ACCT 470 Final - Practice Exam
Which of the following documents provides the most persuasive evidence about the existence of a receivable? A. A credit approval document supported by the customer's audited financial statements. B. A copy of a sales invoice to the customer in the auditee's records. C. A positive confirmation received directly from the customer. D. A customer's purchase order in the auditee's records related to the credit sale.
A positive confirmation received directly from the customer.
If the objective of a test of details is to detect overstatements of sales, the auditor should compare transactions in the A. Cash receipts journal with the sales journal. B. Sales journal with the cash receipts journal. C. Source documents with the accounting records. D. Accounting records with the source documents.
Accounting records with the source documents.
The auditor will most likely perform extensive tests for possible understatement of a. Bad debt expense b. Fixed assets c. Accounts payable d. None of the above
Accounts payable
A major customer of an audit client suffers a fire just prior to completion of year-end field work. The audit client believes that this event could have a significant direct effect on the financial statements. The auditor should A. Advise management to disclose the event in notes to the financial statements. B. Disclose the event in the auditor's report. C. Withhold submission of the auditor's report until the extent of the direct effect on the financial statements is known. D. Advise management to adjust the financial statements.
Advise management to disclose the event in notes to the financial statements
The appropriate date for the client to specify as the effective date in the audit inquiry to legal counsel is A. The balance-sheet date. B. Seven working days after the request is received by legal counsel. C. The date of the audit inquiry itself. D. As close to the date of the auditor's report as possible.
As close to the date of the auditor's report as possible
The primary objective of analytical procedures used in the final review stage of an audit is to a. Obtain evidence from details tested to corroborate particular assertions b. Identify areas that represent specific risks relevant to the audit c. Assist the auditor in assessing the validity of the conclusions reached d. Satisfy doubts when questions arise about a client's ability to continue in existence
Assist the auditor in assessing the validity of the conclusions reached
In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate? A. Variables. B. Stratified. C. Ratio. D. Attributes.
Attributes
Which oF the Following is most correct when using audit sampling For exception rates? A) Auditor is concerned with the lowest rate. B) Auditor is concerned with the highest rate. C) Auditor is concerned with the average on previous audits. D) This doesn't impact the auditor's decision.
Auditor is concerned with the highest rate
An auditor is concerned with completing various phases of the audit after the balance sheet date. This subsequent period extends to the date of the A. Auditor's report. B. Final review of the audit documentation. C. Public issuance of the financial statements. D. Delivery of the auditor's report to the client.
Auditor's report
1. The auditor's responsibility for "reviewing subsequent events" is normally limited to the period of time a. Beginning with the balance sheet date and ending with the date of the auditor's report b. Beginning with the start of the fiscal year under audit and ending with the balance sheet date c. Beginning with the start of the fiscal year under audit and ending with the date of the auditor's report Beginning with the balance sheet date and ending with the date the auditor's report is issued
Beginning with the balance sheet date and ending with the date of the auditor's report
If an auditor, without statistical sampling, selects a sample of one hundred items from a population and finds two exceptions, the auditor a. Can conclude that the sample exception rate is 2% b. Can conclude that the population exception rate is 2% c. Can conclude the exception rate in the sample and the population are both 2% d. Cannot make any conclusions about either the sample or the population
Can conclude that the sample exception rate is 2%
Which of the following procedures would an auditor most likely perform in searching for unrecorded payables? A. Reconcile receiving reports with related cash payments made just prior to the year end. B. Review the responses of accounts receivable confirmations for indications of disputes with customers. C. Compare cash payments made after the balance sheet date with the accounts payable trial balance. D. Examine a sample of creditor balances to supporting invoices, receiving reports, and purchase orders.
Compare cash payments made after the balance sheet date with the accounts payable trial balance
1. If all other factors specified in an attribute sampling plan remain constant, changing the tolerable exception rate for 6% to 10% would cause the required sample size to a. Increase b. Remain the same c. Decrease d. Change by 4%
Decrease
Which of the following statements is true concerning statistical sampling in ______ of controls? a. As the population size increases, the sample size should increase proportionately b. There is an inverse relationship between the expected population exception rate and the sample size c. Deviations from specific internal control procedures increase the likelihood of misstatements but do not always cause misstatements d. An increase in the estimated population exception rate results in a smaller sample size
Deviations from specific internal control procedures increase the likelihood of misstatements but do not always cause misstatements
If a subsequently discovered fact becomes known to the auditor before the release of the audit report, the auditor should A. Modify the opinion and dual date the audit report. No additional audit procedures are required. B. Date the audit report as of the original date of the auditor's report and caption the note disclosing the subsequent event as being subsequent to the completion of the audit procedures. C. Not modify the audit opinion if the event is properly disclosed and date the audit report as of the original date of the auditor's report. D. Either dual date the audit report or date the audit report as of the time of the completion of the extended audit procedures.
Either dual date the audit report or date the audit report as of the time of the completion of the extended audit procedures
Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high had debt write-offs? a. Employees responsible for authorizing sales and bad debt write-offs are denied access to cash b. Shipping documents and sales invoices are matched by an employer who does not have authority to write off bad debts c. Employees involved in the credit-granting function are separated from the sales function d. Subsidiary accounts receivable records are reconciled to the control amount by an employee independent of the authorization of credit
Employees involved in the credit-granting function are separated from the sales function
For sales, the occurrence transaction-related audit objective affects which of the following balance-related audit objective? A) Existence B) Completeness C) Rights D) Detail tie-in
Existence
When an auditor uses monetary-unit sampling to examine the total value of invoices, each invoice A. Has an equal probability of being selected. B. Can be represented by no more than one monetary unit. C. Has an unknown probability of being selected. D. Has a probability proportional to its monetary value of being selected.
Has a probability proportional to its monetary value of being selected
For which of the following audit tests would an auditor most likely use attribute sampling? A. Making an independent estimate of the amount of a LIFO inventory. B. Examining invoices in support of the measurement of fixed asset additions. C. Selecting accounts receivable for confirmation of account balances. D. Inspecting employee time cards for proper approval by supervisors.
Inspecting employee time cards for proper approval by supervisors.
Monetary-unit sampling (MUS) is most useful when the auditor A. Is testing the accounts payable balance. B. Cannot cumulatively arrange the population items. C. Expects to find several material misstatements in the sample. D. Is concerned with overstatements.
Is concerned with overstatements
Which of the following statements regarding the letter of representation is not correct? a. It is prepared on the client's letterhead b. It is addressed to the CPA firm c. It is signed by high level corporate officials, usually the chief executive officer and chief financial officer d. It is optional, not required, that the auditor obtain such a letter from management
It is optional, not required, that the auditor obtain such a letter from management
If all other factors in a sampling plan are held constant, changing the acceptable audit risk from 5% to 3% will cause the sample size to be A. Smaller. B. Larger. C. Unchanged. D. Indeterminate.
Larger
Statistical sampling usually may be applied in tests of controls when the client's internal controls A. Depend primarily on appropriate segregation of duties. B. Leave an audit trail in the form of documentary evidence of their effectiveness. C. Are carefully reduced to writing and are included in client accounting manuals. D. Enable the detection of material fraud in the accounting records.
Leave an audit trail in the form of documentary evidence of their effectiveness
The CPA learns that collections of accounts receivable during the first ten days of January were entered as debits to cash and credits to accounts receivable. The effect generally will be to receivable as of December 31. The effect generally will be to a. Leave both working capital and the current ration unchanged at December 31 b. Overstate both working capital and the current ratio at December 31 c. Overstate working capital with no effect on the current ratio at December 31 Overstate the current ratio with no effect on working capital at December 31
Leave both working capital and the current ration unchanged at December 31
An auditor released an audit report that was dual-dated for a subsequently discovered fact occurring after the date of the auditor's report but before issuance of the related financial statements. The auditor's responsibility for events occurring subsequent to the original report date was A. Limited to include only events occurring before the date of the last subsequent event referenced. B. Limited to the specific event referenced. C. Extended to subsequent events occurring through the date of issuance of the related financial statements. D. Extended to include all events occurring since the original report date.
Limited to the specific event referenced
In a well-designed internal control system, the same employee may be permitted to A. Mail signed checks and also cancel supporting documents. B. Prepare receiving reports and also approve purchase orders. C. Approve vouchers for payment and also have access to unused purchase orders. D. Mail signed checks and also prepare bank reconciliations.
Mail signed checks and also cancel supporting documents
A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the a. Meter department records to the billing (sales) register b. Billing (sales) register to the meter department records c. Accounts receivable ledger to the billing (sales) register d. Billing (sales) register to the accounts receivable ledger
Meter department records to the billing (sales) register
As a result of tests of controls, an auditor used a control risk that was too low and decreased substantive testing. This situation occurred because the true exception rate in the population was a. More than the acceptable risk of overreliance based on the auditors' sample b. More than the exception rate in the auditors sample c. Less than the acceptable risk of overreliance based on the auditors sample d. Less than the exception rate in the auditor's sample
More than the exception rate in the auditors sample
If a potential loss on a contingent liability is remote, the liability should be a. Recorded and indicated in the body of the financial statements b. Disclosed in footnotes, but not recorded c. Neither recorded nor disclosed in footnotes d. Disclosed in the auditor's report but not disclosed on the financial statements
Neither recorded nor disclosed in footnotes
An auditor should perform alternative procedure to substantiate the existence of account receivable when a. No reply to a positive confirmation request is received b. No reply to a negative confirmation request is received c. Collectability of the receivables is in doubt d. Pledging of the receivables is probable
No reply to a positive confirmation request is received
In assessing risks of material misstatement for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support? A. Completeness. B. Occurrence. C. Accuracy. D. Classification.
Occurrence
When the auditor performs tests of controls, the primary concern is A. Underreliance on substantive procedures. B. Overreliance on controls. C. Underreliance on controls. D. Incorrect acceptance of an account balance.
Overreliance on controls
When the auditor tests controls, the primary effectiveness concern is the risk of A. Incorrect acceptance. B. Incorrect rejection. C. Overreliance on controls. D. Underreliance on controls.
Overreliance on controls
In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the A. Population. B. Attribute of interest. C. Sample. D. Sampling unit.
Population
In attribute sampling, a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample? a. Population size b. Tolerable exception rate c. Acceptable risk of overreliance d. Estimated population exception rate
Population size
Which of the following tests can help the auditor evaluate the adequacy of the company's allowance for doubtful accounts? A. Reconciling the accounts receivable subsidiary ledger with the control account. B. Preparing an aging analysis. C. Reviewing authorization of credit terms. D. Tracing a sample of credit memos to the accounts receivable subsidiary ledger.
Preparing an aging analysis.
Which of the following controls is most effective in providing assurance that recorded purchases are free of material errors? A. The receiving department compares the quantity ordered on purchase orders with the quantity received on receiving reports. B. Vendors' invoices are compared with purchase orders by an employee who is independent of the receiving department. C. Receiving reports require the signature of the individual who authorized the purchase. D. Purchase orders, receiving reports, and vendors' invoices are independently matched in preparing vouchers.
Purchase orders, receiving reports, and vendors' invoices are independently matched in preparing vouchers
Which of the following procedures should an auditor ordinarily perform regarding subsequent events? A. Read the latest subsequent interim financial statements. B. Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests. C. Communicate material weaknesses in internal control to the client's audit committee. D. Review the cutoff bank statements for several months after the year end.
Read the latest subsequent interim financial statements
An auditor is performing a credit analysis of customers with balances over 60 days due. She is most likely obtaining evidence for which audit related objective? A) Realizable value B) Existence C) Completeness D) Occurrence
Realizable value
When the computed upper exception rate is greater than the tolerable exception rate, it is necessary For the auditor to take specifc action. Which oF the Following courses oF action would be most difficult to justify? A) Reduce the tolerable exception rate so as to accept the sample results. B) Expand the sample size and perForm more tests. C) Revise the assessed control risk. D) Write a letter to management which outlines the control defciencies.
Reduce the tolerable exception rate so as to accept the sample results
To minimize the risk that agents in the purchasing department will use their positions for personal gain, the organization should A. Require competitive bidding. B. Request internal auditors to confirm selected purchases and accounts payable. C. Specify that all items purchased must pass value-per-unit-of-cost reviews. D. Direct the purchasing department to maintain records on purchase prices paid, with review of such records required every 6 months.
Require competitive bidding
Which of the following audit procedures is best for identifying unrecorded trade accounts payable? A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period. B. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. C. Examining unusual relationships between monthly accounts payable balances and recorded cash payments. D. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.
Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period
In planning a statistical sample for a test of controls, an auditor increased the estimated population exception rate from the prior year's rate because of the prior year's tests of controls and the overall control environment. The result of this would most likely be an increase in the a. Tolerable exception rate b. Allowance for sample risk c. Acceptable risk of overreliance d. Sample size
Sample size
An inherent part of sampling that results from testing less than the entire population is a. Tolerable misstatement b. Sampling risk c. The upper bound d. Inherent risk
Sampling risk
The probability that an auditor's conclusion based on a sample might be different from the conclusion based on an audit of the entire population is the concept of A. Sampling risk. B. The confidence level. C. Statistical sampling. D. The tolerable rate.
Sampling risk
For which of the following audit tests would an auditor most likely use attribute sampling? a. Selecting a sample of old accounts receivable balances to test the adequacy of allowance for bad debts account b. Observing whether the duties of the accounts receivable clerk are separate from handling of cash c. Selecting a sample of accounts receivable balances for confirmation d. Selecting a sample of duplicate sales invoices to test for credit approval as evidenced by the credit manager's initials on the sales invoices
Selecting a sample of duplicate sales invoices to test for credit approval as evidenced by the credit manager's initials on the sales invoices
Which of the following is a substantive test that an auditor most likely would perform to verify the existence and valuation of recorded accounts payable? a. Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for. b. Receiving the client's mail, unopened, for a reasonable period of time after the year end to search for unrecorded vendor's invoices c. Selecting entries from the accounts payable trial balance and comparing them to purchase order and receiving reports d. Confirming accounts payable balances with known suppliers who have _____ balances
Selecting entries from the accounts payable trial balance and comparing them to purchase order and receiving reports
Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is ineffective. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely a. Send positive confirmation requests b. Send negative confirmation requests c. Examine evidence of subsequent cash receipts d. Inspect the internal records such as copies of the tax invoices that were mailed to the residents
Send positive confirmation requests
Which of the following most likely would be detected by an auditor's review of a client's sales cut-off? a. Shipments lacking sales invoices and shipping documents b. Excessive write-offs of accounts receivable c. Unrecorded sales at year end d. Lapping of year-end accounts receivable
Shipments lacking sales invoices and shipping documents
Tracing bills of lading to sales invoices provides 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.
Shipments to customers were invoiced.
If the objective of an auditor's test of details is to detect a possible understatement of sales, the auditor most likely would trace transactions from the A. Sales invoices to the shipping documents. B. Cash receipts journal to the sales journal. C. Shipping documents to the sales invoices. D. Sales journal to the cash receipts journal.
Shipping documents to the sales invoices
An auditor who wishes to test the completeness assertion for sales transactions should trace A. Sales journal entries to shipping documents. B. Shipping documents to the sales journal. C. Accounts receivable entries to sales invoices. D. Sales invoices to shipping documents.
Shipping documents to the sales journal.
If internal control is properly designed, the same employee may be permitted to A. Receive and deposit checks and also approve write-offs of customer accounts. B. Approve vouchers for payment and also sign checks. C. Reconcile the bank statements and also receive and deposit cash. D. Sign checks and also cancel supporting documents.
Sign checks and also cancel supporting documents
Which type of subsequent event requires consideration by management and evaluation by the auditor? a. Subsequent events that have a direct effect on the financial statements and require adjustment b. Subsequent events that have no direct effect on the financial statements byt for which disclosure is appropriate c. Both a and b d. Neither a or b
Subsequent events that have a direct effect on the financial statements and require adjustment
The understatement of sales and accounts receivable is best uncovered by a. Positive confirmation of receivables b. Reviewing the aged trial balance c. Reconciling the accounts receivable general ledger account with the schedule of accounts receivable d. Test of transactions for shipments made but not recorded
Test of transactions for shipments made but not recorded
Dual dating an auditor's report implies that A. The auditor performed all subsequent-events procedures through the latest of the two dates. B. The auditor is assuming no responsibility for events occurring subsequent to the date of the original report. C. The auditor is limiting his or her responsibility for events occurring subsequent to the date of the original report to the specific event referred to. D. The specific event referred to is unaudited.
The auditor is limiting his or her responsibility for events occurring subsequent to the date of the original report to the specific event referred to.
Which of the following would be a consideration in planning an auditor's sample for a test of controls? A. Preliminary judgments about materiality levels. B. The auditor's allowable risk of underreliance. C. The level of detection for the account. D. The auditor's allowable risk of overreliance.
The auditor's allowable risk of overreliance
The tolerable rate of occurrence in statistical sampling is A. A statistical measure, at a specified reliability level, of the maximum rate of occurrence of an attribute. B. The percentage of items in a sample that possess a particular attribute. C. The percentage of items in a population that possess a particular attribute. D. The maximum rate of exception that the auditor is willing to accept in the population without altering the planned reliance on the attribute.
The maximum rate of exception that the auditor is willing to accept in the population without altering the planned reliance on the attribute
Statistical sampling may be used to test the effectiveness of controls. The auditor's procedures should result in a statistical conclusion about A. Population characteristics occurring at least once in the population. B. The population value not being misstated by more than a fixed amount. C. Monetary precision exceeding a certain predetermined amount. D. The relation of the population exception rate to the tolerable rate.
The relation of the population exception rate to the tolerable rate
You are determining the signifcance oF the Following: you set a 5% risk of assessing control risk to low and your computation of the upper deviation risk is 7%. What could you conclude? A) There is a 95% chance the deviation rate is the population is less than 5%. B) There is a 5% chance the deviation rate in the population is less than 7%. C) There is a 95% chance the deviation rate in the population exceeds 95%. D) There is a 5% chance the deviation rate in the population exceeds 7%.
There is a 5% chance the deviation rate in the population exceeds 7%
Which of the following should sign checks under conditions of effective internal control? A) Treasurer B) Purchasing agent C) Accounts payable clerk D) Person preparing the checks
Treasurer
Operating control of the check-signing machine normally should be the responsibility of the A. General accounting function. B. Treasury function. C. Legal counsel. D. Internal audit function
Treasury function
The purpose of the audit procedure to "examine underlying documentation for subsequent cash disbursements" is to a. Uncover liabilities on the balance sheet which should not have been recorded until a subsequent period b. Find the documentation relating to a cash disbursement c. Uncover payments made in a subsequent accounting period that represent liabilities at the balance sheet date d. Uncover cash disbursements recorded in a subsequent accounting period which should be recorded as cash disbursements in the period being audited
Uncover payments made in a subsequent accounting period that represent liabilities at the balance sheet date
In regard to an auditor's primary concern in an audit of liabilities, tracing vendor invoices to the accounts payable ledger is most useful in detecting A. Unsupported entries in the accounts payable ledger. B. Overstatement of purchases. C. Overstatement of accounts payable. D. Understatement of trade payables.
Understatement of trade payables
Unrecorded liabilities are most likely to be found during the review of which of the following documents? A. Unpaid bills. B. Shipping records. C. Bills of lading. D. Unmatched sales invoices.
Unpaid bills
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely is A. Vendors with whom the entity has previously done business. B. Amounts recorded in the accounts payable subsidiary ledger. C. Payees of checks drawn in the month after the year end. D. Invoices filed in the entity's open invoice file.
Vendors with whom the entity has previously done business
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be a. Vendors with whom the entity has previously done business b. Amounts recorded in the accounts payable subsidiary ledger c. Payees of checks drawn in the month after year end d. Invoices filed in the entity's open invoice file
Vendors with whom the entity has previously done business
An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all A. Merchandise received. B. Vendors' invoices. C. Canceled checks. D. Receiving reports.
Vendors' invoices
When deciding the acceptability of the population, A) the methodology for deciding the acceptability of the population for attributes differs from determining the acceptability for nonstatistical sampling. B) before the population can be considered acceptable, the CUER determined on the basis of the actual sample results must be less than or equal to TER when both are based on the same ARO. C) when the CUER is greater than the TER, the auditor must increase the sample size. D) the CUER is compared with the TER in total, not for each attribute
before the population can be considered acceptable, the CUER determined on the basis of the actual sample results must be less than or equal to TER when both are based on the same ARO
The main focus taken by the auditor in verifying liability balances is on the discovery of: I. understated liabilities. II. omitted liabilities. A) I only B) II only C) both I and II D) neither I nor II
both I and II
The upper limit of the probable population exception rate is the A) upper exception rate. B) estimated population exception rate. C) computed upper exception rate. D) the tolerable exception rate.
computed upper exception rate
IF the auditor decides to assess control risk at the moderate level in a private company audit, when in previous years the auditor set control risk at the maximum level, then tests oF controls For the current year would be: A) increased in number. B) reduced in number. C) not perFormed. D) unchanged From prior planned settings.
increased in number
A principal advantage of statistical methods of attributes sampling over nonstatistical methods is that they provide a scientific basis for establishing the: A) risk of assessing control risk too low. B) tolerable exception rate. C) expected population exception rate. D) sample size.
sample size
The highest estimated exception rate in the population at a particular acceptable risk oF assessing control risk too low is: A) the upper exception rate. B) estimated population exception rate. C) the computed upper exception rate. D) the tolerable exception rate.
the computed upper exception rate
The most important test of details of balances to determine the existence of recorded accounts receivable is: A) tracing details of sales invoices to shipping documents. B) tracing the credits in accounts receivable to bank deposits. C) tracing sales returns entries to credit memos issued and receiving room reports. D) the confirmation of customers' balances.
the confirmation of customers' balances
In searching for unrecorded liabilities the purpose of the audit procedure to "examine underlying documentation for subsequent cash disbursements" is to: A) uncover liabilities on the balance sheet which should not have been recorded until a subsequent period. B) find the documentation relating to a cash disbursement. C) uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date. D) uncover cash disbursements recorded in a subsequent accounting period which should be recorded in this period.
uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date
What is an auditor's evaluation of a statistical sample for attributes when a test of 100 documents results in four exceptions if the tolerable exception rate is 5%, the expected population exception rate is 3%, and the allowance for sampling risk is 2%? a. Accept the sample results as support for planned reliance on the control because the tolerable exception rate less the allowance for sampling risk equals the expected population exception rate b. Modify planned reliance on the control because the sample exception rate plus the allowance for sampling risk exceeds the tolerable exception rate c. Modify planned reliance on the control because the tolerable exception rate plus the allowance for sampling risk exceeds the expected population exception rate d. Accept the sample results as support for planned reliance on the control because the sample exception rate plus the allowance for sampling risk exceeds the tolerable exception rate
Modify planned reliance on the control because the sample exception rate plus the allowance for sampling risk exceeds the tolerable exception rate
As the auditor you are assessing the proper sample size to use in testing controls. When using attributes sampling which of the following is most correct? A) A 10% change in population size will have the least effect on sample size. B) A 10% change in the tolerable deviation rate will have the least effect on sample size. C) A 10% change in the expected deviation rate will have the least effect on sample size. D) A 10% change in the tolerable will have the least effect on sample size.
A 10% change in population size will have the least effect on sample size
The auditor failed to recognize a deviation included in a sample intended to test controls related to a transaction process. This failure best reflects A. Statistical risk. B. Sampling risk. C. Audit risk. D. Nonsampling risk.
Nonsampling risk
An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of A. Occurrence. B. Rights and obligations. C. Valuation and allocation. D. Completeness.
Completeness
For cash receipts, the occurrence transaction-related audit objective affects which of the following balance-related audit objective? A) Existence B) Completeness C) Rights D) Detail tie-in
Completeness
In auditing accounts payable, an auditor's procedures most likely will focus primarily on the relevant assertion about A. Existence. B. Classification and understandability. C. Completeness. D. Valuation and allocation.
Completeness
You are the in-charge auditor and are designing audit procedures for accounts payable. Which of the following management assertions would you normally be most concerned about? A) Occurrence B) Accuracy C) Completeness D) Existence
Completeness
The refusal of a client's legal counsel to provide a representation on the legality of a particular act committed by the client is ordinarily A. Sufficient reason to express a "subject to" opinion. B. Considered to be a scope limitation. C. Insufficient reason to modify the auditor's report because of the legal counsel's obligation of confidentiality. D. Proper grounds to withdraw from the engagement.
Considered to be a scope limitation
The primary reason an auditor requests letters of inquiry be sent to a client's legal counsel is to provide the auditor with A. The probable outcome of asserted claims and pending or threatened litigation. B. Corroboration of the information furnished by management about litigation, claims, and assessments. C. Legal counsel's opinion of the client's historical experiences in recent similar litigation. D. A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.
Corroboration of the information furnished by management about litigation, claims, and assessments
For effective internal control, the accounts payable department ordinarily should a. Mail checks to vendors b. Establish the agreement of the vendor's invoice with the receiving report requisition request form and purchase order c. Stamp, perforate, or otherwise cancel supporting documentation after check is mailed d. Sign checks
Establish the agreement of the vendor's invoice with the receiving report requisition request form and purchase order
Which of the following statements is true concerning statistical sampling in tests of controls? A. As the population size increases, the sample size should increase proportionately. B. Exceptions from specific control activities increase the likelihood of misstatements but do not always cause misstatements. C. There is an inverse relationship between the expected population exception rate and the sample size. D. In determining the tolerable exception rate, an auditor considers detection risk and the sample size.
Exceptions from specific control activities increase the likelihood of misstatements but do not always cause misstatements
An auditor wishes to perform tests of controls on a client's cash disbursement procedures. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by a. Inquiry and analytical procedures b. Confirmation and observation c. Observation and inquiry d. Analytical procedures and confirmation
Observation and inquiry
An auditor confirms a representative number of accounts receivable as of December 31, and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn of which of the following? a. One of the cashiers has been covering a personal embezzlement by lapping b. One of the sales clerks has not been preparing charge slips for credit sales to family and friends c. One of the electronic data-processing control clerks has been removing all sales invoices applicable to his account from the data file. d. The credit manager has misappropriated remittances from customers whose accounts have been written off
One of the cashiers has been covering a personal embezzlement by lapping
Auditors who prefer statistical to nonstatistical sampling believe that the principal advantage of statistical sampling flows from its unique ability to a. Define the precision required to provide audit satisfaction b. Provide a mathematical measurement of uncertainty c. Establish conclusive audit evidence with decreased audit effort d. Eliminate the need for judgmental decision
Provide a mathematical measurement of uncertainty
Mailing disbursement checks and remittance advices should be controlled by the employee who A. Matches the receiving reports, purchase orders, and vendors' invoices. B. Signs the checks last. C. Prepares the daily voucher summary. D. Agrees the check register to the daily check summary.
Signs the checks last
AU-C 530, Audit Sampling, identifies two general approaches to audit sampling. They are A. Random and nonrandom. B. Statistical and nonstatistical. C. Precision and reliability. D. Risk and nonrisk.
Statistical and nonstatistical.
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses the risk of overreliance too low. The most likely explanation for this situation is that A. The exception rates of both the auditor's sample and the population exceed the tolerable rate. B. The exception rates of both the auditor's sample and the population are less than the tolerable rate. C. The exception rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate. D. The exception rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate.
The exception rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate
On January 15, Year 2, before the Mapleview Co. released its financial statements for the year ended December 31, Year 1, it settled a long-standing lawsuit. A material loss resulted and no prior liability had been recorded. How should this loss be disclosed or recognized? A. The loss should be disclosed in notes to the financial statements, but the financial statements themselves need not be adjusted. B. The loss should be disclosed in an explanatory paragraph in the auditor's report. C. No disclosure or recognition is required. D. The financial statements should be adjusted to recognize the loss.
The financial statements should be adjusted to recognize the loss
Nonprobabilistic sample selection methods are not based on strict mathematical probabilities; therefore, a. The representativeness of the sample may be difficult to determine b. They are discouraged by the AICPA c. They are forbidden by the Statements on Auditing Standards d. They're are not as good as statistical sampling
The representativeness of the sample may be difficult to determine
A CPA is testing sales transactions. What procedure may (s)he use to test for posting of fictitious accounts receivable? A. Tracing a sample of sales invoices to the accounts receivable subsidiary ledger. B. Sending out negative confirmations. C. Tracing a sample of shipping documents and sales invoices to the sales journal. D. Vouching debits in the accounts receivable ledger to sales invoices and shipping documents.
Vouching debits in the accounts receivable ledger to sales invoices and shipping documents.
An auditor noted that the accounts receivable department is separate from other accounting activities. Credit is approved by a separate credit department. Control accounts and subsidiary ledgers are balanced monthly. Similarly, accounts are aged monthly. The accounts receivable manager writes off delinquent accounts after 1 year, or sooner if a bankruptcy or other unusual circumstances are involved. Credit memoranda are prenumbered and must correlate with receiving reports. Which of the following areas could be viewed as an internal control deficiency of the above organization? A. Write-offs of delinquent accounts. B. Credit approvals. C. Monthly aging of receivables. D. Handling of credit memos.
Write-offs of delinquent accounts
A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance outstanding and by the amount of time the component parts have been outstanding, is the: A) customer list. B) aged trial balance. C) accounts receivable ledger. D) schedule of accounts receivable
aged trial balance
One of the causes of nonsampling risk is A) choosing the wrong sample size. B) ineffective audit procedures. C) inadequate sample size. D) exceptions being found in the sample.
ineffective audit procedures
The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is: A) indeterminate B) inverse C) proportional D) direct
inverse
The understatement of sales and accounts receivable is best uncovered by: A) testing internal controls. B) testing the aged accounts receivable trial balance. C) substantive tests of transactions for shipments made but not recorded. D) substantive tests of transactions for bad debts.
substantive tests of transactions for shipments made but not recorded
The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is: A) the upper bound. B) the tolerable risk. C) the acceptable risk of incorrect acceptance. D) the lower bound.
the acceptable risk of incorrect acceptance
In using audit sampling For exception rates: A) the auditor wants to know the most the exception rate is likely to be. B) sampling error is the likelihood that the auditor will miss a monetary misstatement. C) the upper limit oF the interval estimate is known as the sampling risk. D) CUER cannot be considered in the context oF specifc audit objectives.
the auditor wants to know the most the exception rate is likely to be
Which of the following is one of the main differences between attributes sampling and non statistical sampling? A) defining the population B) the number of steps involved C) determining the objectives of the audit test D) the calculation of the initial sample size
the calculation of the initial sample size
