Audit CH 7

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Which three of the following are key issues when evaluating the reliability of data used in an audit data analytics (ADA) application? A. Procedures regarding data reliability B. The matters the auditor considers in determining the nature, timing, and extent of procedures C. The process used to produce the data D. The process used to match the data with the general ledger

A and B and C

_______ helps auditors to identify patterns and deviations from patterns and outliers in the analysis stage of an audit data analytics (ADA) procedure.

Visualization

Designing _______ includes identifying conditions relevant to the purpose of the test that constitute a misstatement in the relevant assertion.

substantive procedures

Which three of the following are the characteristics of good visualizations? A. They reduce the message to its core components and use minimal or no jargon. B. They are likely to be better remembered. C. They are generally understood by a wider audience. D. They provide precise figures or tests of statistical significance that are often needed in ADAs.

A and B and C

Which three of the following key issues are considered when planning an audit data analytics (ADA) application? A. Selection of financial statement items, accounts or disclosures, and related assertions to be audited B. The overall purpose of the audit data analytics application and how it will contribute to the balance of the audit C. Selection of the audit population being analyzed or tested using audit data analytics D. A comparison of the results of ADA with those of other audit analysis methods

A and B and C

Which of the following is a step associated with accessing and preparing data for audit data analytics (ADA)? A. Checking the completeness of the data set to be used for ADA B. Ensuring the match of ADA data with the balance sheet C. Presenting a data set or key information as a chart or other image D. Matching ADA with the general ledger

A. Checking the completeness of the data set to be used for ADA

Which of these steps is not used in a regression analysis? A. Determining which assertions apply to which dependent variables B. Validate the prediction equation from a business logic point of view C. Validate the prediction equation from a statistics point of view D. Use the regression equation to make predictions for the data being currently audited

A. Determining which assertions apply to which dependent variables

What is the first step in using regression analysis as part of audit data analytics? A. Estimate the prediction equation using data that is not currently being audited B. Validate the prediction equation from a statistics point of view C. Compare the predicted values (auditor's expectation) with the actual values D. Use the regression equation to make predictions for the data being currently audited

A. Estimate the prediction equation using data that is not currently being audited

The auditor first obtains an understanding of the entity and its environment in order to identify misstatements and anomalies when performing audit data analytics (ADA) as which of the following procedures? A. Risk assessment B. Auditing risk C. Material misstatement D. Control risk

A. Risk assessment

Which of the following is a risk associated with visualizations? A. They do not provide precise figures or tests of statistical significance that are often needed in ADAs. B. They fail to communicate information efficiently. C. They use a lot of jargon. D. They are unlikely to be remembered.

A. They do not provide precise figures or tests of statistical significance that are often needed in ADAs.

Regression analysis is best defined as _______. A. a statistical process which involves estimating a prediction equation that expresses an item of interest (commonly known as the y or dependent variable) in terms of other data fields B. a non-statistical process which involves estimating a prediction equation that expresses an item of interest (commonly known as the y or dependent variable) in terms of other data fields C. a statistical process which involves estimating a prediction parameter that expresses an item of interest (commonly known as the y or dependent variable) in terms of other data fields D. a non-statistical process which involves estimating a prediction parameter that expresses an item of interest (commonly known as the y or dependent variable) in terms of other data fields

A. a statistical process which involves estimating a prediction equation that expresses an item of interest (commonly known as the y or dependent variable) in terms of other data fields

Once the auditor has planned the application of audit data analytics, the auditor should _______. A. access the data, make a copy of the client's data, and prepare the data for analysis B. seek the approval of management with respect to the tests C. determine how much these procedures will increase the cost of the audit and advise management accordingly D. access the data and prepare the data for the internal auditors to review

A. access the data, make a copy of the client's data, and prepare the data for analysis

Advances in the technological landscape _______. A. are providing opportunities to rethink how an audit is performed B. have rarely affected the profession auditing and how an audit is conducted C. are providing opportunities to increase the cost of an audit D. have had no bearing on inherent risk whatsoever

A. are providing opportunities to rethink how an audit is performed

If the auditor is auditing an accounts receivable file, the auditor will want to make sure the receivable file matched the_______. A. general ledger as of the date of the test. B. trial balance as of the date of the test. C. investing section of the statement of cash flows as of the date of the test. D. general ledger as of any date before the test.

A. general ledger as of the date of the test.

The regression model should be estimated _______. A. based only on historical data to ensure it can be used to make predictions for the current period B. based only on predicted future data to ensure it can be used to make predictions for the current period C. based only on historical data to ensure it can be used to make predictions for prior periods D. based only on forecasted data to ensure it can be used to make predictions for prior periods

A. based only on historical data to ensure it can be used to make predictions for the current period

Audit data analytics should _______. A. be customized to the individual client and industry B. be tailored to the individual client but consistent across an industry C. should be the same for each client, but differ among industries D. should be the same for both client and the industry in which they operate

A. be customized to the individual client and industry

Clustering can also be performed _______. A. by graphing data in a way that allows for visual identification of groups B. by graphing data in a way that allows for a simple regression analysis C. by the internal audit function before the data is transferred to the external auditors D. by the client's legal counsel, if necessary

A. by graphing data in a way that allows for visual identification of groups

One of the steps in preparing data for analysis is _______. A. checking the numerical continuity of the data B. making sure there are fields with missing data C. ensuring the data is inconsistently formatted D. retrieving the data from the internal audit function

A. checking the numerical continuity of the data

Regression analysis _______. A. comes in many forms, including simple linear regression analysis B. is rarely used in auditing, as it is too complex C. is best performed by the internal audit function D. should only be conducted with a data-set vetted and approved by management

A. comes in many forms, including simple linear regression analysis

One of the steps in the five step AICPA process to follow when planning, performing, and evaluating results from audit data analytics (ADA) is _______. A. consider the relevance and reliability of the data used B. prepare a suitable population and representative sample C. pass the results to management for analysis and evaluation D. consideration of internal control

A. consider the relevance and reliability of the data used

The item of interest in a regression analysis is referred to as the _______. A. dependent variable B. independent variable C. any x variable D. hypotenuse

A. dependent variable

Effective visualizations _______. A. facilitate people making visual comparisons between data elements B. are generally understood by a smaller audience C. communicate a small amount of information efficiently D. are less likely to be remembered

A. facilitate people making visual comparisons between data elements

Audit data analytics (ADA) is effective for _______. A. identifying general types of misstatements, as well as identifying specific transactions or accounts that are likely to be misstated B. identifying general types of misstatements only C. identifying specific transactions or accounts that are likely to be misstated only D. none of the above

A. identifying general types of misstatements, as well as identifying specific transactions or accounts that are likely to be misstated

Matching information in key data fields _______. A. is a process where the auditor uses audit data analytics to search for key characteristics that may exist in several different databases B. is a process where the auditor uses audit data analytics to search for key characteristics that may exist in the same database C. is typically a task assigned to the internal audit function D. is a process where the auditor uses his or her understanding of inherent risk to search for key characteristics that may exist in several different databases

A. is a process where the auditor uses audit data analytics to search for key characteristics that may exist in several different databases

Audit data analytics (ADA)_______. A. is effective not only for identifying general types of misstatements, but is also capable of identifying specific transactions or accounts that are likely to be misstated B. is effective only for identifying general types of misstatements C. is only capable of identifying specific transactions or accounts that are likely to be misstated D. is effective neither at identifying general types of misstatements or capable of identifying specific transactions or accounts that are likely to be misstated

A. is effective not only for identifying general types of misstatements, but is also capable of identifying specific transactions or accounts that are likely to be misstated

The simplest regression _______. A. is where the prediction equation is the average of the data B. is where the prediction equation is the median of the data C. involves the use of logistic regression D. involves the use of time-series regression

A. is where the prediction equation is the average of the data

False positives refer to _______. A. items incorrectly identified as notable items B. items correctly identified as notable items C. negative confirmations incorrectly received from client vendors D. positive confirmations incorrectly received from client vendors

A. items incorrectly identified as notable items

One of the questions an auditor should consider related to the audit data analytics (ADA) application is _______. A. its purpose B. its potential use by the internal audit function C. its potential use by senior management D. ensuring all employees in the client organization has access to it

A. its purpose

The first step in audit data analytics is _______. A. making sure the data is complete B. checking the numerical continuity of the data C. checking both of these simultaneously D. checking neither of these

A. making sure the data is complete

Some important aspects of any audit, including audit data analytics, pertain to the _______. A. nature, extent, and timing of the audit procedures B. prior auditor's assistance with audit procedures C. ultimate issuance of an audit opinion by senior management D. stock price, and ensuring it is not negatively affected by the audit

A. nature, extent, and timing of the audit procedures

A common problem with multinational organizations is _______. A. recording dates in different formats B. use of the same currency in different sales territories C. a lack of diversity due to a multinational workforce D. low cash reserves and retained earnings balances

A. recording dates in different formats

If revenue is strongly seasonal, the auditor might decide to _______. A. run a time-series regression that is based on the trend and seasonality in historical revenue figures B. run a non-statistical regression that is based on the seasonality in historical revenue figures C. run a time-series regression that is based on seasonality only D. run a time-series regression that is based on the trend only

A. run a time-series regression that is based on the trend and seasonality in historical revenue figures

A risk associated with visualizations is _______. A. that the pretty picture of the visualization will be remembered and not the message it was intended to convey B. that the pretty picture of the visualization will not be remembered and instead the message it was intended to convey is remembered instead C. everyone will interpret them in the same way D. no one will understand the picture, just the words

A. that the pretty picture of the visualization will be remembered and not the message it was intended to convey

Defining notable items depends on _______. A. the assertion being audited, and the auditor's understanding of the business and industry. B. the assertion being audited only C. the auditor's understanding of the business and industry only D. neither the assertion being audited, nor the auditor's understanding of the business and industry.

A. the assertion being audited, and the auditor's understanding of the business and industry.

When the auditor uses audit data analytics, _______. A. the auditor is looking for anomalies, or balances or transactions that do not meet the auditor's expectations B. the auditor is looking for anomalies only C. the auditor is only looking for balances or transactions that do not meet the auditor's expectations D. the auditor is neither looking for anomalies, nor balances nor transactions that do not meet the auditor's expectations

A. the auditor is looking for anomalies, or balances or transactions that do not meet the auditor's expectations

Once the auditor has determined that the data is complete and data is available for all desired fields, _______. A. the auditor must also make sure that the data is clean and ready for analysis B. the auditor must also make sure that the data is clean and ready for submittal to the internal auditors for analysis C. the auditor should seek management's permission to proceed D. the data set should be turned over to the client's legal counsel for further processing

A. the auditor must also make sure that the data is clean and ready for analysis

When performing audit data analytics (ADA) as a risk assessment procedure, _______. A. the auditor will have first obtained an understanding of the entity and its environment B. the auditor is yet to obtain an understanding of the entity and its environment C. the auditor will work closely with client management to confirm which risk assessment procedures they would prefer the auditor conduct D. the auditor should contact the prior auditor for assistance with this procedure

A. the auditor will have first obtained an understanding of the entity and its environment

The auditor determines the relevance of data by _______. A. the nature of the audit question or assertion being tested B. confirming its relevancy with senior management C. ensuring the data is unrelated to any audit assertion the auditor wishes to test D. inquiring of the internal auditors

A. the nature of the audit question or assertion being tested

Cluster analysis is defined as _______. A. the process of discovering groups (termed clusters in data science) of similar items in a set of data; items in the same group are similar, while items in different groups are not as similar. B. the process of discovering individual pieces of similar items in a set of data; items in the same group are similar, while items in different groups are not as similar. C. analyzing management techniques and administrative policies simultaneously D. determining which package of audit services can be sold to a client at the best possible price

A. the process of discovering groups (termed clusters in data science) of similar items in a set of data; items in the same group are similar, while items in different groups are not as similar.

If an existing customer number is taken from a former customer that no longer does business with the company and is assigned to a new customer, _______. A. this may cause problems with the underlying data analysis B. then no problems should occur and the testing should be straightforward C. this should not complicate or cause issues with the data analysis D. the auditors should generate a new customer number and assign it to the old customer

A. this may cause problems with the underlying data analysis

Visualizations are typically produced _______. A. to reveal information to people B. to assist with inputting complex information into computer systems C. by the client's legal counsel when a lawsuit has been threatened D. by management for the external auditors

A. to reveal information to people

One of the benefits of a regression analysis is _______. A. understanding to what extent independent variables affect the dependent variable B. understanding to what extent dependent variables affect the independent variable C. understanding to what extent independent variables affect other independent variables D. understanding to what extent dependent variables affect other dependent variables

A. understanding to what extent independent variables affect the dependent variable

An issue addressed in the AICPA Guide to Audit Data Analytics is _______. A. what to do when initial investigation identifies a large number of notable items B. what to do when initial investigation identifies a small number of notable items C. how to reconcile data analytics and revenue recognition D. how to ensure adherence to matching of revenues and expenses using audit data analytics

A. what to do when initial investigation identifies a large number of notable items

The auditor should always evaluate evidence _______. A. with a questioning mind and attitude of professional skepticism B. under the assumption that all information is correct C. under the assumption that all information is incorrect D. after senior management has had a chance to review and approve it

A. with a questioning mind and attitude of professional skepticism

Another name commonly given to a regression equation is _______. A. slope line intercept B. a prediction equation C. a statistical variance equation D. a population distribution equation

B. a prediction equation

Regression analysis is _______. A. a non-statistical process which involves estimating a prediction equation that expresses an item of interest (commonly known as the y or dependent variable) in terms of other data fields (the x or independent variables). B. a statistical process which involves estimating a prediction equation that expresses an item of interest (commonly known as the y or dependent variable) in terms of other data fields (the x or independent variables). C. a non-statistical process which involves estimating a prediction equation that expresses an item of interest (commonly known as the x or dependent variable) in terms of other data fields (the y or independent variables). D. a statistical process which involves estimating a prediction equation that expresses an item of interest (commonly known as the x or dependent variable) in terms of other data fields (the y or independent variables).

B. a statistical process which involves estimating a prediction equation that expresses an item of interest (commonly known as the y or dependent variable) in terms of other data fields (the x or independent variables).

It is common for data problems to arise when a company_______. A. has no subsidiaries and has not acquired any other companies B. acquires another company C. changes accounting method D. changes an accounting estimate

B. acquires another company

Audit data analytics can be used _______. A. only at the beginning of the audit B. at virtually any phase of the audit C. only at the end of the audit D. by the internal audit function only

B. at virtually any phase of the audit

AU-C 315, Understanding the Entity and Its Environment, and Assessing the Risks of Material Misstatement, defines risk assessment procedures as _______. A. audit procedures performed to obtain an understanding of the auditor and its environment, including the entity's internal control, to identify and assess the risk of material misstatement at the financial statement level and relevant assertion levels, whether due to error or fraud B. audit procedures performed to obtain an understanding of the entity and its environment, including the entity's internal control, to identify and assess the risk of material misstatement, at the financial statement level and relevant assertion levels - whether due to error or fraud C. any procedure that involves international currency transactions D. any procedure that was performed by the prior auditor, which is repeated by the current auditor

B. audit procedures performed to obtain an understanding of the entity and its environment, including the entity's internal control, to identify and assess the risk of material misstatement, at the financial statement level and relevant assertion levels - whether due to error or fraud

The initial planning of where to use audit data analytics _______. A. is typically left to the internal audit function B. may involve significant audit partner and manager time, or it may be combined with a brainstorming session that involves all members of the audit team C. is a legal question, and should be referred to the client's legal counsel D. is determined solely by the audit partner in charge of the audit

B. may involve significant audit partner and manager time, or it may be combined with a brainstorming session that involves all members of the audit team

As with all audit procedures, auditors must _______. A. pay little attention to the work of the prior auditor on a first-year engagement B. must carefully plan the nature, timing, and extent of audit data analytics (ADA) to be used for each client C. must let the client's management choose the nature, timing, and extent of ADA to be used for each client D. always outsource at least some of the audit work to the internal audit function

B. must carefully plan the nature, timing, and extent of audit data analytics (ADA) to be used for each client

When using cluster analysis, the characteristics of the group _______. A. must be known beforehand, and are determined by the data B. need not be known beforehand, but are determined by the data C. must be known beforehand, but are typically not determined by the data D. need not be known beforehand, and are typically not determined by the data

B. need not be known beforehand, but are determined by the data

An issue that may affect a regression analysis used by an auditor as part of audit data analytics is _______. A. materiality B. seasonality C. faithful representation D. uniformity

B. seasonality

The most appropriate visualization to use, and the best parameters to use for the chosen visualization, _______. A. should be decided by the internal auditors B. should be decided on a case by case basis C. should always be the same in similar circumstances D. should be determined by senior management

B. should be decided on a case by case basis

If the auditor is auditing revenues and identifies gaps in the sequence of pre-numbered sales invoices, _______. A. the auditor is unlikely facing a completeness problem, even if the file reconciles with the general ledger B. the auditor may be facing a completeness problem, even if the file reconciles with the general ledger C. the auditor may be facing a valuation problem, even if the file reconciles with the general ledger D. the auditor is unlikely facing a valuation problem, even if the file reconciles with the general ledger

B. the auditor may be facing a completeness problem, even if the file reconciles with the general ledger

Professional skepticism relates to _______. A. the concept that the auditors should look to make sure all statements and assertions are of substance B. the notion that the auditors should not believe any management assertions until they are proven C. the notion that the auditors should always believe any management assertions D. the notion that the auditor should view the work of the prior auditor with doubt

B. the notion that the auditors should not believe any management assertions until they are proven

The simplest regression is where _______. A. the prediction equation is the lowest value of the data B. the prediction equation is the average of the data C. the prediction equation is the highest value of the data D. the prediction equation has removed any outlying data points

B. the prediction equation is the average of the data

Visualization is defined as _______. A. a synonym for forecasting B. the representation of a data set or key information, such as a chart or another image C. transparency in financial reporting D. the calculation of material variances from predicted amounts

B. the representation of a data set or key information, such as a chart or another image

Some of the risks associated with visualization pertain to _______. A. the extreme accuracy of their results B. the risk that they are created in isolation C. visualizations always being useful and applicable D. no users misinterpreting them

B. the risk that they are created in isolation

When a new company is acquired, _______. A. there is rarely any disruption to accounting and information technology (IT) systems B. there is frequently a period of transition and integration of accounting and IT systems when different formats are introduced C. there is infrequently a period of transition and integration of accounting and IT systems when different formats are introduced. D. the acquiring company's systems are immediately discontinued and replaced with the acquiring company's systems

B. there is frequently a period of transition and integration of accounting and IT systems when different formats are introduced

For audits of very large organizations, the number of notable items _______. A. could number in the hundreds B. could number in the thousands C. could number in the hundreds or thousands D. could number in the millions

C. could number in the hundreds or thousands

The next step after visually observing a linear relationship _______. A. is to observe more data sets to look for different patterns B. is to confirm the relationship with management C. is to confirm by estimating a linear regression D. is to confirm by estimating a slope line intercept value

C. is to confirm by estimating a linear regression

When electronic data is obtained from an outside entity, _______. A. the auditor should assume that it is valid and free from error B. the auditor should assume the data is inaccurate and unreliable C. the auditor should consider the reliability of the data. D. it should be referred to management for vetting, before being submitted to the auditor for analysis

C. the auditor should consider the reliability of the data.

When the auditor uses the 'matching information in key data fields' process, the expectation is that _______. A. there should be minimal variances B. there should always be variances C. there should be no matches D. there should only be variances when two different databases are used

C. there should be no matches

A notable item is an item identified, from the population being analyzed, that has one or more characteristics that, for relevant assertions, may: A. Be indicative of a risk of material misstatement B. Provide information useful in designing procedures to address risks of material misstatement. C. Provide information useful in tailoring procedures to address risks of material misstatement. D. All these answer choices are correct.