ACCT 401

Which audit assertion is A/R Aging Schedule most useful in testing? A. Valuation/allocation B. Completeness C. Cutoff D. Existence

A Feedback: A/R Aging schedule shows long-overdue receivables for which the valuation allowance adequacy concern is typically is strongest (valuation/allocation assertion)

Leases classification test requires auditors to _____________ A. carefully read underlying contracts and analyze proper application of lease classification rules under GAAP B. do subsequent receipts test C. do subsequent disbursement test

A Feedback: to check whether a lease was properly classified an auditor needs to know the terms of the lease in order to be able to apply "four criteria" of the capital lease classification (i.e. transfer of ownership, bargain purchase, 75% useful life test, and 90% present value of payments test). This information is primarily found in the underlying lease contract.

Which working paper is most likely to discuss aggregate changes in A/R over the accounting period? A. A/R Lead Schedule B. A/R Trial Balance C. Detailed A/R Aging

A. A/R Lead Schedule Feedback: Lead schedule (account summary) workpaper typically discusses aggregate accounts changes

Changes in which financial ratio is more likely to suggest problems with collection of accounts receivable? A. A/R Turnover ratio B. Inventory turnover C. Gross Margin

A. A/R Turnover ratio Feedback: Material declines in A/R Turnover could indicate difficulties collecting receivables

High level summary workpaper showing and explaining changes in cash accounts during the period under audit is called A. Cash lead schedule B. Bank reconciliation C. Cash deposit schedule D. Cash confirmation

A. Cash lead schedule Feedback: Lead (summary) schedules are typically the first workpaper addressing a particular audit area. Lead schedule cross-references the tests in supporting workpapers and is also tied to a trial balance. Lead schedule also typically discusses analytical procedures explaining aggregate periodic changes in an account balance.

To calculate the upper deviation limit, the auditor needs to _____________(insert the appropriate response) allowance for sampling error to sample deviation rate A. add B. subtract

A. add

The primary type of audit evidence for sufficiency of the annual depreciation expense is___________ A. analytical procedures and accuracy testing B. tracing C. vouching

A. analytical procedures and accuracy testing

Higher Expected Population Deviation Rate (EPDR) implies that the auditor needs to typically select _________________ (insert the appropriate response) sample size A. higher B. lower

A. higher Feedback: higher EPDR implies that an auditor suspects that there are more problems in the population, so needs to test more and thus choose larger sample

When tolerable deviation rate (TDR) is ________ (insert the appropriate choice), the amount of audit evidence collected is typically higher. A. lower B. higher

A. lower Rationale: The tolerable deviation rate is the largest percentage variance experienced in audit sampling that an auditor will accept to rely upon a specific control. If the deviation rate is higher than this threshold value, then the auditor cannot rely upon the control.

The primary audit test of audit assertion of completeness of current liabilities typically is _____________ A. subsequent disbursement test B. liquidation test C. subsequent receipt test D. confirmation

A. subsequent disbursement test

When auditors test liabilities, the primary risk they address is that of _______________ A. understatement B. overstatement

A. understatement

Type 2 error refers to the risk of incorrect Acceptance rejection

Acceptance

Testing of bank reconciliation involves a. Vouching deposits in transit b. Tracing checks that cleared the bank after year end for proper inclusion/exclusion in (from) outstanding checks listing c. Checking whether material bank adjustments for fees were properly accounted for in the general ledger d. All of the above

All of the above

When obtaining information from the client regarding cash balances to be confirmed, the auditor should a. Send out confirmations herself b. Perform reasonable procedures to verify that the financial institutions that the client reports as custodians of her bank accounts exist, and their addresses are correct c. Pay particular attention to any unusual information on client's banks, such as P.O. Box addresses d. All of the above

All of the above

Which of these two types of sampling generally refer to sampling procedures during the tests of internal controls? Attribute sampling Variable sampling

Attribute sampling

Systematic sampling is an example of ______________ (insert the appropriate choice) sampling technique A. non-statistical B. statistical

B. statistical

An example of off-balance sheet debt is A. A regular mortgage loan disclosed on a bank confirmation B. Accrued electricity bill C. A guarantee of another firm's loan

C. A guarantee of another firm's loan Feedback: A financial guarantee is a classic example of off-balance sheet debt. A financial guarantee represents a potential economic obligation which is not necessarily directly evident from underlying general ledger transactions.

When an auditor tests for proper accounting for equipment disposals and retirements, an auditor is primarily concerned with the testing of the audit assertion of ________________ A. Existence B. Valuation and allocation C. Completeness

C. Completeness

The main audit assertion associated with testing depreciation expense and accumulated depreciation is that of _______________ A. Existence B. Rights and obligation C. Valuation and allocation

C. Valuation and allocation

The primary audit assertion in testing liabilities is _______________ A. valuation and allocation B. existence C. completeness

C. completeness

Which type of audit test is typically attempted first if an attempted confirmation of accounts receivable is not successful? A. obtaining additional documentation (e.g. shipping and receiving documents) supporting the sale for which cash was not yet received. B. subsequent disbursement test C. subsequent receipt test (along with the other documentation verifying the original sale)

C. subsequent receipt test (along with the other documentation verifying the original sale)

What is the name of the audit work paper that summarizes changes in cash accounts, provides explanations to those changes, and ties out to bank reconciliation? Cash summary Proof of cash Cash lead schedule

Cash lead schedule

Which audit assertion is satisfied tracing checks that cleared the bank after year end to the outstanding checks listing for proper inclusion/exclusion? a. Completeness b. Valuation and allocation c. Existence/occurrence d. cutoff

Completeness

Preparing a bank transfer schedule for any transfers between bank accounts around the end of the year satisfies which audit assertion(s)? a. Existence b. Completeness c. Cutoff d. Presentation and disclosure

Cutoff - under GAAS Existence and Completeness - under PCAOB

Which type of accounting will typically subject to impairment testing? A. Prepaid expenses B. Loans C. Cash D. Goodwill

D. Goodwill

Choose a type of audit test when audit sampling is NOT appropriate A. deciding which cash disbursements to trace back to accounts payable subledger B. trying to decide which controls over inventory to test C. selecting invoices for testing from accounts receivable subledger D. analytical procedures

D. analytical procedures

An auditor needs to carefully lease agreements because leases disclosed as __________ may be mis-classified, and a resulting liability on the balance sheet may be _____________ A. capital; understated B. operating; overstated C. capital; overstated D. operating; understated

D. operating; understated

In testing controls, if observed sample deviation rate results in the estimate of upper deviation rate exceeding tolerable deviation rate, then the auditor should conclude that observed evidence _________ her initial assessment of lower control risk Supports Does not support

Does not support

Which audit assertion is the most important one in auditing cash? A. Valuation/allocation B. Completeness C. Presentation/disclosure D. Existence

Existence

Which audit assertion is satisfied by vouching deposits in transit? a. Completeness b. Valuation and allocation c. Existence/occurrence d. cutoff

Existence/occurrence

Which audit assertion(s) is (are) most relevant to the audit of cash? Completeness Valuation and allocation Presentation and disclosure Existence/occurrence

Existence/occurrence

An auditor can completely eliminate SAMPLING risk by following auditing standards True False

False

An auditor must keep sending A/R confirmation requests until they eventually get a response True False

False

An auditor observes that a sample deviation rate (SDR) is 0.1. Upper deviation limit (UDL) is 0.15. Tolerable deviation rate is 0.12. An auditor can accept the test results (i.e. conclude that "nothing is wrong"). True False

False

Attribute sampling is appropriate for account balances denominated in dollars and is normally used in substantive tests True False

False

Audit sampling is a concept closely related ABSOLUTE assurance provided by auditors True False

False

Auditors routinely confirm significant revenue transactions just like they confirm receivables True False

False

Bank reconciliation testing deals only with existence assertion over COMPONENTS of cash balances True False

False

Contingent liabilities (CL) related to potential litigation are PRIMARILY tested through Search for Unrecorded Liabilities True False

False

Cutoff bank statement covers the period prior to year end True False

False

Effective segregation of duties is an important DETECTIVE internal control over cash True False

False

Higher expected population deviation rate (EPDR) typically suggests that an auditor should set higher Tolerable Deviation Rate (TDR) True False

False

Higher sampling risk implies lower allowance for sampling error. True False

False

If a bank confirmation discloses that an audit client must maintain a minimum balance in the bank as a deposit on an existing loan, the cash account covering this deposit must be included in cash and cash equivalents on the balance sheet True False

False

In order to recognize revenue, it is sufficient for it only be realizable True False

False

Manipulating bill and hold arrangements requires sending unwanted orders to customers in the end of the year True False

False

Merely vouching the deposit in transit to the cutoff bank statement is sufficient that conclude that the deposit in transit is properly included on the bank reconciliation True False

False

Testing for asset impairment is related to the audit assertion of existence True False

False

The direction of Search for Unrecorded Liabilities is from recorded payments BEFORE year end to the detailed accounts payable listing True False

False

The primary purpose of a cash confirmation is to test completeness assertion over the cash balance True False

False

To assess whether A/R may have collection problems, it is best to test A/R Aging Schedule on the aggregate basis True False

False

When testing outstanding checks, it is sufficient to agree them to the cutoff bank statement, showing that they cleared the bank after the end of the year True False

False

Lower sampling risk is associated with higher detection risk True False

False Feedback: Lower sampling risk implies the test is MORE precise. That is, detection risk is LOWER.

A/R Turnover ratio is defined as Gross Margin/Average A/R True False

False Feedback: A/R Turnover Ratio=Sales/Average A/R

When applying random sample selection in trying to obtain a representative sample, an auditor should always keep increasing sample size as long as population size increases True False

False Feedback: After a certain threshold, population size increase does not require increasing randomly selected sample size (a result of Law of Large Numbers in statistics)

Embezzlement refers to financial statement fraud True False

False Feedback: Embezzlement refers to a form of white-collar crime in which a person or entity misappropriates the assets entrusted to him or her. In this type of fraud, the embezzler attains the assets lawfully and has the right to possess them, but the assets are then used for unintended purposes

Completeness is the primary audit assertion tested in revenue/receivables cycle True False

False Feedback: Existence is the primary audit assertion tested in revenue/receivables cycle

Cash confirmation typically only contains information about cash balances held by depository institutions (i.e. banks) True False

False Feedback: It also contains information on any bank loans and compensating balances (restricted cash accounts)

An auditor receives a confirmation response showing that the material amount recorded on the client's books is different than what the customer believes she owes. This is a sure sign of accounting fraud True False

False Feedback: It could be but not necessarily. For example, the client may have paid the bill after the year end, and did not pay attention to the fact that the confirmation is asking to confirm the balance before year end. So before automatically assuming the presence of fraud, an auditor must understand the nature of the potential exception and see if it can be explained by other factors.

Off-balance sheet debt is primarily tested through confirming liabilities with the financial institutions (e.g. banks) that provided underlying loans. True False

False Feedback: Off-balance sheet debt is typically not a regular loan which can be confirmed, and an auditor would not know about it from just looking at a trial balance. An auditor needs to do special inquiries with management, read board of director minutes and attempt to identify any sort of unusual transactions/payments in order to find evidence of off-balance sheet debt.

Loans shown on the balance sheet represent a type of off-balance sheet debt. True False

False Feedback: Off-balance sheet debt represents economic obligations NOT shown on the balance sheet.

Negative accounts receivable confirmations are preferred over positive accounts receivable confirmations True False

False Feedback: Positive (i.e. always asking for a response) confirmations are generally more preferred over negative confirmations. Negative confirmations are only OK if control risk and risk of material misstatement are low.

Deposits in transit are primarily tested via tracing True False

False Feedback: tracing is finding the origin

Probability of incorrect rejection is more serious than probability of incorrect acceptance. True False

False Rationale: The incorrect rejection decision impairs the effectiveness of the audit, it more serious the probability of incorrect acceptance.

The fraud triangle suggests that if any of its components are present, the fraud is much more likely to arise True False

False The fraud triangle consists of three components: (1) Opportunity, (2) Incentive, and (3) Rationalization.

Higher materiality limit is associated with ________tolerable deviation rate Higher lower

Higher

If an auditor's expected population deviation rate is higher, then generally sample size should be Higher lower

Higher

When an auditor judgmentally selects items to be tested as part of her sampling, she performs Statistical sampling Random sampling Haphazard sampling Non-statistical sampling

Non-statistical sampling

In the course of the discussion with the client's controller the auditor finds out that the client is required to maintain a minimum balance of $100,000 in one of their cash accounts as part of the loan agreement with the same bank. This finding has implications for satisfying which audit assertion? a. Completeness b. Valuation and allocation c. Existence/occurrence d. Presentation and disclosure

Presentation and disclosure need to restrict cash

Which audit procedure requires obtaining cutoff bank statement? a. Testing of bank confirmation b. Testing of proof of cash c. Testing of bank reconciliation

Testing of bank reconciliation

In the course of audit of cash, the auditor finds out that the cash clerk was able to use client cash funds to pay for her own lavish personal expenses. This finding means that a. There is a financial statement fraud, and unqualified audit opinion cannot be issued b. The auditor should immediately go to the police with this finding c. The auditor should reconsider relying on a client's internal controls and/or increase tests of controls d. The auditor should report this finding immediately to her own supervisor, document the finding in the working papers, and the audit partner in charge of the engagement must report this finding to the clerk's supervisor and to the client's audit committee

The auditor should report this finding immediately to her own supervisor, document the finding in the working papers, and the audit partner in charge of the engagement must report this finding to the clerk's supervisor and to the client's audit committee

Auditing A/R Balances, in conjunction with other procedures (e.g. analytical procedures) also provides comfort over revenue amounts in the income statement True False

True

Bank reconciliation ties out (connect) cash lead schedule and cash confirmation True false

True

Outstanding checks are primarily tested via tracing True False

True

References to audit sampling are part of standard audit opinion language True False

True

Sampling is generally not appropriate if an auditor can test certain transactions in their entirety without unreasonable costs True false

True

Statistical sampling allows for mathematical quantification of the sampling error True false

True

Statistical sampling generally requires some sort of a random selection procedure applied to items being tested True False

True

Testing a representative sample generally results in inferences that an auditor would obtain if she tested the whole population True false

True

Representative sample is the one that closely resembles the population being sampled True False

True Feedback :this is the definition of the representative sample

Bank reconciliation has to tie out to both cash lead schedule and cash confirmation True False

True Feedback: Balance per bank has to agree to bank confirmation and balance per books has to agree to general ledger (i.e. lead schedule balance)

Higher sampling risk is associated with higher audit risk True False

True Feedback: Because higher sampling risk is associated with less precise tests, this implies that the probability of issuing an "incorrect" audit opinion is higher.

Lower tolerable deviation rate is associated with higher assurance level True False

True Feedback: Lower TDR means an auditor is willing to be wrong less frequently. This is the meaning of higher assurance level.

search for unrecorded liabilities (SUL) provides evidence on proper cutoff of recorded expenses True False

True Feedback: SUL provides evidence on the recording of liabilities in proper time period, and hence it is a cutoff test

A typical format of the bank reconciliation goes as follows: Balance Per Bank+Deposits in Transit-Outstanding Checks+/-Other Adjustments=Balance Per books (G/L) True False

True Feedback: This is a typical format of a bank reconciliation

Higher tolerable deviation rate (TDR) is associated with higher materiality level True False

True Feedback: When TDR is higher, auditor is willing to accept being wrong more frequently. Same is true when materiality is higher.

Type 1 error (probability of incorrect rejection) is associated with higher audit costs True False

True Feedback: this is because the auditor will likely do too many unnecessary tests (because perhaps the first test turns out to produce "bad" results needlessly)

Which of these two types of sampling generally refer to sampling procedures during the tests of dollar account balances? Attribute sampling Variable sampling

Variable sampling

An auditor notices that the client has a very large bank account in Cayman Islands (or similar off shore jurisdiction). The auditor should a. Treat this bank account as any other b. View this account as more risky and increase audit procedures related to this account.

View this account as more risky and increase audit procedures related to this account.

When an auditor wants to test repair and maintenance expense, she will mainly use a. Analytical procedures b. Confirmation c. Re-performance d. inquiry

a. Analytical procedures

When an auditor tests disposals/retirements of property, plant, and equipment, the primary audit assertion tested is: a. Completeness b. Existence c. Presentation and disclosure

a. Completeness

Significant related party revenue and receivable transactions increase audit risk because a. They are not "arms length" b. They relate to customers in the same industry c. Related parties could be committing fraud and concealing it through fictitious journal entries d. A company may want to manage earnings through related party transactions when it is under pressure to meet earnings targets

a. They are not "arms length" c. Related parties could be committing fraud and concealing it through fictitious journal entries d. A company may want to manage earnings through related party transactions when it is under pressure to meet earnings targets

An auditor receives bank confirmation back in a fax. This presents an audit red flag a. True b. false

a. True

Auditor gains comfort over audit of revenue by detailed testing AR, doing analytical procedures over revenue, and through satisfactory controls testing a. True b. false

a. True

Lawyer's letters is the primary determinant of how one treats litigation-related contingencies a. True b. false

a. True

Reading minutes of the board of directors helps in contingent liabilities testing a. True b. false

a. True

SAS 70 report represents a report of the internal controls of the third party vendor to which the client outsources her accounting services, such as payroll a. True b. false

a. True

When risk of fraud is suspected, detailed testing of revenue transactions, such as examining significant revenue journal entries is appropriate a. True b. false

a. True

When sending out confirmations, an auditor should attempt to confirm all significant material customer balances a. True b. false

a. True

Which one of the following items represents contingent liability? a. Warranty reserve b. Un-asserted claim or assessment c. The potential loss from litigation

a. Warranty reserve c. The potential loss from litigation

Search for unrecorded liabilities is typically performed a. Before year end b. After year end

b. After year end

When auditor tests additions to property, plant, and equipment, the primary audit assertion tested is: a. Completeness b. Existence c. Presentation and disclosure

b. Existence

In the course of audit of cash, the auditor realizes that the publicly traded US client was paying illegal kickbacks to some officials overseas. The auditor should a. Withdraw from the engagement immediately b. If material, report the matter to the SEC under provisions of Section 10A of the 1934 SEC Act c. Document finding in the working papers, and immediately inform the client's audit committee about this finding d. Reconsider relying on the client's internal controls

b. If material, report the matter to the SEC under provisions of Section 10A of the 1934 SEC Act c. Document finding in the working papers, and immediately inform the client's audit committee about this finding

An auditor may choose to confirm accounts payable a. All the time b. If payable accounts have a large population represented by small balances c. When there is a cause for concern that a client may want to overstate expenses, and there are some very significant payable accounts

b. If payable accounts have a large population represented by small balances

In the course of making your inquiries about the client, an auditor finds out that the client's controller whose salary is $60,000 is also a professional horse breeder and a ranch owner. To the controller does not have other obvious sources of income. This knowledge: a. Should not concern the auditor as the controller is widely viewed as possessing high integrity and is a pillar of her community b. Increase an auditor's concern with possible risk of embezzlement by the controller and therefore lead the auditor to increase the extent of her audit procedures that cover that risk c. Should immediately force the auditor to go to the police d. Lead the auditor to consider relying on client's controls less and be more skeptical with respect to any information obtained from the controller, or information under the controller's purview

b. Increase an auditor's concern with possible risk of embezzlement by the controller and therefore lead the auditor to increase the extent of her audit procedures that cover that risk d. Lead the auditor to consider relying on client's controls less and be more skeptical with respect to any information obtained from the controller, or information under the controller's purview

Long term liabilities such as bank loans are typically tested using a. Search for unrecorded liabilities b. Lender confirmations c. Examining loan agreements and amortization schedules d. Analytical procedures

b. Lender confirmations

A client is in industry that is experiencing a significant macro-economic decline. This reduces risk of fraud a. True b. false

b. false

AR lead schedule contains detailed listing and aging of accounts receivables a. True b. false

b. false

AR trial balance contains top level summary of changes in AR balance during the year. a. True b. false

b. false

Accounts receivable turnover ratio is defined as Sales/Average Gross Margin a. True b. false

b. false

An auditor is required to confirm large significant revenue transactions a. True b. false

b. false

An auditor notices that the majority of a client's funds are accumulated in a single bank account. This represents a red flag. a. True b. false

b. false

Auditors can choose among a menu of options to audit receivables, i.e. there are no required receivables tests a. True b. false

b. false

Auditors typically do not test operating lease agreements because operating leases do not require recognition on balance sheet a. True b. false

b. false

Client suggests they can send out AR confirmations on an auditor's behalf. This is acceptable a. True b. false

b. false

Client's customer wants to fax you back the AR confirm. It is OK to accept it: a. True b. false

b. false

In a large company with sufficient resources, it is OK for the same accounting clerk to be responsible for depositing customer checks and be responsible for credit management a. True b. false

b. false

It is OK not to confirm cash balances because obtaining a bank statement from the client is sufficient a. True b. false

b. false

Negative confirmations can be sent out when control risk over receivables is high a. True b. false

b. false

Search for unrecorded liabilities involves tracing payments made before the end of the year to their supporting documents a. True b. false

b. false

Subsequent receipts testing involves tracing AR balances back to year end bank statement a. True b. false

b. false

The most common way to test payroll expense is to observe observation of payroll checks to employees a. True b. false

b. false

The preferred order of receivables tests is a) subsequent receipts tests b) confirmation c) examination of other supporting documentation a. True b. false

b. false

The typical order of AR workpapers is: a) AR trial balance b) AR lead schedule c) testing of AR aging d) AR confirmations e) alternative tests of receivables f) subsequent disbursement tests a. True b. false

b. false

Warranty reserve is primarily tested through confirmation of liabilities a. True b. false

b. false

An auditor receives confirmation back with the confirmed balance different than stated in the client's general ledger. This means: a. There is material misstatement of AR balance b. An auditor cannot accept the confirmation and has to treat it as an exception c. An auditor has to investigate the difference by first inquiring with the client if there is a reasonable explanation for the difference (e.g. customer payment was received after the end of the year

c. An auditor has to investigate the difference by first inquiring with the client if there is a reasonable explanation for the difference (e.g. customer payment was received after the end of the year

Accrued expenses are typically tested by a. Confirmation b. Inquiry c. Analytical procedures d. Subsequent receipts tests e. Subsequent disbursement test

c. Analytical procedures

An auditor notices that a client AR trial balance does not directly tie to the final AR general ledger balance because there are significant top level journal entries posted right before year end. An auditor should: a. Take no further action since she confirmed all material receivables b. Check whether similar entries were posted last year, and assuming they were pass on further testing c. Obtain clear explanation from management along with supporting documentation explaining the need for these entries.

c. Obtain clear explanation from management along with supporting documentation explaining the need for these entries.

The primary audit test used in audits of accounts payable is called: a. Subsequent receipts test b. Confirmation of payables c. Subsequent disbursement test d. Search for unrecorded liabilities

c. Subsequent disbursement test d. Search for unrecorded liabilities

The most important audit assertions related to the audit of receivables and revenue are: a. Completeness b. Presentation and disclosure c. Valuation and allocation d. Existence/occurrence e. cutoff

c. Valuation and allocation d. Existence/occurrence

An auditor notices that a client's AR balance increased much more significantly than customer revenue. This could suggest: a. Presence of fictitious receivables b. Presence of uncollectible receivables c. Slowdown in collections due to customer distress d. All of the above

d. All of the above

When auditing allowance for doubtful accounts the auditor could focus on which of the following tests? a. Changes in patterns of buckets of aging in accounts receivables b. Significant changes in AR turnover (days in receivables) c. Changes in patterns of ratio of AR Write-offs to Gross Sales d. All of the above

d. All of the above

When an auditor wants to test adequacy of the depreciation expense, she typically accomplishes it by a. Confirmation b. Client inquiries c. Re-performance d. Analytical procedures

d. Analytical procedures

Off-balance sheet debt a. Must always be put back on the balance sheet b. Can be tested for primarily through analytical procedures c. Can be tested through search for unrecorded liabilities d. Requires detailed examination of supporting documentation, such as contracts, and other evidence which may suggest existence of such debt, such as board of director minutes

d. Requires detailed examination of supporting documentation, such as contracts, and other evidence which may suggest existence of such debt, such as board of director minutes

When an auditor tests adequacy of depreciation expense, she is primarily concerned with the audit assertion of: a. Completeness b. Existence c. Presentation and disclosure d. Valuation and allocation

d. Valuation and allocation

When auditing accounts payable, the most important audit assertion tested is: a. Existence b. Valuation and allocation c. Presentation and disclosure d. completeness

d. completeness

Alternative procedures to verify receivables ideally require checking which of the following documents: a. Original sales order b. Shipping report that shows quantity and types of goods shipped c. Original sales contract stipulating price of goods being shipped d. Documentation verifying customer receipt of goods e. All of the above

e. All of the above

What factors increase the risk of fraud in revenue and receivable transactions: a. Presence of tight debt covenants b. Wall street pressure to meet earnings expectations c. Pressure to meet a client's own earnings projections d. Bonus compensation pressures e. All of the above

e. All of the above

When examining revenue ledger after year end for large significant credits, an auditor notices that in the first two weeks of the quarter following period end, a client consistently shows significant returns from customers. This could possibly be evidence of: a. Customer orders things they do not need on a consistent basis b. Kiting c. Lapping d. Bill on hold sales e. Channel stuffing

e. Channel stuffing

As long as the auditor sends out cash confirmations, fraud in cash accounts is impossible True false

false

Auditing requires testing every single transaction whenever possible True false

false

If an auditor does sampling appropriately and tests less than the whole population, sampling risk can be reduced to zero True false

false

Non-sampling risk refers to risk that cannot be mitigated as long as the auditor does not test the whole population True false

false

To audit cash, it is generally sufficient to obtain cash confirmation from the bank True false

false

Type 1 error is associated with doing insufficient audit tests True false

false

Type 2 error is associated with doing excessive audit tests True false

false

You can do audit sampling with any type of audit procedure True False

false

When an auditor informs the client of her desire to send out cash confirmations, the client suggests that she can do it on behalf of the auditor. Such approach is considered acceptable. True false

false No cash allowed between clients and auditors.

Testing bank reconciliation satisfies audit objective of existence only True false

false also completeness of o/s checks

Cash confirmation only typically contains information about bank cash balances True false

false also loans / restriction on cash

If an auditor desires to obtain a higher level of assurance then her tolerable deviation rate should be Higher lower

lower

Type 1 error refers to the risk of incorrect Acceptance rejection

rejection