ACC 403 Exam 2

Which of the following statements is an auditor most likely to add to the negative form of confirmation of accounts receivable to encourage timely consideration by the recipient?

"If you do not report any differences within 15 days, it will be assumed it is a correct statement"

Although the quantity and content of audit documentation vary with each engagement an auditor's permanent files most likely include

Analyses of capital stock and other equity accounts.

In the course of the audit of financial statement for the purpose of expressing an opinion, the auditor will normally prepare a schedule of uncorrected misstatements. The primary purpose served the this schedule is to

Identify the potential financial statement effects of misstatements that were not considered clearly trivial when discovered.

Which of the following procedures would provide the most reliable audit evidence?

Inspection of bank statements obtained directly from the client's financial institution.

Confirmation of accounts receivable is a generally accepted auditing procedure. The presumption is that an auditor will request confirmation of accounts receivable. Confirmation is necessary when

The combined assessed level of inherent and control risk is high.

Auditors may use positive or negative forms of confirmation requests. An auditor most likely will use

The negative form for small balances.

In performing tests of controls, the auditor will normally find that

The rate of deviations in the sample exceeds the rate of error in the accounting records.

Which of the following is a false statement about the relationship of financial statement assertions and audit procedures?

The relationship between financial statement assertions and audit procedures should be one-to-one.

Based on an understanding of internal control completed an an interim date, the auditor assessed the risks of material misstatement at the relevant assertion level and performed interim substantive procedures. The records will most likely be tested again at year end if

The remaining period is long.

Which of the following concepts distinguishes the retention of computerized audit documentation from the traditional hard copy form?

Analyses, conclusions, and recommendations are filed on electronic media and are therefore subject to computer system controls and security procedures.

Which of the following in a predecessor's audit documentation is the auditor least likely to be interested in reviewing?

Analysis of income statement accounts.

An auditor would least likely use computer software to

Assess risk.

Using personal computers in auditing may affect the methods used to review the work of staff assistants because

Audit documentation may not contain readily observable details of calculations.

Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to provide a reasonable basis for an opinion?

Auditor judgement

The most reliable forms of documentary evidence are those documents that are

Authorized by a responsible official.

Which of the following presumptions is least likely to relate to the reliability of audit evidence?

An auditor's opinion is formed with a reasonable time to achieve a balance between benefit and cost.

Which of the following documentation is not required for an audit in accordance with auditing standards

A client letter that details the auditor's planned field work.

Which of the following statements about evidence is true?

A client's accounting records cannot be considered sufficient appropriate audit evidence on which to base the auditor's opinion.

In confirming accounts receivable, an auditor decided to confirm the customers' account balances rather than individual invoices. Which of the following most likely will be included with the client's confirmation letter?

A client-prepared statement of account showing the details of the customer's account balance.

Which of the following is usually included or shown in the audit documentation?

A summary of how significant findings were addressed.

A CPA is conducting the first audit of a nonissue's financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor's audit documentation. The procedure is

Acceptable if the client and the predecessor auditor agree to it.

A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses a computer system is that the auditor may

Access information stored on computer files while having a limited understanding of the client's hardware and software functions.

Test of controls in a financial statement audit are least likely to be omitted with regard to

Accounts representing many transactions.

The PCAOB's AS 1215 Audit documentation requires that a complete and final set of audit documentation be assembled for retention as of a date not more than 45 days after the audit report release date. After that date, audit documentation may

Be added, but no audit documentation may be deleted or discarded.

An auditor's audit documentation will least likely show how the

Client's schedules were prepared.

Which of the following procedures is not used in tests of controls over purchases?

Confirm inventory held in public warehouses.

Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should

Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable.

Audit documentation that records the procedures used by the auditor to gather evidence should be

Designed to meet the circumstances of the particular engagement.

Smith corporation has numerous customers. A customer file is kept on disk storage. Each customer record contains the name, address, credit limit, and account balance. The auditor wishes ti test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow is to

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

Each of the following might, by itself, form a valid basis for an auditor to decide to omit a procedure except for the

Difficulty and cost involved in testing a particular item.

An auditor using audit software probably would be least interested in which of the following fields in a computerized perpetual inventory file

Economic order quantity.

Standardized working papers are often used, chiefly because they allow audit documentation to be prepared more

Efficiently.

The objective of tests of details of transactions performed as tests of controls is to

Evaluate whether internal controls operated effectively.

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be dissociated from the resolution of the matter. The audit documentation would probably be

Expanded to detail the assistant auditor's position and how the difference of opinion was resolved.

Computer technology makes it possible to perform paperless audits. For example, in an audit of computer-processed customer accounts receivable balance, an auditor might use a personal computer to access the accounts receivable files directly and copy selected customer records into the computer for audit analysis. Which of the following is an advantage of this type of paperless audit of accounts receivable balances?

It allows immediate processing of audit data on a spreadsheet working paper.

Which of the following represents a limitation on the use of generalized audit software (GAS)?

It can only be used on hardware with compatible operating systems.

Observation is considered a reliable audit procedure but one that is limited in usefulness. However, it is used in a number of different audit situations. Which of the following statements is true regarding observation as an audit technique?

It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place.

The audit working paper that reflects the major components of an amount reported in the financial statements is the

Lead schedule.

Specialized audit software

May be written in a procedure-oriented language.

If an auditor conducts an audit of financial statements in accordance with applicable auditing standards, which of the following will the auditor most likely detect?

Miscasting of recorded transactions.

You have been assigned to audit the maintenance department of an organization. Which of the following is likely to produce the least reliable audit evidence?

Notes on discussions with mechanics in the maintenance operation.

An auditor wishes to evaluate the design and perform tests of control over a client's cash disbursements procedures. If the controls leave no audit trail of documentary evidence, the auditor most likely will test the procedures by

Observation and inquiry

Which of the following procedures concerning accounts receivable is an auditor most likely to perform to obtain evidence in support of the effectiveness of controls?

Observing an entity's employee prepare the schedule of past due accounts receivable.

Most of the auditor's work in forming an opinion on financial statements consists of

Obtaining and evaluating audit evidence.

The auditor should perform tests of controls when the auditor's risk assessment includes an expectations

Of the operating effectiveness of internal control.

An auditor confirms a representative number of open accounts receivable as of Dec 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn ____?

One of the cashiers has been covering a personal embezzlement by lapping.

Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to

Permit cross-referencing and simplify supervisory review.

An auditor ordinarily uses a working trial balance resembling the financial statements without notes, but containing columns for

Reclassifications and adjustments.

In gathering evidence in the performance of substantive procedures, the auditor most likely

Relies on persuasive rather than conclusive evidence in the majority of cases.

To test the effectiveness of controls, an auditor ordinarily selects from a variety of techniques, including.

Reperfomance and observation

In the confirmation of accounts receivable, the auditor would most likely

Request confirmation of a sample of inactive accounts.

Two assertions for which confirmation of accounts receivable balances provides primary evidence are

Rights and obligations and existence.

Which of the following statements about the auditor's response to assessed risks of material misstatement in a financial statement audit is true?

Risk assessment procedures performed to obtain an understanding of an entity's internal control also may serve as tests of controls.

The appropriateness of evidence available to an auditor is least likely to be affected by the

Sampling method employed by the auditor to obtain a sample of such evidence.

Assuming a low assessed risk of material misstatement, which of the following audit procedures would be least likely to be performed?

Search for unrecorded cash receipts.

The auditor should perform tests of controls when the auditor's assessment of the risks of of material misstatement includes an expectation of the operation effectiveness of internal control or when

Substantive procedures alone cannot provide sufficient appropriate audit evidence to support the assertion being evaluated.

Regardless of the assessed risks of material misstatement, an auditor should perform some

Substantive procedures to restrict detection risk for significant transaction classes.

Which of the following statements is most accurate regarding sufficient and appropriate documentation?

Sufficient and appropriate documentation should include evidence that it has been reviewed.

A client uses a suspense account for unresolved questions whose final accounting has not been determined. If a balance remains in the suspense account at year-end, the auditor would be most concerned about

Suspense debits that management believes will benefit future operations.

When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be appropriate?

Test the operating effectiveness of such controls in the current audit.

The two requirements crucial to achieving audit efficiency and effectiveness with a personal computer are selecting

The appropriate audit tasks for personal computer applications and the appropriate software to perform the selected tasks.

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because

The auditor cannot infer that all nonrespondents have verified their account information

AU-C 500 describes five generalizations about the reality of evidence. The situations given below indicate the relative degrees of assurance provided by two types of evidence obtained in different situations. Which describes an exception to one of the generalizations?

The report of an auditor's computation of interest payable on outstanding bonds provides greater assurance than reliance on the client's calculation.

Which of the following statements about audit evidence is true?

The sufficiency and appropriateness of audit evidence is a matter of professional judgement.

The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of

Transactions

When an auditor performs tests on a computerized inventory file containing over 20,000 line items, that the auditor can maintain independence and perform most efficiently by

Using a generalized audit software package.

Auditors often make use of computer programs that perform routine processing functions, such as sorting and merging. These programs are made available by computer companies and others and are specifically referred to as

Utility programs

During the process of confirming receivables as of December 31st, year 1, a positive confirmation was returned indicating the "balance owed as of Dec 31 was paid on January 9, year 2" The auditor would most likely

Verify the amount was received

To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would

Verify the sources of contents of the faxes in telephone calls to the senders.

Tests of controls are concerned primarily with each of the following questions except

Were the controls approved by the board of directors?

The negative request form of accounts receivable confirmation may be used when the Risk of Material Misstatement is ______ the number of small balances is _____ and consideration by the recipient is _______.

When the Risk of Material Misstatement is Low. The number of small balances is Many. The Consideration by the recipient is Likely.

After audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up audit documentation review. This review usually focuses on

Whether the financial statements are consistent with the auditor's understanding of the entity.