Audit Module 4

Analysis of accounts receivable collection periods by region is most likely a part of which of the following types of ADA? Multiple Choice Risk assessment procedures Tests of controls Substantive analytical procedures Tests of details

Risk assessment procedures

If the risk of overreliance is 5%, the tolerable rate of deviation is 8%, and the expected population deviation rate is 1%, the necessary sample size is: Multiple Choice 28 36 48 58

58

The first step of planning an ADA is: Multiple Choice select techniques and tools used for performing the ADA. document the objective of the ADA. determine the overall purpose and specific objectives of the ADA. select the ADA that is best suited for the purpose.

determine the overall purpose and specific objectives of the ADA.

Certain characteristics of data may affect the relevance and reliability of the data used in the ADA. The level of aggregation is one of these characteristics. Which of the following does not illustrate differing levels of aggregation? Multiple Choice Number of annual transactions compared to the number of weekly transactions A consolidated statement compared to a single segment of a statement A total account balance compared to a single transaction within that balance All of the above illustrate differing levels of aggregation

All of the above illustrate differing levels of aggregation

If the auditor examined 60 items and found 6 deviations, which of the following is not true (assuming a risk of overreliance of 5%)? Multiple Choice The sample rate of deviation is 10%. The upper limit rate of deviation is 18.8%. The allowance for sampling risk is 8.8%. All of the choices statements are true.

All of the choices statements are true.

How is the tolerable rate of deviation established by the auditor? Multiple Choice Based on the necessary level of detection risk determined from the use of the audit risk model. Based on the level used in prior years' audits. Based on the desired level of control risk. Based on the sample rate of deviation.

Based on the desired level of control risk.

Which of the following are key issues that the auditor faces when assessing a client's data? I. Data Completeness II.Data format III. Data Integrity IV. Data Collection V. Data Accuracy Multiple Choice I and V I, II, and V I, II, III, and V I, III, IV, and V

I, II, III, and V

Select the proper order in performing Audit Data Analytics: I. Evaluate the results and conclude on whether the purpose and specific objectives of performing the ADA have been achieved II. Consider the relevance and reliability of the data used III. Plan the ADA IV. Perform the ADA V. Access and prepare the data for purposes of the ADA Multiple Choice V, III, II, IV, I II, III, V, IV, I II, V, III, IV, I III, V, II, IV, I

III, V, II, IV, I

An auditor imports a client's purchasing cycle transactions for the purposes of testing authorization controls. Which of the following is true regarding the implementation of this audit data analytic? Multiple Choice The use of statistical sampling in the performance of the ADA increases the auditor's confidence. The use of ADA for purchasing transactions often significantly increases audit risk relative to traditional auditing procedures. A disadvantage of implementation is the increased costs associated with ADA. Testing can be more efficiently conducted across 100% of transactions.

Testing can be more efficiently conducted across 100% of transactions.

If the sample rate of deviation is 6.2%, the upper limit rate of deviation is 8%, the tolerable rate of deviation is 7%, and the risk of overreliance is 5%, which of the following statements is not true? Multiple Choice The auditor is unable to rely on internal control is planned. There is a 95% chance that the true deviation rate is less than or equal to 8%. The allowance for sampling risk is 1%. There is a 5% chance that the true deviation rate is greater than 8%.

The allowance for sampling risk is 1%.

For documentation of an ADA to be considered sufficient, all the following should be recorded except? Multiple Choice Who reviewed work performed within the output of the ADA. Who performed the work and created the output of the ADA. The process used to produce the data examined. Identifying characteristics of specific items or matters tested.

The process used to produce the data examined.

All of the following procedures are common uses of audit data analytics in risk assessment procedures except: Multiple Choice analyzing trends in inventory costs. identifying sales which did not follow the typical three way match control in the revenue cycle. comparing cash collections to sales invoices and discounts in the revenue cycle. calculating accounts receivable collection periods by region.

comparing cash collections to sales invoices and discounts in the revenue cycle.

When documenting an Audit Data Analytic (ADA), an experienced auditor with no prior connection to the engagement should be able to understand all these elements of the ADA except: Multiple Choice results of procedures performed and evidence obtained. nature, timing, and extent of procedures performed. the software used in performing the ADA. conclusions reached and significant judgments made.

the software used in performing the ADA.

When auditing a client in the merchandising business, an auditor became concerned that the client was recording fraudulent credit sales. Which of the following procedures would have most likely alerted them to this potential fraud? Multiple Choice Observing the credit sales figure on the income statement Recalculating depreciation on fixed assets Analyzing cash receipts as a percentage of sales by month Analyzing gross profit percentage by class of revenue

Analyzing cash receipts as a percentage of sales by month

If the auditor cannot locate a sample item, he or she should: Multiple Choice Replace the item in the sample with another item. Classify the missing item as a deviation. Reselect the entire sample and begin examining sample items. Issue a qualified opinion on the client's financial statements.

Classify the missing item as a deviation.

A method of sampling used when deviations from controls are critical yet are expected to occur at a relatively low rate is referred to as: Multiple Choice Attributes sampling. Discovery sampling. Statistical sampling. Variables sampling.

Discovery sampling

Which of the following factors is most likely established based on the results of prior years' audit examinations? Multiple Choice Expected population deviation rate. Population size. Risk of overreliance. Tolerable rate of deviation.

Expected population deviation rate.

Which of the following combination of factors would yield the largest sample size (ROO = Risk of overreliance, TRD = Tolerable rate of deviation, EPDR = Expected population deviation rate)? Multiple Choice ROO = 5%, TRD = 2%, EPDR = 0% ROO = 10%, TRD = 2%, EPDR = 0% ROO = 5%, TRD = 6%, EPDR = 0% ROO = 10%, TRD = 6%, EPDR = 0%

ROO = 5%, TRD = 2%, EPDR = 0%

Which of the following is not a typical problem found by auditors when cleansing client data for the purposes of performing an ADA? Multiple Choice Some fields may be empty and thus cause errors during analysis. Some fields may not be sorted in numerical order and require sorting for identification of outliers. Some date fields may contain letters or be in the wrong format. Some fields may have country-specific differences such as currency.

Some fields may not be sorted in numerical order and require sorting for identification of outliers.

Which of the following is a common use of ADA in performing tests of controls? Multiple Choice The auditor performs an aging of accounts receivable. The auditor conducts a trend analysis on inventory costs. The auditor runs a predictive model of interest expense. The auditor performs journal entry exception testing for employee entry amount limits.

The auditor performs journal entry exception testing for employee entry amount limits.

In determining the reliability of the data to be used by the audit team, an auditor discovers the data is controlled internally by the accounting department. Which of the following is the most likely step the auditor would take after learning of this information? Multiple Choice The auditor should rely on the data and continue to perform the ADA. The auditor should consider obtaining information from a more reliable source before continuing with the ADA. The auditor should ask management if the information can be relied upon. The auditor should not rely on the data and perform a different procedure to obtain sufficient, appropriate audit evidence.

The auditor should consider obtaining information from a more reliable source before continuing with the ADA.

Which of the following is correct regarding including client data in audit documentation for an issuer? Multiple Choice Auditors are required to retain their client's data in documentation for seven years. Auditors should always include client data in their documentation to enable an experienced auditor with no prior connection to the engagement to replicate testing. Client data should never be included in documentation. There is no specific requirement to include client data in auditing documentation.

There is no specific requirement to include client data in auditing documentation.

The rate of deviations that has a one minus risk of overreliance probability of equaling or exceeding the true deviation rate is the: Multiple Choice Upper limit rate of deviation. Expected population deviation rate. Sample rate of deviation. Tolerable rate of deviation.

Upper limit rate of deviation.