Auditing 2.2

Controls applied to specific business activities within an accounting information system to achieve financial reporting objectives are called controls.

automated application

Changes of financial statement numbers and ratios across several years is analysis.

horizontal

The first step in the attributes sampling process is to Blank______. Multiple choice question. determine the sample size define the population identify the objective define the characteristic of interest

identify the objective

To control exposure to sampling risk, the audit team calculates an adjustment to the projected misstatement using differences in confidence factors called the Blank______. Multiple choice question. incremental allowance for sampling risk upper limit on misstatements allowance basic allowance for sampling risk

incremental allowance for sampling risk

Controls that provide the opportunity for entity personnel to correct and resubmit data initially rejected as erroneous are called controls.

input

Which type of controls are designed to provide reasonable assurance that data received for processing by the computer department have been properly authorized and accurately entered or converted for processing? Multiple choice question. Output Processing Input Authorization

input

In an information technology environment, audit teams need to be concerned with ______ errors. Multiple select question. input random processing systematic processing

input systematic processing

For each relevant assertion identified by the auditor, professional standards require auditors to first gain an understanding of the that have been designed to mitigate the risk of material misstatement.

internal controls

Tolerable misstatement has a(n) Blank______ relationship with sample size. Multiple choice question. direct inverse

inverse

b. Based on your calculations in part (a), comment on the relationship between the risk of incorrect acceptance and the upper limit on misstatements.

inverse

Sample size varies ______ with sampling risk. Multiple choice question. inversely directly

inversely

When using monetary unit sampling, an account balance recorded at $25,000 ______ an account balance recorded at $5,000. Multiple choice question. is 5 times less likely to be selected than is 10 times more likely to be selected than has the same chance of being selected as is 10 times less likely to be selected than is 5 times more likely to be selected than

is 5 times more likely to be selected than

In attributes sampling, the characteristic of interest Blank______. Multiple choice question. is based upon the population under consideration is used to determine the appropriate sample size is a deviation condition must be defined first so controls may be identified

is a deviation condition

Monetary unit sampling (MUS) ______. Multiple select question. typically results in larger sample sizes when compared to classical variables sampling is effective in identifying misstatements when overstatement is the primary concern is generally simpler to use than classical variables sampling typically include large dollar value transactions in samples

is effective in identifying misstatements when overstatement is the primary concern is generally simpler to use than classical variables sampling typically include large dollar value transactions in samples

A code of conduct for employees Blank______. Multiple select question. must be supported by the control environment must be elaborate to be effective is more likely to be supported if the Board chairman follows it helps send the right message from the top

is more likely to be supported if the Board chairman follows it helps send the right message from the top must be supported by the control environment

When scoping the IT audit procedures that need to be completed, auditors need to be concerned with Blank______ Multiple choice question. the full range of control activities implemented by management only those control activities deemed important by the IT auditors key control activities being relied on to mitigate the risks of material misstatement

key control activities being relied on to mitigate the risks of material misstatement

Which of the following persons is responsible for controlling access to systems documentation and access to program and data files? Multiple Choice

libranians

True or false: The bank reconciliation is an opportunity for management to monitor the separation of duties between cash receipts and disbursements. True false question.TrueFalse

True

If a control is judged to be more important and would result in a more significant reduction in substantive testing, the tolerable rate of deviation is generally established at Blank______ levels.

lower

The Sarbanes-Oxley Act of 2002 Blank______ an anonymous employee hotline for reporting ethical problems Multiple choice question. requires does not recommend recommends

requires

Fraud rationalizations include Blank______. Multiple select question. "I'll pay the money back." "Nobody will get hurt." "I am in a position to make decisions without review." "A successful image is important."

"Nobody will get hurt." "A successful image is important." "I'll pay the money back."

Assume that an account with a recorded balance of $5,000 has an audited value of $3,000. By using monetary unit sampling, if the sampling interval is $1,500, the projected misstatement would be

$2,000.Because the logical unit (component) selected for examination is larger than the sampling interval ($1,500), the projected misstatement would equal the actual misstatement, or $2,000 ($5,000 − $3,000 = $2,000).

During the year under audit an entity made a total of 12,570 sales to 1,935 customers with a total recorded balance of $3.1 million. The year end accounts receivables balance was $1.9 million. The audit team has determined that the appropriate sample size is 1,190 items. The MUS sampling interval is ______.

$2,605 Reason: $3,100,000 ÷ 1,190 = $2,605

A component of an account balance has a recorded balance of $10,000 and an audited value of $8,000. By using monetary unit sampling, if the sampling interval is $20,000, the projected misstatement would be

$4,000.The projected misstatement would be calculated as follows: [($10,000 − $8,000) ÷ $10,000] × $20,000 = $4,000.

The upper limit on misstatements is the amount that has a Blank______ probability of equaling or exceeding the true amount of misstatement in the population. Multiple choice question. (1 - Risk of incorrect rejection) (1 + Risk of incorrect rejection) (1 + Risk of incorrect acceptance) (1 - Risk of incorrect acceptance)

(1 - Risk of incorrect acceptance)

c. Use the original parameters but now assume that Phillips is willing to increase the acceptable risk of overreliance to 10 percent. Using AICPA sample size tables, determine the new sample size to examine.

58

Jule Phillips is examining the internal control of Cowboy Company and has identified the mathematical verification of sales invoices as an important control and decided to test this control. Based on a discussion with Cowboy's management, Phillips determined that Cowboy Company's employees were required to indicate their compliance with this control by writing their initials in an appropriate place on the invoice copy.Assume that Phillips established an acceptable risk of overreliance of 5 percent, an expected population deviation rate of 3 percent, and a tolerable rate of deviation of 9 percent.Required :a. Using AICPA sample size tables, determine the appropriate sample size.

84

The actual performance of the ADA Blank______ purpose. Multiple choice question. is similar in most respects regardless of will be different depending on the ultimate

will be different depending on the ultimate

Which of the following statements most likely represents a control consideration for an entity that performs its accounting using mobile computing devices?

Unauthorized persons find it easy to access the computer and alter the data files.

Which of the following is NOT an administrative level control? Multiple choice question. Rotation of computer duties Program testing after modification Security checks on personnel Access control software and passwords

Access control software and passwords Reason: This is a technical control.q\

Which of the following control activities would best protect against the preparation of improper or inaccurate cash disbursements?

All signed checks must be reviewed and compared with supporting documentation by the treasurer before mailing.

Embezzlement is a type of fraud that involves

An employee misappropriating an employer's money or property entrusted to the employee's control in the employee's norma

Which of the following would not cause the audit team to select a larger sample of items under a monetary unit sampling application?

An increase in the tolerable misstatement from $30,000 to $60,000.

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

Understating the sales journal.

Audit teams can obtain evidence of the proper functioning of password access control to a accounting information system by

Attempting to sign on to the accounting information system with a false password.

Which of the following statements is correct? Multiple choice question. Audit teams generally do not give major consideration to population size in determining sample size. In determining sample size, population size is only a major consideration for large populations. Population size is always a major consideration when determining the appropriate sample size.

Audit teams generally do not give major consideration to population size in determining sample size.

Which of the following would occur during the planning stage of Audit Data Analytics?

Auditor must determine the nature, timing, and extent of the work that will be completed as part of the ADA.

Which of the following is least indicative of fraudulent activity?

Bank reconciliation has no outstanding checks or deposits older than 15 days.

Which of the following automated application controls would offer reasonable assurance that inventory data were completely and accurately entered?

Batch totals.

c. What would Allister's conclusion be with respect to the fairness of Bird's accounts receivable balance?

Because the upper limit on misstatements ($111,625) is less than the tolerable misstatement ($120,000), Allister would conclude that Bird's accounts receivable are fairly stated.

If the _______ is less than the _______, the audit team would conclude that the account balance is fairly stated.

Upper limit on misstatements; tolerable misstatement.

Carson Allister is performing an MUS application in the audit of Bird Company's accounts receivable. Based on the acceptable level of the risk of incorrect acceptance of 5 percent and a tolerable misstatement of $120,000, Allister has calculated a sample size of 75 items and a sampling interval of $25,000. After examining the sample items, the following misstatements were identified:(Use Exhibit F.A.2) Item Recorded Balance Audited Value 1 $35,000 $28,000 2 10,000 8,000 3 6,000 3,000 a. Calculate the upper limit on misstatements for Bird Company's accounts receivable.

Calculation of tainting percentage:Item 1: Would not calculate a tainting percentage because the logical unit exceeds the sampling interval. Item 2: ($10,000 − $8,000) ÷ $10,000 = 0.20 Item 3: ($6,000 − $3,000) ÷ $6,000 = 0.50 Projected misstatement: ITEM TAINTING X SAMPLING INTERVAL = PROJECT MISSTATEMENT 1 N/A X N/A = 7,000 2 .20 X 25,000 = 5,000 3 .50 X 25,000 =12,500 =24,500 INCREMENTAL ALLOWANCE FOR SAMPLING RISK item projected misstatement x incremental factor -1 = incremental allowance 3. 12,500 x (4.75 - 3 -1) = 9375 2. 5,000 x (6.30 - 4.75 - 1) = 2,750 = 12,125 basic allowance for sampling risk sampling interval x confidence factor 25,000 x 3 = 75,000 projected misstatement 24,500 incremental allowance for sampling risk 12,125 basic allowance for sampling risk 75,000 upper limit on misstatements = 111,625

In preparing for the audit of cash, the auditors perform analytical procedures concerning cash balances. Which of the following would be the best source of information for use in the estimate of cash?

Cash budgets.

A customer intended to order 100 units of product Z96014 but incorrectly ordered product Z96015, which is not an actual product. Which of the following controls most likely would detect this error?

Check digit verification.

When identifying and assessing inherent risk through the use of audit data analytics, what type of analytic would an auditor most likely perform first?

Comparison of sales revenue to prior period and expectations.

Which of the following would reduce the effectiveness of internal control in an accounting information system?

Computer operators have access to operator instructions and detailed program lists.

Allison Everhart, an employee in accounts payable, believes she can run a fictitious invoice through the accounts payable system and collect the money. She knows payments are subject to an audit. Which account would be the best place to hide the fraud?

Consulting service expense.

Audit teams use the test data method to gain certain assurances with respect to

Control procedures contained within the program.

Which of the following steps involved with determining the upper limit on misstatements is ordinarily performed earliest?

Determine the audited value of the item and compare it to the recorded balance.

Which of the following is true with respect to fraud risk factors in an IT environment?

Employees have increased access to information systems and computer resources in an IT environment.

True or false: All passwords should be at least six characters long to make hacking by computer-generated algorithms difficult. True false question.TrueFalse

False

Tony LaRussa, an audit manager, considered the control risk assessments listed in the left column of the following table in evaluating A. Cardinal's internal control over sales transactions. The sample sizes for the substantive procedures of the customer accounts receivable are shown to the right of each control risk. What risk of overreliance (ROO) could be assigned for tests of controls at each control risk level? Accounts Receivable Control Risk Sample ROO 0.20 400 ? 0.50 390 ? 0.80 350 ? 0.90 190 10%

From top to bottom: 1 percent, 5 percent, 10 percent.

The client's computerized exception reporting system helps audit teams conduct a more efficient audit because it

Highlights abnormal conditions.

raud risk factors are events or conditions that indicate I. An incentive or pressure to perpetrate fraud. II. An opportunity to carry out the fraud. III. An attitude or rationalization that justifies the fraudulent action. Which of the following statements is true?

I, II, and III are fraud risk factors.

Select the proper order in performing Audit Data Analytics: Evaluate the results and conclude on whether the purpose and specific objectives of performing the ADA have been achieved Consider the relevance and reliability of the data used Plan the ADA Perform the ADA Access and prepare the data for purposes of the ADA

III, V, II, IV, I

Which of the following statements is not true with respect to the calculation of the upper limit on misstatements?

If no misstatements are detected, the basic allowance for sampling risk equals zero.

Important considerations that needs to be made by the auditor regarding the data being considered to be used are Blank______. Multiple select question. the internal controls over the preparation of the data whether it is the most relevant data available the reliability of the data source whether the client properly formatted the data before providing it

Important considerations that needs to be made by the auditor regarding the data being considered to be used are Blank______. Multiple select question. the internal controls over the preparation of the data whether it is the most relevant data available the reliability of the data source whether the client properly formatted the data before providing it

b. . Fill in the appropriate blanks to provide a brief description of the meaning of the upper limit on misstatements calculated in part (a).

In this instance, a 95 percent probability (1 minus the risk of incorrect acceptance of 5 percent) that the true amount of misstatement in the account balance is less than or equal to $111,625 exists. Conversely, a 5 percent probability (risk of incorrect acceptance) that the true amount of misstatement in the account balance is more than $111,625 exists.

If the sample evidence does not support the planned level of control risk, the audit team could

Increase the assessed level of control risk. Perform additional substantive procedures, reducing the necessary level of detection risk. Expand the sample to achieve an observed upper limit rate of deviation less than the tolerable rate of deviation.

Which of the following statements regarding a company's fraud prevention program are true? Multiple select question. It is essential that management establish a strong control environment. Controls must be implemented to prevent or detect fraud even if they occasionally impede business activity In an electronic payment environment, lack of controls can lead to costly fraud. Building a good fraud prevention program is a moderately difficult task.

It is essential that management establish a strong control environment. In an electronic payment environment, lack of controls can lead to costly fraud.

The primary benefit of using nonstatistical sampling is that

It is simpler to use.

Common tools used in ADA include ______. Multiple select question. Microsoft Excel Microsoft Word Tableau IDEA

Microsoft Excel Tableau IDEA

Which of the following statements are correct? Multiple select question. Substantive procedures over cash are only performed if control risk is assessed as high. Most audit clients have strong controls over cash. Tests of controls over cash often support a reduction in control risk.

Most audit clients have strong controls over cash. Tests of controls over cash often support a reduction in control risk.

Improper segregation of duties provides Blank______ to commit fraud. Multiple choice question. pressure rationalization incentive opportunity

OPPORTUNITY

In what way can audit procedures be modified to address assessed fraud risks?

Obtain more reliable information. Perform procedures close to year-end. Apply computer-assisted techniques to all items.

If the auditor believes that a misstatement is or might be intentional and the effect on the financial statements could be material or cannot be readily determined, the auditor should do which of the following?

Perform procedures to obtain additional audit evidence to determine whether fraud has occurred or is likely to have occurred.

Which of the following major stages of the audit is most closely related to variables sampling?

Performing substantive procedures.

Which of the following major stages of the audit is most closely related to attributes sampling?

Performing tests of controls.

The projected misstatement is determined by multiplying the sampling interval by the

Tainting percentage.

Which of the following is NOT a computer operations control? Multiple choice question. Programs and software support the entity's financial reporting requirements. Actions are taken to facilitate backup and recovery of data when needed. Processing failures are resolved on a timely basis. Transactions are processed in accordance with the entity's objectives.

Processing failures are resolved on a timely basis. Actions are taken to facilitate backup and recovery of data when needed. Transactions are processed in accordance with the entity's objectives.

True or false: A walkthrough can be used to provide evidence of whether the client's control activities were operating effectively during the period under audit. True false question.TrueFalse

Reason: A walkthrough is too limited in scope to provide such evidence. False

When processing controls within the accounting information system may not leave visible evidence that could be inspected by audit teams, the teams should

Review transactions submitted for processing and compare them to related output.

Analysis of accounts receivable collection periods by region is most likely a part of which of the following types of ADA?

Risk assessment procedures

Which of the following is NOT a main factor influencing the sample size in an attributes sampling application? Multiple choice question. Population size Risk of underreliance Tolerable rate of deviation Expected population deviation rate

Risk of underreliance Reason: The risk of overreliance is a factor.

Which of the following best describes the method of determining the ULRD?

Sample rate of deviation + Allowance for sampling risk.

Which of the following is not a typical problem found by auditors when cleansing client data for the purposes of performing an ADA?

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

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?

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

When auditing with "fraud awareness," auditors should especially notice and follow up employee activities under which of these conditions?

The company always estimates the inventory but never takes a complete physical count.

The interpretation of the ULRD in an attributes sampling application is

The estimated rate of deviation in the population with probability equal to the risk of overreliance that the population deviation rate is higher.

When making a decision about the dollar amount in an account balance based on a sample, the audit team considers the risk of incorrect acceptance to be more serious than the risk of incorrect rejection because

The incorrect acceptance decision impairs the effectiveness of the audit.

Which of the following statements are correct? Multiple select question. The possibility of detection can be an effective fraud deterrent. A control violation may be the audit team's first indication of fraud. Trustworthy employees may be the only internal control some entities need. Fraud cover-up attempts rarely appear in the accounting records.

The possibility of detection can be an effective fraud deterrent. A control violation may be the audit team's first indication of fraud.

For documentation of an ADA to be considered sufficient, all the following should be recorded except?

The process used to produce the data examined.

Which of the following statements is correct about monetary unit sampling?

The risk of incorrect acceptance must be specified.

One of the primary advantages of monetary unit sampling is the fact that

The sample selection automatically achieves high-dollar selection and stratification.

d. Provide an explanation for the change in sample size noted in part (c).

The team changed their risk of overreliance. The team changed their audit risk exposure to a greater level, which meant reducing the amount of the sample size. the right answer: Because the acceptable risk of overreliance has increased, Phillips's sample does not need to be as effective as when acceptable risk of overreliance is lower (the original level of 5 percent). As a result, she can examine a smaller sample.

When evaluating the results of an MUS application, the audit team should compare the upper limit on misstatements to the

Tolerable misstatement.

Which of the following components is not used in determining the upper limit on misstatements? Multiple Choice

Tolerable misstatement.

Which of the following factors used to determine sample size is normally based on the extent to which the audit team expects to rely on the internal control being examined?

Tolerable rate of deviation.

Using AICPA sample evaluation tables, determine the conclusion from a statistical sample of internal controls when a sample of 125 documents indicates five deviations if the tolerable rate of deviation is 5 percent, the expected population deviation rate is 2 percent, and the allowance for sampling risk is 3 percent.

Use the evidence to assess a higher control risk than planned because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

the primary document used to test the cash balance in the financial statements is the company's

`bank reconciliations

Jordan Thomas is using MUS to examine a client's accounts receivable balance. Using a sample size of 100 items and a sampling interval of $12,300, Thomas identified the following misstatements:(Use Exhibit F.A.2) Item Recorded Balance Audited Value 1 $15,000 $12,500 2 10,000 4,000 3 3,000 2,000 a. Calculate the upper limit on misstatements assuming a risk of incorrect acceptance of (1) 5 percent and (2) 10 percent. (Do not round intermediate calculations.)

a. Calculation of tainting percentage:Item 1: Would not calculate a tainting percentage because the logical unit exceeds the sampling interval. Item 2: ($10,000 − $4,000) ÷ $10,000 = 0.60 Item 3: ($3,000 − $2,000) ÷ $3,000 = 0.3333 1. Risk of incorrect acceptance = 5 percent Projected misstatement: Item Tainting % ×Sampling Interval =Projected Misstatement 1. N/A×N/A=$2,500 2 0.6000×$12,300= 7,380 3. 0.3333×$12,300= 4,100 $ =13,980 Incremental allowance for sampling risk: Item Projected Misstatement× Incremental Factor minus 1= Incremental Allowance 2 $7,380×(4.75 − 3.00 − 1)=$5,535 3 4,100×(6.30 − 4.75 − 1)= 2,255 = $7,790 Basic allowance for sampling risk: Sampling interval × Confidence factor $12,300 × 3.00 = $36,900 2. Risk of incorrect acceptance = 10 percent Projected misstatement: Item Tainting % ×Sampling Interval =Projected Misstatement 1. N/A×N/A=$2,500 2. 0.6000×$12,300= 7,380 3 0.3333×$12,300= 4,100 =$13,980 Incremental allowance for sampling risk: Item Projected Misstatement ×Incremental Factor minus 1=Incremental Allowance 2. $7,380×(3.89 − 2.31 − 1)=$4,281 3. 4,100×(5.33 − 3.89 − 1)= 1,804 = $6,085 Basic allowance for sampling risk: Sampling interval × Confidence factor $12,300 × 2.31 = $28,413 Prev

The recorded accounts receivable balance for Warner Company was $500,000. (RIA = risk of incorrect acceptance, TM = tolerable misstatement, EM = expected misstatement). Required: For each of the following independent sets of conditions, determine the appropriate sample size for the examination of Warner's accounts receivable in MUS. (Use Exhibit F.A.1) a. 5, 50,000 10,000 b.5, 50,0000 25,000 c.10, 50,0000 10,000 d. 10 50,000 25,000

a. 47 b. 116 c. 35 d. 80 the following calculations use the MUS sample size table in Exhibit F.A.1: Ratio of expected to tolerable misstatement = Expected Misstatement ÷ Tolerable Misstatement Scenarios (a) and (c): $10,000 ÷ $50,000 = 0.20 Scenarios (b) and (d): $25,000 ÷ $50,000 = 0.50 Tolerable misstatement as a percentage of population = Tolerable Misstatement ÷ Population All scenarios: $50,000 ÷ $500,000 = 0.10 Scenario RIA EM ÷ TM TM ÷ Population Sample size a.0.05 0.20 0.10 47 b.0.05 0.50 0.10 116 c.0.10 0.20 0.10 35 d.0.10 0.50 0.10 80

Review each of the following independent sets of conditions. Required:Use the AICPA sample size tables to identify the appropriate sample size for use in a statistical sampling application (ROO = risk of overreliance, EPDR = expected population deviation rate, TRD = tolerable rate of deviation). a. ROO 5% epdr = 0% trd =7% b. ROO 5 % epdr =3% trd=7% c. roo 5% epdr 3% trd =6% d. roo 10% epdr =0% trd =7%

a.42 b. 129 c.195 d.32

Experts have two definitions related to computer chicanery: computer and computer .

abuse, fraud

The two types of sampling risk for variables sampling application are risk of incorrect and risk of incorrect . (Enter only one word per blank.)

acceptance, rejection

Fraud audit questioning Blank______. Multiple select question. addresses fraud possibilities in a direct manner should be done with or without the support of management allows employees to furnish information about possible misdeeds

addresses fraud possibilities in a direct manner allows employees to furnish information about possible misdeeds

Individuals employed by the entity and limitations or limits on the nature and scope of activities they perform are the focus of level controls.

administrative

A qualitative evaluation of deviations should: Multiple choice question. only be conducted when intentional errors are expected. always be conducted. only be conducted when there are implications regarding the effectiveness of other controls.

always be conducted.

Substantive procedures over cash will Blank______. Multiple choice question. always be performed only be performed if inherent risk is high only be performed if control risk cannot be reduced

always be performed

At the end of each day a copy of the check listing, a report of payments recorded in accountants receivable and a copy of the bank deposit slip should be received by Blank______. Multiple choice question. the accountant who records cash receipts an independent employee an internal auditor the cashier

an independent employee

t is usually best to have an anonymous employee hotline responded to by Blank______. Multiple choice question. the board of directors an outside third-party agency the entity's external auditors the entity's internal auditorsan outside third-party agency

an outside third-party agency

Automated application controls Blank______. Multiple select question. refer to activities designed to ensure proper recording and prevent or detect errors and frauds are subject to extensive testing and not relied on heavily by the audit team are specific to each cycle are organized under three categories

are specific to each cycle refer to activities designed to ensure proper recording and prevent or detect errors and frauds refer to activities designed to ensure proper recording and are organized under three categories

A typical white collar criminal has Blank______. Multiple select question. no arrest record attended college been with the company over 10 years some type of religious affiliation

attended college some type of religious affiliation no arrest record

Performing tests of controls to determine the operating effectiveness of internal control and assess control risk is done using sampling.

attributes

To determine the extent to which some characteristic exists within a population of interest, auditors use Blank______ sampling. Multiple choice question. both attribute and variable attributes variable

attributes

To determine the extent to which some characteristic exists within a population of interest, auditors use

attributes sampling

The risk that a material misstatement occurs, is not prevented or detected by the client's internal controls, and is not detected by the audit team's substantive procedures is the definition of risk.

audit

"The science and art of discovering and analyzing patterns, identifying anomalies, and extracting other useful information in data underlying or related to the subject matter of an audit through analysis, modeling, and visualization for the purpose of planning or performing the audit" is the definition of Blank______. Multiple choice question. artificial intelligence Big Data analysis audit data analytics robotic processes

audit data analytics

Detection risk is set based on the level of and risk of material misstatement. (

audit risk

When a material misstatement is not prevented or detected by the client's internal controls or auditors' substantive procedures, has been manifested.

audit risk

In an IT environment, a chain of evidence and documentation known as a(n) does not exist.

audit trail

In variables sampling, the auditors want to determine the amount at which an item should be recorded, which is often referred to as the .

audited value

Which of the following is NOT a category of general controls? Multiple choice question. Program change Computer operations Access to programs and data Program development Automated application

automated application

Which of the following factors has a direct relationship with sample size in an attributes sampling application? Tolerable Rate of Deviation Expected Population Deviation Rate a.Yes Yes b.No Yes c.Yes No d.No No

b

A statistical measure of the misstatement that could be included in sampling intervals in which the audit team did not detect a misstatement is called the ______. Multiple choice question. incremental allowance for sampling risk basic allowance for sampling risk upper limit on misstatements allowance

basic allowance for sampling risk

Sampling interval × Confidence factor = Blank______. Multiple choice question. upper limit on misstatements allowance incremental allowance for sampling risk basic allowance for sampling risk

basic allowance for sampling risk

Cash should Blank______. Multiple select question. be counted in front of a client's employee be counted with the auditor's pockets empty never be counted more than one a day all be counted at the same time

be counted in front of a client's employee be counted with the auditor's pockets empty all be counted at the same time

f a client maintains a significant amount of cash on hand, a second cash count should Blank______. Multiple choice question. be done of a different day not be done be done on the same day

be done on the same day

An entity's auditors, accountants and security personnel must be acquainted with the basics of fraud awareness Blank______. Multiple choice question. because not all fraud schemes can be thwarted or detected to ensure all fraud schemes are stopped before they occur

because not all fraud schemes can be thwarted or detected

Auditors may choose to use heat map visualization to prioritize the ideas generated during the required session that must be held for each audit to identify fraud risk factors that may exist.

brainstorming

Giving managers and employees the freedom to do business, Blank______, Multiple choice question. can mean giving them freedom that enables committing fraud reduces the opportunity for them to commit fraud has been shown to have no effect on the commission of frauds

can mean giving them freedom that enables committing fraud

In many situations an employee initially receives cash and thus has custody. Because this cannot be avoided, good control dictates that Blank______. Multiple select question. remittance advices should be sent to the controller's office for recording cash should be deposited daily and intact someone from the treasurer's office should open the mail

cash should be deposited daily and intact remittance advices should be sent to the controller's office for recording

The deliberate floating on funds between two or more bank accounts in order to make it appear that more cash is present than is really the case is called

check kiting

Fraudster behaviors often include Blank______. Multiple select question. inability to relax frequent vacations working standing up defensiveness

working standing up defensiveness inability to relax

frequent deposits and checks in rounded and the same amounts, short time lags between deposits and withdrawals, and a low average balance compared to high levels of deposits, are all characteristic signs of a(n) scheme

check-kiting

Which of the following represents the appropriate relationship between the factor and sample size using MUS? Tolerable Misstatement Population Size Choice aDirect Direct Choice bDirect Inverse Choice cInverse Direct Choice dInverse Inverse

choice c

All of the following procedures are common uses of audit data analytics in risk assessment procedures except:

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

When planning the ADA, the reliability of the client's information system is taken into account to help reach a conclusion about the objectives of and .

completeness accuracy

"The science of acquiring, preserving, retrieving, and presenting data that has been processed electronically and stored on computer media" is the FBI definition of .

computer forensics

Impeaching a president, terrorist tracking and child pornographer prosecution have all been helped by .

computer forensics

Providing reasonable assurance that processing failures do not affect or delay the processing of other transactions is one objective of controls.

computer operation

To control exposure to sampling risk, the audit team calculates the incremental allowance for sampling risk using factors.

confidence

In this new world of audit data analytics, it is important to Blank______. Multiple choice question. avoid the use of social media rely only on data sources that are internal to the client rely only on data sources that are external to the client consider the usefulness of the data

consider the usefulness of the data

The test of details risk is determined using the audit risk model and by considering inherent risk, risk and risk.

control, analytical procedure

Auditors observe activities while not being seen when performing

covert surveillance

Having a casino auditor gamble so cash-handling procedures may be observed is an example of Blank______. Multiple choice question. covert surveillance document examination fraud audit questioning expenditure analysist

covert surveillance

in determining whether an audit team can rely on IT controls, auditors must determine the scope of the IT testing plan completed by carefully identifying each of the IT

dependency

Recalculations of depreciation expense using the entire database and exact purchase dates to improve the precision of testing is an example of a test of .

detail

Frauds that get past prevention controls should be discovered by controls.

detection

The first step of planning an ADA is:

determine the overall purpose and specific objectives of the ADA.

The major phases that need to be completed in order to determine whether an audit team can rely on IT controls are Blank______ Multiple select question. testing the IT controls understanding the IT controls and processes that need to be tested discussing the IT controls with the manager in charge determining the scope of the IT testing plan by identifying each IT dependency

determining the scope of the IT testing plan by identifying each IT understanding the IT controls and processes that need to be tested testing the IT controls

In attributes sampling, the characteristic of interest is a(n) condition.

deviation

Auditors must gain an understanding of internal controls that are in place to mitigate assessed fraud risk and, at a minimum,Blank______. Multiple choice question. present the understanding in a report to the Board of Directors or audit committee document that understanding in the workpapers include a paragraph documenting the understanding in the audit report

document that understanding in the workpapers

Fraudster behaviors often include Blank______. Multiple select question. sleeping too much drinking too much working late irritability

drinking too much working late irritability

The most common motivation in business frauds is Blank______. Multiple choice question. stealing for the sake of stealing desire for personal prestige economic benefits the feeling of moral superiorityeconomic benefits

economic benefits

Misappropriation of assets is another term for

employee fraud

Audit professionals generally categorize level controls as either general controls or application controls.

entity

Within a client's IT environment, there are essential, general IT controls that apply to all applications that are called level controls.

entity

When completing an ADA, audit documentation is Blank______ documentation for other audit procedures. Multiple choice question. equally as important as less important than even more important than

equally as important as

When computerized processing is used Blank______. Multiple choice question. errors will result in all similar transactions being processed incorrectly transaction errors are virtually eliminated the auditor needs to be able to test for the occurrence of random errors

errors will result in all similar transactions being processed incorrectly

The assessment process that needs to be undertaken for IT controls is Blank______ the assessment process that needs to be taken for manual controls. Multiple choice question. vastly different than identical in all respects to essentially the same as

essentially the same as

One way to test all items in a population of occurrences for a particular control activity is to use testing, which is now possible due to the emergence of ADA.

exception

When fully considering any unusual circumstances that might be revealed as a result of the ADA, it is important that the auditor Blank______. Multiple choice question. retests the data reevaluates internal control exercises skepticism

exercises skepticism

The anticipated amount of misstatement in an account balance of class of transactions is referred to as the misstatement.

expected

The anticipated amount of misstatement in an account balance of class of transactions is referred to as the misstatement. Need help? Review these concept resources.

expected

Prior experience with the client is ordinarily the basis for the audit team's estimate of misstatement.

expected misstatement

Auditors usually suspect some level of deviation in the client's internal control activities which is referred to as the deviation rate.

expected population

True or false: When doing a WCGW analysis, the question the auditor should ask is, "Has the client designed and implemented a control that, if operating perfectly, would mitigate the identified risk of material misstatement?" True false question.TrueFalse

false

When an ADA identifies an item that may not represent a transaction with a higher level of risk of material misstatement is is sometimes called a(n) .

false positive

Employees are provided an opportunity to furnish information about possible misdeeds when questioning is used.

fraud audit questioning

Incentive/pressure, opportunity and attitude/rationalization are the conditions that make up the

fraud triangle

Controls that apply to all applications of an accounting information system are called controls.

general

A typical white collar criminal is Blank______. Multiple select question.

generally acting alone socially conforming

One way to prioritize the ideas generated during the brainstorming session is with a(n) visualization.

heat map

Because of the nature of cash, auditors Blank______ need to expand substantive audit procedures to ensure the cash balance is not materially misstated and to identify possible fraudulent activities. Multiple choice question. may always never

may Reason: This is true if the internal control activities are not operating effectively.

When an auditor performs an ADA and the objectives of the test were not achieved the auditor ______. Multiple choice question. should always run a different ADA may abandon ADA and conduct a substantive test of detail should also repeat the same ADA to test the validity of the results

may abandon ADA and conduct a substantive test of detail

Probability proportional to size selection is used with ______. Multiple choice question. classical variables sampling only both monetary unit and classical variables sampling monetary unit sampling only

monetary unit sampling only

Probability proportional to size selection is used with ______. Multiple choice question. monetary unit sampling only classical variables sampling only both monetary unit and classical variables sampling

monetary unit sampling only

n the fraud context, the reason for a person to take a fraudulent action that is believed to be unsharable with other is a(n)

motive

In situations where unusual items have been identified, the auditor Blank______ identified as unusual. Multiple choice question. must also address the risk of material misstatement for items not only needs to address the risk of material misstatement for the items

must also address the risk of material misstatement for items not

The accountants who record cash receipts and credits to customer accounts should Blank______. Multiple choice question. make the bank deposit never handle the cash make both the control account and subsidiary account entries endorse the checks

never handle the cash

The risk that the audit team's sample provides an incorrect conclusion for reasons other than the representativeness of the sample, is known as risk.

nonsampling

When the audit team makes an unintentional error in evaluating evidence, risk has occurred.

nonsampling

The first step in the attributes sampling process is to determine the of attributes sampling.

objective

Control activities often take away the Blank______ for a fraudster to commit a fraud. Multiple choice question. rationalization opportunity motivation

opportunity

failure to count inventory on a regular basis provides Blank______ to commit fraud. Multiple choice question. pressure incentive opportunity rationalization

opportunity

incentive/pressure, attitude/rationalization and are the conditions that make up the fraud triangle.

opportunity

Reasonable assurance that only authorized persons have access to files produced by the system is one concern of controls.

output

Which type of controls are concerned with detecting rather than preventing errors? Multiple choice question. Input Processing Reasonableness Output

output

When determining sample size, auditors consider the risk of Blank______. Multiple choice question. underreliance only overreliance only both overreliance and underreliance

overreliance only

There are two types of sampling risks for attributes sampling applications: the risk of and the risk of .

overreliance, underreliance

The most common form of control related to access is the use of .

passwords

When defining the population, the audit team also needs to determine the of the population.

physical representation

Audit considerations in an IT environment include ______. Multiple select question. possibility of inappropriate access to computer files and programs lack of an audit trail possibility of input errors increased human involvement in the processing of transactions existence of random processing errors

possibility of input errors lack of an audit trail possibility of inappropriate access to computer files and programs

When evaluating tests of controls within an IT environment, auditors need to consider the Blank______. Multiple select question. possibility of temporary transactions trails potential for errors and frauds possible occurrence of random errors potential for increased management supervision

possibility of temporary transactions trails potential for errors and frauds potential for increased management supervision

In order for auditors to be able to achieve a high level of substantive comfort when designing a test, auditors need to think carefully about Blank______ when finalizing the audit plan. Multiple choice question. reliability understandability relevance predictability

predictability

When an auditor chooses among different ways to use ADA to conduct substantive analytical procedures, the professional standards state that more relationships among the data allow the auditor to take much more substantive comfort from the test.

predictable

Errors and frauds are kept from entering the system by controls.

prevention

To help ensure that data received is complete and accurate, the reliability of accounting systems and information technology controls must be tested Blank______ using data from a client system. Multiple choice question.

prior to

unless there is proof in the workpapers that auditors have considered disconfirming evidence, it is possible or likely that inspection teams from the PCAOB would have questions about whether was properly exercised when completing the ADA.

professional skepticism

The objectives of controls parallel are to provide reasonable assurances regarding modifications to existing programs.

program change

An important general control is the separation of duties performed by system analysts, and .

programmers, computer operators

An assumption of the misstatement is that the entire sampling interval contains the same percentage of misstatement as the item examined by the auditor.

projected

A method to discover unrecorded transactions is a four-column bank reconciliation which is called a(n) of . (Enter only one word per blank.)

proof of cash

Clients ______. Multiple choice question. should always provide data in a spreadsheet or pdf format provide data in a variety of file formats should provide data in whatever format the auditor requests

provide data in a variety of file formats

A client's accounts receivable consists of 200,000 accounts. The auditor has concluded that all but 75 of the accounts have an extremely low likelihood of being misstated. As a result, the auditor decides to perform a positive confirmation procedure with those 75 accounts. In regards to the other 199,275 accounts, the professional standards currently ______.

provide no guidance in determining the level of evidence this confirmation procedure will provide

Regardless of the results of the attributes sampling application, the audit team should conduct a(n) evaluation of deviations to determine their nature and cause.

qualitative

When the audit team identifies a series of random numbers equal to the desired sample size and selects the numbered items in the corresponding population, Blank______ selection is being used to select the sample. Multiple choice question. haphazard block systematic random

random

An attitude that says "I am underpaid and due additional compensation" is an example of fraud . (Enter only one word per blank.)

rationalization

It is suggested that there will be some expected population deviation rate under the concept of .

reasonable assurance

A proof of cash Blank______. Multiple select question. is a common audit procedure to verify cash balances is used to discover unrecorded cash transactions reconciles the bank balance, bank reports of cash deposited and paid general ledger entries is an effective procedure to verify cash transactions

reconciles the bank balance, bank reports of cash deposited and paid general ledger entries is an effective procedure to verify cash transactions is used to discover unrecorded cash transactions

In a MUS application, the characteristic of interest is the difference between the audited value and the: Multiple choice question. estimated value. true balance. recorded value. amount of misstatement.

recorded value. Reason: Correct. The characteristic of interest is the difference between the audited value and the recorded value.

When the upper limit rate of deviation is higher than the tolerable rate of deviation, the audit team Blank______. Multiple choice question. reduces reliance on internal control and increases control risk increases reliance on internal control and decreases control risk relies on internal controls as planned and maintains control risk at planned levels

reduces reliance on internal control and increases control risk

When the upper limit rate of deviation is less than or equal to the tolerable rate of deviation, the audit team Blank______. Multiple choice question. relies on internal controls as planned and maintains control risk at planned levels increases reliance on internal control and decreases control risk reduces reliance on internal control and increases control risk

relies on internal controls as planned and maintains control risk at planned levels

There are a wide variety of additional tools that auditors have available today such as IDEA, ACL, and Tableau. Microsoft Excel ______. Multiple choice question.

remains a mainstay in the audit profession

Key issues in accessing client data are that it ______. Multiple select question. can be imported into the auditor's tool in a complete and accurate format has been properly formatted and cleansed by the client before import remains secure and maintains its integrity at all times

remains secure and maintains its integrity at all times can be imported into the auditor's tool in a complete and accurate format

Emergency change requests and the migration of new programs into operations, Blank______. Multiple select question. require appropriate documentation should occur within the SDLC process should be migrated by appropriate individuals should be subject to standard approval procedures after they are made

require appropriate documentation should be subject to standard approval procedures after they are made should be migrated by appropriate individuals

Dividing the number of deviations noted in the sample by the sample size is the calculation of the Blank______ rate of deviation. Multiple choice question. tolerable upper limit sample expected population

sample

Monetary unit sampling (MUS) ______. Multiple select question. samples are difficult to expand when preliminary results indicate a material misstatement requires special consideration for units having a zero or negative balance provides a higher estimate of misstatement as compared to classical variables sampling is effective in identifying misstatements when understatement is the primary conc

samples are difficult to expand when preliminary results indicate a material misstatement requires special consideration for units having a zero or negative balance provides a higher estimate of misstatement as compared to classical variables sampling

To select an MUS sample, the audit teams divides the population size by the sample size to calculate the

sampling interval

The likelihood that the decision made based on the sample differs from the decision that would have been made if the entire population had been examined is .

sampling risk

The main factors that influence the sample size in an MUS application are ______. Multiple select question. expected misstatement population size tests of details risk sampling risk tolerable misstatement projected misstatement

sampling risk tolerable misstatement expected misstatement population size

According to the AICPA Audit Guide to Audit Data Analytics, there are five steps that need to be conducted when completing ADA. The Plan the ADA step includes ______. Multiple select question. selecting techniques and tools to be used determining if more relevant data is available identifying significant accounts and assertions identifying the purpose and objectives

selecting techniques and tools to be used identifying significant accounts and assertions identifying the purpose and objectives

The physical representation of the population is the frame of reference the audit team uses in Blank______. Multiple choice question. selecting the sample determining the appropriate sample size setting the characteristic of interest determining the objective

selecting the sample

Audit documentation for an ADA ______. Multiple select question. should include the specific objectives of the procedure must include an evaluation of matters identified from applying the ADA does not have to include the tools and techniques used to complete the ADA should include a description of the source of the data

should include the specific objectives of the procedure must include an evaluation of matters identified from applying the ADA should include a description of the source of the data

When determining sample size under monetary unit sampling, an audit team does not need to make a judgment or estimate of

standard deviation

If the internal control activities over cash are not operating effectively, auditors may need to expand Blank______. Multiple choice question. tests of control walkthroughs of transactions substantive audit procedures

substantive audit procedures

When gathering evidence using ADA, the auditor must make sure that the evidence is given the facts and circumstances of the situation.

sufficient

When the audit team identifies a random starting point in the population and then bypasses a fixed number of items until the appropriate number of items have been selected, Blank______ selection is being used to select the sample. Multiple choice question. systematic block random haphazard

systematic

When using MUS, the audit team normally selects sampling items using a(n) ______ selection method. Multiple choice question. block haphazard unrestricted random systematic random

systematic random

When using MUS, the audit team normally selects sampling items using a(n) selection method.

systematic random

(Recorded balance - audited value) ÷ Recorded balance is the calculation of the percentage.

tainting

The percentage by which the transaction is misstated is called the percentage.

tainting

According to the AICPA Audit Guide, can be thought of in terms of the variations in which an ADA might be deployed in an audit.

techniques

ADA has a major impact on transaction level control testing by enabling the auditor to more easily Blank______. Multiple choice question. test the entire population select an appropriate sample

test the entire population

One important difference in assessing control risk in an IT environment is in identifying Blank______. Multiple choice question. whether the design of control procedures suggest a low control risk the points in the flow of transactions where misstatements could occur specific control procedures designed to prevent or detect misstatements the types of misstatements that can occur in significant accounting applications

the points in the flow of transactions where misstatements could occur

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:

the software used in performing the ADA.

The maximum rate of deviations permissible by the audit team without modifying the planned assessed level of control risk is the rate of deviation.

tolerable

The maximum amount an account balance or class of transactions can be misstated without the audit team's requiring an adjustment to prevent a qualified or adverse opinion is the level of

tolerable misstatement

If the _____ exceeds the _____, the audit team would decide to rely on internal control as planned and maintain control risk at planned levels.

tolerable rate of deviation; ULRD.

Factors that influence the sample size in an MUS application include both misstatement and misstatement. (Enter only one word per blank.)Factors that influence the sample size in an MUS application include both misstatement and misstatement. (Enter only one word per blank.)

tolerable, expected

True or false: The key in performing an ADA is to think critically about the design and execution and then consider additional procedures for items that warrant further attention. True false question.TrueFalse

true

True or false: Unless the population is very small, population size is not a major consideration in determining the sample size. True false question.TrueFalse

true

True or false: When the recorded balance is higher than the sampling interval, there is no need to project the misstatement to the sampling interval. True false question.TrueFalse

true

The amount at which an account should be recorded if no misstatements exist is referred to as the .

true balance

In many situations an employee initially receives cash and thus has custody. Because this cannot be avoided, good control dictates that ______. Multiple select question. checks should be endorsed immediately the employees opening the mail should prepare the bank deposit two people should open the mail

two people should open the mail checks should be endorsed immediately

A conservative estimate of the population rate of deviation that allows the audit team to control exposure to sampling risk to acceptable levels is provided by the rate of deviation.

upper limit

A conservative estimate of the population rate of deviation that allows the audit team to control exposure to sampling risk to acceptable levels is the Blank______ rate of deviation. Multiple choice question. upper limit tolerable sample expected population

upper limit

The sum of the projected misstatement, the incremental allowance for sampling risk, and the basic allowance for sampling risk equals the on misstatements.

upper limit

The responsibility for setting the tone at the top rests with Blank______. Multiple choice question. the Board of Directors upper management the audit committee

upper management

Employee fraud Blank______. Multiple select question. usually involves some type of falsification generally includes a cover-up is also called misappropriation of assets is easiest to catch in the conversion stage

usually involves some type of falsification generally includes a cover-up is also called misappropriation of assets

Performing substantive tests of details to provide the necessary level of detection risk and evaluate the fairness of an account balance or class of transactions is done using sampling.

variables

When the audit team wants to estimate the "true" balance or the misstatement of a particular account or class of transactions, sampling is used.

variables

Financial statement amounts expressed each year as a proportion to a base such as sales or total assets is analysis.

vertical

The auditor selects examples of a transaction and traces them from initial receipt to the recording in the accounting records when performing a(n) .

walkthrough

The identification of IT applications and systems typically occurs during the of each financial reporting process.

walkthrough