Surgent 3 Quizzes 7-9
According to AU-C 330.03, which of the following terms identifies a requirement for audit evidence? a) Appropriate b) Adequate c) Reasonable d) Disconfirming
A
A senior auditor conducted a dual-purpose test on a client's invoice to determine whether the invoice was approved and to ascertain the amount and other terms of the invoice. Which of the following lists two tests that the auditor performed? a) Substantive procedures and analytical procedures b) Substantive analytical procedures and tests of controls c) Tests of controls and tests of details d) Tests of details and substantive procedures
C
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 the level of audit risk and materiality to a relatively low amount. c) Measure the sufficiency of the audit evidence obtained. d) Minimize the failure to detect errors and fraud.
C
An auditor has identified the controller's review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the controller to understand the specific data reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs. Which of the following types of audit procedures do these actions illustrate? a) Observation and inspection of records b) Confirmation and reperformance c) Inquiry and inspection of records d) Analytical procedures and reperformance
C
An auditor is determining the sample size for an inventory observation using mean-per-unit estimation, which is a variables sampling plan. To calculate the required sample size, the auditor usually determines: a) the variability in the dollar amounts of inventory items b) the risk of incorrect acceptance. c) both the variability in the dollar amounts of inventory items and the risk of incorrect acceptance. d) neither the variability in the dollar amounts of inventory items nor the risk of incorrect acceptance.
C
An auditor most likely would introduce test data into a computerized payroll system to test internal controls related to the: a) existence of unclaimed payroll checks held by supervisors. b) early cashing of payroll checks by employees. c) discovery of invalid employee ID numbers. d) proper approval of overtime by supervisors.
C
At the conclusion of an audit, an auditor is reviewing the evidence gathered in support of the financial statements. With regard to the valuation of inventory, the auditor concludes that the evidence obtained is not sufficient to support management's representations. Which of the following actions is the auditor most likely to take? a) Consult with the audit committee and issue a disclaimer of opinion b) Consult with the audit committee and issue a qualified opinion c) Obtain additional evidence regarding the valuation of inventory d) Obtain a statement from management supporting their inventory valuation
C
During an audit of a nonissuer's financial statements, an auditor should perform tests of controls to obtain sufficient appropriate audit evidence about the operating effectiveness of relevant controls if: a) the auditor does not presume that client management has committed fraud. b) more financial documentation is available through tests of controls. c) substantive procedures alone cannot provide sufficient appropriate audit evidence. d) the auditor does not intend to rely on the operating effectiveness of controls.
C
Which of the following types of evidence would an auditor most likely examine to determine whether control activities are operating as designed? a) Gross margin information regarding the client's industry b) Confirmations of receivables verifying account balances c) Client records documenting the use of EDP programs d) Anticipated results documented in budgets or forecasts
C
After obtaining an understanding of the internal control and assessing control risk at maximum, an auditor did not want to perform additional tests of controls. The auditor most likely concluded that the: a) additional evidence to support a reduction in control risk was not cost beneficial to obtain. b) assessed level of inherent risk exceeded the assessed level of control risk. c) internal control was properly designed and may be justifiably relied on. d) evidence obtainable through tests of controls would not support an increased level of control risk.
A
An audit team has concluded that inventory is highly susceptible to misappropriation and that a potential misstatement would be material to the financial statements. How should the audit team address the audit procedures to the increased risk? a) Review the client's control procedures over the safeguarding of inventory, and perform a physical inventory count on the last day of the current year. b) Review the client's control procedures over the safeguarding of inventory, incorporate the use of substantive analytical procedures, and develop an expectation. c) Review the client's control procedures over the safeguarding of inventory, but do not modify substantive procedures over inventory. d) Review the client's control procedures over the safeguarding of inventory, and perform physical inventory counts throughout the current year.
A
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 a 1% risk of assessing control risk too low (99% confidence) 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 seven of them were lacking approval. The auditor then determined the achieved upper precision limit to be 8%. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the: a) tolerable rate (7%) was less than the achieved upper precision limit (8%). b) expected deviation rate (7%) was more than the percentage of errors in the sample (3.5%). c) achieved upper precision limit (8%) was more than the percentage of errors in the sample (3.5%). d) expected deviation rate (2.5%) was less than the tolerable rate (7%).
A
An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1 million. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that: a) There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement. b) There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. c) The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement. d) The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.
A
An auditor may decide to perform only substantive procedures for specific assertions because the auditor believes: a) Control policies and procedures are unlikely to pertain to the assertions. b) The entity's control environment, monitoring, and control activities are interrelated. c) Sufficient audit evidence to support the assertions is likely to be available. d) More emphasis on tests of controls than substantive tests is warranted.
A
For which of the following audit tests would a CPA most likely use attribute sampling? a) Identifying entries posted to incorrect accounts b) Estimating the amount in an expense account c) Evaluating the reasonableness of depreciation expense d) Selecting receivables for confirmation of account balances
A
For which of the following audit tests would an auditor most likely use attribute sampling? a) Inspecting purchase orders for proper approval by supervisors b) Making an independent estimate of recorded payroll expense c) Determining that all payables are recorded at year-end d) Selecting accounts receivable for confirmation of account balances
A
In determining the number of documents to select for a test to obtain assurance that all sales returns have been properly authorized, an auditor should consider the tolerable rate of deviation from the control activity. The auditor should also consider the: I. likely rate of deviations and II. allowable risk of assessing control risk too high. a) I only b) II only c) Both I and II d) Either I or II
A
In determining the sample size for a test of controls, an auditor should consider the likely rate of deviations, the allowable risk of assessing control risk too low, and the: a) Tolerable deviation rate. b) Risk of incorrect acceptance. c) Nature and cause of deviations. d) Population size.
A
The auditor determines that the entity has effective controls and the auditor intends to design substantive procedures based on the effective operation of those controls. As a result, the auditor elects to perform tests of controls to obtain evidence about their operating effectiveness. This often is done for what type of transactions? a) Class of transactions that is reasonably uniform, noncomplex, and routinely processed and controlled by the entity's information system b) Complex transactions that require nonroutine processing c) Transactions that require substantial estimation d) Transactions subject to high risk of fraud
A
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 likelihood of assessing control risk too high is the risk that the sample selected to test controls: a) Does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment. b) Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes. c) Contains proportionately fewer monetary errors or deviations from prescribed internal control structure policies or procedures than exist in the balance or class as a whole. d) Does not support the tolerable error for some or all of management's assertions.
A
The use of the ratio estimation sampling technique is most effective when: a) The calculated audit amounts are approximately proportional to the client's book amounts. b) A relatively small number of differences exist in the population. c) Estimating populations whose records consist of quantities but not book values. d) Large overstatement differences and large understatement differences exist in the population.
A
To obtain audit evidence about control risk, an auditor selects tests from a variety of techniques including: a) Inquiry. b) Analytical procedures. c) Calculation. d) Confirmation.
A
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 most appropriate? a) Test the operating effectiveness of such controls in the current audit b) Document that reliance and proceed with the original audit strategy c) Inquire of management as to the effectiveness of the controls d) Report the reliance in the report on internal controls
A
When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by calculating the possible error in either direction. This statistical concept is known as: a) Precision. b) Reliability. c) Projected error. d) Standard deviation.
A
Which of the following is the primary objective of probability proportional to sample size? a) To identify overstatement errors b) To increase the proportion of smaller-value items in the sample c) To identify items where controls were not properly applied d) To identify zero and negative balances
A
Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account? I. Expected amount of misstatements II. Measure of tolerable misstatements a) Both I and II b) I only c) II only d) Neither I nor II
A
Which of the following statements is correct about the sample size in statistical sampling when testing internal controls? a) The auditor should consider the tolerable rate of deviation from the controls being tested in determining sample size. b) As the likely rate of deviation decreases, the auditor should increase the planned sample size. c) The allowable risk of assessing control risk too low has no effect on the planned sample size. d) Of all the factors to be considered, the population size has the greatest effect on the sample size.
A
Which of the following types of audit evidence is the least persuasive? a) Prenumbered purchase order forms b) Bank statements obtained from the client c) Test counts of inventory performed by the auditor d) Correspondence from the client's attorney about litigation
A
Which of the following would be a consideration in planning a sample for a test of subsequent cash receipts? a) Preliminary judgments about materiality levels b) The amount of bad debt write-offs in the prior year c) The size of the intercompany receivable balance d) The auditor's allowable risk of assessing control risk being too low
A
An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past five years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue? a) The auditor should perform analytical procedures at an interim date and discuss any changes in the level of sales with senior management. b) The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period. c) The auditor should perform tests of controls at an interim date to obtain audit evidence about the operational effectiveness of internal controls over sales. d) The auditor should review period-end compensation to determine if bonuses were paid to meet earnings goals.
B
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 a 1% risk of assessing control risk too low (99% confidence) 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 achieved upper precision limit to be 8%. The allowance for sampling risk was: a) 5.5%. b) 4.5%. c) 3.5%. d) 1%
B
An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance. This is an example of which of the following sampling types of risks? a) Incorrect rejection b) Incorrect acceptance c) Assessing control risk too low d) Assessing control risk too high
B
An auditor should consider the tolerable rate of deviation when determining the number of check requests to select for a test to obtain assurance that all check requests have been properly authorized. The auditor should also consider: a) The average dollar value of the check requests. b) The allowable risk of assessing control risk too low. c) Both the average dollar value of the check requests and the allowable risk of assessing control risk too low. d) Neither the average dollar value of the check requests nor the allowable risk of assessing control risk too low.
B
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk higher than appropriate. The most likely explanation for this situation is that: a) the deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate. b) the deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate. c) the deviation rates of both the auditor's sample and the population exceed the tolerable rate. d) the deviation rates of both the auditor's sample and the population are less than the tolerable rate.
B
As a result of tests of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was: a) more than the risk of assessing control risk too low based on the auditor's sample. b) more than the deviation rate in the auditor's sample. c) less than the risk of assessing control risk too low based on the auditor's sample. d) less than the deviation rate in the auditor's sample.
B
Evidence concerning the proper segregation of duties for receiving and depositing cash receipts ordinarily is obtained by: a) Completing an internal control questionnaire that describes the control activities. b) Observing the employees who are performing the control activities. c) Performing substantive tests to verify the details of the bank balance. d) Preparing a flowchart of the duties performed and the entity's available personnel.
B
For which of the following audit tests would an auditor most likely use attribute sampling? a) Selecting accounts receivable for confirmation of account balances b) Inspecting employee timecards for proper approval by supervisors c) Making an independent estimate of the amount of a LIFO inventory d) Examining invoices in support of the valuation of fixed asset additions
B
In a probability-proportional-to-size sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audited amount of $4,000. If this were the only misstatement discovered by the auditor, the projected misstatement of this sample would be: a) $1,000. b) $2,000. c) $5,000. d) $10,000.
B
In a probability-proportional-to-size sample with a sampling interval of $5,000, an auditor discovered that a selected account receivable with a recorded amount of $10,000 had an audit amount of $8,000. If this were the only error discovered by the auditor, the projected error of this sample would be: a) $1,000. b) $2,000. c) $4,000. d) $5,000.
B
In attribute sampling, a 25% change in which of the following factors will have the smallest effect on the size of the sample? a) Tolerable rate of deviation b) Number of items in the population c) Degree of assurance desired d) Planned assessed level of control risk
B
In confirming a client's accounts receivable in prior years, an auditor found that there were many differences between the recorded account balances and the confirmation replies. These differences, which were not misstatements, required substantial time to resolve. In defining the sampling unit for the current year's audit, the auditor most likely would choose: a) individual overdue balances. b) individual invoices. c) small account balances. d) large account balances.
B
In statistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if: a) probability-proportional-to-size (PPS) sampling is used. b) the population has highly variable recorded amounts. c) the auditor's estimated tolerable misstatement is extremely small. d) the standard deviation of recorded amounts is relatively small.
B
The sample size of a test of controls varies inversely with: a) Expected population deviation rate. b) Tolerable rate. c) Both expected population deviation rate and tolerable rate. d) Neither expected population deviation rate nor tolerable rate.
B
What type of evidence would provide the highest level of assurance in an audit engagement? a) Evidence secured solely from within the entity b) Evidence obtained from independent sources c) Evidence obtained indirectly d) Evidence obtained from multiple internal inquiries
B
When a PCAOB auditing standard indicates that an auditor "could" perform a specific procedure, how should the auditor decide whether and how to perform the procedure? a) By comparing the PCAOB standard with related AICPA auditing standards b) By exercising professional judgment in the circumstances c) By soliciting input from the issuer's audit committee d) By evaluating whether the audit is likely to be subject to inspection by the PCAOB
B
When performing a substantive test of a random sample of cash disbursements, an auditor is supplied with a photocopy of vendor invoices supporting the disbursements for one particular vendor rather than the original invoices. The auditor is told that the vendor's original invoices have been misplaced. What should the auditor do in response to this situation? a) Increase randomly the number of items in the substantive test to increase the reliance that may be placed on the overall test b) Reevaluate the risk of fraud, and design alternate tests for the related transactions c) Increase testing by agreeing more of the payments to this particular vendor to the photocopies of its invoices d) Count the missing original documents as misstatements, and project the total amount of the error based on the size of the population and the dollar amount of the errors
B
When the operating effectiveness of a control is not evidenced by written documentation, an auditor should obtain evidence about the control's effectiveness by: a) mailing confirmations. b) inquiry and other procedures such as observation. c) analytical procedures. d) recalculating the balance in related accounts.
B
Which of the following audit procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories? a) Trace test counts noted during the entity's physical count to the entity's summarization of quantities. b) Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens. c) Select the last few shipping advices used before the physical count and determine whether the shipments were recorded as sales. d) Inspect the open purchase order file for significant commitments that should be considered for disclosure.
B
Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements? a) Set the tolerable rate of deviation at a lower level than originally planned b) Stratify the cash disbursements population so that the unusually large disbursements are selected c) Increase the sample size to reduce the effect of the unusually large disbursements d) Continue to draw new samples until all the unusually large disbursements appear in the sample
B
Which of the following presumptions does not relate to the appropriateness of audit evidence? a) The more effective the internal control, the more assurance it provides about the accounting data and financial statements. b) An auditor's opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost. c) Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. d) The independent auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly.
B
Which of the following statements about audit risks is correct for a nonissuer? a) Nonsampling risk arises from the possibility that, when a substantive test is restricted to a sample, conclusions might be different than if the auditor had tested each item in the population. b) Nonsampling risk can arise because an auditor failed to recognize misstatements. c) Sampling risk is derived from the uncertainty in applying audit procedures to specific risks. d) Sampling risk includes the possibility of selecting audit procedures that are not appropriate to achieve the specific objective.
B
Which of the following statements concerning audit evidence is correct? a) To be appropriate, audit evidence should be either persuasive or relevant, but need not be both. b) The auditor should use professional judgment in evaluating the sufficiency and appropriateness of audit evidence. c) The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for omitting the test without modifying the report. d) A client's accounting data can be sufficient appropriate audit evidence by itself to support the financial statements.
B
Which of the following statements is correct concerning statistical sampling in tests of controls? a) As the population size increases, the sample size should increase proportionately. b) Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate. c) There is an inverse relationship between the expected population deviation rate and the sample size. d) In determining tolerable rate, an auditor considers detection risk and the sample size.
B
Which of the following types of audit evidence generally is the most appropriate? a) Inquiries made of management b) Confirmation of account information c) Analytical procedures d) Review of prior-year audit procedures
B
Which of the following types of audit evidence provides the least assurance of reliability? a) Receivable confirmations received from the client's customers b) Prenumbered receiving reports completed by the client's employees c) Prior months' bank statements obtained from the client d) Municipal property tax bills prepared in the client's name
B
How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details? a) Increases in tolerable misstatement and assessed level of control risk would increase the sample size. b) An increase in tolerable misstatement would increase the sample size; an increase in assessed level of control risk would decrease the sample size. c) An increase in tolerable misstatement would decrease the sample size; an increase in assessed level of control risk would increase the sample size. d) Increases in tolerable misstatement and assessed level of control risk would decrease the sample size.
C
In testing the existence assertion for an asset, an auditor ordinarily works from the: a) financial statements to the potentially unrecorded items. b) potentially unrecorded items to the financial statements. c) accounting records to the supporting evidence. d) supporting evidence to the accounting records.
C
The table below depicts an auditor's estimated maximum deviation rate compared with the tolerable rate, and also depicts the true population deviation rate compared with the tolerable rate. True State of PopulationDeviation Rate Deviation RateAuditor's estimate Is Less Than Exceedsbased on sample results Tolerable Rate Tolerable RateMaximum deviation rate is I. III.less than tolerable rateMaximum deviation rate II. IV.exceeds the tolerable rate As a result of tests of controls, the auditor assesses control risk too low and thereby decreases substantive testing. This is illustrated by situation: a) I. b) II. c) III. d) IV.
C
To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all: a) vendors' invoices. b) purchase orders. c) receiving reports. d) canceled checks.
C
To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor most likely would select a sample of transactions from the population represented by the: a) Sales order file. b) Customer order file. c) Shipping document file. d) Sales invoice file.
C
When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. This consideration should: a) be related to the auditor's business risk. b) not be adjusted for qualitative factors. c) be related to preliminary judgments about materiality levels. d) not be changed during the audit process.
C
When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs: a) Tests of controls and extensive tests of property and equipment balances at the end of the year. b) Analytical procedures for current year property and equipment transactions. c) Tests of controls and limited tests of current year property and equipment transactions. d) Analytical procedures for property and equipment balances at the end of the year.
C
Which of the following events occurring in the year under audit would most likely indicate that internal controls utilized in previous years may be inadequate in the year under audit? a) The entity announced that the internal audit function would be eliminated after the balance sheet date. b) The audit committee chairperson unexpectedly resigned during the year under audit. c) The chief financial officer waived approvals on all checks to one vendor to expedite payment. d) The frequency of accounts payable check runs was changed from biweekly to weekly.
C
Which of the following factors is considered in determining the sample size for a test of controls? a) Expected deviation rate b) Tolerable deviation rate c) Both expected and tolerable deviation rates d) Neither expected nor tolerable deviation rates
C
Which of the following most likely would be an advantage in using classical variables sampling rather than probability-proportional-to-size (PPS) 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 computer 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
Which of the following procedures is considered a test of controls? a) An auditor reviews the entity's check register for unrecorded liabilities. b) An auditor evaluates whether a general journal entry was recorded at the proper amount. c) An auditor interviews and observes appropriate personnel to determine segregation of duties. d) An auditor reviews the audit workpapers to ensure proper sign-off.
C
Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a dollar value? a) Attributes sampling b) Stop-or-go sampling c) Variables sampling d) Random number sampling
C
Which of the following statements is correct concerning probability-proportional-to-size (PPS) sampling, also known as dollar-unit sampling? 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 that risk 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
Which of the following types of audit evidence is the most persuasive? a) Prenumbered client purchase order forms b) Client work sheets supporting cost allocations c) Bank statements obtained from the client d) Management representation letter
C
While performing a test of details during an audit, an auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation illustrates the risk of: a) Assessing control risk too high. b) Assessing control risk too low. c) Incorrect rejection. d) Incorrect acceptance.
C
After assessing control risk below the maximum level, an auditor desires to seek a further reduction in the assessed level of control risk. At this time, the auditor would consider whether: a) it would be efficient to obtain an understanding of the entity's accounting system. b) the entity's controls have been placed in operation. c) the entity's controls pertain to any financial statement assertions. d) additional audit evidence sufficient to support a further reduction is likely to be available.
D
An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods: a) can more easily convert the sample into a dual-purpose test useful for substantive testing. b) eliminate the need to use judgment in determining appropriate sample sizes. c) afford greater assurance than a nonstatistical sample of equal size. d) provide an objective basis for quantitatively evaluating sample risk.
D
An auditor is performing substantive tests of pricing and extensions of perpetual inventory balances consisting of a large number of items. Past experience indicated numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate? a) Unstratified mean-per-unit b) Probability-proportional-to-size c) Stop-or-go d) Ratio estimation
D
An auditor is selecting vouchers for testing an entity's internal control activities related to the proper approval of vouchers before checks are prepared. The auditor is matching random numbers with voucher numbers to determine which vouchers to inspect. If a random number matches a voided voucher, that voucher ordinarily would be replaced by another voucher in the random sample if the voided voucher: a) Cannot be located in the voucher file. b) Represents a dollar amount that is material. c) Indicates a deviation from the prescribed activity. d) Has been properly voided.
D
An auditor may decide to increase the risk of incorrect rejection when: a) Increased reliability from the sample is desired. b) Many differences (audit value minus recorded value) are expected. c) Initial sample results do not support the planned level of control risk. d) The cost and effort of selecting additional sample items is low.
D
An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when the: a) sample rate of deviation plus the allowance for sampling risk equals the tolerable rate. b) sample rate of deviation is less than the expected rate of deviation used in planning the sample. c) tolerable rate less the allowance for sampling risk exceeds the sample rate of deviation. d) sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate.
D
As a result of tests of controls, an auditor assesses control risk too high. This incorrect assessment most likely occurred because: a) Control risk based on the auditor's sample is less than the true operating effectiveness of the client's control activity. b) The auditor believes that the control activity relates to the client's assertions when, in fact, it does not. c) The auditor believes that the control activity will reduce the extent of substantive testing when, in fact, it will not. d) Control risk based on the auditor's sample is greater than the true operating effectiveness of the client's control activity.
D
If an auditor of an issuer examines purchase orders obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting: a) a reperformance. b) a confirmation. c) an observation. d) an inspection.
D
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 were: 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
In an integrated audit of a nonissuer, which of the following is the responsibility of an auditor with regard to testing controls at a company with multiple business units? a) Testing controls over only certain specific risks at all business units of the company b) Testing controls over all risks at all business units of the company c) Testing controls over all risks at business units that are material to the company's consolidated financial statements d) Testing controls over specific risks at business units that are material to the company's consolidated financial statements
D
In confirming a client's accounts receivable in prior years, an auditor discovered many differences between recorded account balances and confirmation replies. These differences were resolved and were not misstatements. In defining the sampling unit for the current year's audit, the auditor most likely would choose: a) customers with credit balances. b) small account balances. c) individual overdue balances. d) individual invoices.
D
In evaluating controls over cash disbursements, an auditor most likely would determine that the control risk is lower when the person who signs checks also: a) Reviews the monthly bank reconciliation. b) Returns the checks to accounts payable. c) Is denied access to the supporting documents. d) Is responsible for mailing the checks.
D
In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate? a) Variable b) Stratified c) Ratio d) Attribute
D
One of the responsibilities of the auditor in an audit conducted in accordance with generally accepted auditing standards is to: a) provide analyses, evaluations, assurances, and recommendations to management. b) monitor the performance of the entity's internal control. c) advise management on efficient operation to achieve objectives. d) obtain evidence to support his opinion.
D
The expected population deviation rate of client billing errors is 3%. The auditor has established a tolerable rate of 5%. In the review of client invoices the auditor should use: a) stratified sampling. b) variable sampling. c) discovery sampling. d) attribute sampling.
D
The objective of a dual-purpose test of details of transactions performed as tests of controls is to: a) Monitor the design and use of entity documents such as prenumbered shipping forms. b) Determine whether controls have been placed in operation. c) Detect material misstatements in the account balances of the financial statements. d) Evaluate whether controls operated effectively.
D
The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the: a) allowable risk of tolerable misstatement. b) preliminary estimates of materiality levels. c) efficiency of the audit. d) effectiveness of the audit.
D
The sampling unit in a test of controls pertaining to the existence of payroll transactions ordinarily is: a) A clock card or time ticket. b) An employee W-2 Form. c) An employee personnel record. d) A payroll register entry.
D
What is an auditor's evaluation of a statistical sample for attributes when a test of 50 documents results in three deviations when 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 level of control risk because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate b) Accept the sample results as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate c) Accept the sample results as support for the planned assessed level of control risk because the tolerable rate less the allowance for sampling risk equals the expected population deviation rate d) Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate
D
When planning an engagement to audit the effectiveness of the entity's internal control in an integrated audit of a nonissuer, a practitioner would least likely consider which of the following factors? a) Preliminary judgments about the effectiveness of internal control b) The extent of recent changes in the entity and its operations c) The type of available evidential matter pertaining to the effectiveness of the entity's internal control d) The evaluation of the operating effectiveness of the controls
D
Which of the following presumptions is correct about the reliability of audit evidence? a) Information obtained indirectly from outside sources is the most reliable audit evidence. b) To be reliable, audit evidence should be convincing rather than persuasive. c) Reliability of audit evidence refers to the amount of corroborative evidence obtained. d) Effective internal control provides more assurance about the reliability of audit evidence.
D
Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows? a) Compare the amounts included in the statement of cash flows to similar amounts in the prior year's statement of cash flows b) Reconcile the cutoff bank statements to verify the accuracy of the year-end bank balances c) Vouch all bank transfers for the last week of the year and first week of the subsequent year d) Reconcile the amounts included in the statement of cash flows to the other financial statements' balances and amounts
D
Which of the following procedures would provide the most reliable audit evidence? a) Inquiries of the client's internal audit staff held in private b) Inspection of prenumbered client purchase orders filed in the vouchers payable department c) Analytical procedures performed by the auditor on the entity's trial balance d) Inspection of bank statements obtained directly from the client's financial institution
D
Which of the following procedures would yield the most appropriate evidence? a) A scanning of trial balances b) An inquiry of client personnel c) A comparison of beginning and ending retained earnings d) A recalculation of bad debt expense
D
Which of the following statements concerning audit evidence is correct? a) Appropriate evidence supporting management's assertions should be convincing rather than merely persuasive. b) Effective internal control contributes little to the reliability of the evidence created within the entity. c) The cost of obtaining evidence is an important consideration to an auditor in deciding what evidence should be obtained. d) A client's accounting data cannot by itself be considered sufficient appropriate audit evidence to support the financial statements.
D
Which of the following statements is generally correct about the sample size in statistical sampling when testing internal controls? a) As the population size doubles, the sample size should increase by about 67%. b) The sample size is inversely proportional to the expected error rate. c) There is no relationship between the tolerable error rate and the sample size. d) The population size has little or no effect on the sample size.
D
Which of the following statements is ordinarily correct about the sample size in statistical sampling when testing controls? a) The expected population deviation rate has little effect on determining the sample size. b) As the population size doubles, the sample size should also double. c) As the tolerable deviation rate increases, the sample size should also increase. d) The population size has little effect on the sample size.
D
Which of the following types of evidence would an auditor most likely examine to determine whether internal control activities are operating as designed? a) Confirmations of receivables verifying account balances b) Letters of representation corroborating inventory pricing c) Attorney's responses to the auditor's inquiries d) Client records documenting the use of EDP programs
D
Which of the following would be a consideration in planning an auditor's sample for a test of controls? a) Preliminary judgments about materiality levels b) The auditor's allowable risk of assessing control risk is too high. c) The level of detection for the account d) The auditor's allowable risk of assessing control risk is too low.
D
