Audit Final - Similar Questions to Quizzes

Which of the following may present itself as the biggest risk to centralizing information responsibilities that were traditionally separate? A) IT personnel with access to software and master files may misappropriate assets B) IT personnel with access to software and master files may lack the accounting skills necessary to provide useful information to management C) IT personnel with access to software and master files may not understand the linkages between general and application controls D) IT personnel with access to software and master files may not be able to convert the company's operational policies to an IT environment

A) IT personnel with access to software and master files may misappropriate assets

The "primary" purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to: A. Corroborate information regarding deposit and loan balances. B. Detect kiting activities that may otherwise not be discovered. C. Request information about contingent liabilities and secured transactions. D. Provide the data necessary to prepare a proof of cash.

A. Corroborate information regarding deposit and loan balances.

When an auditor increases the assessment of the risks of material misstatement because certain controls were determined to be ineffective, the auditor will most likely increase the A. Extent of tests of details. B. Assessed inherent risk. C. Extent of tests of controls. D. Acceptable detection risk

A. Extent of tests of details.

32. Tracing bills of lading to sales invoices provides evidence that A. shipments to customers were invoiced. B. shipments to customers were recorded as sales. C. recorded sales were shipped. D. invoiced sales were recorded as sales.

A. shipments to customers were invoiced.

To obtain evidence about the effectiveness of controls, an auditor ordinarily selects tests from a variety of methods, including A. Analysis. B. External confirmations. C. Reperformance. D. Comparison

C. Reperformance.

For monetary unit sampling the number of items tested is A) Always equal to sample size B) Always greater than sample size C)Always greater than or equal to sample size D) Always less than or equal to sample size

D) Always less than or equal to sample size

* When an auditor has substantial doubt about an entity's ability to continue as a going concern because of the probable discontinuance of operations, the auditor most likely would express a qualified opinion if Information about the entity's ability to continue as a going concern is not disclosed

Information about the entity's ability to continue as a going concern is not disclosed

Smith Corporation has numerous customers. A customer file is maintained and includes a customer record with a name, an address, a credit limit, and an account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to a) develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit. b) request a printout of a sample of account balances so that they can be individually checked against the respective credit limits. c) request a printout of all account balances so that they can be manually checked against the credit limits. d) develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations.

a) develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.

To obtain evidence about the operating effectiveness of controls, an auditor selects tests from a variety of methods, including A. Inquiries. B. Analytical procedures. C. Calculations. D. External confirmations

A. Inquiries.

Which of the following most likely should be included as part of an auditor's tests of controls? A. Inspection. B. Reconciliation. C. External confirmations. D. Analytical procedures

A. Inspection.

Which of the following refer(s) to the audit procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level? A. Tests of controls B. Financial auditing C. External controls D. Transaction-level controls

A. Tests of controls

If a client has strong entity-level controls, _______. A. it is less likely that transaction-level controls will operate effectively B. it is more likely that transaction-level controls will operate effectively C. it is likely that the client has an ineffective audit committee D. it is likely that the client has a higher assessed level of inherent risk

B. it is more likely that transaction-level controls will operate effectively

Which of the following statements best describes an inherent limitation of the monetary units sampling method? A) It can only be used for substantive testing of asset accounts B) It requires the use of a computer system to perform the required calculations C)Misstatement rates must be large and the misstatements must be overstatements D) The misstatements must be small and the misstatements must be overstatements

D) The misstatements must be small and the misstatements must be overstatements

50. As part of understanding the internal control, an auditor is not required to A. consider factors that affect the risk of material misstatement. B. ascertain whether internal control policies and activities have been placed in operation. C. identify the types of potential misstatements that can occur. D. obtain knowledge about the operating effectiveness of the client's internal control activities.

D. obtain knowledge about the operating effectiveness of the client's internal control activities.

Which of the following controls most likely would reduce the risk of diversion of customer receipts by employees? a) A bank lockbox system b) Prenumbered remittance advices c) Monthly bank reconciliations d) Daily deposit of all cash and checks received

a) A bank lockbox system

In testing long-term investments, an auditor ordinarily would use analytical procedures to ascertain the reasonableness of the

completeness of recorded investment income

If the auditor intends to rely on the operating effectiveness of relevant controls, which test of controls is necessary to obtain sufficient appropriate evidence? A. Inspection. B. Observation. C. Inquiry. D. Reperformance

C. Inquiry.

8. Which of the following statements regarding internal control is false? a.Internal control is a process consisting of ongoing tasks and activities. b.Internal control is primarily about policy manuals, forms, and procedures. c.Internal control is geared toward the achievement of multiple objectives. d.A limitation of internal control is faulty human judgment. e.All of the above statements are true.

b.Internal control is primarily about policy manuals, forms, and procedures.

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about: a. understandability and classification b. existence c. rights and obligations d. valuation and allocation

d. valuation and allocation

#20036 For each item, choose if the responsibility lies with management or the auditor. 1.Design and implement programs and controls to prevent and detect fraud 2.Disclose related party transactions in the financial statements 3.Apply generally accepted accounting principles 4.Comply with generally accepted auditing standards 5.Express an opinion on the financial statements 6.Furnish written representations 7.Perform procedures to obtain sufficient appropriate audit evidence

1. Management 2. Management 3. Management 4. Auditor 5. Auditor 6. Management 7. Auditor

Which of the following internal controls most likely would be used to maintian accurate inventory records? A. Periodic inventory counts are used to adjust the perpetual inventory records. B. A just-in-time inventory ordering system keeps inventory levels to a desired minimum. C. Requisitions, receiving reports, and purchase orders and independently matched before payment is approved. D. Perpetual inventory records are periodcially compared with the current cost of individual inventory items.

A. Periodic inventory counts are used to adjust the perpetual inventory records.

*An auditor established a $60,000 tolerable misstatement for an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population of 1,000 items that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that A. There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement. B. There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. C. The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement. D. The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.

A. There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement. Selection of every 20th item results in a sample that is 5% of the population. The sample indicates a net overstatement of $3,500 ($3,700 - $200) which is then projected to the total population as $70,000 ($3,500 / .05)

54. In an audit of financial statements of a non-public company in accordance with generally accepted auditing standards, an auditor is required to A. document the auditor's understanding of the entity's internal control. B. search for significant deficiencies in the operation of the internal controls. C. perform tests of controls to evaluate the effectiveness of the entity's accounting system. D. determine whether control activities are operating effectively to prevent or detect material misstatements.

A. document the auditor's understanding of the entity's internal control.

57. A report on internal control effectiveness by the management team of public companies is required by A. the Sarbanes-Oxley Act of 2002. B. the PCAOB. C. the AICPA. D. the auditors.

A. the Sarbanes-Oxley Act of 2002.

Which of the following is a significant risk to the auditor regarding an audit in a highly automated information environment? A) does not place enough reliance on the processed information B) places too much reliance on the processed information C) processed information may not reveal the sources of the information D) does not understand the processed information produced by the automated environment

B) places too much reliance on the processed information

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of: A. Purchase orders. B. Canceled checks. C. Receiving reports. D. Approved vouchers.

B. Canceled checks.

To test the effectiveness of controls, an auditor ordinarily selects from a variety of techniques, including A. Inquiry and analytical procedures. B. Reperformance and observation. C. Comparison and confirmation. D. Inspection and verification.

B. Reperformance and observation.

A client maintains perpetual inventory records. the auditor determines that controls are not very good (level of control risk is high). An auditor would probably A) Apply gross profit tests to ascertain the reasonableness of the physical counts B) Increase the extent of test of controls relevant to the inventory cycle C) Request the client to schedule the physical inventory count at the end of the year D) Allow the client to skip the physical counts of inventory items

C) Request the client to schedule the physical inventory count at the end of the year

41. When auditing financial statements of a private company, the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements. A. Perform exhaustive tests of accounting controls and evaluate the company's control system effectiveness. B. Determine whether the company's control policies are designed well enough to prevent material misstatements. C. Prepare auditing working papers that document the auditor's understanding of the company's internal control. D. Design procedures to search for significant deficiencies in the actual operation of the company's internal control.

C. Prepare auditing working papers that document the auditor's understanding of the company's internal control.

Which of the following is not a benefit of using IT-based controls? A) ability to process large volumes of transactions B) ability to replace manual controls with computer-based controls C) reduction in misstatements due to consistent processing of transactions D) reduction in internal control evaluation in setting control risk

D) reduction in internal control evaluation in setting control risk

Which of the following internal controls would most likely assure that all billed sales are correctly posted to the accounts receivable ledger? A. Daily sales summaries are compared to the daily postings in the accounts receivable ledger. B. The accounts receivable ledger is reconciled daily to the control account in the general ledger. C. Each sales invoice is supported by a prenumbered shipping document. D. Each shipment on credit is supported by a prenumbered sales invoice.

D. Each shipment on credit is supported by a prenumbered sales invoice.

Which of the following combinations of audit procedures provides the least assurance? A. Inquiry and inspection. B. Inquiry and reperformance. C. Inquiry and recalculation. D. Inquiry and observation.

D. Inquiry and observation.

58. Management's report on internal controls must include each of the following except A. a statement that management is responsible for establishing and maintaining adequate internal control over financial reporting. B. a statement identifying the framework management uses to evaluate the effectiveness of the company's internal control. C. a statement providing management's assessment of the effectiveness of the company's internal control. D. a statement providing management's evaluation of the company's control environment.

D. a statement providing management's evaluation of the company's control environment.

Tracing shipping documents to prenumbered sales invoices provides evidence that a) No duplicate shipments or billings occurred b) Shipments to customers were properly invoiced c) All goods ordered by customers were shipped d) All prenumbered sales invoices were accounted for

a) No duplicate shipments or billings occurred

Which of the following internal controls would be most likely to deter the lapping of collections from customers? a) Segregation of duties between receiving cash and posting the accounts receivable ledger. b) Authorization of write-offs of uncollectible accounts by a supervisor independent of the credit approval function. c) Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries. d) Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries.

a) Segregation of duties between receiving cash and posting the accounts receivable ledger.

If accounts receivable turnover (credit sales/receivables) was 7.1 times last year compared to only 5.6 times in the current year, it is possible that there were a) fictitious sales in the current year. b) unrecorded credit sales in the current year. c) unrecorded cash receipts last year. d) more thorough credit investigations made by the company late last year.

a) fictitious sales in the current year.

Assertions are expressed or implied representations by management that are reflected in the financial statement components. The auditor performs audit procedures to gather evidence to test those assertions. Your client is All's Fair Appliance Company, an appliance wholesaler. Select the most appropriate audit procedure from the following list and enter the number in the appropriate place on the grid. (An audit procedure may be selected once, more than once, or not at all.)Audit Procedure: 1. Review of bank confirmations and loan agreements. 2. Review of drafts of the financial statements. 3. Select a sample of shipping documents, match them with related sales invoices, and determine that they have been included in the sales journal and accounts receivable subsidiary ledger. 4. Select a sample of shipping documents for a few days before and after year-end. 5. Confirmation of accounts receivable. 6. Review of aging of accounts receivable with the credit manager.Assertion Audit Procedure a. Ensure that the entity has legal title to accounts receivable (rights and obligations). b. Determine that recorded accounts receivable include all amounts owed to the client (completeness). c. Verify that all accounts receivable are recorded in the correct period (cutoff). d. Ensure that the allowance for uncollectible accounts is properly stated (valuation and allocation). e. Confirm that recorded accounts receivable are valid (existence).

a. 1. Review of bank confirmations and loan agreements. b. 3. Select a sample of shipping documents, match them with related sales invoices, and determine that they have been included in the sales journal and accounts receivable subsidiary ledger. c. 4. Select a sample of shipping documents for a few days before and after year-end. d. 6. Review of aging of accounts receivable with the credit manager. e. 5. Confirmation of accounts receivable.

The refusal of a client's attorney to provide information requested in an inquiry letter generally is considered: a. A limitation on the scope of the audit. b. Grounds for an adverse opinion. c. Equivalent to a significant deficiency in internal control. d. Reason to withdraw from the engagement.

a. A limitation on the scope of the audit.

* Which of the following procedures would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet? a. Observe the consistency of the employee's use of cash registers and tapes b. inquire about employees' access to recorded but undeposited cash c. trace the deposits in the cash receipts journal to the cash balance in the general ledger d. compare the cash balance in the general ledger with the bank confirmation request

a. Observe the consistency of the employee's use of cash registers and tapes

* For effective internal accounting control, the accounts payable department should compare the information on each vendor's invoice with the a. receiving report and the purchase order b. receiving report and voucher c. vendor's packing slip and the purchase order d. vendor's packing slip and the voucher

a. receiving report and the purchase order

* The use of the ratio estimation sampling technique is most effective when a. the calculated audit amounts are approximately proportional to the client's book amounts b. a relatively small number of differences exist in the population c. estimating populations whose records consist of quantities, but not book values d. large overstatement differences are large understatement differences exist in the population

a. the calculated audit amounts are approximately proportional to the client's book amounts

An auditor's letter issued on significant deficiencies relating to an entity's internal control observed during a financial statement audit should a.Indicate that the audit's purpose was to report on the financial statements and not to express an opinion on internal control. b.Include a brief description of the tests of controls performed in searching for significant deficiencies and material weaknesses. c.Include a paragraph describing management's assertion concerning the effectiveness of internal control. d.Indicate that the significant deficiencies should be disclosed in the annual report to the entity's shareholders.

a.Indicate that the audit's purpose was to report on the financial statements and not to express an opinion on internal control.

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

a.The cost of an entity's internal control should not exceed the benefits expected to be derived.

in testing the existence assertion for an asset, the auditor normally works from the ______ to the _______

accounting records to the supporting evidence

* Tracing shipping documents to prenumbered sales invoices provides evidence that: a. no duplicate shipments or billings occurred b Shipments to customers were properly invoiced c. all goods ordered by customers were shipped d. all prenumbered sales invoices were accounted for

b Shipments to customers were properly invoiced

Management's emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when a) Internal auditors have direct access to the entity's board of directors b) A significant portion of management compensation is represented by stock options c) External policies established by parties outside the entity affect accounting policies d) The audit committee is active in overseeing the entity's financial reporting policies

b) A significant portion of management compensation is represented by stock options

An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting a) Opening and closing inventory balances b) Cash receipts and accounts receivable c) Shipping and receiving activities d) Cutoffs of sales and purchases

b) Cash receipts and accounts receivable

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of a) Occurrence b) Completeness c) Valuation d) Rights/obligations

b) Completeness

An auditor observed that a client mails monthly statements to customers. Subsequently, the auditor reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management's financial statement assertion(s) of a) Classification b) Existence/occurrence c) Presentation/disclosure d) Understandability

b) Existence/occurrence

* Which of the following is the most effective control activity to detect vouchers that were prepared for payment of goods that were not received? a. count goods upon receipt in storeroom b. match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department c. compare goods received with goods requisitioned in receiving department d. verify vouchers for accuracy and approval in internal audit department

b. match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department

After assessing control risk, an auditor desires to seek a further reduction in the assessed level of control risk. At this time, the auditor would consider whether a.The entity's controls have been implemented. b.Additional audit evidence sufficient to support a further reduction is likely to be available. c.The entity's controls pertain to any financial statement assertions. d.It would be efficient to obtain an understanding of the entity's information system.

b.Additional audit evidence sufficient to support a further reduction is likely to be available.

An auditor uses the knowledge provided by the understanding of internal control and the assessed level of the risk of material misstatement primarily to a.Determine whether procedures and records concerning the safeguarding of assets are reliable. b.Determine the nature, timing, and extent of substantive tests for financial statement assertions. c.Ascertain whether the opportunities to allow any person to both perpetrate and conceal fraud are minimized. d.Modify the initial assessments of inherent risk and preliminary judgments about materiality levels.

b.Determine the nature, timing, and extent of substantive tests for financial statement assertions.

The scope of substantive procedures as compared to the scope of tests of controls generally vary: a.Equally. b.Inversely. c.Directly. d.In a parallel manner

b.Inversely.

In the consideration of internal control, the auditor is basically concerned that it provides reasonable assurance that: a.Operational efficiency has been achieved in accordance with management plans. b.Misstatements have been prevented or detected. c.Management cannot override the system. d.Controls have not been circumvented by collusion.

b.Misstatements have been prevented or detected.

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-off? a) Employees responsible for authorizing sales and bad debt write-offs are denied access to cash b) Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts. c) Employees involved in the credit-granting function are separated from the sales function. d) Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authoriz

c) Employees involved in the credit-granting function are separated from the sales function.

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? a) Merchandise received is not promptly reconciled to the outstanding purchase order file. b) Obsolete items included in inventory balances are rarely reduced to lower-of-cost-or market c) The write-off of receivables by personnel who receive cash permits misappropriation of cash receipts d) Fictitious transactions are recorded that cause understatement of revenue and overstatement of receivables.

c) The write-off of receivables by personnel who receive cash permits misappropriation of cash receipts

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

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

In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on key factors and assumptions that are: a. Similar to industry guidelines. b. Objective and not susceptible to bias. c. Deviations from historical patterns. d. Consistent with prior periods.

c. Deviations from historical patterns.

* QUESTION 819: Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs? a. Employees responsible for authorizing sales and bad debt write-offs are denied access to cash b. shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debt c. Employees involved in the credit-granting function are separated from the sales function d. subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit

c. Employees involved in the credit-granting function are separated from the sales function A is incorrect as this prevents embezzlement

Which of the following is not true regarding an engagement to provide a written report on the application of accounting principles: a. an accountant is prohibited from providing a report on the application of accounting principles to a transaction not involving the facts and circumstances of a specific entity b. the accountant's written report on the application of accounting principles should include an identification of the specific entity involved c. an accountant is prohibited from providing a report on the application of accounting principles to a proposed future transaction involving the facts and circumstances of a specific entiy d. the accountant's written report on the application of accounting principles should include a paragraph restricting the use of the report

c. an accountant is prohibited from providing a report on the application of accounting principles to a proposed future transaction involving the facts and circumstances of a specific entiy

*Which of the following most likely would be an advantage in using classical variables sampling rather than PPS sampling? a. an estimate of the standard deviation of the population's recorded amounts is not required b. the auditor rarely needs the assistance of a computer program to design an efficient sample c. inclusion of zero and negative balances generally does not require special design considerations d. any amount that is individually significant is automatically identified and selected

c. inclusion of zero and negative balances generally does not require special design considerations

* An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to a. eliminate the risk of nonsampling errors. b. reduce the level of audit risk and materiality to a relatively low amount c. measure the sufficiency of the audit evidence obtained d. minimize the failure to detect errors and fraud

c. measure the sufficiency of the audit evidence obtained

* To determine whether A/P are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all: a. vendor's invoices b. purchase orders c. receiving reports d. canceled checks

c. receiving reports

* Which of the following internal control procedures most likely addresses the completeness assertion for inventory? a. work in progress account is periodically reconciled with subsidiary records b. employees responsible for custody of finished goods do not perform the receiving function c. receiving reports are prenumbered and periodically reconciled d. there is a separation of duties between payroll department and inventory accounting personnel

c. receiving reports are prenumbered and periodically reconciled

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is that a. the deviation rates of both the auditor's sample and the population exceed the tolerable rate b. the deviation rates of both the auditor's sample and the population is less than the tolerable rate c. the deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate d. the deviation rate in the auditor's sample is exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate

c. the deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate

* Which of the following most likely would be detected by an auditor's review of a client's sales cut-off? a. shipments lacking sales invoices and shipping documents b. excessive write-offs of accounts receivables c. unrecorded sales at year end d. lapping of year end A/R

c. unrecorded sales at year end

Which of the following procedures would most likely not be an internal control procedure designed to reduce the risk of errors in the billing process? a) Comparing control totals for shipping documents with corresponding totals for sales invoices b) Using computer programmed controls to check pricing and mathematical accuracy of sales invoicesmatical c) Matching shipping documents with approved sales orders before invoice preparation d) Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

d) Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

An auditor recomputes and evaluates the adequacy of a client's allowance for doubtful accounts. This procedure supports management's assertion of a) Completeness b) Existence/occurrence c) Valuation/allocation d) Rights/obligations

d) Rights/obligations

The negative request form of accounts receivable confirmation is useful particularly when The Assessed Level of Control Risk Relating to Receivables Is_______, The Number of Small Balances Is_________, Consideration by the Recipient Is________ a) high, low, likely b) low, low, unlikely c) high, high, likely d) low, high, likely

d) low, high, likely

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of a) existence. b) completeness. c) rights and obligations. d) valuation and allocation.

d) valuation and allocation.

Which of the following is least likely to be considered an inherent risk relating to receivables and revenues? a. Restrictions placed on sales by laws and regulations. b. Decline in sales due to economic declines. c. Decline in sales due to product obsolescence. d. Over-recorded sales due to a lack of control over the sales entry function.

d. Over-recorded sales due to a lack of control over the sales entry function.

* The risk of incorrect acceptance and the likelihood of assessing control risk too low relates to the the: a. allowable risk of tolerable misstatement b. preliminary estimates of materiality levels c. efficiency of the audit d. effectiveness of the audit

d. effectiveness of the audit

* Which of the following controls would be most effective in assuring that recorded purchases are free of material errors? a. the receiving department compares the quantity order on purchase orders with the quantity received on receiving reports b. vendor's invoices are compared with purchase orders by an employee who is independent of the receiving department c. receiving reports require the signature of the individual who authorized the purchase d. purchase orders, receiving reports, and vendor's invoices are independently matched in preparing vouchers

d. purchase orders, receiving reports, and vendor's invoices are independently matched in preparing vouchers

* Tracing bills of lading to sales invoices provides evidence that a. shipments to customers were recorded as sales b. recorded sales were shipped c. invoices sales were shipped d. shipments to customers were invoiced

d. shipments to customers were invoiced

Which of the following procedures would an auditor most likely perform for accountsreceivable confirmations sent at year-end when the auditor did not receive replies tosecond requests? a.Review the cash receipts journal for the month prior to year-end. b.Intensify the study of the internal control structure for the revenue cycle. c.Increase the assessed level of detection risk for the existence assertion. d.Inspect the shipping records documenting the merchandise sold

d.Inspect the shipping records documenting the merchandise sold

Under which circumstance is it likely that the extent of substantive procedures will be expanded beyond that anticipated in the audit plan? a.Certain controls do not leave a trail of documentary evidence. b.The operating effectiveness of certain controls was found to be less than expected, although no material misstatements were identified. c.Deviation rates were greater than zero and approached anticipated levels. d.The auditors have determined that controls have been implemented (placed in operation) but, in accordance with the audit plan, have performed no tests of controls.

d.The auditors have determined that controls have been implemented (placed in operation) but, in accordance with the audit plan, have performed no tests of controls.

When auditing related party transactions, an auditor places primary emphasis on

evaluating the disclosure of the related party transaction