AUD 3.3
If interim substantive procedures for an account identified no exceptions, which of the following would the auditor not perform on that account at year-end? A. Tests of details for the entire year under audit. B. Tests of details of activity during the period since the interim testing date. C. Reconciliation of year-end balances to interim balances. D. Substantive analytical procedures of the period since the interim testing date.
Choice "A" is correct. If interim substantive procedures for an account identified no exceptions, then the auditor does not need to test details for the entire year under audit at year-end. Choice "C" is incorrect. An auditor should reconcile year-end balances to interim dates. This procedure is performed as part of the roll-forward procedures. For example, the client may have a revenue amount at interim (01/01-09/30) of $100,000, and then at year-end (the period of 01/01-12/31) the revenue amount is $150,000. The auditor would verify that the amount related to 01/01-09/30 is still $100,000, and then would apply substantive procedures to the remainder, $50,000, which occurred from 10/01- 12/31.
An auditor generally tests the segregation of duties related to inventory by: A. Personal inquiry and observation. B. Test counts and cutoff procedures. C. Analytical procedures and invoice recomputation. D. Document inspection and reconciliation.
Choice "A" is correct. Tests of controls that do not provide documentary evidence (such as those controls related to segregation of duties) are generally tested by personal inquiry and observation by the auditor. 实质性测试, 需要提供证据
After obtaining an understanding of internal control and performing risk assessment procedures, an auditor decided not to perform tests of controls. The auditor most likely concluded that the: A. Additional evidence to support a reduction in control risk was not cost-beneficial to obtain. B. Assessed level of inherent risk exceeded the assessed level of control risk. C. Internal control was properly designed and justifiably may be relied on. D. Evidence obtainable through tests of controls would not support an increased level of control risk.
Choice "A" is correct. When an auditor decides not to perform tests of controls, the auditor most likely concluded that the additional evidence to support a reduction in control risk was not cost-beneficial to obtain. In other words, the additional costs that would be incurred to support a lower assessed level of control risk would not be offset by the anticipated cost savings resulting from a lower level of substantive tests. Choice "C" is incorrect. Even if internal control is properly designed, it cannot justifiably be relied upon unless tests of controls are performed.
In an environment that is highly automated, an auditor determines that it is not possible to reduce detection risk solely by substantive tests of transactions. Under these circumstances, the auditor most likely would: A. Perform tests of controls to support a lower level of assessed control risk. B. Increase the sample size to reduce sampling risk and detection risk. C. Adjust the materiality level and consider the effect on inherent risk. D. Apply analytical procedures and consider the effect on control risk.
Choice "A" is correct. When an entity transmits, processes, maintains, or accesses significant information electronically, factors unique to electronic processing may make it impractical or impossible to reduce detection risk to an acceptable level through substantive testing alone. In such cases, tests of controls should be performed.
An audit client failed to maintain copies of its procedures manuals and organizational flowcharts. What should the auditor do in an audit of financial statements? A. Issue a qualified opinion on the basis of a scope limitation. B. Document the auditor's understanding of internal controls. C. Assess control risk at the maximum level. D. Restrict the auditor's responsibility to assess the effectiveness of controls in the audit engagement letter.
Choice "B" is correct. Although it is helpful when the auditor can review client procedures manuals and organizational flowcharts, not having this documentation simply means that the auditor will need to put forth more effort to obtain an understanding of internal control. As is always the case, the auditor should document his or her understanding of internal control. Choice "A" is incorrect. A scope limitation significant enough to result in a qualified opinion occurs when the auditor is unable to perform a desired procedure or an acceptable alternative procedure. If documentation supporting procedures and organizational structure is not available, the auditor will need to put forth more effort to obtain an understanding of internal control. This lack of documentation does not, however, reduce the auditor's responsibility to assess the effectiveness of internal controls, nor would it result in a qualified opinion. Choice "C" is incorrect. Failure to maintain documentation supporting procedures and organizational structure does not necessarily imply that control risk is high. It is possible that controls are operating effectively even if they are not appropriately documented.
Evidence concerning the proper segregation of duties for receiving and depositing cash receipts ordinarily is obtained by: A. Completing an internal control questionnaire that describes the control activities. B. Observing the employees who are performing the control activities. C. Performing substantive tests to verify the details of the bank balance. D. Preparing a flow chart of the duties performed and the entity's available personnel.
Choice "B" is correct. Evidence concerning proper segregation of duties is generally obtained through inspection and observation. Choice "A" is incorrect. Completing an internal control questionnaire might aid the auditor in understanding how controls are supposed to work, but it does not provide evidence with respect to whether controls are actually functioning as designed.
Which of the following statements about performing tests of controls to support a lower level of control risk is not true? A. Observation by the auditor provides more assurance than inquiry alone. B. Inquiry alone generally will support a conclusion for a lower assessed level of control risk. C. Prior audits may be considered by the auditor in assessing control risk in the current audit. D. An audit of financial statements is a cumulative process.
Choice "B" is correct. Inquiry alone generally will not support a conclusion for a lower assessed level of control risk.
In assessing control risk, 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.
Choice "B" is correct. Tests of controls used in assessing control risk ordinarily include procedures such as inquiry of appropriate entity personnel, inspection of documents and reports indicating performance of the policy or procedure, observation of the application of the policy or procedure, and reperformance of the application of the policy or procedure by the auditor. Choice "A" is incorrect. Analytical procedures are used in planning the audit, as a form of substantive testing, and as a final review. They are not useful in assessing control risk.
A senior auditor conducted a dual-purpose test on a client's invoice to determine whether the invoice was approved and to ascertain the amount and other terms of the invoice. Which of the following lists two tests that the auditor performed? A. Substantive procedures and analytical procedures. B. Substantive analytical procedures and tests of controls. C. Tests of controls and tests of details. D. Tests of details and substantive procedures.
Choice "C" is correct. A dual-purpose test is a test of controls that is performed concurrently with a test of details on the same transaction. The purpose of a test of controls is to evaluate the operating effectiveness of a control, whereas the purpose of a test of details is to support relevant assertions or to detect material misstatements. A dual-purpose test should be designed to accomplish both objectives. Choices "B" and "D" are incorrect. A dual-purpose test is defined as a test of controls that is performed concurrently with a test of details on the same transaction.
After performing risk assessment procedures, an auditor decided not to perform tests of controls. The auditor most likely decided that: A. The available evidence obtained through tests of controls would not support an increased level of control risk. B. A reduction in the assessed level of control risk is justified for certain financial statement assertions. C. It would be inefficient to perform tests of controls that would result in a reduction in planned substantive tests. D. The assessed level of inherent risk exceeded the assessed level of control risk.
Choice "C" is correct. After performing risk assessment procedures, an auditor might decide not to perform tests of controls because it would be inefficient. In other words, the time required to perform tests of controls would be greater than the reduction in time spent on substantive testing.
How would an auditor of a nonissuer most appropriately respond to a heightened assessed risk of material misstatement? A. By obtaining a management representation letter. B. By performing analytical procedures, but not substantive procedures, at period end. C. By assigning more experienced staff or those with specialized skills to high-risk areas. D. By performing tests of controls at interim and period-end dates.
Choice "C" is correct. An auditor may assign more experienced staff or those with specialized skills to high-risk areas when there is a heighted assessed risk of material misstatement. This is considered an overall response to risk assessed at the financial statement level. Choice "D" is incorrect. The auditor most likely would perform test of controls at period end because it provides greater assurance. Testing at interim is often performed when the risk of material misstatement is low.
If an auditor's risk assessment is based on the effective operation of controls, the auditor will likely: A. Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls. B. Perform tests of details of transactions and account balances to identify potential errors and fraud. C. Identify specific internal controls that are likely to detect or prevent material misstatements. D. Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing.
Choice "C" is correct. Assessing risk based on the effective operation of controls involves (1) identifying specific internal controls relevant to specific assertions that are likely to prevent or detect material misstatements in those assertions, and (2) performing tests of such controls to evaluate their effectiveness. Choice "D" is incorrect. The auditor may not assess risk based on the effective operation of controls unless tests of controls are performed. However, if the audit effort required to perform tests of controls exceeds the potential reduction in substantive testing, tests of controls will not be performed because doing so would reduce audit efficiency. 很有意思, 在琢磨一下
Before applying principal substantive tests to the details of accounts at an interim date prior to the balance sheet date, an auditor should: A. Assess control risk at a low level for the assertions embodied in the accounts selected for interim testing. B. Determine that the accounts selected for interim testing are not material to the financial statements taken as a whole. C. Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable. D. Obtain written representations from management that all financial records and related data will be made available.
Choice "C" is correct. Before performing substantive tests at an interim date, an auditor should consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable with respect to amount, relative significance and composition. Choice "A" is incorrect. It is not necessary for control risk to be assessed at a low level level for the assertions relating to the accounts that will be substantively tested at an interim date. It may simply be more efficient to perform a substantive audit. As long as the balances tested at interim are reasonably predictable with respect to amount, relative significance and composition, the account may be tested at interim.
Which of the following explanations best describes why an auditor may decide to reduce tests of details for a particular audit objective? A. The audit is being performed soon after the balance sheet date. B. Audit staff are experienced in performing the planned procedures. C. Analytical procedures have revealed no unusual or unexpected results. D. There were many transactions posted to the account during the period.
Choice "C" is correct. If analytical procedures have revealed no unusual or unexpected results, the auditor may decide to reduce tests of details for a particular audit objective. Substantive analytical review procedures may be sufficient to reduce the planned level of detection risk to an acceptably low level. Choice "B" is incorrect. This is irrelevant to whether tests of details should be increased or decreased. The auditor should plan substantive procedures to be responsive to the planned level of detection risk.
What is the most likely course of action that an auditor would take after determining that performing substantive tests on inventory will take less time than performing tests of controls? A. Assess control risk at a low level. B. Perform both tests of controls and substantive tests on inventory. C. Perform only substantive tests on inventory. D. Perform only tests of controls on inventory.
Choice "C" is correct. If it would take less time or be more efficient to perform substantive tests than it would to perform tests of controls, and if there is no other reason to test controls (i.e., if there is not a high degree of electronic processing), the auditor would not be likely to test controls. Choice "A" is incorrect. In order to assess control risk at a low level, tests of controls would need to be performed. However, if it is more efficient to perform substantive tests, the auditor would not be likely to test controls.
Which of the following statements best describes why an auditor would use only substantive procedures to evaluate specific relevant assertions and risks? A. The relevant internal control components are not well documented. B. The internal auditor already has tested the relevant controls and found them effective. C. Testing the operating effectiveness of the relevant controls would not be efficient. D. The cost of substantive procedures will exceed the cost of testing the relevant controls.
Choice "C" is correct. If the auditor determines that testing the operating effectiveness of controls would not be efficient, he or she may choose to use only substantive procedures to evaluate specific assertions and risks. Choice "A" is incorrect. The fact that internal control components are not well documented does not necessarily mean that the auditor would use only substantive procedures. A primarily substantive approach is taken when there are no effective controls, when implemented controls are assessed as ineffective, or when it would not be efficient to test controls.
Which of the following procedures is considered a test of controls? A. An auditor reviews the entity's check register for unrecorded liabilities. B. An auditor evaluates whether a general journal entry was recorded at the proper amount. C. An auditor interviews and observes appropriate personnel to determine segregation of duties. D. An auditor reviews the audit workpapers to ensure proper sign-off.
Choice "C" is correct. Interviewing and observing appropriate personnel to determine segregation of duties is a test of controls. Segregation of duties is a subcomponent of the control activities component of internal control.
In assessing control risk, an auditor ordinarily selects from a variety of techniques, including: A. Confirmation. B. Verification. C. Reperformance. D. Analytical procedures.
Choice "C" is correct. Reperformance of a control by the auditor is used to evaluate the effectiveness of the operation of that control.
When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs: A. Tests of controls and extensive tests of property and equipment balances at the end of the year. B. Analytical procedures for current year property and equipment transactions. C. Tests of controls and limited tests of current year property and equipment transactions. D. Analytical procedures for property and equipment balances at the end of the year.
Choice "C" is correct. Since control risk is assessed at a low level, tests of controls would be required to evaluate the effectiveness of the internal controls to support that assessed level. However, the need for some substantive tests of transactions is never eliminated. Choice "B" is incorrect. Since control risk is to be assessed at a low level, tests of controls would be required. Analytical procedures would not be particularly useful, since property and equipment transactions are subject to management discretion.
An auditor decides to perform substantive tests on a client's property and equipment balance as of an interim date. The auditor has not obtained evidence about the operating effectiveness of relevant controls. What additional work must be performed to extend the audit conclusions from the interim date to the balance sheet date? A. Tests of controls for the period between the beginning of the fiscal year and the interim date. B. Tests of controls for the period between the interim date and the balance sheet date. C. Substantive procedures for the period between the interim date and the balance sheet date. D. Analytical comparison of the current-year interim balance with the prior-year interim balance.
Choice "C" is correct. Substantive procedures for the period between the interim date and the balance sheet date should be performed to extend the audit conclusions from the interim date to the balance sheet date.
An auditor's risk assessment is based on the assumption that controls are operating effectively. Which of the following was not a step in making this assessment? A. Evaluate the effectiveness of the internal controls with tests of controls. B. Obtain an understanding of the entity's accounting system and control environment. C. Perform tests of details of transactions to detect material misstatements in the financial statements. D. Consider whether control activities can have a pervasive effect on financial statement assertions.
Choice "C" is correct. Tests of details of transactions are used to detect material misstatements in the financial statements after the auditor has assessed risk, not as part of making this assessment. Choice "D" is incorrect. Considering whether control activities can have a pervasive effect on financial statement assertions is part of the auditor's risk assessment process.
During an audit of a non-issuer's financial statements, an auditor should perform tests of controls to obtain sufficient appropriate audit evidence about the operating effectiveness of relevant controls if: A. The auditor does not presume that client management has committed fraud. B. More financial documentation is available through tests of controls. C. Substantive procedures alone cannot provide sufficient appropriate audit evidence. D. The auditor does not intend to rely on the operating effectiveness of controls.
Choice "C" is correct. The auditor should perform tests of controls when substantive procedures alone cannot provide sufficient appropriate audit evidence. Choice "D" is incorrect. If the auditor does not intend to rely on the operating effectiveness of controls, then the auditor does not need to perform tests of controls.
Under which circumstance would an auditor be most likely to perform substantive tests before the balance sheet date? A. The account in question is not reasonably predictable in terms of its relative significance to the financial statements. B. The account in question has a high level of both inherent risk and control risk. C. The account in question fluctuates based on management's discretion. D. The account in question has very little activity from year to year.
Choice "D" is correct. An account that doesn't change much from year to year is reasonably predictable with respect to amount, relative significance, and composition, making it a prime candidate for interim testing. Choice "B" is incorrect. Given a high level of both inherent risk and control risk, the auditor would need to reduce detection risk. Performing tests at interim would increase detection risk.
In performing interviews and examining documents related to preliminary work in a financial statement audit of a non-issuer, an auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result? A. Modify the scope of the engagement to include an analysis of the budget for the new product line and consider the new risk in conjunction with other risks after the budget items have been analyzed. B. Analyze the newly identified risk in conjunction with economic circumstances related exclusively to the new product line and consider whether there is an immediate consequence for the risk of material misstatement for affected classes of transactions. C. Modify the financial statement disclosures to include the newly identified risk if it is likely that the new product line will have an adverse effect on the company's profitability. D. Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit.
Choice "D" is correct. An appropriate response to an identified business risk associated with plans for a new product line is for the auditor to analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit. Business risks often affect risk of material misstatement at the financial statement level, which may affect risks of material misstatement at the relevant assertion level. For example, an unsuccessful new product may affect the risks of material misstatement related to the valuation of inventory. Choice "B" is incorrect. The identified risk should be analyzed in conjunction with other known business risks, rather than just the economic risk related to the new product line. In addition, the auditor should analyze the risk of material misstatement at various levels of the audit (i.e. financial statement and relevant assertion level) rather than just for the affected classes of transactions. The relevant assertion level includes classes of transactions, account balances, and disclosures.
An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing, and extent of the: A. Attribute tests. B. Compliance tests. C. Tests of controls. D. Substantive tests.
Choice "D" is correct. An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing, and extent of the substantive tests to be performed.
An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing, and extent of the: A. Attribute tests. B. Compliance tests. C. Tests of controls. D. Substantive tests.
Choice "D" is correct. An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing, and extent of the substantive tests to be performed.
As part of understanding internal control, an auditor is not required to: A. Consider factors that affect the risk of material misstatement. B. Ascertain whether internal controls have been implemented. C. Identify the types of potential misstatements that can occur. D. Obtain knowledge about the operating effectiveness of internal control.
Choice "D" is correct. As part of understanding internal control, an auditor is not required to obtain knowledge about the operating effectiveness of controls. Operating effectiveness is evaluated later, and only for those controls on which the auditor plans to rely. Choice "B" is incorrect. Ascertaining whether internal controls have been implemented is required as part of obtaining an understanding of internal control.
Which of the following audit techniques ordinarily would provide an auditor with the least assurance about the operating effectiveness of an internal control activity? A. Inquiry of client personnel. B. Inspection of documents and reports. C. Observation of client personnel. D. Preparation of system flowcharts.
Choice "D" is correct. Preparation of system flowcharts may aid in the auditor's understanding of internal control, but would not indicate whether controls were actually operating as designed.
Providing more supervision during an audit of a nonissuer in response to assessed risks of material misstatement at the financial statement level is an example of: A. A substantive response. B. Further audit procedures. C. Tests of controls. D. An overall response.
Choice "D" is correct. Providing more supervision during an audit of a non-issuer in response to assessed risks of material misstatement at the financial statement level is an example of an overall response.
Which of the following is always necessary in a financial statement audit? I.Tests of the operating effectiveness of controls. II. Analytical procedures. III. Risk assessment procedures. A. I, II, and III. B. I and III. C. I and II. D. II and III.
Choice "D" is correct. Risk assessment procedures must be performed to assess the risk of material misstatement and to determine whether and to what extent further audit procedures are necessary. In addition, the planning process and the overall review stage of the audit must include application of analytical procedures. Tests of the operating effectiveness of controls, however, are only performed when the auditor's risk assessment is based on the assumption that controls are operating effectively, or when substantive procedures alone are insufficient.
Which of the following documentation is not required for an audit in accordance with generally accepted auditing standards? A. A written audit plan setting forth the procedures necessary to accomplish the audit's objectives. B. An indication that the accounting records agree or reconcile with the financial statements. C. A client engagement letter that summarizes the timing and details of the auditor's planned fieldwork. D. The basis for the auditor's decision not to perform tests of controls concurrently with obtaining an understanding of internal control.
Choice "D" is correct. The auditor is not required to evaluate operating effectiveness as part of obtaining an understanding of internal control, and therefore need not document the basis for this decision. Choice "C" is incorrect. Establishing an understanding with the client is required by GAAS, and an engagement letter is a presumptively mandatory requirement.
Which of the following procedures would an auditor most likely perform prior to the balance sheet date? A. Review subsequent events. B. Perform search for unrecorded liabilities. C. Send inquiry letter to client's legal counsel. D. Review detail and test significant travel and entertainment expenses.
Choice "D" is correct. The auditor may choose to perform detailed audit work during an interim period prior to the balance sheet date, especially for accounts that are reasonably predictable. If travel and entertainment expenses are budgeted and closely monitored, they may very well be predictable and subject to interim testing. Choice "A" is incorrect. Subsequent events occur (by definition) after the balance sheet date, so it would not be possible to review them prior to the balance sheet date. Choice "B" is incorrect. The search for unrecorded liabilities is a search for obligations that existed, but were not recorded, as of the balance sheet date. Therefore, it would not be possible to perform this search prior to the balance sheet date.
The objective of tests of details of transactions performed as tests of controls is to: A. Monitor the design and use of entity documents such as prenumbered shipping forms. B. Determine whether internal controls have been implemented. C. Detect material misstatements in the account balances of the financial statements. D. Evaluate whether internal controls operated effectively.
Choice "D" is correct. The objective of tests of details used as tests of controls is to evaluate whether an internal control operated effectively. Choice "C" is incorrect. The objective of tests of details of transactions performed as substantive tests is to detect material misstatements in the financial statements.
When the auditor's risk assessment is based on the effective operation of controls, the audit will most likely involve: A. Performing more extensive substantive tests with larger sample sizes than originally planned. B. Reducing inherent risk for most of the assertions relevant to significant account balances. C. Changing the timing of substantive tests by omitting interim-date testing and performing the tests at year-end. D. Identifying specific internal controls relevant to specific assertions.
Choice "D" is correct. When the auditor's risk assessment is based on the effective functioning of internal control, the auditor should identify specific internal controls relevant to specific assertions that are likely to prevent or detect material misstatements in those assertions. Choice "A" is incorrect. When the auditor's risk assessment is based on the effective functioning of internal control, the auditor is likely to utilize less extensive substantive tests with smaller sample sizes
While performing interim audit procedures of accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate? A. Move detailed analytical procedures from year end to interim. B. Increase the dollar threshold of vouching customer invoices. C. Send negative accounts receivable confirmations instead of positive accounts receivable confirmations. D. Use more experienced audit team members to perform year-end testing.
Choice "D" is correct. Numerous unexpected errors would result in an increase in the assessment of risk. An increase in risk of material misstatement would result in a decrease in detection risk, which means the assurance provided from substantive procedures should increase. Performing testing at year-end as well as utilizing more experienced audit team members to perform those tests would be an appropriate response. Choice "A" is incorrect. Moving procedures from year-end to interim results in less assurance and would be an incorrect response to an increase in assessment of risk. Choice "B" is incorrect. Numerous unexpected errors may result in the auditor decreasing the dollar threshold of vouching customer invoices. Choice "C" is incorrect. The auditor should respond by obtaining more assurance from substantive procedures. Negative confirmations provide less assurance than positive confirmations.
Which of the following statements is correct concerning an auditor's assessment of control risk? A. Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control. B. Evidence about the operation of controls in prior audits may not be considered during the current year's assessment of control risk. C. The basis for an auditor's conclusions about the assessed level of control risk need not be documented unless the auditor's risk assessment is based on the effective operation of controls. D. The lower the assessed level of control risk, the less assurance the evidence must provide that the controls are operating effectively.
Choice "D" is incorrect. The lower the assessed level of control risk (that is, the greater the reliance placed on the control), the more assurance the auditor must gather that the controls are operating effectively.
