AuditExam2 MC/TF

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False

It is not possible for internal controls to mitigate risks associated with the valuation of accounts receivable

False

A typical bank statement prepared at an interim agreed-upon date and sent directly to the auditor is a bank transfer statement

B

A bank confirmation contains which of the following two parts? 1. A part that seeks information on the client's deposit balances, the existence of loans, due dates of the loans, interest rates, dates through which interest has been paid, and collateral for loans outstanding. 2. A part that contains a listing of the last checks issued near year-end 3. A part that seeks information about any loan guarantees 4. A part that lists all transfers between the company's bank accounts for a short period of time before and after year-end A. 1&2 B. 1&3 C. 2&3 D. 2&4 E. 3&4

False

A benefit of nonstatistical sampling as compared to statistical sampling is that the sample size can be significantly smaller, thereby making the audit more efficient

False

A benefit of statistical sampling as compared to nonstatistical sampling is that less auditor judgment is required because the auditor can leverage the power of probability theory

False

A fake cash problem relates to management's cash valuation assertion

False

A high level of detection risk means that the audit firm is willing to accept a low risk of not detecting a material misstatement

E

Affirmative answers to which of the following questions would lead the auditor to assess fraud risk at a higher level for cash? A. Is an individual with access to cash or its recording experiencing financial or personal distress? B. Is an individual with access to cash or its recording being compensated at an amount that he or she might consider low? C. Is the company in potential violation of its debt covenants? D. Two of the above (a-c) E. All of the above (a-c)

A

After identifying the risks of material misstatement, the auditor develops an audit plan in response to those risks. Which of the following plans for testing revenue would be most likely when the auditor believes that control risk is high? A. The only evidence the auditor plans to obtain is from tests of details B. The auditor plans to obtain 40% of the necessary audit evidence from tests of controls, and the remaining 60% from substantive analytical procedures. C. The auditor plans to obtain the majority of the necessary audit evidence from tests of controls D. Any of the above would be an appropriate audit plan if the auditor believes that control risk is high

False

An example of a monitoring control in cash would include a review of cash budgets and a comparison of them with actual cash balances, with appropriate follow-up

True

Attributes sampling is a statistical sampling method used to estimate the rate of control procedure failures based on selecting a sample and performing the appropriate audit procedure

False

Because a primary concern is that cash will be stolen and thus understated, the auditor is not usually concerned about overstatements of cash

False

Because cash balances are usually relatively low at year-end, auditing standards encourage auditors to send bank confirmations on a sample basis

False

Because of the level of inherent risk associated with cash accounts, auditors are required to test the controls over cash accounts

False

Channel stuffing is a fraud in the revenue cycle that involves recording revenue after a customer has requested to purchase the inventory

E

Consider the case whereby the risk of over-reliance is 5% and the sample size is 20, and the auditor detects no deviations in the operation of the control. What can the auditor conclude? A. This is good news; no deviations were found, so we conclude that the control is working effectively B. The upper limit of deviations is 14%, so we conclude that the control is not working effectively C. If we doubled the sample size, the upper limit of deviations would decrease by about half. D. One of the above a-c E. Two of the above a-c

False

Controls for completeness of cash are important because they help to provide reasonable assurance that the cash exists

False

Detection risk is the susceptibility of an assertion to a material misstatement before consideration of related controls

False

Diageo made improper cash payments during the period 2003-2009, which violated provisions of the Foreign Corrupt Practices Act

A

For which of the following auditing procedures would sampling be most appropriate? A. Examining documents B. Inquiring of management C. Observing controls being completed D. Conducting analytical procedures

False

Haphazard sampling is a statistical sample selection method that attempts to approximate a random selection by selecting sampling units without any conscious bias, or special reason for including or omitting certain items from the sample

True

If the auditor observes that the company reports consistent profits over several years while cash inflows are decreasing, the auditor should likely assess a heightened risk of fraud in cash

E

Inherent risk for cash is usually assessed as high for which of the following reasons? A. The volume of transactions flowing through cash accounts throughout the year makes the account more susceptible to error B. The cash account is more susceptible to fraud because cash is liquid and easily transferable C. The electronic transfer of cash and the automated controls over cash are such that if errors are built into computer programs, they will be repeated on a large volume of transactions D. Cash can be easily manipulated E. All of the above

True

Performance materiality is an amount less than overall materiality and helps the auditor determine the extent of audit evidence needed

E

Refer to Exhibit 8.4 and determine which of the following statements is true A. In nonstatistical sampling, sample size is determined by auditor judgment B. In statistical sampling, the sample must be randomly selected to give each unit in the population an equal chance to be included in the sample C. In nonstatistical sampling, evaluation is based on auditor judgment and projections are based on sample results D. In statistical sampling, the auditor is required to define acceptable risk in advance E. All of the above are true

True

Research indicates that a majority of financial statement frauds involve inappropriate recording of revenue

False

Responding to identified risks in the revenue cycle rarely involves developing an audit approach that contains substantive procedures (e.g., tests of details and, when appropriate, substantive analytical procedures)

False

The auditor bases materiality solely on quantitative factors

A

The auditor is concerned that the client has recorded fictitious sales. Which of the following procedures would be the best audit procedure to identify fictitious sales? A. Select a sample of recorded sales invoices and trace to shipping documents (bills of lading and packing slips) to verify shipment of goods B. Select a sample of shipping documents (bills of lading) and trace to the sales invoice to determine whether the invoice was properly recorded C. Select a sample of customer purchase orders and trace through to the generation of a sales invoice D. Select a sample of customer purchase orders to determine whether a valid customer actually exists

True

The auditor might conclude that a heightened risk of fraud exists if the planning analytical procedures indicate increases in revenue and net income, but negative cash flow from operations

C

The auditor should not pursue which of the following options when a control is ineffective? A. Identify a compensating control B. Take a larger sample C. Assess control risk as lower than originally planned and change the audit approach accordingly D. Analyze the nature of the control deviations and identify implications

True

The division of a population into two or more subgroups is referred to as stratification

False

The risk of incorrect acceptance of internal control reliability is the risk that the auditor will conclude that an internal control is not effective when the internal control is effective

False

The volume of activity in cash accounts makes cash accounts less susceptible to error than most other accounts

C

To test the completeness of sales, the auditor would select a sample of transactions from which of the following populations A. Customer order file B. Open invoice file C. Bill of lading file D. Sales invoice file

B

Use Exhibit 8.5 to determine which of the following statements is false A. As the tolerable deviation rate rises, the sample size decreases B. As the expected deviation rises, the sample size decreases C. If the auditor accepts a 5% risk of overreliance, a 7% tolerable deviation rate, and expects a deviation rate of 2.5% the sample size will equal 109 D. If the auditor accepts a 10% risk of overreliance, a 7% tolerable deviation rate, and expects a deviation rate of 2.5%, the sample size will be a number less than 109. E. All of the above are false

True

When assessing fraud risks, the auditor should consider the client's motivation to increase revenue due to both internal and external pressures

C

Which of the following is false? A. When properly used, either nonstatistical or statistical sampling can be effective in providing sufficient appropriate audit evidence B. Statistical sampling allows the auditor to measure the risk of making an incorrect inference about the population from which the sample is taken, whereas nonstatistical sampling does not allow for such measurement C. Nonstatistical sampling may help avoid second guessing by regulators or jurors should should those parties question the quality of the sampling method used D. Combining statistical sampling with audit judgment generally produces a higher quality audit conclusion than using audit judgment alone. E. All of the above are false

E

Which of the following questions would an auditor ask when sampling to perform tests of controls? A. Which population and sampling unit should be tests, and what characteristics should be examined? B. How many items should be selected for audit testing? C. Which items should be included in the sample? D. What inferences can be made about the overall population from the sample? E. All of the above

D

Which of the following statements if false regarding analytical procedures? A. The precision of the auditor's expectation tends to be less precise, and based on more aggregated data, for planning analytical procedures than for substantive analytical procedures B. The objective for planning analytical procedures is to identify accounts with heightened risk of misstatement to provide a basis for designing and implementing responses to the assessed risks C. For planning analytical procedures, significant unexpected differences suggest that the auditor will need to increase substantive procedures D. A frequently used planning analytical procedure is regression analysis

D

Which of the following statements is false regarding planning analytical procedures in the revenue cycle? A. As revenue is typically regarded as a high-risk account, planning analytical procedures related to revenue are not required B. The first step in planning analytical procedures includes developing an expectation of recorded amounts or ratios, and evaluating whether that expectation is precise enough to accomplish the relevant objective C. Trend analysis would not be appropriate as a planning analytical procedure in the revenue cycle D. All of the above statements are false

A

Which of the following statements is false regarding the fraud at ArthroCare? A. Two of ArthoCare's sales executives overstated ending inventory that improperly inflated company revenue and earnings? B. PricewaterhouseCoopers' audit was deficient for ArthroCare, thereby enabling the fraud to go undetected for a period of time C. ArthroCare agreed to pay a $30million fine to resolve the investigation D. ArthroCare is a manufacturer of medical devices, based in Austin, Texas whose shares are traded on the NASDAQ

C

Which of the following statements is false? A. Top-stratum items are population items whose book values exceed the sampling interval and are therefore all included in the sample B. Because the auditor knows the amount of errors in the top stratum (all items were evaluated), no estimate of errors is required for the top stratum C. Stratification of the population into several subpopulations generally reduces audit efficiency D. Sampling evaluation reflects the sum of top-stratum misstatements and the projected misstatement derived from lower-stratum items E. None of the above are false

D

Which of the following statements is true regarding the processing and recording of revenue transactions? A. The accurate recording of revenue transactions is important for the client's management decisions B. Invoices should be prepared once the client determines that the goods ordered by a customer are available C. A bill of lading provides documentation that the customer has received the goods D. Sales transactions typically begin with the receipt of a purchase order from a customer

C

Which of the following statements represents the appropriate directional relationships? A. As inherent risk increases, audit risk increases B. As inherent risk increases, audit risk decreases C. As control risk increases, detection risk decreases D. As control risk increases, inherent risk decreases

D

Which of the following terms best defines the following scenario? The employee steals a payment from Customer X. To cover the theft, the employee applies a payment from Customer Y to Customer X's account. Before Customer Y has time to notice that its account has not been appropriately credited, the employee applies a payment from Customer Z to Customer Y's account A. Skimming B. Kiting C. Collateralizing D. Lapping

True

While audit firms may have a standardized audit program for the revenue cycle, the auditor should customize the audit program based on the assessment of risk of material misstatement

True

in assessing fraud risk related to cash, auditors engage in brainstorming to consider incentives, opportunities to commit fraud, and rationalization about risks relating to cash

True

Some level of control risk is always present in an organization because of the inherent limitations of internal control

False

Suprisingly, AmTrust's restatement was followed by a stock price increase, likely because investors inferred that by revealing the restatement the company could move forward with confidence

True

A substantive audit procedure that would reveal ownership and related disclosure issues includes scanning the cash receipts journal for relatively large inflows of cash that from unusual sources

B

An audit client has invested heavily in new equity and debt securities. Which of the following would not constitute an appropriate role for the organization's board of directors or others charged with governance? A. Receive and review periodic reports by the internal audit function on compliance with the organization's investment policies and procedures B. Approve all new investments prior to reviewing their risks C. Review and approve written policies and guidelines for investments in marketable securities D. Periodically review the risks inherent in the portfolio of marketable securities to determine whether the risk is within parameters deemed acceptable by the board

B

An auditor performs tests of controls in the revenue cycle. First, the auditor makes inquiries of company personnel about credit-granting policies. The auditor then selects a sample of sales transactions recorded in the general ledger and examines documentary evidence of credit approval. Which of the financial statement assertions doe this test of controls most likely support? A. Completeness-yes, Valuation or Allocation -Yes B. Completeness - No, Valuation or Allocation - Yes C. Completeness - Yes, Valuation or Allocation - No D. Completeness - No, Valuation or Allocation - No

A

Assume that an auditor expected that the client's activities related to sales and accounts receivable would be similar to industry averages. Which of the following relationships detected as part of planning analytical procedures would not suggest a heightened risk of material misstatement in the revenue cycle? A. The number of days' sales in accounts receivable decreased from 65 days in the prior year to 47 days in the current year. The industry average increased from 45 to 47 days B. The gross margin increased from 16.7% to 18.3% while the industry average changed from 16.7% to 16.3% C. Accounts receivable increased 35% over the prior year, while sales stayed relatively stable D. All of the above relationships are suggestive of a heightened risk of fraud

C

Assume that the auditor sets audit risk at 1%. What is the appropriate interpretation of this level of audit risk? A. the auditor is willing to take only a 1% chance that the audit procedures will not detect a material misstatement B. The auditor is 99% confident that the audit procedures will detect a material misstatement C. The auditor is willing to take only a 1% chance of expressing an audit opinion that the financial statements are fairly presented when they are materially misstated D. The auditor is 99% confident that the audit opinion is correct

True

Auditor expertise is critically important in evaluating the validity of the valuation of complex financial instruments

True

Auditors can use sampling for testing either the effectiveness of controls (attributes sampling) or direct tests of account balances and asserting (monetary unit sampling)

False

Auditors in practice commonly use negative confirmations

True

Block sampling involves selecting a sample that consists of contiguous population items, such as selecting transactions by day or week

True

If the contract stipulates more than one deliverable, the client must allocate a separate price to each deliverable

False

In attributes sampling, the attribute of interest is an individual dollar amount in the population

A

In attributes sampling, which of the following will not affect the sample size? A. The risk of incorrect rejection of book value B. Sampling risk C. The tolerable rate of deviation D. The expected population deviation rate

True

In testing controls over whether sales are properly valued, the auditor could take a sample of recorded sales invoices and agree the price on the invoice to an authorized price list

True

In the revenue cycle, the most significant accounts typically include revenue and accounts receivable

False

Planning analytical procedures for cash balances are highly effective because of the generally stable relationship with past cash levels and the fact that cash is a managed account

C

Refer to Exhibit 10.15. Which of the following assertions is relevant to the audit procedure for marketable securities that requires the auditor to examine selected documents to identify any restrictions on the securities? A. Existence/occurrence B. Completeness C. Rights and Obligations D. Valuation or allocation E. All of the above

B

Refer to Exhibit 10.15. Which of the following assertions is relevant to whether the marketable securities balances include all securities transactions that have taken place during the period? A. Existence/Occurrence B. Completeness C. Rights and Obligations D. Valuation or Allocation E. All of the above

B

Refer to Exhibit 10.6. Which of the following represents a reasonable test of controls for cash receipts A. Document internal controls over cash by completing the internal control questionnaire or by flowcharting the process B. Segregation of duties between those handling cash and those recording cash transactions C. Obtain a bank confirmation D. Obtain a bank cutoff statement E. All of the above

A

Refer to Exhibit 8.2 and determine which of the following terms matches this definition: the risk that the auditor will conclude that internal controls are effective when internal controls are actually not effective. A. The risk of incorrect acceptance of internal control reliability B. The risk of incorrect acceptance of book value C. The risk of incorrect rejection of internal control reliability D. The risk of incorrect rejection of book value E. None of the above

A

Refer to Exhibit 8.6. Assume a 5% risk of overreliance, a tolerable deviation rate of 8%, a sample size of 100, and that the number of deviations is five. What is the upper limit of the possible deviation rate, and what does it mean? A. 10.3%. The auditor is 95% confident that the real error rate in the population is no greater than 10.3% B. 10.3%. The auditor is 95% confident that the real error rate in the population is no greater than 5%. C. 5%. The auditor is 92% confident that the real error rate in the population is no greater than 10.3% D. 5%. the auditor is 92% confident that the real error rate in the population is no greater than 5%

B

Responding to identified risks involves developing an audit approach that addresses those risks. Which of the following statements about the planned audit approach is true for the revenue cycle? A. The audit approach needs to include tests of controls, substantive analytical procedures, and tests of details B. The audit approach will typically require more evidence for higher risk assertions than lower risk areas C. The audit approach should follow the audit firm's standardized audit program D. The sufficiency and appropriateness of selected procedures will not vary across assertions

True

Sampling can be used for both tests of controls and substantive tests of account balances and assertions

True

Sampling risk is the risk that the auditor's conclusion based on a sample might be different from the conclusion that would be reached if the audit procedure were applied in the same way to the entire population

False

Short selling enables managers to get away with perpetuating fraud undetected and undeterred

B

Skimming most likely results in a violation of which of the following management assertions? A. Existence B. Completeness C. Rights and Obligations D. Valuation E. All of the above

False

Skimming occurs when an employee purchases merchandise and records the sale at an unauthorized discounted price

True

The electronic transfer of cash and the automated controls over cash are such that if errors are built into computer programs, they could be repeated on a large volume of transactions

A

The first step in performing planning analytical procedures is to develop an expectation of the account balance. Which of the following does not typically represent a likely expected relationship for cash accounts? A. The company reports consistent profits over several years, but operating cash flows are declining B. No unusual large cash or other liquid asset transactions are found C. Operating cash flow is not significantly different from that of the prior year D. Investment income is consistent with the level of and returns expected from the investments E. All of the above represent likely expected relationships

True

The following is a reasonable test of control over marketable securities: inquire of management about its process for establishing valuation of marketable securities and review related documentation

True

The following is an inherent risk that is particularly applicable to owning stock in a company like Genie Energy: Risk of sudden market declines, which would adversely affect the valuation of securities

False

The nature of risk response refers to the sufficiency and appropriateness of evidence that is necessary given the risk of material misstatement and the level of acceptable audit risk

True

The relative percentage of substantive analytics that an auditor will use as evidence in the audit of cash will be somewhat limited regardless of the riskiness of the client

True

The revenue cycle involves receiving a customer's order, approving credit for a sale, determining whether the goods are available for shipment, shipping the goods, billing the customer, collecting cash, and recognizing the effect of this process on revenue and other related accounts such as accounts receivable, inventory, and sales commission

False

Top-Stratum items are population items whose book values exceed the sampling interval and are therefore excluded from the sample

B

Under the FASB's guidance on revenue recognition, which of the following is not a criteria that must be met in order for a contract to exist? A. The parties have approved it B. The auditor has ensured that the contract's valuation is reasonable in all material respects C. The goods and/or services involved are clearly identified D. the payment terms are spelled out E. There is commercial value to the contract

D

When auditing a nonpublic company, the auditor would generally make a decision not to test the operating effectiveness of controls in which of the following situations? A. The preliminary assessment of control risk is high B. It is more cost efficient to directly test ending account balances than to test controls C. The auditor believes that controls are designed effectively but are not operating as described D. All of the above are situations when the auditor would likely not test the operating effectiveness of controls

True

When auditing cash, the auditor will perform a relatively larger percentage of tests of details for a high-risk client compared to a low-risk client

False

When performing planning analytical procedures, the auditor could perform trend analysis with ratios, but not with account balances

False

When the auditor detects control deviations, it is best to evaluate them quantitatively rather than qualitatively

True

When there is a ready market for financial instruments, the audit procedures related to valuation and disclosures are more straightforward than when the instrument is not readily marketable

True

When using nonstatistical sampling, the auditor cannot quantitatively assess the risk of making an incorrect inference based on the sample results

C

Which mix of evidence would be most appropriate for the following scenario? This is a client where the auditor has assessed the risk of material misstatement related to the existence and completeness of cash as low, and believes that the client has implemented effective controls in this area. A. 100% tests of details B. 70% tests of details, 10% analytics, 20% tests of controls C. 50% tests of details, 10% analytics, 40% tests of controls D. 20% tests of details, 40% analytics, 40% tests of controls

A

Which mix of evidence would be most appropriate for the following scenario? This is a client where the auditor has assessed the risk of material misstatement related to the existence and completeness of cash at high. This client has incentives to overstate cash in order to meet debt covenants. Further, the client has relatively weak controls to prevent theft of cash. A. 100% tests of details B. 70% tests of details, 10% analytics, 20% test of controls C. 50% tests of details, 10% analytics, 40% tests of controls D. 20% tests of details, 40% analytisc, 40% tests of controls

C

Which of the following activities would be most likely accomplished using sampling? A. Sorting a file to identify the largest items B. Scanning for unusual transactions C. Selecting items and tracing them back to source documents D. Footing the file

D

Which of the following assertions is relevant to whether the cash balances reflect the true underlying economic value of those assets? A. Existence/occurrence B. Completeness C. Rights obligations D. Valuation or allocation E. All of the above

C

Which of the following assertions is relevant to whether the company owns the cash accounts as of the balance sheet date? A. Existence/occurrence B. Completeness C. Rights and Obligations D. Valuation or allocation E. All of the above

E

Which of the following definitions is true? A. Factual misstatement - a misstatement that has been specifically identified and about which there is no doubt B. Projected misstatement - the auditor's best estimate of the misstatement in a given population based on projecting the sample results to the population C. Tolerable misstatement - a monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population D. Expected misstatement - the level of misstatement that the auditor expects to detect E. All of the above are true

A

Which of the following explanations best describes the purpose of lapping? A. Lapping is a technique used by client personnel to cover up the embezzlement of cash B. Lapping is an approach used by client personnel to eliminate differences between a customer's records and the client's records reported on confirmations C. Lapping is a procedure used by the auditor to obtain evidence the client's customer does return a positive confirmation D. Lapping is an agreement containing contract terms that are not part of a formal sales contract

C

Which of the following factors is not a motivation for clients to fraudulently misstate revenue? A. Bankruptcy may be imminent B. Management bonuses are contingent on a certain revenue goal C. Controls over revenue process are ineffective D. Management wants to meet publicly announced earnings expectations

E

Which of the following is a common example of trend analysis of accounts and ratios that the auditor might consider for cash accounts? A. Compare monthly cash balances with past years and budgets B. Identify unexpected spikes or lows in cash during the year C. Compute trends in interest returns on investments D. Two of the above (a-c) E. All of the above (a-c)

A

Which of the following is a risk associated with complex financial instruments? A. Management's objective for entering into such transactions may relate to misstating the financial statements B. Most of these financial instruments have a high volume of activity and relate to deep capital markets C. Most management teams today have the necessary sophistication to invest in complex financial instruments with relatively little downside risk D. All of the above are risks

C

Which of the following is not a type of common control over cash? A. Segregation of duties B. Restrictive endorsements of customer checks C. Bank reconciliations by employees who handle cash D. Prenumbered cash receipt documents and turn-around documents E. Two of the above (a-d)

B

Which of the following procedures can organizations use to address credit risk most effectively? A. An informal credit policy, which may be automated for most transactions, but requires special approval for large and/or unusual transactions B. A periodic review of the credit policy by key executives to determine whether changes are dictated either by current economic events or by deterioration of the receivables C. Periodic monitoring of receivables for evidence of increased risk, such as increases in the number of days past due or an unusually high concentration in a few key customers whose financial prospects are declining D. Adequate segregation of duties over fixed assets, with specific authorization to write off fixed assets that have been fully depreciated

A

Which of the following questions would be relevant for an inherent risk analysis related to cash? A. Does the company have significant cash flow problems in meeting its current obligations on a timely basis? B. Are cash transactions properly authorized? C. Are bank reconciliations performed on a timely basis by personnel independent of processing? D. Does the internal audit department conduct timely reviews of the cash management and cash-handling process? E. All of the above

C

Which of the following relationships is inaccurate? A. Tolerable deviation rate - smaller sample = high, lower sample = low B. Expected population deviation rate - Smaller sample = low, larger sample = high C. Sampling risk (risk of overreliance) - Smaller Sample = low, Larger sample = high D. Population Size - Smaller Sample = Little effect, Larger Sample = Little Effec

E

Which of the following represents a control related to cash that an auditor might test? A. Reviews of reconciliations of reported cash receipts with remittances prepared by independent parties B. Reviews of cash budgets and comparison of them with actual cash balances C. Reviews of discrepancies in cash balances D. Two of the above (a-c) E. All of the above (a-c)

B

Which of the following statements about the Medicis fraud is false? A. in 2012, the PCAOB settled a disciplinary order censuring Ernst & Young (EY), imposing a $2 million penalty against the firm and sanctioning four of its current and former partners B. The PCAOB found that EY and its partners failed to properly evaluate a material component of the company's financial statements - its allowance for doubtful accounts C. EY did not properly evaluate Medicis' practice of reserving for most of its estimated product returns at replacement cost, instead of at gross sales price. It appears that EY accepted the company's basis for reserving at replacement cost, when the auditors should have known that this approach would not be supported by the audit evidence D. The PCAOB investigation revealed that by using replacement cost for the reserve, rather than gross sales price, Medicis' reported sales returns reserve were materially understated and its reported revenue was materially overstated E. All of the above are true

C

Which of the following statements is false regarding the nature, timing, and extent of risk responses? A. The nature of risk response refers to the types of audit procedures applied given the nature of the account balance and the most relevant assertions regarding that account balance B. The timing of risk response refers to when the auditor performs the audit procedures C. When the risk of material misstatement is low, the auditor conducts the audit procedures closer to year-end, on an unannounced basis, and includes more elements of unpredictability in the procedures D. The extent of risk response refers to the sufficiency of evidence that is necessary given the client's assessed risks, materiality, and the acceptable level of audit risk

A

Which of the following statements is true concerning performance materiality? A. Performance materiality is set less than overall materiality and helps the auditor determine the extent of audit evidence to obtain B. If performance materiality is set too low, the auditor might not perform sufficient procedures to detect material misstatements in the financial statements C. If performance materiality is set too high, the auditor might perform more substantive procedures than necessary. D. Performance materiality is essentially the same as overall materiality

B

Which of the following statements is true regarding assertions in the revenue cycle? A. It is typical that all five assertions for revenue are equally important B. If a client has an incentive to overstate revenues, the existence assertion would be more relevant than the completeness assertion C. Audit evidence about the existence of revenues is also the most appropriate evidence about the valuation of receivables D. The allowance for doubtful accounts has important implications for the ownership assertion of accounts receivable

D

Which of the following statements is true regarding materiality? A. Materiality is the magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement B. Materiality is the magnitude of an omissino or misstatement of accounting information that, in light of surrounding circumstances, makes it possible that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement C. A fact is material if there is a substantial likelihood that a reasonable investor would have viewed the fact as having significantly altered the total mix of information made available D. Both (a) and (c) are correct E. Both (b) and (c) are correct

D

Which of the following statements regarding reperformance of bank reconciliations is true? A. The auditor's reperformance of a reconciliation of the client's bank accounts provides evidence as to the accuracy of the year-end cash balance B. The process reconciles the balance per the bank statements with the balance per the books C. Reperformance of the bank reconciliation is ineffective in detecting major errors, such as those that might be covered up by omitting or underfooting outstanding checks D. Two of the above (a-c) are true E. All of the above (a-c) are true


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