Audit Module 4, Audit Module 5

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

Risk assessment procedures

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

determine the overall purpose and specific objectives of the ADA.

Which of the following types of populations would be most suited to the use of monetary unit sampling (MUS)? Multiple Choice A client's accounts receivable balance is comprised of individual customer accounts ranging from $2,000 to $8,000 that contain numerous misstatements. A client's accounts receivable balance is comprised of individual customer accounts ranging from $1,000 to $10,000,000 that contain few misstatements. Sales invoices on which client personnel are required to provide an indication that quantities were verified. Applications of an important control policy that has a relatively low rate of expected deviations, each of which could result in a significant financial statement misstatement.

A client's accounts receivable balance is comprised of individual customer accounts ranging from $1,000 to $10,000,000 that contain few misstatements.

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

All of the above illustrate differing levels of aggregation

Which of the following is not a difference that is introduced when an entity uses the computer in processing its transactions? Multiple Choice Audit teams must consider the existence and operating effectiveness of automated controls in their assessment of control risk. Audit teams are not required to obtain an overall understanding of the entity's internal control in a computerized processing environment. Audit teams can limit their tests of controls because random errors do not exist in a computerized processing environment. Audit teams are not permitted to use inquiry and observation as a method of testing general controls in a computerized processing environment.

Audit teams are not required to obtain an overall understanding of the entity's internal control in a computerized processing environment.

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

Based on the desired level of control risk.

How does the auditor establish tolerable misstatement in a variables sampling application? Multiple Choice Based on prior assessments of audit risk, risk of material misstatement, and analytical procedures risk. Based on the recorded amount of the account balance as well as the relationship of the account balance with important financial statement subtotals. Based on findings in prior years' audits or based on a small sample taken during the current year. Based on the anticipated cost of conducting additional substantive testing procedures.

Based on the recorded amount of the account balance as well as the relationship of the account balance with important financial statement subtotals.

Which of the following input controls is primarily related to ensuring that all transactions are input and transactions are not input more than once? Multiple Choice Limits and reasonableness tests. Check digits. Batch totals. Valid character tests.

Batch totals.

Which of the following is a correct statement with regard to the job responsibilities of individuals in an automated information processing environment? Multiple Choice Systems analysts prepare flowcharts and code the logic of the computer program. Programmers prepare data for input by converting them from manual format into machine-readable format. The control group maintains control over data files and programs used in processing transactions. Computer operators oversee the operation of the computer for each accounting application system.

Computer operators oversee the operation of the computer for each accounting application system.

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

I, II, III, and V

Which of the following is not a difference in the application of monetary unit sampling (MUS) and classical variables sampling? Multiple Choice MUS methods are more likely than classical variables sampling methods to select transactions or components reflecting relatively large dollar amounts. MUS does not explicitly consider the risk of incorrect rejection in calculating sample size, while classical variables sampling methods do consider this risk. MUS provides an estimate of the amount of misstatement in an account balance or class of transactions, while classical variables sampling provides an estimate of the recorded account balance. Classical variables sampling considers the standard deviation in determining sample size and evaluating sample results, while MUS methods do not consider the standard deviation.

MUS provides an estimate of the amount of misstatement in an account balance or class of transactions, while classical variables sampling provides an estimate of the recorded account balance.

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

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

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

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

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

the software used in performing the ADA.

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

58

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

All of the choices statements are true.

Which of the following would not result in a reduction in the risk of incorrect acceptance? Multiple Choice An increase in the desired level of audit risk from 3% to 5%. The inability of the auditor to rely on the internal control as planned. An increase in the susceptibility of the account balance to misstatement. An inability to appropriately use analytical procedures in the audit examination.

An increase in the desired level of audit risk from 3% to 5%.

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

Analyzing cash receipts as a percentage of sales by month

Which of the following steps would ordinarily be done earliest in a monetary unit sampling application? Multiple Choice Project identified misstatements to the sampling interval from which they were selected. Calculate the incremental allowance for sampling risk. Determine the upper limit on misstatements. Calculate the tainting percentage.

Calculate the tainting percentage.

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

Classify the missing item as a deviation.

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

Discovery sampling

In which of the following situations would the use of variables sampling be least appropriate? Multiple Choice Confirming accounts receivable with the client's customers. Observing inventory items to determine if recorded quantities are correct. Examining purchase orders for evidence of proper approval. Selecting items of property, plant and equipment for physical inspection.

Examining purchase orders for evidence of proper approval.

Which of the following factors is most likely established based on the results of prior years' audit examinations? Multiple Choice Expected misstatement. Population size. Risk of incorrect acceptance. Tolerable misstatement.

Expected misstatement.

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

Expected population deviation rate.

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

III, V, II, IV, I

Which of the following procedures would not be effective in testing controls restricting access to specific computer programs and files? Multiple Choice Inquiring as to whether programs and files are restricted to authorized personnel. Attempting to access programs and files through the client's computerized system. Identifying whether the distribution of computer output is restricted to authorized personnel. Reviewing the access log and identifying whether access to programs and files has been limited to authorized personnel.

Identifying whether the distribution of computer output is restricted to authorized personnel.

An audit team would use test data to test the effectiveness of Multiple Choice Input controls. Program change controls. Data backup and recovery controls. System development controls.

Input controls.

Which of the following is not true of nonstatistical variables sampling? Multiple Choice It normally results in smaller sample sizes than statistical sampling methods. It does not require random selection methods to be used. An allowance for sampling risk should be added to the projected misstatement before the audit team can determine the balance is acceptable. All of these choices statements are true

It normally results in smaller sample sizes than statistical sampling methods.

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

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

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

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

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

The allowance for sampling risk is 1%.

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

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

Which of the following statements is not true with respect to the risk of incorrect acceptance? Multiple Choice The risk of incorrect acceptance occurs when the audit team's evidence suggests that the account balance is not materially misstated. The risk of incorrect acceptance is normally of greater concern to the audit team than the risk of incorrect rejection. The risk of incorrect acceptance occurs when the client's true (but unknown) account balance is not materially misstated. The risk of incorrect acceptance results in an effectiveness loss to the audit team.

The risk of incorrect acceptance occurs when the client's true (but unknown) account balance is not materially misstated.

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

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

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

The process used to produce the data examined.

Examples of general controls would include all of the following except: Multiple Choice Using effective passwords to prevent unauthorized users access to the accounting information system. The use of the systems development life cycle approach for implementing new programs. The use of check digits when inputting customer information. The use of grandfather-father-son techniques of file reconstruction.

The use of check digits when inputting customer information.

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

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

Input controls provide reasonable assurance that all of the following objectives are achieved, except: Multiple Choice All transactions have been entered. Transactions have been entered once and only once. Transactions have been entered accurately. Transactions have been entered in batches.

Transactions have been entered in batches.

One of the primary problems associated with end user computing is Multiple Choice Unauthorized access to programs and data. Increased cost associated with appropriate separation of duties. Increased risk of unauthorized changes to mainframe data. Inappropriate use of the Internet.

Unauthorized access to programs and data.

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

Upper limit rate of deviation.