

True

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

True

True or false: The major difference between a voucher register and a purchases journal is the way individual vouchers or vendor invoices are summarized. True false question. True False

True

True or false: Understanding management's attitudes towards risk relevant to the revenue process is an important component of assessing the control risk for the revenue process. True false question.TrueFalse

True

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

allows for a remote likelihood of material misstatement

In order for the external auditor to complete an audit of ICFR, management must ______. Multiple select question. accept responsibility for the effectiveness of ICFR present documentation of remediation of control deficiencies of last year's audit accept responsibility for preparation of the financial statements evaluate the effectiveness of ICFR

accept responsibility for the effectiveness of ICFR evaluate the effectiveness of ICFR

The ______ assertion is also concerned with proper posting of information to the purchases journal, accounts payable subsidiary records, and general ledger. Multiple choice question. completeness occurrence authorization accuracy

accuracy

The auditor assesses the adequacy of the allowance account by first examining the ______ for amounts that have been outstanding for a long time. Multiple choice question. accounts receivable subsidiary ledger general ledger aged trial balance listing of sales invoices

aged trial balance

In order for a sample to be representative of the population _______. Multiple choice question. all items must have an equal opportunity to be selected the chance of selection must be tied to the size or dollar value of the items any items the auditor deems as non-representative must be excluded

all items must have an equal opportunity to be selected

The potential misstatement related to the accuracy assertion is that the payment ______. Multiple choice question. is not recorded in the correct period is not properly authorized amount is recorded incorrectly is not a valid transaction for the entity

amount is recorded incorrectly

The invoice processing function is responsible for ______. Multiple select question. receiving, counting and inspecting goods received from vendors comparing account distributions with established account classifications matching purchase orders to receiving reports purchased goods returned to vendors

comparing account distributions with established account classifications matching purchase orders to receiving reports purchased goods returned to vendors

The design, operation, and monitoring of internal controls within an entity is primarily the responsibility of the Correct! entity's management. audit committee of the board of directors. independent auditor. internal auditors.

entity's management.

If management finds any significant control deficiencies or material weaknesses, they should be reported to the ______. Multiple select question. SEC board of directors external auditor internal auditor audit committee

external auditor audit committee

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

incorrect rejection assessing control risk too high

If the auditor has tested entity controls for ensuring that liabilities are recorded, he or she may be able to focus on accounts payable confirmations of ______ dollar accounts. Multiple choice question. large zero small

large

When evaluating the control environment, the auditor should assess whether ______. Multiple select question. management's philosophy and operating style promote effective ICFR sound integrity and ethical values are developed and understood management understands and exercises oversight responsibility over financial reporting and internal control

management's philosophy and operating style promote effective ICFR sound integrity and ethical values are developed and understood

The tax provision and related balance sheet accounts are usually _____ elements in the financial statements. Multiple choice question. not material material

material

Credit memoranda that are used to process sales returns and allowance transactions ______. Multiple select question. may conceal a misappropriation of cash should always be approved to the person who sold the goods may cause the general ledger sales account balance to be incorrect can cover up unauthorized shipments of goods

may conceal a misappropriation of cash can cover up unauthorized shipments of goods

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

nature of the disclosure susceptibility to misstatement account size and composition

Internal controls over financial reporting are designed to Correct! prevent or detect and correct potential material misstatements on the financial statements. insure that management's operational policies and procedures are followed. prevent or detect and correct all potential misstatements on the financial statements. insure efficiency and effectiveness of operations.

prevent or detect and correct potential material misstatements on the financial statements.

To test that cash disbursements are properly posted to the records, the entity should ______. Multiple choice question. prepare bank reconciliation reconcile daily cash disbursements to source documents authorize the complete voucher packet reconcile vendors' monthly statements

reconcile vendors' monthly statements

The major misstatement related to the completeness assertion is that a cash disbursement is made but not ______. Multiple choice question. recorded in the entity's records authorized recorded in the correct period properly classified

recorded in the entity's records

The credit authorization function has responsibility for ______. Multiple select question. authorizing write-offs and credit memorandums requesting payment from customers who are delinquent monitoring customer payments preparing report of customer accounts that may require write-off reviewing and preparing aged accounts receivable trial balance

requesting payment from customers who are delinquent monitoring customer payments preparing report of customer accounts that may require write-off reviewing and preparing aged accounts receivable trial balance

The initial function in the revenue process is ______. Multiple choice question. sales order entry shipping credit authorization billing

sales order entry

The individual members of the sampling population are called the ______. Multiple choice question. selected population frame units control group sampling units

sampling units

The key control activity to prevent misstatements with respect to the occurrence of cash receipts is ______. Multiple choice question. customer statements prepared on a regular basis daily cash receipts reconciled with posting to accounts receivable sub ledger segregation of duties checks restrictively endorsed when received

segregation of duties

The major control for preventing fictitious purchases is proper ______. Multiple choice question. authorization by management segregation of duties review of receiving reports

segregation of duties

Deferred taxes for book/tax differences are recorded on the balance sheet for ______. Multiple choice question. permanent differences only temporary differences only both temporary and permanent differences

temporary differences only

To be effective, most controls do not need to operate 100 percent of the time so long as the ______. Multiple select question. control operates without error for the period immediately prior to year-end times the control fails to operate are not predictable person performing the control has been properly trained person performing the control investigates processing exceptions

times the control fails to operate are not predictable person performing the control investigates processing exceptions

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

withdraw from the engagement disclaim an opinion

The permission to remove an uncollectible account is granted through a ______. Multiple choice question. credit memorandum write-off authorization customer statement remittance advice

write-off authorization

Which of the following audit techniques would most likely provide an auditor with the most assurance about the effectiveness of the operation of a control? Inquiry of client personnel. Reperformance of the control by the auditor. Observation of entity personnel. Walkthrough.

Reperformance of the control by the auditor.

Application controls

Controls that apply to the processing of specific computer applications and are part of the computer programs used in the accounting system.

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

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

Access information stored on computer files while having a limited understanding of the client's hardware and software features.

A primary advantage of using generalized audit software packages to audit the financial statements of an entity that uses an IT system is that the auditor may Consider increasing the use of substantive tests of transactions in place of analytical procedures. Substantiate the accuracy of data through self-checking digits and hash totals. Reduce the level of required tests of controls to a relatively small amount. Access information stored on computer files while having a limited understanding of the client's hardware and software features.

Monitoring of controls

A process that assesses the quality of internal control performance over time.

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

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

Trace a transaction from each major class of transactions from origination through the company's information system until it is reflected in the company's financial reports.

A walkthrough is one procedure used by an auditor as part of the internal control audit. A walkthrough requires an auditor to Tour the organization's facilities and locations before beginning any audit work. Trace a transaction from every class of transactions from origination through the company's information system. Trace a transaction from each major class of transactions from origination through the company's information systems. Trace a transaction from each major class of transactions from origination through the company's information system until it is reflected in the company's financial reports.

Control deficiency

A weakness in the design or operation of a control such that management or employees, in the normal course of performing their assigned functions, fail to prevent or detect misstatements on a timely basis.

significant deficiency

A weakness, or a combination of weaknesses, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the entity's financial reporting.

Significant deficiency

A weakness, or a combination of weaknesses, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

An auditor's primary consideration regarding an entity's internal controls is whether they Prevent management override. Relate to the control environment. Reflect management's philosophy and operating style. Affect the financial statement assertions.

Affect the financial statement assertions

A disclaimer of opinion.

AnnaLisa, an auditor for N. M. Neal & Associates, is prevented by the management of Lileah Company from auditing controls over inventory. Lileah is a public company. Management explains that controls over inventory were recently implemented by a highly regarded public accounting firm that the company hired as a consultant and insists that it is a waste of time for AnnaLisa to evaluate these controls. Inventory is a material account, but procedures performed as part of the financial statement audit indicate the account is fairly stated. AnnaLisa found no material weaknesses in any other area of the client's internal control relating to financial reporting. What kind of report should AnnaLisa issue on the effectiveness of Lileah's internal control? An unqualified report. An adverse report. A disclaimer of opinion. An exculpatory opinion.

SOC 1, Type 2 reports by the service organization's auditor typically Provide reasonable assurance that their financial statements are free of material misstatements. Ensure that the entity will not have any misstatements in areas related to the service organization's activities. Ensure that the entity is billed correctly. Assess whether the service organization's controls are suitably designed and operating effectively.

Assess whether the service organization's controls are suitably designed and operating effectively.

Which of the following statements are correct? Multiple select question. Identifying controls to be tested is an objective task that requires little professional judgment. Auditors must evaluate whether to test preventive controls, detective controls or a combination of both. Auditors must make decisions regarding which locations to test based on the presence of entity-level controls and financial reporting risk. When testing, auditors should focus on key controls.

Auditors must evaluate whether to test preventive controls, detective controls or a combination of both. Auditors must make decisions regarding which locations to test based on the presence of entity-level controls and financial reporting risk. When testing, auditors should focus on key controls.

Comparing the date of a bill of lading with the date on the respective sales invoice and the date the sales invoice was recorded in the sales journal allows the auditor to test the control. (Enter only one word per blank.)

Blank 1: cutoff

When a voucher register system is utilized, the accounts payable is a listing of unpaid vouchers. (Enter only one word per blank.)

Blank 1: subsidiary Blank 2: ledger

Determining that the customer is able to pay for the goods or services is the role of the function. (Enter only one word per blank.)

Blank 1: credit Blank 2: authorization or approval

A key control in the billing function is that a(n) should not be issued unless the goods have been returned. (Enter only one word per blank.)

Blank 1: credit Blank 2: memorandum or memo

If an auditor expected that a control would have a 1 percent deviation (failure) rate and he or she were willing to tolerate a deviation rate of 5 percent, the allowance for sampling risk would be percent. (Enter your answer as a whole number.)

Blank 1: 4 or four

Ensuring all billings, adjustments and cash collections are properly recorded in customers' accounts is the responsibility of the function. (Enter only one word per blank.)

Blank 1: accounts or account Blank 2: receivables or receivable

Because revenue transactions that are processed incorrectly result in misstatements that directly affect the amounts reported in the financial statements, is an important assertion. (Enter only one word per blank.)

Blank 1: accuracy

The potential misstatement related to the assertion is that the payment amount is recorded incorrectly. (Enter only one word per blank.)

Blank 1: accuracy

Monetary-unit sampling uses -sampling theory and techniques to estimate monetary misstatements. (Enter only one word per blank.)

Blank 1: attribute

The primary control to prevent misstatements due to improper is the use of a schedule or table that stipulates the amount that different levels of employees are allowed to purchase. (Enter only one word per blank.)

Blank 1: authorization

Shipping goods to customers with bad credit and making sales at incorrect prices or terms are both possible misstatements due to improper . (Enter only one word per blank.)

Blank 1: authorization or authorizations

Estimating the dollar value of a class of transactions or account balances or determining whether an account is materially misstated are common uses of sampling. (Enter only one word per blank.)

Blank 1: classical Blank 2: variables

One control activity that can provide assurance for the assertion that customer payments are recorded to the correct account is to reconcile the daily remittance report with postings to the cash receipts journal and accounts receivable subsidiary ledger. (Enter only one word per blank.)

Blank 1: classification

One of the major issues related to of accounts receivables is segregating short-term and long-term receivables. (Enter only one word per blank.)

Blank 1: classification

Use of a chart of accounts and independent approval and review of the general ledger accounts charged for acquisitions are controls for the assertion. (Enter only one word per blank.)

Blank 1: classification

Control activities used to identify unrecorded liabilities and accruals should be part of the process for the entity. (Enter only one word per blank.)

Blank 1: closing

Controls that ensure the assertion is being met for purchases include accounting for the numerical sequences of purchase orders, receiving reports, and vouchers and matching receiving reports with vendor invoices. (Enter only one word per blank.)

Blank 1: completeness

The auditor's concern with the assertion over accounts receivable is whether all accounts receivable have been included in the subsidiary ledger and the general ledger account. (Enter only one word per blank.)

Blank 1: completeness

The major misstatement related to the assertion is that a cash disbursement is made but not recorded in the entity's records. (Enter only one word per blank.)

Blank 1: completeness

The second major test of the assertion for accounts payable and accruals is concerned with unrecorded liabilities. (Enter only one word per blank.)

Blank 1: completeness

The auditor analyzes the purchasing process in order to identify controls that ensure material misstatements that are prevented or detected or corrected as they can be relied upon by the auditor to reduce risk. (Enter only one word per blank.)

Blank 1: control

The entity's organizational structure and its methods of assigning authority and responsibility are two factors that are particularly important when the auditor considers the and the purchasing process. (Enter only one word per blank.)

Blank 1: control Blank 2: environment

The creditworthiness of a customer should be documented on a(n) form. (Enter only one word per blank.)

Blank 1: credit Blank 2: approval

If the auditor determines that a deficiency might prevent prudent officials in the conduct of their own affairs from concluding they have reasonable assurance that transactions are recorded as necessary to prepare financial statements in accordance with GAAP, the auditor should treat the deficiency as indication of a(n) . (Enter only one word per blank.)

Blank 1: material Blank 2: weakness

Understanding how management assesses the design and operation of controls is part of understanding the entity's processes over the purchasing process. (Enter only one word per blank.)

Blank 1: monitoring

Understanding how supervisory personnel within the purchasing process review the personnel who perform and controls and evaluating the performance of the entity's IT system is part of the auditor's understanding of the entity's process over purchasing. (Enter only one word per blank.)

Blank 1: monitoring

The risk that auditors will make judgment errors caused by the use of inappropriate audit procedures or misinterpretation of audit evidence and failure to recognize a misstatement or deviation is called risk. (Enter only one word per blank.)

Blank 1: nonsampling

Expenses that are recognized when cash is spent or liabilities incurred for goods and services that are used up at that time or shortly thereafter are referred to as costs. (Enter only one word per blank.)

Blank 1: period

At the planning stage of an audit sampling application, is the difference between the expected and tolerable deviation rate or misstatement. (Enter only one word per blank.)

Blank 1: precision

Statistical sampling uses the laws of to compute sample size and evaluate the sample results. (Enter only one word per blank.)

Blank 1: probability

Expenses that can be matched directly with specific transactions or events and are recognized upon recognition of revenue are referred to as costs. (Enter only one word per blank.)

Blank 1: product

To request goods or services, an authorized individual completes a(n) (Enter only one word per blank.)

Blank 1: purchase Blank 2: requisition

The COSO definition of ICFR is designed to provide assurance regarding the reliability of financial reporting and GAAP financial statement presentation. (Enter only one word per blank.)

Blank 1: reasonable

Significant "substance over form" revenue recognition issues can arise from transactions. (Enter only one word per blank.)

Blank 1: related Blank 2: party

When the evaluation of the sample results leads to the same conclusions that would be drawn if the same audit procedures were applied to the entire population, the auditor has selected a(n) sample. (Enter only one word per blank.)

Blank 1: representative

The important issue in the function of the purchasing process it that the request meets the authorization procedures implemented by the entity. (Enter only one word per blank.)

Blank 1: requisitioning or requisition

The critical segregation of duties for preventing fictitious purchases is the separation of the and functions from the accounts payable and disbursement functions. (Enter only one word per blank.)

Blank 1: requisitioning or requisition Blank 2: purchasing or purchase

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

Blank 1: safeguarding

Transactions recorded in the and journals are posted to the accounts receivable subsidiary ledger. (Enter only one word per blank.)

Blank 1: sales Blank 2: cash Blank 3: receipts

The source document that typically signals the recognition of revenue is the . (Enter only one word per blank.)

Blank 1: sales Blank 2: invoice

The necessary information for each sales transaction is recorded in the . (Enter only one word per blank.)

Blank 1: sales Blank 2: journal

Auditor's will tolerate deviation and still consider a control to be effective because there is a risk that the deviation rate differs from the deviation rate. (Enter only one word per blank.)

Blank 1: sample Blank 2: population

The uncertainty associated with sampling is known as . (Enter only one word per blank.)

Blank 1: sampling Blank 2: risk

If circumstances beyond the control of management or the auditor limit the of the auditor's work, the auditor should disclaim an opinion or withdraw from the engagement. (Enter only one word per blank.)

Blank 1: scope

One of the most important controls in any accounting system is proper of . (Enter only one word per blank.)

Blank 1: segregation or separation Blank 2: duties

A deficiency or combination of deficiencies in ICFR that is less severe than a material weakness yet important enough to merit attention is a(n) deficiency. (Enter only one word per blank.)

Blank 1: significant

Any entries into customers' accounts should be made from authorized such as sales invoices, remittance advices, and credit memoranda. (Enter only one word per blank.)

Blank 1: source Blank 2: documents

The document that is generally mailed monthly and contains the details of all sales, cash receipts, and credit memorandum transactions processed through a customer's account is called a(n) customer . (Enter only one word per blank.)

Blank 1: statement

Auditing standards recognize and permit both and methods of audit sampling. (Enter only one word per blank.)

Blank 1: statistical Blank 2: nonstatistical

An account and the details of transactions with each customer are found in the accounts receivable . (Enter only one word per blank.)

Blank 1: subsidiary Blank 2: ledger

When a purchase journal is utilized, the accounts payable records the transactions with, and the balances owed to, a vendor. (Enter only one word per blank.)

Blank 1: subsidiary Blank 2: ledger

Electronic (Internet) commerce

Business transactions between individuals and organizations that occur without paper documents, using computers and telecommunication networks.

Match the role to the responsibility as required in the COSO definition of internal control. Drag and drop application. CEO and CFO CEO and CFO drop zone empty. Board and management Board and management drop zone empty. Reliability of ICFR and preparation of financial statements Implementation of effective internal control system

CEO and CFO matches Choice, Reliability of ICFR and preparation of financial statements Reliability of ICFR and preparation of financial statements Board and management matches Choice, Implementation of effective internal control system Implementation of effective internal control system

Prevention of fraud.

COSO named several primary objectives of internal control. Which of the following is NOT one of those objectives? Compliance with laws and regulations. Reliable financial reporting. Correct! Prevention of fraud. Efficiency and effectiveness of operations.

The accounts commonly affected by cash receipts transactions are ______. Multiple select question. Cash discounts Sales Trade accounts receivable Sales returns & allowances Cash Bad debt expense

Cash discounts Trade accounts receivable Cash

Which of the following audit procedures would provide the auditor with the greatest assurance regarding the adequacy of internal controls over cash on hand? Testing the year-end bank reconciliations. Correct! Conducting a surprise count of cash on hand and reconciling it with the accounting records. Performing a walk through of a purchase transaction. Inquiry of the client's management and staff members handling cash.

Conducting a surprise count of cash on hand and reconciling it with the accounting records.

Which of the following statements are correct? Multiple select question. Confirmation requests should be made soon after the end of the accounting period to maximize the response rate. Sending confirmations at the end of the accounting period reduces the chance of timing differences. Accounts receivable should only be confirmed at year end except in rare circumstances.

Confirmation requests should be made soon after the end of the accounting period to maximize the response rate. Sending confirmations at the end of the accounting period reduces the chance of timing differences.

Which of the followings statements are correct? Multiple select question. Confirmation provides evidence of the rights and obligations assertion. Customer account confirmation provides evidence of accounts receivable validity Confirmations generally provide the same level of assurance for all assertions. Confirmations can address more than one assertion.

Customer account confirmation provides evidence of accounts receivable validity Confirmations can address more than one assertion.

An auditor anticipates assessing control risk at a low level in an IT environment. Under these circumstances, on which of the following controls would the auditor initially focus? Data capture controls. Application controls. Output controls. General controls.

General controls

Accept the other auditor's opinion after evaluating the auditor's work, and make reference to the other auditor's report in her audit opinion.

In auditing ICRF for a public company, Emily finds that the company has a significant subsidiary located in a foreign country. Emily's accounting firm has no offices in that country, and the entity has thus engaged another reputable firm to conduct the audit of internal control for that subsidiary. The other auditor's report indicates that there are no material weaknesses in the foreign subsidiary's ICFR. What should Emily do? Disclaim an opinion because she cannot rely on the opinion of another auditor in dealing with a significant subsidiary. Accept the other auditor's opinion and express an unqualified opinion, making no reference to the other auditor's report in her audit opinion. Accept the other auditor's opinion after evaluating the auditor's work, and make reference to the other auditor's report in her audit opinion. Qualify the opinion because she is unable to conduct the testing herself, and this constitutes a significant scope limitation.

An unqualified report.

In auditing a public company, Natalie, an auditor for N. M. Meal & Associates, identifies four deficiencies in ICRF. Three of the deficiencies are unlikely to result in financial misstatements that are material. One of the deficiencies is reasonably likely to result in misstatements that are not material but significant. What type of audit report should Natalie issue? An unqualified report. An adverse report. A disclaimer of opinion. An exculpatory opinion.

Significant deficiencies in the design or operation of internal control.

Significant deficiencies and material weaknesses must be communicated to an entity's audit committee because they represent Material fraud or illegal acts perpetrated by high-level management. Disclosures of information that significantly contradict the auditor's going concern assumption Significant deficiencies in the design or operation of internal control. Potential manipulation or falsification of accounting records.

Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent Disclosures of information that significantly contradict the auditor's going concern assumption. Material fraud or illegal acts perpetrated by high-level management. Significant deficiencies in the design or operation of the internal control. Manipulation or falsification of accounting records or documents from which financial statements are prepared.

Significant deficiencies in the design or operation of the internal control.

Which of the following is NOT a reason that technology will never totally eliminate the need for sampling? Multiple choice question. Data analysis requires that the data be tested for validity. Many testing procedures require physical inspection. Some populations are small enough to not require sampling. Some evidence must be obtained from third parties. Many control processes require human involvement.

Some populations are small enough to not require sampling.

Which of the following is NOT a reason that technology will never totally eliminate the need for sampling? Multiple choice question. Some evidence must be obtained from third parties. Many control processes require human involvement. Some populations are small enough to not require sampling. Many testing procedures require physical inspection. Data analysis requires that the data be tested for validity.

Some populations are small enough to not require sampling.

test the transactions and balances reported by the client.

Substantive audit procedures are those procedures which relate to the planning of the audit engagement. provide substantial evidence to the auditor. Correct! test the transactions and balances reported by the client. test the substantial internal controls of the entity.

Regardless of the assessed level of control risk, an auditor would perform some Test of controls to determine the effectiveness of internal controls. Analytical procedures to verify the design of internal controls. Substantive procedures to restrict detection risk for significant transactions classes. Dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.

Substantive procedures to restrict detection risk for significant transaction classes.

Internal control

The method by which an entity's board of directors, management, and other personnel provide reasonable assurance about the achievement of objectives in the following categories: (1) reliability of financial reporting, (2) effectiveness and efficiency of operations, and (3) compliance with applicable laws and regulations.

Remediation

The process of correcting a material weakness as part of management's assessment of the effectiveness of internal control over financial reporting.

Which of the following statements are correct? Multiple select question. The shipping function is responsible for ensuring customers are billed for orders. The shipping function is responsible for ensuring orders are filled correctly. Goods should not be shipped without proper authorization. Goods should not be shipped until they are paid for in full.

The shipping function is responsible for ensuring orders are filled correctly. Goods should not be shipped without proper authorization.

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

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

This misstatement likely will result in an adverse opinion on the internal controls of the client.

When auditing the financial statements of a publicly held client the auditor discovers a material misstatement in accounts receivable. What impact is this misstatement most likely to have on the auditor's opinion on the internal controls of the audit client? This misstatement likely will result in the auditor issuing a qualified opinion on the internal controls of the client. This misstatement will have no impact on the auditor's opinion on the internal controls since the discovered misstatement was not related to the audit of internal controls. This misstatement likely will result in a disclaimer of opinion on the internal controls of the client. Correct! This misstatement likely will result in an adverse opinion on the internal controls of the client.

The walkthrough of the control system conducted at interim.

When auditors report on the effectiveness of internal control "as of" a specific date and obtain evidence about the operating effectiveness of controls at an interim date, which of the following items would be the least helpful in evaluating the additional evidence to gather for the remaining period? Any significant changes that occurred in internal control subsequent to the interim date. The length of the remaining period. The specific controls tested prior to the "as of" date and the results of those tests. The walkthrough of the control system conducted at interim.

Controls that operate on a continuous basis.

Which of the following controls would most likely be tested during an interim period? Controls over nonroutine transactions. Controls over the period-end financial reporting process. Controls that operate on a continuous basis. Controls over transactions that involve a high degree of subjectivity.

The financial statement amounts exposed to the deficiency.

Which of the following is not a factor that might affect the likelihood that a control deficiency could result in a misstatement in an account balance? The susceptibility of the related assets or liability to loss or fraud. The interaction or relationship of the control with other controls. The financial statement amounts exposed to the deficiency. The nature of the financial statement accounts, disclosures, and assertions involved.

When it comes to cash receipt transactions, auditors seldom have major concerns about ______. Multiple choice question. incorrect recording of receipts completeness classification proper authorizations

classification

The major control for preventing cash from being recorded in the wrong account is ______. Multiple choice question. a chart of account segregation or duties proper authorizations proper cutoff

a chart of account

A major drawback to the use of negative confirmations is ______. Multiple choice question. customers generally get annoyed if auditors send negative confirmations a non response could mean balance is correct or customer ignored it the auditor must send envelopes out, but does not expect them to return the auditor must follow up on all non responses

a non response could mean balance is correct or customer ignored it

The auditor must rely on his or her professional judgment to reach a conclusion about the audit test when using ______ sampling application(s). Multiple choice question. a nonstatistical neither statistical nor nonstatistical a statistical both statistical and non statistical

a nonstatistical

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

all the transactions greater than a particular dollar amount

To ensure proper authorization of cash disbursements, an employee who prepares cash disbursements, should not ______. Multiple choice question. record receipt of inventory record accounts receivable approve purchases

approve purchases

Audit procedures that may be used as part of the search for unrecorded liabilities include ______. Multiple select question. asking management about control activities used at the closing process vouching large-dollar items from the purchases journal and cash disbursements journal after year-end vouching large-dollar purchase return transactions from the purchases journal examining the files of unmatched purchase orders, receiving reports, and vendor invoices examining the files of unmatched customer orders, shipping reports and customer invoices

asking management about control activities used at the closing process vouching large-dollar items from the purchases journal and cash disbursements journal after year-end examining the files of unmatched purchase orders, receiving reports, and vendor invoices

The auditor's decision process for planning and performing tests of controls involves considering the ______ that can occur if internal control does not operate effectively. Multiple choice question. causes and consequences substantive tests and possible misstatements assertions and the possible misstatements

assertions and the possible misstatements

Auditing standards allow the auditor to omit confirming accounts receivable when ______. Multiple select question. assessed level of risk for the assertion is low, and the planned substantive procedures address that risk external confirmations would be ineffective the accounts receivable balance is at the same level as prior years the accounts receivable balance is immaterial

assessed level of risk for the assertion is low, and the planned substantive procedures address that risk the accounts receivable balance is immaterial external confirmations would be ineffective

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

assessing control risk too high underreliance

The most common use of ______ sampling is for tests of controls. Multiple choice question. attribute classical variables monetary-unit

attribute

If the auditor discovers fraud involving senior management while auditing ICFR, the auditor must communicate the matter directly to the ______. Multiple choice question. appropriate law enforcement agency appropriate regulatory agency audit committee internal audit department

audit committee

Obtaining a listing of accounts payable, footing the listing, and agreeing it to the general ledger control account determines the ______ of accounts payable. Multiple choice question. occurrence classification completeness cutoff

completeness

Organizations can control requisitioning authorization by ______. Multiple choice question. having functional areas submit requests to the purchasing department allowing all individuals in the organization to request goods and services authorization dollar limits for different levels of employees

authorization dollar limits for different levels of employees

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

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

With a nonstatistical sample, the auditor ______ calculate the sample deviation rate ______ quantify the computed upper deviation rate and the sampling risk associated with the test. Multiple choice question. can; but cannot cannot; but can can; and can cannot; and cannot

can; but cannot

If an auditor is performing a nonstatistical sampling application, sampling risk ______ be measured directly. Multiple choice question. can only sometimes cannot can

cannot

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

cannot issue an unqualified

Accounts receivable confirmations provide evidence on several assertions including ______. Multiple select question. authorization completeness valuation existence cutoff

completeness valuation existence cutoff

Typical procedures that might be applied to the audit of the tax provision by the auditors or tax specialist include ______. Multiple select question. determining when the permanent differences will be properly reflected in both the financial statements and tax return comparing the size and trend in the tax provision and related balance sheet accounts over time considering the realizability of net deferred tax assets and adequacy of related valuation allowances testing the mathematical accuracy of the tax provision computations

comparing the size and trend in the tax provision and related balance sheet accounts over time considering the realizability of net deferred tax assets and adequacy of related valuation allowances testing the mathematical accuracy of the tax provision computations

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

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

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

confidence level

Receivables from related parties are ______. Multiple choice question. confirmed and evaluated for collectibility assumed not to be "arm's length" transactions examined for repayment terms and whether interest income has been properly recorded

confirmed and evaluated for collectibility

If an auditor is not able to apply a planned audit procedure to a sample item the auditor should ______. Multiple choice question. remove the sample item and not consider it a deviation for purposes of evaluating sample results consider the effects of not being able to apply the planned procedure ignore the sample item and replace it with another randomly selected sample unit

consider the effects of not being able to apply the planned procedure

To provide evidence on the valuation of the allowance, the auditor looks at the aged trial balance for old items and ______. Multiple choice question. considers historical collection to provide evidence of uncolletability for current items examines payment patterns of customers by looking at cash receipts during the year discusses collection policies with entities that factor accounts receivable nothing else

considers historical collection to provide evidence of uncolletability for current items

A vendor invoice ______. Multiple select question. contains the quantity shipped and price is sent to a vendor is the bill from the supplier begins the purchases process

contains the quantity shipped and price is the bill from the supplier

The cash receipts journal contains columns for ______. Multiple select question. debiting cash debiting accounts receivable debiting other accounts such as scrap sales or interest income crediting accounts receivable crediting other accounts such as scrap sales or interest income

debiting cash crediting accounts receivable crediting other accounts such as scrap sales or interest income

To understand the entity's risk assessment process, the auditor must understand how management ______. Multiple select question. decides what actions to take to address purchasing process risks estimates purchasing process risk significance assesses the likelihood of purchasing process risk occurrence weighs the risks that are relevant to the purchasing process documents the control environment that addresses the purchasing process

decides what actions to take to address purchasing process risks estimates purchasing process risk significance assesses the likelihood of purchasing process risk occurrence weighs the risks that are relevant to the purchasing process

In setting the desired confidence level and acceptable level of risk, the auditor considers the ______. Multiple select question. over reliance on controls difficulty or complexity in applying the control significance of the account risk of incorrect materiality importance of the assertion

difficulty or complexity in applying the control significance of the account importance of the assertion

Generally, the purchasing process and its related accounts ______. Multiple select question. are not likely to contain material misstatements do not result in contentious accounting issues are not difficult to audit

do not result in contentious accounting issues are not difficult to audit

Regarding purchase returns, the auditor normally ______. Multiple choice question. tests the controls of the transactions to reduce control risk does not test controls of these transactions relies on the internal audit of these transactions

does not test controls of these transactions

Important controls regarding the processing of credit memoranda are ______. Multiple select question. the entity should use a lockbox system to ensure that cash is deposited on a timely basis remittance advices should be reconciled to the cash receipts journal each credit memorandum should be approved by someone other than the individual who initiated it a credit for returned goods should be supported by a receiving document indicating that the goods have been returned

each credit memorandum should be approved by someone other than the individual who initiated it a credit for returned goods should be supported by a receiving document indicating that the goods have been returned

Advantages of GAS include ______ Multiple select question. ease of use limited IT expertise is required entire populations can be examined auditing can be done as the entity processes data

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

The principal business objectives of the purchasing process are ______. Multiple select question. saving financing costs by paying vendors early effectively using cash resources to pay for goods and services acquiring goods and services at the desired quality acquiring goods and services at the lowest cost

effectively using cash resources to pay for goods and services acquiring goods and services at the desired quality acquiring goods and services at the lowest cost

In order for the external auditor to complete an audit of the ICFR, management must present written assessment regarding the ______. Multiple choice question. effectiveness of Internal Audit completeness of financial transactions completeness of the control system effectiveness of the entity's ICFR

effectiveness of the entity's ICFR

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

effectiveness; deviations

The major issues related to the presentation and disclosure assertion about accounts payable are ______. Multiple select question. ensuring that different types of payables are properly classified identifying and reclassifying any material debits contained in accounts payable segregating short-term and long-term payables segregating current assets from current liabilities identifying and reclassifying any material unpaid expenses

ensuring that different types of payables are properly classified identifying and reclassifying any material debits contained in accounts payable segregating short-term and long-term payables

The auditor must maintain control over the accounts receivable confirmations to minimize the possibility of ______. Multiple select question. lack of customer response to the confirmation entity interception of the confirmation alteration of the confirmation by the entity

entity interception of the confirmation alteration of the confirmation by the entity

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

entity-level controls financial reporting risks at the locations

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

entity-level controls other pervasive elements of ICFR

To test for proper authorization of early payment discounts, the auditor can ______. Multiple choice question. test reconciliations of the daily cash receipts with the postings to the accounts receivable subsidiary ledger analyze typical cash receipts for dips in trends examine a sample of cash receipts transactions to determine if the entity's cash discount policies are being followed

examine a sample of cash receipts transactions to determine if the entity's cash discount policies are being followed

Comparison of gross profit percentage to previous years' or industry data may provide valuable evidence on ______. Multiple select question. fictitious revenue unrecorded revenue cutoff errors in cash receipts unrecorded cash receipts changes in pricing policies

fictitious revenue unrecorded revenue changes in pricing policies

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

focus on controls deemed adequate to address financial reporting risk

Customer sales order may be prepared and ______. Multiple select question. forwarded from a salesperson mailed faxed received by telephone received over the internet forwarded from the warehouse

forwarded from a salesperson mailed faxed received by telephone received over the internet

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

frequency of operation importance of the control nature of the control

The auditor's report on the effectiveness of internal control must ______. Multiple select question. have the same date as the financial statement audit report be addressed to the management of the company Reason: Shareholders and Board of Directors provide an opinion on effective ICFR as of the specified date contain the basis of management's opinion on the effectiveness of ICFR

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

If there is a dispute between the auditor and management over when revenue should be recognized, the auditor should assess the risk of material misstatement as ______. Multiple choice question. high low moderate

high

When the tests of controls do not support the planned level of control risk, the auditor must set a ______ level of control risk and a ______ level of detection risk. Multiple choice question. lower, lower lower, higher higher, lower higher, higher

higher, lower

The larger the sample size, the ______ the confidence level and the ______ the sampling risk. Multiple choice question. lower; higher higher; higher higher; lower lower; lower

higher; lower

The accounting standard regarding revenue requires an entity to follow a five-step approach. The first step it to ______. Multiple choice question. determine transaction prices for goods and services offered to customers identify contractual agreement(s) with a customer identity the performance obligations an entity will offer to customers in providing goods and services

identify contractual agreement(s) with a customer

When a reliance strategy is adopted for the purchasing process, the auditor needs to ______. Multiple choice question. identify controls that assure assertions are met also adopt a reliance strategy for the revenue process perform significant substantive testing

identify controls that assure assertions are met

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

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

If the auditor determines that elements of management's annual report on ICFR are incomplete or improperly presented, the auditor should ______. Multiple choice question. disclaim an opinion include an explanatory paragraph in the audit report modify management's report so that it is complete and correct issue an adverse opinion

include an explanatory paragraph in the audit report

A voucher register ______. Multiple select question. includes a column to credit accounts payable contains columns to record credits to assets and expense accounts contains columns to record debits to assets and expense accounts includes a column to debit accounts payable

includes a column to credit accounts payable contains columns to record debits to assets and expense accounts

In testing a control, the risk that the sample supports a conclusion that the control is operating effectively when, in truth, it is not operating effectively is the risk of ______. Multiple select question. incorrect acceptance overreliance assessing control risk too low incorrect rejection

incorrect acceptance overreliance assessing control risk too low

Understanding the control environment ______. Multiple select question. is generally completed by looking only at individual business processes is important because these factors have a pervasive effect on all business processes includes consideration of integrity and ethical values

is important because these factors have a pervasive effect on all business processes includes consideration of integrity and ethical values

The size of the population ______ an important factor in determining sample size for attribute sampling. Multiple choice question. is may or may not be is not

is not

If the computed upper deviation rate exceeds the tolerable deviation rate, the auditor will normally conclude that the control ______. Multiple choice question. requires a greater sample size requires additional testing is not operating at an acceptable level is operating at an acceptable level

is not operating at an acceptable level

If the auditor selects a voided document in a sample ______. Multiple select question. it represents a deviation the item should not be replaced with a new sample item it does not represent a deviation the item should be replaced with a new sample item

it does not represent a deviation the item should be replaced with a new sample item

All else being equal, the larger the expected population deviation rate, the ______ the sample size. Multiple choice question. larger smaller

larger

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

larger

Industry related factors that affect the potential for misstatements in the revenue process include ______. Multiple select question. level of competition the industry's history the number of firms in the industry industry's rate of technological change profitability and health of the industry

level of competition industry's rate of technological change profitability and health of the industry

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

likelihood & magnitude

The presence of misstatements in previous audits suggests that misstatements are ______ to be present during the current audit. Multiple choice question. unlikely likely

likely

If the results for testing a particular control were favorable in the prior year, and no changes were made to the control, the auditor might assess risk ______ testing this year. Multiple choice question. higher and increase lower and reduce lower and increase higher and reduce

lower and reduce

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

lower; larger

The difference between a control deficiency, a significant deficiency, and a material weakness is determined solely based on ______. (Enter only one word per blank.) Multiple choice question. likelihood auditor judgment magnitude management judgment

magnitude

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

may or may not

The major advantages of statistical sampling are that it helps the auditor ______. Multiple select question. deal with the lack of consistent application across audit teams measure the sufficiency of evidence obtained quantify sampling risk design an efficient sample train staff

measure the sufficiency of evidence obtained quantify sampling risk design an efficient sample

Auditors use ______ sampling because it has several advantages over classical variables sampling. Multiple choice question. proportional-unit monetary-unit attribute qualitative

monetary-unit

Major types of statistical sampling techniques include ______ sampling. Multiple select question. monetary-unit attribute underwriter risk-based classical variables

monetary-unit attribute classical variables

Compared to the objectives listed in the COSO definition, the PCAOB's objectives of internal control are ______ specific. Multiple choice question. less more equally

more

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

more extensive

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

most difficult

The choice of which type of test of controls is appropriate for a particular assertion will be a function of the ______. Multiple select question. nature and timing of substantive audit procedures experience and training that the auditor has nature of the available evidence, including audit evidence in electronic form volume of transactions or data nature and complexity of the systems by which the entity processes and controls information

nature of the available evidence, including audit evidence in electronic form volume of transactions or data nature and complexity of the systems by which the entity processes and controls information

Risk factors to an entity's internal controls over the revenue process include ______. Multiple select question. new HR management new technology rapid growth competition

new technology rapid growth competition

Audit sampling is typically NOT used with ______. Multiple select question. observation recalculation scanning inquiry confirmation

observation scanning inquiry

The possible misstatement that concerns the auditor when considering the ______ assertion is that cash receipts are recorded but not deposited in the entity's bank account. Multiple choice question. completeness authorization accuracy occurrence

occurrence

Because control environment factors have a pervasive effect on all business processes, understanding the control environment is generally completed ______. Multiple choice question. on a department by department basis by reviewing individual business processes by focusing on upper management on an overall entity basis

on an overall entity basis

Transactions processed through the purchasing process are the ______. Multiple select question. payment of the liabilities arising from purchases purchase of goods and services for cash or credit receipt of cash from customers for sales return of goods from customers for cash or credit return of goods to suppliers for cash or credit

payment of the liabilities arising from purchases purchase of goods and services for cash or credit return of goods to suppliers for cash or credit

If the auditor decides to rely on controls to reduce control risk for the authorization assertion, then to verify that this control is operating effectively the auditor must ______. Multiple choice question. review prior year controls perform substantive tests perform tests of controls document the controls

perform tests of controls

When testing automated IT controls, the auditor may decide to test just one of each type of transaction because automated information systems ______. Multiple choice question. cannot be sampled due to the nature of information technology must be tested with substantive audit work, so it doesn't make sense to test controls process transactions consistently unless the system or programs are changed

process transactions consistently unless the system or programs are changed

The uncertainty related to nonsampling risk can be controlled by ______. Multiple select question. proper planning effective supervision enhanced testing adequate training increased sampling

proper planning effective supervision adequate training

An authorized person in a department requests goods with a ______. Multiple choice question. voucher purchase order receiving report purchase requisition

purchase requisition

In the purchasing process, substantive tests of transactions focus mainly on the ______. Multiple choice question. management assertions regarding internal control over purchases purchases and cash disbursement transactions presentation and disclosures related to accounts payable transactions detailed amounts that make up the ending balance for accounts payable

purchases and cash disbursement transactions

A customer sales order typically contains ______. Multiple select question. quantity of items ordered type of products ordered availability of inventory credit approval

quantity of items ordered type of products ordered

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

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

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

reasonable

Purchase transactions for the acquisition of equipment are subject to the controls included in the purchasing process. If those controls are reliable, the auditor may be able to increase the detection risk for the affected financial statement accounts and therefore ______ the number of substantive procedures needed. Multiple choice question. increase make no change to reduce

reduce

Sending confirmation requests at the end of the accounting period ______. Multiple select question. reduces the chance of timing differences is required for auditor reliance maximizes response rate

reduces the chance of timing differences maximizes response rate

A benchmarking strategy allows the auditor to ______. Multiple choice question. rely on previously tested automated control rely on industry benchmarks for effectiveness of control compare results to other clients within the firm compare to controls at other locations within the organization

rely on previously tested automated control

If a large number of deviations are detected early in the tests of controls in the context of a financial statement audit, auditor options include ______. Multiple select question. relying on other internal controls setting the control risk at the maximum for audit assertions affected enhancing related substantive tests informing the entity and considering the exceptions a control deficiency

relying on other internal controls setting the control risk at the maximum for audit assertions affected enhancing related substantive tests

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

remote

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

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

Types of transactions typically processed through the revenue process are the ______. Multiple select question. sale of goods or rendering of a service for cash or credit return of goods by the customer for credit or cash receipt of cash from the customer in payment for the goods or services issuance of goods to the customer from the warehouse receipt of goods for resale from the supplier

sale of goods or rendering of a service for cash or credit return of goods by the customer for credit or cash receipt of cash from the customer in payment for the goods or services

Controls for the completeness assertion include ______. Multiple select question. segregation of duties use of a lockbox system procedures specifying policies for cash discounts restrictive endorsements

segregation of duties use of a lockbox system restrictive endorsements

When the auditor does not receive a response to the positive confirmations, possible procedures include ______. Multiple select question. sending second and third requests examining shipping documentation verifying sales by examining the sales journal having the client contact the customer to ask for a response examining specific subsequent cash receipts

sending second and third requests examining shipping documentation examining specific subsequent cash receipts

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

service organizations safeguarding assets

The major control for preventing fictitious sales is proper segregation of duties between the functions of ______. Multiple choice question. cash receipts and general ledger sales and billing shipping and order entry and billing receiving and shipping

shipping and order entry and billing

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

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

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

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

If vendors do not respond to the accounts payable confirmation, the auditor should examine ______. Multiple select question. subsequent cash disbursements correspondence from third parties other records, such as receiving reports and statements from vendors subsequent cash receipts prior year confirmation responses

subsequent cash disbursements correspondence from third parties other records, such as receiving reports and statements from vendors

Possible programmed controls to ensure accuracy of the revenue process include ______. Multiple select question. shipping documents are matched to sales invoices the authorized price list is updated promptly only authorized changes are made to the master file

the authorized price list is updated promptly only authorized changes are made to the master file

When evaluating the control environment, the auditor should assess whether ______. Multiple select question. the audit committee's philosophy and operating style promote effective ICFR the board understands and exercises oversight responsibility over financial reporting and internal control sound integrity and ethical values are developed and understood

the board understands and exercises oversight responsibility over financial reporting and internal control sound integrity and ethical values are developed and understood

Inherent risk factors that may affect the revenue process are ______. Multiple select question. the difficulty of auditing transactions and account balances the control environment and controls over cash industry-related factors the complexity and contentiousness of revenue recognition issues misstatements detected in prior audits

the difficulty of auditing transactions and account balances industry-related factors the complexity and contentiousness of revenue recognition issues misstatements detected in prior audits

Accounts payable confirmations may be used as an important source of evidence if ______. Multiple choice question. the auditor is also sending receivable confirmations vendor statements are available the entity has weak internal control

the entity has weak internal control

The vendor's statement may differ from the entity's records because of: Multiple select question. unapproved purchases recorded in the voucher register customer returns timing differences in supplier recording cash receipts timing differences in shipping goods errors

timing differences in supplier recording cash receipts timing differences in shipping goods errors

Sample sizes will become too large to be practical or are simply not computable because there is insufficient allowance for sampling risk when ______ are too close together. Multiple choice question. sample size and estimated deviation rate tolerable error and sample size desired confidence and margin for error tolerable and estimated deviation rates

tolerable and estimated deviation rates

For most tests of controls, if the auditor is unable to examine a document to test whether the control was adequately performed, the auditor should ______. Multiple choice question. not record the sample item as a deviation for purposes of evaluating the sample results replace the item with another transaction use an alternative procedure ignore the item when evaluating sample results

use an alternative procedure

The ______ of individual accounts payable is generally not a difficult assertion to test. Multiple choice question. cutoff occurrence valuation completeness

valuation

Companies control payment with a ______. Multiple choice question. voucher purchase requisition purchase order receiving report

voucher

For a positive confirmation, a response is required ______. Multiple choice question. only if the amount is incorrect whether the amount is correct or incorrect only if the amount is correct

whether the amount is correct or incorrect

When auditing the purchasing process, the auditor should consider important industry-related factors in assessing inherent risk including ______. Multiple select question. whether employees have opportunity for theft whether customers will pay on time at invoice whether the supply of raw materials is adequate how volatile raw material prices are

whether the supply of raw materials is adequate how volatile raw material prices are