AC 401 Exam 2
The assertion that auditors will probably emphasize in the revenue and collection cycle is: a. occurrence. b. completeness. c. accuracy. d. classification
a. occurrence.
Solo, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Hope Inc., and estimated the account balance by projecting the misstatement based on the number of items examined. In selecting her sample of 70 items, she used an expected misstatement of $40,000 and a tolerable misstatement of $65,000. The account balance consisted of 1,050 items totaling $1,200,000. The sample recorded balance was $80,000, and the audited value was $76,000. What conclusion did Solo draw regarding the account balance? a. Accept because the expected misstatement is less than the tolerable misstatement. b. Reject because the expected misstatement is greater than the expected misstatement. c. Accept because the expected misstatement is less than the expected misstatement. d. Reject because the expected misstatement is greater than the tolerable misstatement.
a. Accept because the expected misstatement is less than the tolerable misstatement.
Which of the following is least indicative of fraudulent activity? a. Bank reconciliation has no outstanding checks or deposits older than 15 days. b. Internal auditors cannot locate several credit memos to support reductions of customers' balances. c. Three people were absent the day the auditors handed out the paychecks and have not picked them up four weeks later. d. Numerous cash refunds have been made to different people at the same post office box address.
a. Bank reconciliation has no outstanding checks or deposits older than 15 days.
Which of the following internal control activities most likely would ensure that all billed sales are correctly posted to the accounts receivable ledger? a. Daily sales summaries are compared to daily postings to the accounts receivable ledger. b. Each sales invoice is supported by a prenumbered shipping document. c. The accounts receivable ledger is reconciled daily to the control account in the general ledger. d. Each shipment on credit is supported by a prenumbered sales invoice.
a. Daily sales summaries are compared to daily postings to the accounts receivable ledger.
Alpha Brewery Corporation recorded sales through January 4, 2018, dating them December 31, 2017. This situation is an example of a violation of which of the following assertions? a. Existence or occurrence. b. Completeness. c. Classification. d. Accuracy.
a. Existence or occurrence.
Confirmations of accounts receivable provide the most evidence for which of the following assertions? a. Existence. b. Valuation or allocation. c. Rights and obligations. d. Completeness.
a. Existence.
To determine the sample size for a classical variables sampling application, an audit team should consider the tolerable misstatement, risk of incorrect acceptance, risk of incorrect rejection, population size, population variability, and a. Expected misstatement in the account. b. Overall materiality for the financial statements taken as a whole c. Risk of assessing control risk too low. d. Risk of assessing control risk too high.
a. Expected misstatement in the account.
The financial records of the Movitz Company show that R. Dennis owes $4,100 on an account receivable. An independent audit is being carried out, and the auditors send a positive confirmation to R. Dennis. What is the most likely reason as to why a positive confirmation rather than a negative confirmation was used here? a. Inherent risk was particularly high for accounts receivable. b. Control risk was particularly low for accounts receivable. c. Dennis's account was not with a related party. d. Dennis's account was not yet due.
a. Inherent risk was particularly high for accounts receivable.
For which of the following audit tests would an auditor most likely use attributes sampling? a. Inspecting employee time cards for proper approval by supervisors. b. Selecting accounts receivable for confirmation of account balances. c. Examining invoices in support of the valuation of fixed asset additions. d. Making an independent estimate of the amount of a LIFO inventory.
a. Inspecting employee time cards for proper approval by supervisors.
Which of the following statements best describes nonstatistical sampling? a. Nonstatistical sampling does not allow the auditor to measure the exposure to sampling risk. b. Nonstatistical sampling only selects very large dollar items for examination. c. Nonstatistical sampling should be used only in situations in which the auditor anticipates issuing a qualified or adverse opinion on the client's financial statements. d. Nonstatistical sampling should be used when the auditor selects a substantive audit approach.
a. Nonstatistical sampling does not allow the auditor to measure the exposure to sampling risk.
Which of the following combinations is a good way to conceal employee fraud but an ineffective means of perpetrating management (financial reporting) fraud? a. Overstating sales revenue and overstating bad debt expense. b. Overstating sales revenue and overstating customer accounts receivable balances. c. Understating interest expense and understating accrued interest payable. d. Omitting the disclosure information about related-party sales to the president's relatives at below-market prices.
a. Overstating sales revenue and overstating bad debt expense.
Which of the following should be performed by the persons opening the mail and recording payments? a. Restrictive endorsement on all checks. b. Entering of payment information into customer accounts. c. The preparation of the deposit slip and the delivery of the checks to the bank. d. The segregation of all payments made on accounts listed as past due.
a. Restrictive endorsement on all checks.
In which of the following situations would the use of sampling be most appropriate? a. The need for precise information is less important. b. The number of items comprising the population is smaller. c. The use of sampling would be appropriate in all of these situations. d. The likelihood of selecting a representative sample is relatively low.
a. The need for precise information is less important.
Which of the following statements is correct about monetary unit sampling? a. The risk of incorrect acceptance must be specified. b. Smaller logical units have a higher probability of selection in the sample than larger units. c. Each logical unit in the population has an equally likely chance of being selected in the sample. d. The projected misstatement cannot be calculated when one or more misstatements are discovered.
a. The risk of incorrect acceptance must be specified.
The most effective audit procedure for determining the collectability of an account receivable is the: a. review of the subsequent cash collections. b. examination of the related sales invoice(s). c. confirmation of the account. d. review of authorization of credit sales to the customer and the previous history of collections.
a. review of the subsequent cash collections.
When an audit team traces a sample of shipping documents to the related sales invoice copies, they are trying to find relevant evidence that: a. shipments to customers were invoiced. b. shipments to customers were recorded as sales. c. recorded sales were shipped. d. invoiced sales were shipped.
a. shipments to customers were invoiced.
An erroneous decision to assess control risk at excessively high levels can have an adverse effect on: a. the efficiency of an audit engagement. b. the effectiveness of an audit engagement. c. the validity of an audit. d. the type of report the auditor decides to render.
a. the efficiency of an audit engagement.
If the upper limit on misstatements is calculated at $17,800 and the tolerable misstatement is $15,000, what is the minimum amount of adjustment necessary for the audit team to issue an unmodified opinion on the client's financial statements? a. $0. b. $2,800. c. $4,800. d. $14,800.
b. $2,800.
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 a. $2,000. b. $4,000. c. $5,000. d. $10,000.
b. $4,000.
Which of the following would not cause the audit team to select a larger sample of items under a monetary unit sampling application? a. A reduction in the risk of incorrect acceptance from 10 percent to 5 percent. b. An increase in the tolerable misstatement from $30,000 to $60,000. c. An increase in the expected misstatement from $20,000 to $40,000. d. All of the choices would result in selecting a larger sample.
b. An increase in the tolerable misstatement from $30,000 to $60,000.
To determine whether sales transactions have been recorded in the proper accounting period, the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests? a. Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period. b. Analyze transactions occurring within a few days before and after year-end. c. Confirm year-end transactions with regular customers. d. Examine cash receipts in the subsequent period.
b. Analyze transactions occurring within a few days before and after year-end
_____ sampling methods use normal distribution theory and the central limit theorem to provide a range estimate of the account balance or class of transactions or the misstatement in the account balance or class of transactions. a. Attributes b. Classical variables c. Nonstatistical d. Monetary unit (MUS)
b. Classical variables
Which of the following components of the audit risk model is most closely associated with attributes sampling? a. Audit risk. b. Control risk. c. Detection risk. d. Inherent risk.
b. Control risk.
The client's computerized exception reporting system helps audit teams conduct a more efficient audit because it a. Condenses data significantly. b. Highlights abnormal conditions. c. Decreases the necessary level of tests of computer controls. d. Is an efficient computer input control.
b. Highlights abnormal conditions.
Which of the following is not considered one of the three factors increasing the probability of fraud? a. Motive. b. Lack of training. c. Opportunity. d. Rationalization.
b. Lack of training.
Which of the following statements is true with regard to sampling? a. Sampling can only be used in situations in which the population is relatively homogenous in nature. b. Sampling is typically more efficient than examining the entire population. c. Sampling is typically more effective than examining the entire population. d. Sampling should be used when the need for more precise information is important.
b. Sampling is typically more efficient than examining the entire population.
One of the primary advantages of monetary unit sampling is the fact that a. It is an effective method of sampling for evidence of understatement in asset accounts. b. The sample selection automatically achieves high-dollar selection and stratification. c. The sample selection provides for including a representative number of small-value components. d. Expanding the sample for additional evidence is relatively simple.
b. The sample selection automatically achieves high-dollar selection and stratification.
Which of the following is the audit team's primary objective in selecting an attributes sampling selection method? a. To provide a high probability of selecting at least one item containing a deviation. b. To select a sample that is representative of the population from which it is drawn. c. To select controls applied to larger dollar transactions for examination. d. To select controls applied to transactions that are more likely to contain deviations.
b. To select a sample that is representative of the population from which it is drawn.
Accountants should be under orders to record sales and accounts receivable when: a. the customer's order is received. b. all supporting documentation of shipping is in order. c. the item has been paid for. d. the terms are agreed upon.
b. all supporting documentation of shipping is in order.
A sample selection method in which a series of contiguous items are selected from the population is referred to as: a. haphazard selection. b. block selection. c. systematic random selection. d. unrestricted random selection.
b. block selection.
A sample selection method in which items are selected in a nonsystematic manner is referred to as: a. block selection. b. haphazard selection. c. systematic random selection. d. unrestricted random selection.
b. haphazard selection.
An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the activities by: a. confirmation and observation. b. observation and inquiry. c. analytical procedures and confirmation. d. inquiry and analytical procedures.
b. observation and inquiry.
In sampling, an individual makes a statement about a _____ of interest by examining a _____ (or subset) of items. a. sample; population. b. population; sample. c. sampling unit; population. d. population; sampling unit.
b. population; sample.
To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is: a. supported by a vendor's invoice. b. stamped "paid" by the check signer. c. prenumbered and accounted for. d. approved for authorized purchases.
b. stamped "paid" by the check signer
Lincoln, CPA, selected a sample of 100 items by dividing the population of 100,000 sales invoices by 100. With a random start, she then selected every 1,000th invoice. This selection process is referred to as: a. unrestricted random selection. b. systematic random selection. c. nonstatistical selection. d. judgmental selection.
b. systematic random selection.
An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if: a. the illegal act is a violation of generally accepted accounting principles. b. the client does not take the remedial action that the auditor considers necessary. c. the illegal act was committed during a prior year that was not audited. d. the auditor has already assessed control risk at the maximum level.
b. the client does not take the remedial action that the auditor considers necessary.
Revenues are normally considered to have been earned when: a. all possibility of return has expired. b. the company has substantially accomplished what it must to be entitled to the benefits. c. the cash is collected. d. goods have been shipped.
b. the company has substantially accomplished what it must to be entitled to the benefits.
Custody of inventory is transferred to the shipping area upon authorization of: a. the customer order. b. the shipping order. c. the invoice. d. the purchase order.
b. the shipping order.
When selecting a sample of items to perform a test of controls, all of the following should be true of a representative sample, except a. the transactions have been processed by the entity throughout the year. b. the transactions should be limited to those processed in a specific geographic area. c. the transactions have been processed by different individuals. d. the transactions represent both large and small dollar amounts.
b. the transactions should be limited to those processed in a specific geographic area.
Which of the following responses to an accounts receivable confirmation at December 31 would cause an audit team the most concern? a. "We received this shipment on January 2." b. "The balance does not reflect our sales discount for paying by January 5." c. "These goods were returned for credit on November 15." d. "This amount was paid on December 30."
c. "These goods were returned for credit on November 15."
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 a. $600. b. $900. c. $2,000. d. $3,000.
c. $2,000.
Summitt, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Hero Inc. Which of the following methods of sample selection are available to her? a. Random and systematic only. b. Block and haphazard only. c. Any method she believes will result in a representative sample. d. Any method where the results can be probabilistically estimated.
c. Any method she believes will result in a representative sample.
Which of the following is not correct with respect to sample size? a. As the desired level of sampling risk decreases, the necessary sample size decreases. b. Auditors determine sample size after defining the characteristic of interest and the population of interest. c. In a statistical sampling application, the determination of sample size is used to control the auditor's exposure to nonsampling risk. d. As the expected misstatement (or expected rate of deviation) increases, the necessary sample size increases.
c. In a statistical sampling application, the determination of sample size is used to control the auditor's exposure to nonsampling risk.
An auditor has identified the controller's review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the controller to understand the specific data reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs. Which of the following types of audit procedures do these actions illustrate? a. Observation and inspection of records. b. Confirmation and reperformance. c. Inquiry and inspection of records. d. Analytical procedures and reperformance.
c. Inquiry and inspection of records.
In which of the following situations would the auditor be more likely to use monetary unit sampling as opposed to classical variables sampling? a. Larger expected misstatement: Yes; Concern with overstatements: Yes b. Larger expected misstatement: Yes; Concern with overstatements: No c. Larger expected misstatement: No; Concern with overstatements: Yes d. Larger expected misstatement: No; Concern with overstatements: No
c. Larger expected misstatement: No; Concern with overstatements: Yes
Nonsampling risk normally occurs during which step of the sampling process? a. Defining the population. b. Selecting sample items. c. Measuring sample items. d. Evaluating sample results.
c. Measuring sample items.
Which of the following types of variables sampling plans has a tendency to select higher-dollar items for examination? a. Difference estimation. b. Mean-per-unit estimation. c. Monetary unit sampling. d. Ratio estimation.
c. Monetary unit sampling.
An auditor noted that client sales increased 10 percent for the year. At the same time, Cost of Goods Sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. Based on this information, the auditor interviewed the sales manager, who stated that the increase in sales without a corresponding increase in cost of goods sold was due to a price increase enacted by the company during the year. How would the auditor test the sales manager's representation? a. Send confirmations asking customers about unit prices paid for product. b. Perform additional inquiries with sales personnel. c. Obtain copies of all price lists in use during the year and vouch the prices to sales invoices. d. Vouch vender invoices to payments made after year-end.
c. Obtain copies of all price lists in use during the year and vouch the prices to sales invoices.
Which of the following major stages of the audit is most closely related to variables sampling? a. Determining preliminary levels of performance materiality. b. Performing tests of controls procedures. c. Performing substantive procedures. d. Searching for the possible occurrence of subsequent events.
c. Performing substantive procedures.
Which of the following appropriately describes the effect of sample size on sampling risk? a. Selecting a larger sample increases sampling risk. b. Selecting a smaller sample decreases sampling risk. c. Selecting a smaller sample increases sampling risk. d. The size of a sample is unrelated to sampling risk.
c. Selecting a smaller sample increases sampling risk.
A client has a separate sales group for its largest "preferred" customers, a select group of customers who normally make purchases in excess of $250,000 and often have accounts receivable balances in excess of $1 million. Which of the following audit procedures would the auditor most likely perform? a. Prepare a schedule of purchases and payments for these customers. b. Send out negative confirmations on a large sample of these customers. c. Send out positive confirmations on a large sample of these customers. d. Inquire of the sales manager regarding the accounts receivable terms.
c. Send out positive confirmations on a large sample of these customers.
What is one of the primary benefits of stratifying a population? a. Stratifying the population allows different types of audit procedures to be performed on larger and smaller transactions or components. b. Stratifying the population allows the auditor to have a higher likelihood of reaching a favorable conclusion with respect to the client's financial statements. c. Stratifying the population allows the auditor to reduce the necessary sample size. d. Stratifying the population reduces the auditor's exposure to nonsampling risk.
c. Stratifying the population allows the auditor to reduce the necessary sample size.
Which of the following would be an example of an action that exposes an auditor to nonsampling risk? a. The audit team uses professional judgment in evaluating sample results. b. The audit team limits the selection of sample items to larger dollar balances in an account. c. The audit team uses an inappropriate type of audit procedure to evaluate sample evidence. d. The audit team draws a sample of transactions from throughout the entire period under audit.
c. The audit team uses an inappropriate type of audit procedure to evaluate sample evidence.
Which of the following is not a valid reason for an auditor deciding not to send accounts receivable confirmations? a. The balance is immaterial. b. Confirmations would be ineffective. c. The client requests alternative procedures be performed instead. d. Other procedures provide sufficient competent evidence.
c. The client requests alternative procedures be performed instead.
Which of the following statements best describes the impact on an audit when a client uses computerized processing of transactions? a. The objective of the audit examination focuses on detection of fraud and theft through the computer. b. The type of substantive procedures performed by the audit team change because of the use of computerized processing. c. The effectiveness of computer controls implemented by the client over its computerized processing may need to be evaluated by audit teams. d. Different independence standards are introduced for audit teams when clients utilize computerized processing.
c. The effectiveness of computer controls implemented by the client over its computerized processing may need to be evaluated by audit teams
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 a. The incorrect rejection decision impairs the efficiency of the audit. b. The audit team will do additional work and discover the misstatement of the incorrect decision. c. The incorrect acceptance decision impairs the effectiveness of the audit. d. Sufficient appropriate audit evidence will not have been obtained.
c. The incorrect acceptance decision impairs the effectiveness of the audit.
Which of the following audit procedures is the most effective in testing sales for understatement? a. Analyze the aged trial balance of recorded accounts receivable. b. Confirm recorded accounts receivable. c. Trace a sample of shipping documents to sales invoices recorded in the sales journal. d. Vouch a sample of recorded sales from the sales journal to shipping documents.
c. Trace a sample of shipping documents to sales invoices recorded in the sales journal.
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? a. Overstating the accounts receivable subsidiary ledger. b. Overstating the accounts receivable control account. c. Understating the sales journal. d. Overstating the sales journal.
c. Understating the sales journal.
If the _______ is less than the _______, the audit team would conclude that the account balance is fairly stated. a. Projected misstatement; tolerable misstatement. b. Tolerable misstatement; projected misstatement. c. Upper limit on misstatements; tolerable misstatement. d. Tolerable misstatement; upper limit on misstatements.
c. Upper limit on misstatements; tolerable misstatement.
Mary Todd is auditing White House Furniture. In selecting a sample of purchases, she finds that a purchase order is missing. She should: a. select another purchase to test. b. have the client recreate the purchase order. c. consider the sample item a deviation. d. ask the client if the purchase was authorized.
c. consider the sample item a deviation.
The sample size for a test of controls varies inversely with: a. expected population deviation rate: No; tolerable rate of deviation: No. b. expected population deviation rate: Yes; tolerable rate of deviation: No. c. expected population deviation rate: No; tolerable rate of deviation: Yes. d. expected population deviation rate: Yes; tolerable rate of deviation: Yes.
c. expected population deviation rate: No; tolerable rate of deviation: Yes.
The document that generates recording of a sale is the: a. customer order. b. shipping order. c. invoice. d. purchase order.
c. invoice.
An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to: a. Eliminate nonsampling risk. b. reduce the level of audit risk and overall materiality to a relatively low level. c. measure the sufficiency of the evidence gathered. d. minimize the failure to detect misstatements and irregularities.
c. measure the sufficiency of the evidence gathered.
The method of sample selection in which a random starting point is selected and a fixed number of items are bypassed prior to the next item being selected is referred to as: a. block selection. b. haphazard selection. c. systematic random selection. d. unrestricted random selection.
c. systematic random selection.
The maximum rate of deviation that may exist in the operation of a control policy or procedure before the auditors would reduce reliance on internal control is referred to as: a. acceptable rate of deviation. b. upper limit rate of deviation. c. tolerable rate of deviation. d. control risk.
c. tolerable rate of deviation.
Place the following steps in the sampling process in the order in which they are performed. 1 = Measure sample items 2 = Select sample items 3 = Define the population a. 1, 2, 3. b. 3, 1, 2. c. 2, 1, 3. d. 3, 2, 1.
d. 3, 2, 1.
Which of the following is true with respect to fraud risk factors in an IT environment? a. Employees in an IT environment are highly skilled. b. Audit teams cannot evaluate the accounting information system during the year. c. Higher dollar amounts are involved in an IT environment. d. Employees have increased access to information systems and computer resources in an IT environment.
d. Employees have increased access to information systems and computer resources in an IT environment
Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily to: a. Test the accuracy of recorded charge sales. b. Evaluate internal control over credit sales. c. Verify the existence of the recorded receivables. d. Estimate credit losses.
d. Estimate credit losses.
In order for auditors to be able to recognize potential fraud, they must be aware of the basic characteristics of fraud. Which of the following is not a characteristic of fraud? a. Intentional deception. b. Taking unfair or dishonest advantage of other people. c. Perpetration for the benefit or detriment of the organization. d. Negligence on the part of executive management.
d. Negligence on the part of executive management.
Which of the following accounts is not normally part of the revenue and collection cycle? a. Sales. b. Accounts Receivable. c. Cash. d. Purchases Returns and Allowances.
d. Purchases Returns and Allowances.
Which of the following situations is true with respect to sampling? a. Sampling results in a tradeoff of efficiency for greater effectiveness. b. Sampling is most useful when the need for exact information is very important. c. A well-designed sample can appropriately limit the exposure to nonsampling risk. d. Sampling is more appropriate when the number of items comprising the population is relatively large.
d. Sampling is more appropriate when the number of items comprising the population is relatively large.
When determining sample size under monetary unit sampling, an audit team does not need to make a judgment or estimate of a. Audit risk. b. Tolerable misstatement. c. Expected misstatement. d. Standard deviation.
d. Standard deviation.
Which of the following is not an advantage of statistical sampling? a. Statistical sampling provides auditors with a sufficient sample size that controls exposure to sampling risk. b. Statistical sampling uses selection methods that expose all items in the population to selection. c. Statistical sampling evaluates the sample evidence in such a manner that controls exposure to sampling risk. d. Statistical sampling deploys audit procedures that allow auditors to more effectively evaluate evidence.
d. Statistical sampling deploys audit procedures that allow auditors to more effectively evaluate evidence.
Which of the following types of sampling applications can appropriately be used under generally accepted auditing standards? a. Statistical sampling: No; Nonstatistical sampling: Yes b. Statistical sampling: No; Nonstatistical sampling: No c. Statistical sampling: Yes; Nonstatistical sampling: No d. Statistical sampling: Yes; Nonstatistical sampling: Yes
d. Statistical sampling: Yes; Nonstatistical sampling: Yes
Which of the following statements is true when selecting a sample of invoices from a population to perform tests of controls? a. The audit team should select a few more items than needed to replace any cases in which an invoice is missing or destroyed. b. If the audit team wishes to use statistical sampling, either block or haphazard selection is appropriate. c. Computerized audit techniques can be used to define the population but not to select sample items. d. The audit team's goal in selecting a sample is to increase the likelihood that it is representative of the population.
d. The audit team's goal in selecting a sample is to increase the likelihood that it is representative of the population.
Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded? a. The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances. b. The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly. c. The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers. d. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.
d. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.
The unique feature of monetary unit sampling is that a. Sampling units are not chosen at random. b. A dollar unit selected in a sample is not replaced before the sample selection is completed. c. Auditors need not worry about the risk of incorrect acceptance decision. d. The population is defined as the number of monetary units in an account balance or class of transactions.
d. The population is defined as the number of monetary units in an account balance or class of transactions.
When evaluating the results of an MUS application, the audit team should compare the upper limit on misstatements to the a. Expected misstatement. b. Incremental allowance for sampling risk. c. Projected misstatement. d. Tolerable misstatement.
d. Tolerable misstatement.
Which of the following statements is not true regarding variables sampling? a. Two approaches to variables sampling are monetary unit sampling and classical variables sampling. b. Both statistical and nonstatistical approaches to variables sampling can be used under GAAS. c. The objective of variables sampling is to estimate either the true balance or the extent of misstatement in an account balance or class of transactions. d. Variables sampling is appropriate when the distribution of the population is binary in nature.
d. Variables sampling is appropriate when the distribution of the population is binary in nature.
An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using: a. employee fidelity bonds. b. independently prepared mailroom prelists. c. daily check summaries. d. a bank lockbox system.
d. a bank lockbox system.
The purpose of tests of controls is to determine that: a. the extent of further audit procedures can be reduced. b. errors and irregularities are prevented or detected in a timely manner. c. the auditor has an understanding of internal control. d. internal control policies and procedures are functioning as prescribed
d. internal control policies and procedures are functioning as prescribed
In determining the adequacy of the allowance for uncollectible accounts, the least valuable evidence would be obtained from: a. an aging schedule of past due accounts that the auditor has tested. b. correspondence with the client's collection agency. c. financial statements of individual customers. d. no reply to negative confirmations.
d. no reply to negative confirmations.
The probability that an auditor's conclusion based on a sample might be different from the conclusion based on the entire population identifies the concept of: a. confidence levels. b. nonsampling risk. c. nonstatistical sampling. d. sampling risk.
d. sampling risk.
If the auditor were interested in ensuring that all sales have been recorded, the population would be defined as: a. entries in the cash receipts journal. b. entries in the general journal. c. remittance advices. d. shipping documents.
d. shipping documents.
The process of subdividing a population into more homogeneous subgroups is known as: a. classification. b. identification. c. sampling. d. stratification.
d. stratification.
Which of the following statements is correct with respect to the elements of the "fraud triangle"? a. Motive is a cause that pressures people into action. b. Opportunity refers to a situation that allows someone with motive to carry out fraud. c. A lack of integrity describes a person who does not stick to the social or organizational ethical code. d. Fraud is most common when these three factors exist together. e. All of these statements are correct.
e. All of these statements are correct.
