AC 432 Exam 2 Homework
An example of a detective control
A requirement to prepare bank reconciliations
The auditors traced a sample of recorded cash receipts to postings in the correct customers' accounts
Accounting and posting
The auditors recalculate the cash listed on the daily deposit for a sample of recorded cash receipts
Accuracy
A transaction-level internal control activity is best described as
An action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions to eliminate or mitigate risks identified by the company
Embezzlement is a type of fraud that involves
An employee misappropriating an employer's money or property entrusted to the employee's control in the employee's normal job
Fraud risk factors are events or conditions that indicate...
An incentive or pressure to perpetrate fraud, an opportunity to carry out the fraud, and an attitude or rationalization that justifies the fraudulent action
In most audits of large entities, control risk assessment contributes to audit efficiency, which means that
Auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs
When completing the audit of internal controls for an issuer, AS 2201 requires auditors to test ...
Both operating and design effectiveness
When completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends on
Both the magnitude of the potential misstatement resulting from the deficiency or the deficiencies and whether there is a reasonable possibility that the company's controls will fail to prevent or detect a misstatement of an account balance or disclosure
The auditors traced a sample of daily cash reports to the cash receipts journal
Completeness
An audit team might not use ____ test to test the operating effectiveness of a control
Confirmation of balances
According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal controls is to
Determine that the company's controls will satisfy the company's control objectives and can effectively prevent or detect errors or fraud that could result in material misstatements, if they operate as prescribed
The auditors vouched a sample of recorded cash receipts to the deposits in the bank statement
Existence
When performing confirmation of cash balances with a bank, the auditor is primarily gathering evidence related to which financial statement assertion?
Existence
When completing the audit of internal controls for an issuer, the PCAOB requires the audit team to audit internal controls over:
Financial reporting
This arrangement of duties would least likely lead to an embezzlement or theft
Financial vice president received checks made out to suppliers and the supporting invoices, signed the checks, and put them in the mail to payees
This statement is correct with respect to the elements of the "fraud triangle"
Fraud is most common when motive, opportunity, and rationalization all occur together
A material weakness is a situation in which
It is reasonably possible that a material misstatement would not be detected on a timely basis
Test of controls in a GAAS audit are required for
Obtaining evidence about the operating effectiveness of client control activities
Revenues are normally considered to have been earned when
The company has substantially accomplished what it must to be entitled to the benefits
The most important fundamental component of an entity's internal control is
The control environment
An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about
The entity's ability to process and summarize financial data
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
Valuation and allocation
One of the typical characteristics of management fraud is:
Victimization of investors through the use of materially misleading financial statements
With respect to the concept of materiality, material is...
a matter of professional judgement
Cut off bank statements include activity for the period ... the period being audited
after
Cash confirmations need to be mailed under the control of the ...
auditor
Confirmations do not necessarily mitigate the risk of ...
bad debt
It is important to verify ... of both cash receipts and cash disbursements
cutoff
... communication with debtors is the most conclusive step in verifying accounts receivable
direct
In the audit of accounts receivable, the most important emphasis should be on the
existence assertion
Confirmations are more persuasive than subsequent cash receipts as they help mitigate the risk of ...
lapping
An example of a corrective control
maintaining backups of data
Auditors are often concerned with the ... of cash, as this is where most misstatements occur
overstatement
AR confirmations can be sent electronically or via ...
paper form
For a sample of recorded cash receipts, the auditors compared the date of receipt to the recording date
proper period
Cash reconciliations can be tested via ...
reperformance
Auditing standards do not require auditors of financial statements to:
report all errors and fraud found to the police
An example of a preventative control
segregation of duties
In the audit of cash the auditor obtains a bank cutoff statement primarily to
test the propriety of items appearing on the client's year-end bank reconciliation