Auditing Exam 2
Manually processing selected transactions and comparing results to computer output is called
Auditing Around the Computer (through)
Which of the following is not a problem associated with the use of test data for computer-audit purposes?
Auditing through the computer is more difficult than auditing around the computer.
Which of the following does not meet the definition of an external confirmation in the context of accounts receivable?
Oral responses obtained by the auditor through a telephone call.
Which of the following is least likely to be considered an inherent risk relating to receivables and revenues?
Over-recorded sales due to a lack of control over the sales entry function.
An example of an access control is a:
Password.
The 5th & final steps of the audit process for an audit of cash.
Perform further audit procedures--substantive procedures for cash transactions and balances.
The 4th steps of the audit process for an audit of cash.
Perform further audit procedures--tests of controls.
The effectiveness of controls is not generally tested by:
Performance of analytical procedures.
Which of the following is least likely to be used as an alternate procedure for handling nonreplies to accounts receivable confirmation requests?
Physically examine items sold.
In testing controls over purchases, an auditor most likely would determine that the person who receives inventory
Prepares receiving reports for all good received.
Controls over financial reporting are often classified as preventative, detective, or corrective. Which of the following is an example of a detective control?
Preparing bank reconciliations.
After posting all audit adjustments to the trial balance, input the accounts receivable balances from the trial balance into the balance sheet and income statement tabs. Show that the amounts in the trial balance and financial statements agree by using the appropriate tick marks.
Presentation & Disclosure
what are Aimed at avoiding the occurrence of misstatements in the financial statements, Give an example
Preventative controls - Examples include Segregation of duties
Dual signatures for checks is what type of control
Preventive
Segregation of duties over purchasing is what type of control
Preventive
Supervisory approval of time cards is what type of control
Preventive
Which of the following audit procedures is the most appropriate when internal control over cash is weak or when a client requests an investigation of cash transactions?
Proof of cash.
Define the control process from purchase order to billing department
Purchase Order > Credit Approval > Approved Sales Order > Issues Merchandise > Shipping Department > Billing Department
A client's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record:
Purchases.
What Type of Audit Procedure would you do if The auditing firm's computer-assisted audit specialist obtained an electronic inventory file from the company and checked the accuracy of the extensions and footings.
Recalculation
Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation?
Receive a cutoff bank statement directly from the client's bank.
The use of a "blind" purchase order is designed to prevent errors by the:
Receiving department.
As one step in testing sales transactions, a CPA traces a random sample of sales journal entries to debits in the accounts receivable subsidiary ledger. This test provides evidence as to whether:
Recorded sales have been properly posted to customer accounts.
A control deficiency that is less severe than a material weakness, but important enough to merit attention by those responsible for oversight of the company's financial reporting is referred to as a(n):
Significant deficiency.
To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is:
Stamped "paid" by the check signer.
what is the Classification of Audit Procedure for when Compared total bad debts this year with the totals for the previous two years.
Substantive procedures
what is the Classification of Audit Procedure for when Examined invoice to obtain evidence in support of the ending recorded balance of a customer.
Substantive procedures
what is the Classification of Audit Procedure for when Questioned management about likely total uncollectible accounts.
Substantive procedures
what is the Classification of Audit Procedure for when Requested responses directly from customers as to amounts due.
Substantive procedures
Select each of the following terms with the appropriate attributes. Further audit procedures
Substantive procedures and tests of controls
An auditor may compensate for a weakness in internal control by increasing the extent of:
Substantive tests of details.
For each of the following descriptions, select the computer audit procedure most closely related. Dummy transactions developed by the auditor and processed by the client's computer programs, generally for a batch processing system.
Test data
what is the Classification of Audit Procedure for when Compared a sample of sales invoices to credit files to determine whether the customers were on the approved customer list.
Test of controls
what is the Classification of Audit Procedure for when Examined a sample of sales invoices to see if they were initialized by the credit manager indicating credit approval.
Test of controls
what is the Classification of Audit Procedure for when Watched the accounting clerk record the daily deposit of cash receipts.
Test of controls
In the consideration of internal control, the operating effectiveness of controls is tested by:
Tests of controls.
If the auditors do not perform tests of controls for certain assertions:
They must assess control risk at the maximum level for those assertions.
What characteristics should an audit confirmation response possess if a CPA firm is to consider it to be valid evidence?
To be valid evidence, an audit confirmation response must be received directly by the CPA firm from the outside party who has replied to the confirmation request.
True or False In audits of both public and nonpublic companies significant deficiencies and material weaknesses noted by the auditors must be communicated to management in writing.
True
True or False In performing an audit, the auditors are concerned with those controls that prevent or detect financial statement misstatements.
True
True or False Internal control is a process that provides reasonable assurance concerning reliability of financial information.
True
True or False Internal control is not generally effective at preventing all fraud by top management of the company.
True
True or False Internal control should provide management with reasonable assurance that they are achieving the objectives related to effectiveness and efficiency of operations, reliability of financial reporting, and compliance with laws and regulations.
True
True or False Random numbers generated by software such as Excel may be used rather than random number tables.
True
True or False Receivables judged to be uncollectible should be written off.
True
True or False Selecting every 50th invoice for inclusion in a sample is an example of systematic sampling.
True
True or False Serially numbered purchase orders should be issued for purchases of goods.
True
True or False The auditors should mail confirmation requests, and the enclosed envelope for the customer's reply should be addressed to the auditors' office.
True
True or False The auditors should record the details of their test counts in the audit working papers, which are used to test the client's completed physical inventory listing.
True
True or False The auditors will generally confirm a proportionately larger sample of accounts with large balances than accounts with small balances.
True
True or False The internal audit function is an important part of the monitoring component of internal control.
True
True or False The practice of "kiting" as a means of overstating cash is possible only if the client maintains two or more bank accounts.
True
True or False The standard financial institution confirmation request used by the auditors is a means of obtaining documentary evidence about both assets and liabilities.
True
True or False Well-designed internal control can be circumvented by collusion.
True
True or False When an entire population is examined there is no sampling risk.
True
True or False When it is impossible to confirm accounts receivable, the auditors may be able to satisfy themselves as to the existence of accounts receivable by alternative procedures.
True
True or False When properly controlled, serial numbers on shipping documents and sales invoices may be used to help provide assurance that all goods shipped are billed to customers and recorded as sales.
True
True or False When the confirmation process is not performed electronically, confirmation requests should be mailed by the auditors in envelopes bearing the auditors' return address.
True
Passwords are designed primarily to prevent
Unauthorized access to the system.
Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements?
Understatement of outstanding checks.
During financial statement audits, the auditors' consideration of their clients' internal control is integral to both assessing the risk of material misstatement and:
Designing further audit procedures.
Which of the following would be least likely to be considered an objective of internal control?
Detecting management fraud.
The confirmation of accounts receivable is most closely associated with:
Detection risk.
Annual physical inventory is what type of control
Detective
Internal audits of payroll. is what type of control
Detective
Management review of budget/actual information is what type of control
Detective
Monthly reconciliation of bank accounts is what type of control
Detective
what can be Designed to discover misstatements after they have occurred, Give an example
Detective Controls - Monthly bank reconciliations
True or False An improper bank reconciliation designed to conceal a cash shortage is more likely to overstate than understate the amount of outstanding checks.
False
True or False Auditors are required to test all strengths in an audit client's internal control.
False
True or False Auditors should not review the client's planning of the physical inventory.
False
True or False Confirmation requests should contain a "business reply" envelope addressed to the auditors at the client's address.
False
True or False Credit approval should be obtained after the goods are shipped, but before the related sales invoice is prepared.
False
True or False Detective controls are designed to prevent errors, inaccuracy, and fraud before they occur.
False
True or False Establishing and maintaining internal control is a responsibility of the stockholders of the company.
False
True or False For well-controlled operations, the same employee that maintains custody of assets should also keep the accounting records for the assets.
False
True or False If the auditors' assessment of the design of internal control reveals that it cannot be relied upon, the auditors are not required to prepare any documentation of internal control for their working papers.
False
True or False Mailroom personnel of a company should prepare a control listing of incoming cash receipts and deposit them intact daily.
False
True or False Most advanced computer systems do not have audit trails.
False
True or False Observation of inventories is a required audit procedure under all circumstances.
False
True or False Random sampling is another term for statistical sampling.
False
True or False Segregation of duties is not a feasible method to help establish control over computer systems.
False
True or False The accounts receivable section of the accounting department should open incoming mail and post checks and credit card payments to the customer's accounts.
False
True or False The auditors should perform alternative auditing procedures on all negative confirmation requests that are not returned.
False
True or False To be effective, a walk-through test must involve tracing at least 60 transactions through each cycle.
False
True or False When it is "impossible" to confirm accounts receivable, the auditors can never issue an unmodified opinion on the client's financial statements.
False
True or False When merchandise is shipped, the shipping department completes a document known as a sales order.
False
True or False When the auditors cannot satisfy themselves as to the accuracy of ending inventory and a material misstatement may exist, they normally may still give an unmodified (unqualified) opinion on the client's income statement.
False
An auditor decides to use the blank form of positive accounts receivable confirmation. The auditor should be aware that the blank form may be ineffective because:
Few responses may occur because more effort is required of recipients.
A dual purpose test simultaneously:
Functions as a substantive test and as a test of controls.
Select each of the following terms with the appropriate attributes. Suitable criteria
GAAP
To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except:
General ledger.
A material weakness involves an amount that could result in a misstatement that is:
Greater than a significant deficiency.
Tests of controls do not address:
How controls were originated.
An integrated audit performed under Section 404b of the Sarbanes-Oxley Act addresses financial statements and:
Internal control over financial reporting.
For purposes of an audit of financial statements, electronic confirmation of cash balances:
Is acceptable when properly controlled.
In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also:
Is responsible for mailing the checks.
In confirming a client's accounts receivable, what characteristics should be present in the accounts if the CPA firm is to use negative confirmations?
Negative confirmation requests may be used for situations in which (1) the combined assessed level of inherent and control risk is low; (b) a large number of small balances are involved; and (c) the auditors have no reason to believe that the recipients of the requests are not likely to give them consideration.
The 2nd steps of the audit process for an audit of cash.
Obtain an understanding of internal control over cash.
The primary objective of a CPA's observation of a client's physical inventory count is to:
Obtain direct knowledge that the inventory exists and has been properly counted.
Which of the following is not a control that generally is established over cash transactions?
Obtaining a receipt for every disbursement.
Tracing recorded sales transactions to the bills of lading provides evidence about the:
Occurrence of sales transactions.
Tests of controls ordinarily are designed to provide evidence of:
Operating effectiveness.
What is an audit confirmation request?
a written communication received by the auditors directly from a party outside the client organization. The written communication usually affirms the existence of, and rights to, an amount recorded in the client's accounting records.
A situation when the design or operation of a control does not allow management or employees, in the normal course of performing their functions, to prevent or detect misstatements on a timely basis is referred to as a(n):
control deficiency.
The purpose of tests of controls is to provide reasonable assurance that the:
controls are operating effectively.
where does the blind purchase order go
receiving department
Internal control over cash receipts is weakened when an employee who receives customer mail receipts also:
records credits to individual accounts receivable.
A client's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record:
sales
The least crucial element of internal control over cash is:
separation of cash receipts from preparing deposits.
The confirmation of the client's trade accounts receivable as a means of obtaining audit evidence is ordinarily considered to be a:
substantive procedure.
The auditor is examining electronic copies of sales invoices for the initials of the person responsible for approving credit sales. This is an example of a:
test of controls.
Auditors must communicate internal control significant deficiencies to:
the audit committee.
what is a walk through
tracing a transaction through its cycle
An auditor's flowchart of a client's internal control is a diagrammatic representation that depicts the auditors':
understanding of the system.
The auditors who are engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily in order to
verify reconciling items on the client's bank reconciliation.
negative responses will only
want a response from the recipient if the information on the confirmation is incorrect
best control for cash coming in is a
lockbox
What are the three steps required to test an estimate, such as Allowance for Doubtful Accounts:
1. Get the client's policy 2. Develop an independent expectation (Recalculation) 3. Determine if any subsequent events/transactions affected the estimate
Do they monitor controls to ensure they are operating correctly? Who monitors them? is an example of a
Monitoring
Internal audit function are examples of what type of function
Monitoring
Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees?
A bank lockbox system.
The auditors obtain audit evidence for accounts receivable by using positive or negative confirmation requests. Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful?
A low exception rate is expected.
Distinguish between a positive confirmation request and a negative confirmation request in the auditors' examination of accounts receivable.
A positive confirmation request requires a reply from the client's customer in every case. A negative confirmation request requires a reply only if the balance for which confirmation has been requested is incorrect.
Which of the following best illustrates the concept of sampling risk?
A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.
Auditors often utilize sampling methods when performing tests of controls. Which of the following sampling methods is most useful when testing controls?
Attributes sampling.
For each of the following descriptions, select the computer audit procedure most closely related. Auditing by manually testing the input and output of a computer system.
Auditing "around" the computer
To test the existence assertion for recorded receivables, an auditor would select a sample from the:
Accounts receivable subsidiary ledger.
To test the existence assertion for recorded receivables, the auditors would select a sample from the:
Accounts receivable subsidiary ledger.
Clerically test the mathematical accuracy of the AR Aging by footing and cross footing all calculations included on the AR Aging.
Accuracy
What is the right procedure when you Test the mathematical accuracy of the checking reconciliation
Accuracy
Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts?
Aging of accounts receivable.
Which of the following is correct with respect to control deficiencies discovered during an audit?
All material weaknesses in internal control must be reported to the audit committee in writing.
What Type of Audit Procedure would you do if The auditor calculated the accounts receivable turnover for the year.
Analytical procedure
what is the Audit Procedure for when Comparing total bad debts this year with the totals for the previous two years.
Analytical procedure
Which of the following would least likely be included in an auditor's tests of controls?
Analytical procedures.
To determine that sales transactions have been recorded in the proper accounting period, the auditors perform a cutoff review. Which of the following best describes the overall approach used when performing a cutoff review?
Analyze transactions occurring within a few days before and after year-end.
The auditors should confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low:
And accounts receivable are immaterial, or the use of confirmations would be ineffective.
Which of the following would provide the most assurance concerning the valuation of accounts receivable?
Assess the allowance for uncollectible accounts for reasonableness.
The 3rd steps of the audit process for an audit of cash.
Assess the risks of material misstatement and design further audit procedures (tests of controls).
Why are confirmations such reliable evidence:
Because they are sent directly from the auditor to the 3rd party and returned directly to the auditor without interception of the client. Independent third-party documentation to verify existence of a balance.
The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the:
Bill of lading.
Tracing copies of sales invoices to shipping documents will provide evidence that all:
Billed sales were shipped.
Even the best internal control has certain limitations. List those limitations.
Carelessness. Misunderstanding of instructions. Top management may override the system. Collusion among employees may circumvent controls dependent upon segregation of duties. Cost considerations often limit the effectiveness of the design of the structure.
An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all:
Cash disbursements.
On receiving the bank cutoff statement, the auditor should trace:
Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.
The auditors use a bank cutoff statement to compare:
Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.
Which of the following is a frequent control over cash disbursements?
Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations.
Which of the following is not a component of the control environment?
Monitoring performance.
Agree the total AR balance from the AR Aging to the Trial Balance. Investigate and document the reason for any reconciling items.
Completeness
What is the right procedure when Agree the book balance on the checking reconciliation form to the balance per the trial balance. Investigate any reconciling items.
Completeness
Which of the assertions related to accounts receivable will confirmations be least likely to provide evidence in support of?
Completeness
During the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to:
Completeness.
What is the procedure called when you Agree the AR balance on the aging schedule to the balance per the trial balance.
Completeness.
what is the Audit Procedure for when Requesting responses directly from customers as to amounts due.
Confirmation
Which of the following is not true about the confirmation of accounts receivable?
Confirmation requests should be signed by the auditors.
Which of the following is not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purposes?
Confirmation.
Which of the following generally provides the least evidence regarding the valuation of the allowance for doubtful accounts?
Confirming current (0-30 day) year-end accounts receivable.
What is the proper action when the customer replies with "While that's what we owe, we didn't owe it on December 31 because we didn't receive the goods until January 2 of year 2."
Examine shipping documents and/or subsequent cash receipts.
Assignment of authority, responsibility, and accountability are examples of
Control Environment
Assignment of authority, responsibility, and accountability is a
Control Environment
Human resources policies and practices are examples of
Control Environment
Participation of those charged with governance are examples of
Control Environment
Who works at the client, are they compentent? is an example of a
Control Environment
What are the five components:
Control Environment Risk Assessment Existing Control Activities Information and Communication Systems (Assertions) Monitoring
HexaCo has various policies and procedures pertaining to the company's operations. Policies and procedures that management uses to provide reasonable assurance that the entity's objectives will be achieved are referred to as
Control activities
Segregation of duties is an aspect of which of the following components of internal control?
Control activities.
Which of the following components of control is likely to prevent processing of an erroneous sales transaction?
Control activities.
A situation in which the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect material misstatements on a timely basis is referred to as a:
Control deficiency.
Hiring competent and ethical employees is an aspect of which of the following components of internal control?
Control environment.
For each of the following descriptions, select the computer audit procedure most closely related. Involves testing of a version of the organization's software without concerns about contaminating the organization's records.
Controlled program
An auditor's purpose for performing tests of controls is to provide reasonable assurance that:
Controls are operating effectively.
Which of the following is not a factor that is considered a part of the client's overall control environment?
Controls over major transaction cycles.
Identify if the following actions taken are correct or incorrect Auditors may ignore individually immaterial accounts when confirming accounts receivable.
Correct
Identify if the following actions taken are correct or incorrect Confirmations address existence more than they address completeness.
Correct
Identify if the following actions taken are correct or incorrect Second requests are ordinarily sent for positive form confirmation requests when the first request is not returned.
Correct
Identify if the following actions taken are correct or incorrect The auditors ordinarily should confirm accounts receivable.
Correct
Identify if the following actions taken are correct or incorrect The confirmation requests should be mailed to respondents by the CPAs.
Correct
Adjustment of perpetual inventory records to physical counts is what type of control
Corrective
Select each of the following terms with the appropriate attributes. Material weakness
Creates a reasonable possibility a material misstatement will not be detected
What is the proper action when the customer replies with "We mailed the check for this on December 31."
Examine shipping documents and/or subsequent cash receipts.
What is the proper action when the customer replies with You received no reply to a positive confirmation request to Blake Company Subsequently you recalled that Blake Company has a policy of not responding to confirmations—in writing or orally.
Examine shipping documents and/or subsequent cash receipts.
It is sometimes impossible for the auditors to use normal accounts receivable confirmation procedures. In such situations, the best alternative procedure the auditors might resort to would be:
Examining subsequent receipts of year-end accounts receivable.
What is the proper action when the customer replies with "We returned those goods on December 2." You have been able to determine that the goods were received by the client on December 29, but not recorded until January 2.
Exception; propose an adjustment.
What is the procedure called when you Agree deposits in transit on the checking reconciliation to the cutoff bank statement to verify the deposits cleared the bank within a reasonable time.
Existence
What is the procedure called when you Compare the bank balance on checking reconciliation to the bank statement.
Existence
Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide evidence concerning the
Existence of the balances confirmed.
Agree items selected for AR confirmation testing to confirmations received from customers. If confirmations have not yet been received, complete alternative procedures.
Existence.
An auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to:
Existence.
Authorization of Transactions are examples of
Existing Control Activities
Operating performance reviews are examples of
Existing Control Activities
Pre-numbering of documents are examples of
Existing Control Activities
Segregation of Duties are examples of
Existing Control Activities
Segregation of Duties is what type of activity
Existing Control Activities
What are the current controls in place - think of controls they can have in each area (Cash, AR, Inventory, etc.) is an example of a
Existing Control Activities
True Or False The basic purpose of internal control is to prevent fraud that occurs when employees collude.
False
True Or False The five components of internal control are (1) the control environment, (2) risk assessment, (3) control activities, (4) the accounting information and communication system, and (5) compensating controls.
False
True or False A fundamental concept of internal control is that, to establish accountability, one individual should handle all aspects of a transaction and thereby be responsible for that transaction.
False
True or False Accounts with zero balances and accounts that have been written off as uncollectible are not confirmed by the auditors.
False
True or False An audit report under PCAOB standards includes both an opinion on internal control, and an opinion on company compliance with the Sarbanes-Oxley Act of 2002.
False
Identify if the following actions taken are correct or incorrect A combination of positive and negative request forms must be used if receivables are significant.
Incorrect
Identify if the following actions taken are correct or incorrect Accounts receivable are ordinarily confirmed on a standard form developed by the American Institute of Certified Public Accountants and the Financial Executives Institute.
Incorrect
Identify if the following actions taken are correct or incorrect Auditors should always confirm the total balances of accounts rather than individual portions (e.g., if the balance is made up of three sales, all three should be confirmed).
Incorrect
Identify if the following actions taken are correct or incorrect Confirmation of accounts receivable is a generally accepted auditing standard.
Incorrect
Identify if the following actions taken are correct or incorrect The best way to evaluate the results of the confirmation process is to compare the total misstatements identified to the account's tolerable misstatements amounts.
Incorrect
Does the client verify assertions through their controls? is an example of a
Information and Communication Systems (Assertions)
Measurement and recording of proper monetary values are examples of
Information and Communication Systems (Assertions)
Measurement and recording of proper monetary values is a
Information and Communication Systems (Assertions)
Proper presentation of transactions and related disclosures are examples of
Information and Communication Systems (Assertions)
The way in which significant events are captured by the accounting system are examples of
Information and Communication Systems (Assertions)
Select each of the following terms with the appropriate attributes. Tests of controls
Inquire, inspect, observe, re-perform
What Type of Audit Procedure would you do if The auditor asked the warehouse manager about whether certain inventory items were becoming obsolete.
Inquiry
what is the Audit Procedure for when Questioning management about likely total uncollectible accounts.
Inquiry
What Type of Audit Procedure would you do if The auditor obtained a copy of the company's accounting manual and read the section on inventory to prepare for the physical inventory observation.
Inspection of records or documents
what is the Audit Procedure for when Examining a sample of sales invoices to see if they were initialized by the credit manager indicating credit approval.
Inspection of records or documents
what is the Audit Procedure for when Examining invoice to obtain evidence in support of the ending recorded balance of a customer.
Inspection of records or documents
What Type of Audit Procedure would you do if During the physical inventory count, the auditor asked the client to open various boxes of inventory items so she was able to assess the quality of the item.
Inspection of tangible assets
For each of the following descriptions, select the computer audit procedure most closely related. Fictitious and real transactions are processed together without the client's operating personnel knowing the testing process.
Integrated test facility
For each of the following descriptions, select the computer audit procedure most closely related. May include a simulated division or subsidiary in the accounting system with the purpose of running fictitious transactions through it.
Integrated test facility
The major components of internal control include all of the following, except:
Internal auditing.
A primary objective of procedures performed to obtain an understanding of internal control is to provide the auditors with
Knowledge necessary to determine the nature, timing, and extent of further audit procedures.
Select each of the following terms with the appropriate attributes. Inherent risk
Likelihood of misstatement assuming no controls
When there are a large number of relatively small account receivable balances, negative confirmation requests may be appropriate if the combination of inherent risk and control risk is:
Low, and the individuals receiving the confirmation requests are likely to give them adequate consideration.
an example of a Corrective Control would be
Maintaining backups of data
Inspection of computer control reports and evidence of manual follow-up on exceptions are
Manual Tests of Computer Controls (around)
In the consideration of internal control, the auditor is basically concerned that it provides reasonable assurance that:
Misstatements have been prevented or detected.
Which of the following statements regarding auditor documentation of the client's internal control is correct?
No one particular form of documentation is required, and the extent of documentation may vary.
An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:
No reply to a positive confirmation request is received.
What is the proper action when the customer replies with "We are very satisfied with Jelco and plan to purchase from them in the future."
Not an exception; no further audit work is necessary.
What is the proper action when the customer replies with You received no reply to a negative confirmation request to Adams Company
Not an exception; no further audit work is necessary.
What Type of Audit Procedure would you do if During a site visit to a construction site, the auditor determined that all employees were wearing proper safety equipment.
Observation
what is the Audit Procedure for when Watching the accounting clerk record the daily deposit of cash receipts.
Observation
Which of the following is least likely to be a test of controls?
Observation of confirmations.
The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to:
Observation of physical inventory counts.
After considering the client's internal control, the auditors have concluded that it is well-designed and is functioning as anticipated. Under these circumstances, the auditors would most likely:
Reduce substantive procedures in areas where the internal control was found to be effective.
what is the Audit Procedure for when Comparing a sample of sales invoices to credit files to determine whether the customers were on the approved customer list.
Reperformance
What Type of Audit Procedure would you do if The auditor obtained a purchase order from the purchase order file and compared it to the authorized supplier list to determine that the related goods had been purchased from an approved supplier.
Repreformance
Which of the following is not a primary procedure auditors use to obtain sufficient knowledge about the design of the relevant controls and to determine whether they have been implemented (placed in operation)?
Results of substantive procedures.
Which of the following audit procedures would be most effective in providing evidence regarding the existence of cash and cash equivalents?
Review bank confirmations to verify bank balances.
In testing management's rights and obligations assertion in relation to inventories, which of the following procedures would the auditor most likely consider most reliable?
Review consignment agreements.
Review management's explanations regarding any factored or pledged receivables to ensure the Company has the right to collect all recorded receivables.
Rights & Obligations
Adoption of new accounting policies are examples of
Risk Assessment
Corporate restructuring are examples of
Risk Assessment
Do the controls catch the potential risk? Any changes to controls? is an example of a
Risk Assessment
Incorporation of new technology are examples of
Risk Assessment
Incorporation of new technology is a
Risk Assessment
New personnel are examples of
Risk Assessment
Which of the following are considered components of internal control?
Risk assessment
What is in a 3 way match // voucher package
Sales order, Bill Of lading, Invoice
Which of the following must the auditor communicate to the audit committee?
Significant deficiencies and material weaknesses.
Which of the following is not considered one of the five major components of internal control?
Segregation of duties.
Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely:
Send positive confirmation requests.
Properly designed internal control will permit the same employee to:
Sign checks, and also cancel supporting documents.
Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits?
The auditor must obtain an understanding of each of the five internal control components sufficient to assess the risks of material misstatement for the audit.
Which of the following statements is correct concerning the understanding of internal control needed by auditors?
The auditors must have a sufficient understanding to assess the risks of material misstatement.
Which of the following is not true relating to the auditors' observation of the client's physical inventory?
The auditors should supervise the taking of the inventory.
Describe the two purposes of the auditors' consideration of a client's internal control.
The auditors' consideration of their clients' internal control is integral to both (1) to assess the risks of material misstatement in the financial statements and (2) to design the nature, timing and extent of further audit procedures.
Which of the following is true about the auditors' observation of the client's physical inventory?
The auditors' observation addresses the existence assertion.
Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable?
The confirmation requests are sent on the client's letterhead.
Which of the following will generally not be included in a standard bank confirmation?
The dates on which inactive accounts were closed.
Which of the following is the best argument against the use of negative accounts receivable confirmation requests?
The inference drawn from receiving no reply may not be correct.
Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Of the following, which combination is it most likely that the auditors will use?
The positive form used for large balances and the negative form for the small balances.
Which of the following best describes what the auditor means by the expected rate of deviation in an attributes sampling plan?
The rate of deviations that can reasonably be expected to be found in a population.
The tolerable deviation rate in sampling for tests of controls is:
The rate the auditor will tolerate without modifying the planned assessment of control risk.
As one of the year-end audit procedures, the auditor instructed the client's personnel to prepare a confirmation request for a bank account that had been closed during the year. After the client's treasurer has signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure?
The request was mailed by the assistant treasurer.
Which of the following types of risk is of critical importance to auditors in performing tests of controls?
The risk of assessing control risk too low.
Which of the following is an example of misappropriation of assets relating to sales?
Theft of cash register sales.
What is the purpose of a walkthrough and what are the methods we use to document our findings from a walkthrough:
To follow a transactions from initiation through its cycle Flowchart, Questionnaire, and Narrative
What is the purpose of a cash reconciliation?
To verify that the balance per the bank matches the balance per the books.
To obtain assurance that the accounting records accurately reflect only transactions that actually occurred, supporting management's occurrence assertion, the auditor would most likely examine a sample of general ledger postings and
Trace them back to the supporting source documentation.
True or False A cutoff bank statement addresses whether checks outstanding at year-end were included in the list of outstanding checks in the year-end bank reconciliation.
True
True or False Accounts receivable should be valued at their net realizable value.
True
True or False All material weaknesses are also control deficiencies.
True
True or False An advantage of an internal control questionnaire is that weaknesses in internal control are highlighted by the questionnaire.
True
True or False An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance for uncollectible accounts.
True
True or False An employee has incompatible duties if the person is in a position to perpetrate and conceal errors or fraud in the normal course of performing his or her duties.
True
True or False An employee who prepares checks and submits them with supporting documents to the official authorized to sign checks should not be responsible for mailing the signed checks.
True
True or False Attributes sampling is often used in conjunction with tests of the client's internal control.
True
True or False Both the design of controls and the operating effectiveness of controls are considered in an audit of internal control performed under PCAOB standards.
True
True or False CPA firms may use written narratives to describe internal control in their audit working papers.
True
True or False Certified public accountants (CPAs) use positive accounts receivable confirmation requests more frequently than negative accounts receivable confirmation requests.
True
True or False Confirmation of accounts receivable by direct communication with the debtor tests the existence of accounts receivable.
True
True or False In attributes sampling, an increase in the tolerable deviation rate results in a decrease in required sample size
True
True or False In auditing, the risk of assessing control risk too low is ordinarily considered a greater risk than the risk of assessing control risk too high.
True
The 1st steps of the audit process for an audit of cash.
Use the understanding of the client and its environment to consider inherent risks related to cash.
An auditor most likely would analyze inventory turnover rates to obtain evidence about:
Valuation.
Items have been selected for you to test to ensure that receivables are being aged accurately. For each selection made on the AR Aging, review the invoices to ensure that they are in the proper aging bucket, billed for the correct amount and billed to the correct customer.
Valuation.
Review inquires with management to determine if any additional receivables should be written-off as a result of being uncollectible.
Valuation.
With the balances from the AR Aging, recalculate the clients allowance for doubtful accounts reserve for the current year under audit. A copy of the client's ADA policy has been provided to you to assist you in your calculations.
Valuation.
what is the right procedure when The auditor completed an independent expectation of the client's allowance for doubtful accounts (ADA)?
Valuation.
what is the right procedure when The auditor verified when they utilize invoices to determine that customer's receivable balances are properly aged.
Valuation.
An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily in order to
Verify reconciling items on the client's bank reconciliation.
An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily in order to:
Verify reconciling items on the client's bank reconciliation.
What is the proper action when the customer replies with "We also owe for two more invoices for purchases we made around year-end; I'm not sure of the exact date."
Verify whether the additional invoices noted on the confirmation reply pertain to the year under audit or the subsequent year.
When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably:
Want the client to schedule the physical inventory count at the end of the year.
Instead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and:
Well-kept records of perpetual inventory are maintained.
The report of a service auditor may provide assurance on whether: A)Controls are implemented & B) Operating effectiveness of controls
Yes To Both
An auditor may obtain information on the December 31 month-end balance per bank in which of the following? concerning Standard Confirmation Form & January 1 to 10 Cutoff Statement
Yes to both
positive confirmations will
always want a response from the recipient
Processing data through the use of simulated files provides an auditor with information about the operating effectiveness of controls. One of the techniques involved in this approach makes use of:
an integrated test facility.
When performing an audit of internal control, the period or date on which the opinion relates under PCAOB standards is the:
as of date.
A report on internal control performed in accordance with PCAOB standards includes an opinion on internal control for:
asof date.
Software such as IDEA and ACL is most frequently referred to as:
generalized audit software.
