Audit Exam 2 - Mowchan Practice MC questions

which of the following statements concerning the auditor's use of statistical sampling is correct? A.) an auditor needs to estimate the dollar amount of the standard deviation of the population in order to use classical variables sampling B.) an assumption of monetary unit sampling is that the underlying accounting population is normally distributed C.) a classical variables sample needs to be designed with special considerations to include negative balances in the sample D.) the selection of zero balances usually does not require special sample design considerations when using monetary unit sampling

A.) an auditor needs to estimate the dollar amount of the standard deviation of the population in order to use classical variables sampling

in auditing a public company, Natalie, an auditor for N.M. Neal & Associates, identifies four deficiencies in ICFR. 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 opinion report should Natalie issue? A.) an unqualified report B.) an adverse opinion C.) a disclaimer of opinion D.) an exculpatory opinion

A.) an unqualified report

after obtaining an understanding of an entity's internal control system, an auditor may set control risk at high for some assertions because the auditor A.) believes the internal controls are unlikely to be effective B.) determines that the pertinent internal control components are not well documented C.) performs tests of controls to restrict detection risk to an acceptable level D.) identifies internal controls that are likely to prevent material misstatements

A.) believes the internal controls are unlikely to be effective

an auditor is preforming substantive procedures of pricing and extensions of prepetual inventory balances consisting of a large number of items. Past experience indicates that there may be numerous pricing extension errors. Which of the following statistical sampling approaches is most appropriate? A.) classical variable sampling B.) monetary unit sampling C.) stop n go sampling D.) attribute sampling

A.) classical variable sampling

in which of the following situations is attribute sampling likely to be used? A.) determining the estimated number of occurrences of improperly authorized cash disbursements B.) making selections from a cash disbursements journal to test liabilities for understatement C.) examining invoices and canceled checks in support of recorded operating expenses D.) inquiring of the client the number of occurrences of fraud during the year

A.) determining the estimated number of occurrences of improperly authorized cash disbursements

the risk of incorrect acceptance related to the? A.) effectiveness of the audit B.) efficiency of the audit C.) planning materialitiy D.) allowable risk of tolerable misstatement

A.) effectiveness of the audit

an auditor must obtain an sufficient understanding of an entity and its environment, including internal controls. the understanding should include evaluating the design of relevant controls and determining whether they A.) have been implemented B.) are operating effectively C.) are operating efficiently D.) are cost effective

A.) have been implemented

which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal control? A.) incompatibility duties B.) management override C.) faulty judgement D.) collusion among employees

A.) incompatibility duties

which of the following audit techniques would most likely provide an auditor with the lest assurance about the effectiveness of the operation of a control? A.) inquiry of entity personnel B.) reperformance of the control by the auditor C.) observation of entity personnel D.) walkthrough

A.) inquiry of entity personnel

Manual controls would most likely be more suitable than automated controls for which of the following? A.) large, unusual or nonrecurring transactions B.) high volume transactions that require additional calculations C.) situations with routine errors that can be predicted and corrected D.) circumstances that require a high degree of accuracy

A.) large, unusual or nonrecurring transactions

internal controls are designed to provide reasonable assurance that A.) material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties B.) management's plans have not been circumvented by worked collusion C.) the internal auditing department's guidance and oversight of managements performance is accomplished economically and efficiently D.) management's planning, organizing, and directing processes are properly evaluated

A.) material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties

if SG&A expenses increased would this cause operating income to increase but cause the company to be less profitable? A.) no B.) yes

A.) no

if sales stayed constant, while COGS increased would this cause operating income to increase but cause the company to be less profitable? A.) no B.) yes

A.) no **notice sales remain constant (how does this flow) sales -COGS ------------ GM

if a major fraudulent credit sale was recorded on Dec, 31, representing 20% of the year's total sales would this cause accounts receivable turnover to increase for the year? A.) no B.) yes

A.) no AR turnover = credit sales/AR

if items shipped on consignment during Dec were recorded as credit sales; no cash receipts have yet been received as these consignments would this cause accounts receivable turnover to increase for the year? A.) no B.) yes

A.) no AR turnover = credit sales/AR

if a number of expense items were erroneously included in COGS (but not in EI) would this decrease inventory turnover? A.) no B.) yes

A.) no IT = COGS/inventory

if a company bought back shares of its common stock using proceeds from a new long term loan would this increase the ratio times interest earned? A.) no B.) yes

A.) no interest increased so would decrease the ratio TIE = OI/Interest exp

if sales remained constant in absolute dollar terms while COGS increased would this increase the ratio times interest earned? A.) no B.) yes

A.) no numerator increase which would decrease the ratio TIE = OI/Interest exp

if times are good, sales are up; relatively, a higher percentage of customers are paying their accounts would this decrease inventory turnover? A.) no B.) yes

A.) no would increase the turnover (IE would be collecting faster) IT = COGS/inventory

in a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the? A.) population B.) attribute of interest C.) sample D.) sampling units

A.) population

the probability that an auditor's calculation based on a sample might be different from the conclusion based on an audit of the entire population is the concept of? A.) sampling risk B.) the confidence interval C.) statistical sampling D.) the tolerable rate

A.) sampling risk

the degree of audit risk always present in an audit engagement is referred to as a combination of nonsampling and sampling risk. which of the following is an example of nonsampling risk? A.) the auditor selecting inappropriate auditing procedures B.) the internal control being more effective than the auditor believes C.) the auditor concluding the account balance is not materially misstated, but is, in fact materially misstated D.) the internal control not being as effective as the auditor believes

A.) the auditor selecting inappropriate auditing procedures

which of the following statements concerning deficiencies is true? A.) the auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit B.) all significant deficiencies are material weaknesses C.) all control deficiencies are significant deficiencies D.) an auditor must immediately report material weaknesses and significant deficiencies discovered during an audit to the PCAOB

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

Samples to test controls are intended to provide a basis for an auditor to conclude whether? A.) the controls are operating effectively B.) the financial statements are materially misstated C.) the risk of incorrect acceptance is too high D.) materiality for planning purposes is at a sufficiently low level

A.) the controls are operating effectively

samples to test internal controls are intended to provide a basis for an auditor to conclude whether A.) the controls are operating effectively B.) the financial statements are materially misstated C.) the risk of incorrect acceptance is too high D.) materiaity for planning purposes is at a sufficiently low level

A.) the controls are operating effectively

when assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatement, such deviations do not necessarily result in misstatements. This explains why A.) the recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded B.) deviations would result in errors in the accounting records only if the deviations and the misstatements occurred on different transactions C.) deviations from pertinent control procedures at a given rate ordinarily would be expected to result in misstatements at a higher rate D.) a recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material misstatement

A.) the recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded

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

A.) the system analyst reviews outputs and controls the distribution of output from the IT department

an auditor desired to test credit approval on 10,000 sales invoices processed during the year. the auditor designed a statistical sample that would provide 1% risk of assessing control risk too low for the assertion that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2.5% of the sales invoices lacked approval. a sample of 200 invoices was examined, and 7% of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8% in the evaluation of this sample, the auditor decided to increase the level of the preliminary assessement of control risk because the A.) tolerable deviation rate (7%) was less than the computed upper deviation rate (8%) B.) expected population deviation rate (7%) was more than the percentage of errors in the sample (3.5%) C.) computed upper deviation rate (8%) was more than the percentage of errors in the sample (3.5%) D.) expected population deviation rate (2.5%) was less than the tolerable deviation rate (7%)

A.) tolerable deviation rate (7%) was less than the computed upper deviation rate (8%)

an auditor desired to test credit approval on 10,000 sales invoices processed during the year. the auditor designed a statistical sample that would provide 1% risk of assessing control risk too low for the assertion that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2.5% of the sales invoices lacked approval. a sample of 200 invoices was examined, and 7% of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8% based on the information above, the planned allowance for sampling risk was? A.) 5.5% B.) 4.5% C.) 3.5% D.) 1%

B.) 4.5%

considering each independently, a change in which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account? 1. expected misstatement 2. tolerable misstatement A.) No, No B.) Yes, Yes C.) No, Yes D.) Yes, No

B.) Yes, Yes

in an audit of financial statements, an auditor's primary consideration regarding an internal control is whether the control? A.) reflects management's philosophy and operating style B.) affects management's financial statement assertions C.) provides adequate safeguards over access to assets D.) relates to operational objectives

B.) affects management's financial statement assertions

assessing control risk below high involved all of the following except A.) identifying specific controls to rely on B.) concluding that controls are ineffective C.) performing tests of controls D.) analyzing the achieved level of control risk after performing tests of controls

B.) concluding that controls are ineffective

which of the following best describes the interrelated components of internal controls? A.) organizational structure, management philosophy, and planning B.) control environment; risk assessment process; control activities; the information system, including related business processes; and monitoring of controls C.) risk assessment process, backup facilities, responsibility accounting, and natural laws D.) assignment of authority and responsibility, management philosophy, and organizational structure

B.) control environment; risk assessment process; control activities; the information system, including related business processes; and monitoring of controls

how would increases in tolerable misstatement assessed level of control risk affect the sample size in a substantive test of details 1. increase in tolerable misstatement 2. increase in assessed level of control risk A.) decrease sample size, decrease sample size B.) decrease sample size, increase sample size C.) increase sample size, decrease sample size D.) increase sample size, increase sample size

B.) decrease sample size, increase sample size

a control deviation caused by an employee performing a control procedure that he or she is not authorized to perform is always considered a A.) deficiency in design B.) deficiency is operation C.) significant deficiency D.) material weakness

B.) deficiency is operation

which of the following statements is true concerning statistical sampling in tests of controls A.) as the population size increases, the sample size should increase proportionately B.) deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements C.) there is an inverse relationship between the expected population deviation rate and the sample size D.) in determining the tolerable deviation rate, an auditor considers detection risk and the sample size

B.) deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements

the control environment may decrease the effectiveness of control activities when? A.) the internal auditor reports directly to the audit committee B.) management has substantial incentives for meeting earnings projections C.) the board of directors is independent of management D.) the audit committee actively oversees the financial reporting process

B.) management has substantial incentives for meeting earnings projections

the highest quality and most reliable audit evidence that segregation of duties is properly implemented is obtained by A.) inspection of documents prepared by a third party but which contain the initials of those applying entity controls B.) observation by the auditor of the employees performing control activities C.) inspection of the flowchart of duties performed and available personnel D.) inquires of employees who apply control activities

B.) observation by the auditor of the employees performing control activities

The auditor should perform tests of controls when the auditor's risk assessment includes an expectation? A.) of a low level of inherent risk B.) of the operating effectiveness of internal controls C.) that the controls are not suitably designed D.) that the controls are not being applied

B.) of the operating effectiveness of internal controls

when the auditor preforms tests of controls, the primary concern is A.) underreliance on substantive procedures B.) overreliance on controls C.) underreliance on controls D.) incorrect acceptance of an account balance

B.) overreliance on controls

a walkthrough is one procedure used by an auditor as part of the internal control audit. a walkthrough requires an auditor to? A.) tour the organization's facilities and locations before beginning any audit work B.) trace a transaction from every class of transactions from origination through the entity's information system C.) trace a transaction from each major class of transactions from origination through the entity's information system D.) trace a transaction from each major class of transaction from origination through the entity's information system until it is reflected in the entity's financial reports

B.) trace a transaction from every class of transactions from origination through the entity's information system

an auditor's flowchart of an entity's accounting system is a diagrammatic representation that depicts the auditor's A.) program for test of controls B.) understanding of the system C.) understanding of the types of fraud that are probable, given the present system D.) documentation of the study and evaluation of the system

B.) understanding of the system

an auditor is concerned about management override as a limitation of internal control. which of the following tests would best assess the validity of the auditor's concern? A.) matching purchase order to accounts payable B.) verifying that approved spending limits are not exceeded C.) tracing sales orders to the revenue account D.) reviewing minutes of board meetings

B.) verifying that approved spending limits are not exceeded

if the tax rate on income increased would this cause operating income to increase but cause the company to be less profitable? A.) no B.) yes

B.) yes

if short term borrowing were refinanced on a LT basis at a higher interest rate would this cause operating income to increase but cause the company to be less profitable? A.) no B.) yes

B.) yes **notice higher interest rate

if the company has increased sales by selling goods for lower prices, but shortening the length of credit terms from 30 days to 20 days would this cause accounts receivable turnover to increase for the year? A.) no B.) yes

B.) yes AR turnover = credit sales/AR

if sales for the year were the same as in the preceding year, inventory is a bit higher that normal because Dec's sales ere lower than expected would this decrease inventory turnover? A.) no B.) yes

B.) yes IT = COGS/inventory

if short term debt stayed the same in total, but its interest rate now changes with changes in the prime rate would this increase the ratio times interest earned? A.) no B.) yes

B.) yes it technically depends on how the prime rate changed but this could be an explanation TIE = OI/Interest exp

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 entity 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 preformed as part of the financial statement audit indicate the account is fairly stated. AnnaLisa found no material weakness in any other area of the entity's internal control relating to financial reporting. what kind of report should AnnaLisa issue on the effectiveness of Lileah's internal controls? A.) an unqualified report B.) an adverse opinion C.) a disclaimer of opinion D.) an exculpatory opinion

C.) a disclaimer of opinion

In auditing ICFR for a public company, Emily finds that the entity 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 controls for that subsidiary. The other auditor's report indicates that there are not material weaknesses in the foreign subsidiary's ICFR. What should Emily do? A.) disclaim an opinion because she cannot rely on the opinion of another auditor in dealing with a significant subsidiary B.) accept the other auditor's opinion and express an unqualified opnion, making reference to the other auditor's report in her audit opinion C.) 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 D.) qualify the opinion because she in unable to conduct the testing herself, and this constitutes a significant scope limitation

C.) 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

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

C.) controls that operate on a continuous basis

entity-level controls can have a pervasive effect on the entity's ability to meet the control criteria. Which one of the following is not an entity level control? A.) controls to monitor results of operations B.) management's risk assessment process C.) controls to monitor the inventory taking process D.) the period end financial reporting process

C.) controls to monitor the inventory taking process

The primary reason an auditor assesses the risks of material misstatement in financial statements audits is to? A.) identify the causes of fraud or error in internal control B.) fulfill the role of advisor to management by designing effective and efficient internal controls for management C.) determine the nature, timing, and extent of substantive procedures D.) identify the controls that could least likely prevent or detect fraud or error

C.) determine the nature, timing, and extent of substantive procedures

which of the following would most likely be an advantage in using classical variables sampling rather than monetary unit 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 computed 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

which of the following combinations results in a decrease in sample size in an attribute sample? 1 allowance risk of overreliance 2. tolerable rate 3. expected population deviation rate A.) increase, decrease, increase B.) decrease, increase, decrease C.) increase, increase, decrease D.) increase, increase, increase

C.) increase, increase, decrease

statistical sampling usually may be applied in tests of controls when the client's internal controls A.) depend primarily on appropriate segregation of duties B.) are carefully reduced to writing and are included in client accounting manuals C.) leave an audit trial in the form of documentary evidence of their effectiveness D.) enable the detection of material fraud in the accounting records

C.) leave an audit trial in the form of documentary evidence of their effectiveness

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 audit risk and materiality to a relatively low level C.) measure the sufficiency of the evidential matter obtained D.) minimize the failure to detect audit errors and fraud

C.) measure the sufficiency of the evidential matter obtained

an auditor is preparing to sample accounts receivable for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection is A.) attribute sampling B.) ratio estimation sampling C.) monetary units sampling D.) mean per unit sampling

C.) monetary units sampling

significant deficiencies and material weaknesses much be communicated to an entity's audit committee because they represent A.) material fraud or illegal acts perpetrated by high level management B.) disclosures of information that significantly contradict the auditor's going concern assumption C.) significant deficiencies in the design or operation of internal control D.) potential manipulation or falsification of accounting records

C.) significant deficiencies in the design or operation of internal control

significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent A.) disclosures of information that significantly contradict the auditor's going concern assumption B.) material fraud or illegal acts perpetrated by high level management C.) significant deficiencies in the design or operation of the internal control D.) manipulation or falsification of accounting records or documents from which financial statements are prepared

C.) significant deficiencies in the design or operation of the internal control

regardless of the assessed level of control risk, an auditor would perform some A.) tests of controls to determine the effectiveness of internal controls B.) analytical procedures to verify the design of internal controls C.) substantive procedures to restrict detection risk for significant transaction classes D.) dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk

C.) substantive procedures to restrict detection risk for significant transaction classes

in classical variables sampling, which of the following must be known in order to estimate the appropriate sample size required to meet the auditor's needs in a given situation? A.) the qualitative aspects of misstatements B.) the total dollar amount of the population C.) the acceptable level of risk D.) the estimated percentage of deviations in the population

C.) the acceptable level of risk

which of the following statements concerning monetary unit sampling is correct? A.) the sampling distribution should approximate the normal distribution B.) overstated units have a lower probability of sample selection than units that are understated C.) the auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan D.) the sampling interval is calculated by dividing the number of physical units in the population by the sample size

C.) the auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan

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 deviation rate B.) the deviation rates of both the auditor's sample and the population are less than the tolerable deviation rate C.) the deviation rate in the auditor's sample is less than the tolerable deviation rate, but the deviation rate in the population exceeds the tolerable deviation rate D.) the deviation rate in the auditor's sample exceeds the tolerable deviation rate, but the deviation rate in the population is less than the tolerable deviation rate

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

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? A.) the susceptibility of the related assets or liability to loss or fraud B.) the interaction or relationship of the control with other controls C.) the financial statement amount exposed to the deficiency D.) the nature of the financial statement accounts, disclosures, and assertions involved

C.) the financial statement amount exposed to the deficiency

a confidence level of 90% means that A.) the expected deviation rate is equal to 10% B.) the point estimate obtained in within 10% of the true population value C.) the probability is 90% that the sample results will not vary from the true characteristics of the population by more than the specified amount D.) a larger sample size is required than if the desired confidence level were equal to 95%

C.) the probability is 90% that the sample results will not vary from the true characteristics of the population by more than the specified amount

as a result of control testing, a CPA has decided to reduce control risk. What is the impact on substantive testing sample size is all other factors remain constant A.) the sample size would be irrelevant B.) the sample size would be larger C.) the sample size would be lower D.) the sample size would be unaffected

C.) the sample size would be lower **note that when you decrease CR you increase the need for substantive tests and when sample size is smaller you do more substantive tests

the 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 A.) consider increasing the use of the substantive tests of transactions in place of analytical procedures B.) substantiate the accuracy of data through self checking digits and hash totals C.) reduce the level of required tests of controls to a relatively small amount D.) access information stored on computer files while having a limited understanding of the entity's hardware and software features

D.) access information stored on computer files while having a limited understanding of the entity's hardware and software features

an auditor's primary consideration regarding an entity's internal controls is whether they A.) prevent management override B.) relate to the control environment C.) reflect management's philosophy and operating style D.) affect the financial statement assertions

D.) affect the financial statement assertions

internal control is a process designed to provide reasonable assurance regarding the achievement of which objective? A.) effectiveness and efficiency of operations B.) reliability of financial reporting C.) compliance with applicable laws and regulations D.) all of the above are correct

D.) all of the above are correct

According to the PCAOB, each of the following statements is true with respect to the auditor's responsibility to communicate material weaknesses in internal controls over financial reporting except A.) all such weaknesses must be communicated in writing to the audit committee B.) all such weaknesses must be communicated in writing to management C.) all such weaknesses must be communicated prior to the issuance of the auditor's report on internal controls over financial reporting D.) all such weaknesses must be communicated in writing to all stockholders

D.) all such weaknesses must be communicated in writing to all stockholders

SOC 1, type II reports issued by the service organization's auditor typically A.) provide reasonable assurance that their financial statements are free of material misstatement B.) ensure that the entity will not have any misstatement in areas related to the service organization's activities C.) ensure that the entity is billed correctly D.) assess whether the service organization's controls are suitably designed and operating effectively

D.) assess whether the service organization's controls are suitably designed and operating effectively

after obtaining an understanding of the entity and its environment, including its internal control, the auditor assesses A.) the need to apply auditing standards B.) detection risk to determine the acceptable level of inherent risk C.) detection risk and inherent risk to determine the acceptable level of control risk D.) control risk and inherent risk to determine the acceptable level of detection risk

D.) control risk and inherent risk to determine the acceptable level of detection risk

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? A.) data capture controls B.) application controls C.) output controls D.) general controls

D.) general controls

in addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was? A.) the only deviation discovered in the sample B.) identical to a deviation discovered during the prior year's audit C.) caused by an employee's misunderstanding of instructions D.) initially concealed by a forged document

D.) initially concealed by a forged document

what is an auditor's evaluation of a statistical sample for attributes when a test of 50 documents results in 3 deviations if the tolerable rate is 7%, the expected population deviation rate is 5%, and the allowance for sampling risk is 2% A.) modify the planned assessed risk of material misstatement because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected population deviation rate B.) accept the sample results as support for the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate C.) accept the sample results as support for the assessed risk of material misstatement because the tolerable deviation rate minus the allowance for sampling risk equals the expected population deviation rate D.) modify the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate

D.) modify the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate

the auditor failed to recognize a deviation included in a sample intended to test controls related to a transaction process. This failure best reflects? A.) statistical sampling B.) sampling risk C.) audit risk D.) nonsampling risk

D.) nonsampling risk

which one of the following is least likely to be considered an internal control relevant to a financial statement audit? A.) periodic reconciliation of perpetual inventory records to the general ledger control accounts B.) comparison of physical inventory counts with perpetual inventory records C.) approval of customers' requests for credit terms D.) procedures to determine whether expenditures should be made for certain R&D activities

D.) procedures to determine whether expenditures should be made for certain R&D activities

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 its assessment? A.) documentation and test controls over specific risks B.) self assessment process in conjunction with entity level controls C.) documentation and test entity level controls over the entire entity D.) selective control test at that location

D.) selective control test at that location

if internal control is properly designed, the same employee may be permitted to? A.) receive and deposit checks and also approve write-offs of customer accounts B.) approve vouchers for payment and also sign checks C.) reconcile the bank statements and also receive and deposit cash D.) sign checks and also cancel supporting documents

D.) sign checks and also cancel supporting documents

a number of factors influence the sample size for a substantive test of details of an account balance. all other factors being equal, which of the following would lead to a larger sample size? A.) greater reliance on internal controls B.) greater reliance on analytical procedures C.) smaller expected frequency of misstatements D.) smaller amount of tolerable misstatement

D.) smaller amount of tolerable misstatement

The sarbanes-oxley act of 2002 requires mgt 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? A.) the auditor should evaluate whether internal controls over financial reporting are designed and operating effectively B.) management's report should state its responsibility for establishing and maintaining an adequate internal control system C.) management should identify material weaknesses in its report D.) the auditor should provide recommendations for improving internal control in the audit report

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

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

D.) the cost benefit relationship is a primary criterion that should be considered in designing an internal control system

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 A.) monitoring can be an ongoing process B.) monitoring can be conducted as a separate evaluation C.) monitoring and other audit work conducted by internal audit staff can reduce extra audit costs D.) the independent auditor can serve as part of the entity's control environment and continuous monitoring

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

assume an auditor is evaluating a statistical attribute sample of 50 items that resulted in three deviations. what should the auditor conclude if the tolerable deviation rate is 7%, the expected population deviation rate is 5% and the allowance for sampling risk is 2% A.) the planned assessed level of control risk shoudl be modified because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected population deviation rate B.) the sample results should be accepted as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate C.) the sample results should be accepted as support for the planned assessed level of control risk because the tolerable deviation rate less the allowance for sampling risk equals the expected population deviation rate D.) the planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate

D.) the planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate

when sampling is used, sufficiency of audit evidence is achieved when A.) each item in the population has a chance of being selected B.) the standard deviation in the sample is less than or equal to the corresponding statistic for the population C.) the evidence gathered is directly related to the assertion the auditor is attempting to verify D.) the sampling method provides reasonable assurance that the items selected are representative of the sampled population

D.) the sampling method provides reasonable assurance that the items selected are representative of the sampled population

when auditors report on the effectiveness of internal control "as of" a specific data 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? A.) any significant changes that occurred in internal control subsequent to the interim date B.) the length of the remaining period C.) the specific controls tested prior to the "as of" data and the results of those tests D.) the walkthrough of the control system conducted at interim

D.) the walkthrough of the control system conducted at interim

which of the following statements is correct concerning statistical sampling in tests of controls? A.) deviations from controls at a given rate usually result in misstatements at a higher rate B.) as the population size doubles, the sample size should also double. C.) the qualitative aspects of deviations are not considered by the auditor D.) there is an inverse relationship between the sample size and the tolerable deviation rate

D.) there is an inverse relationship between the sample size and the tolerable deviation rate

which of the following sampling methods would be used to estimate a numeric measurement of a population, such as a dollar? A.) random sampling B.) numeric sampling C.) attribute sampling D.) variable sampling

D.) variable sampling

YAA CHAPTER 7 QUESTIONS

DOING WELL EVERYONE

PART TWO OF STUDY MATERIAL

HOPE THIS IS HELPFUL FOR EVERYONE LETS START WITH SOME CH 6 ONES

Chapter 9 MC questions

YA YOU ALMOST THERE!!

Edwards and Smith CPAs communicated significant deficiencies to Waste Disposal's management and the audit committee for the last two years. At the end of the current year, these significant deficiencies continue to remain uncorrected. what type of report on ICFR would be issued?

adverse **there is a lack of concern by management

brown inc has restated previously issued financial statements to reflect the correction of an overstatement in income for failing to adequately accrue for contingent liabilities related to ongoing lawsuits. Discussions with management at Brown, Inc. suggest that procedures for identifying contingent liabilities are lacking. what type of report on ICFR would be issued?

adverse opinion **notice word restated

Chapter 6/7 multiple choice questions

man typing these out are not fun ill just tell ya

MC ch 8/9

quiz

Ch 6 textbook questions

so many questions

During the audit of Wood Pharmaceuticals, you are surprised to find several control deficiencies in the entity's internal control, you determine that these is a reasonable possibility that any one of them could result in a misstatement that is significant; however, the odds are extremely low that the deficiencies, singularly or taken together, will result in a material misstatement of the entity's financial statements Managements written assessment concludes that the entity;s ICFR was effective as of the report date. what type of report on ICFR would be issued?

unqualified

CH 8 MC textbook questions

very much over this class at this point ngl