Exam 2 - MCQ
b) Deficiency in operation.
A control deviation caused by an employee performing a control procedure that he or she is not authorized to perform is always considered a a) Deficiency in design. b) Deficiency in operation. c) Significant deficiency. d) Material weakness.
d) Smaller amount of tolerable misstatement.
A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? a) Greater reliance on internal controls. b) Greater reliance on analytical procedures. c) Smaller expected frequency of misstatements. d) Smaller amount of tolerable misstatement.
d) Access information stored on computer files while having a limited understanding of the entity's hardware and software features.
A primary advantage of using generalized audit software packages to audit the financial statements of an entity that uses an IT system is that the auditor may a) Consider increasing the use of substantive tests of transactions in place of analytical procedures. b) Substantiate the accuracy of data through self-checking digits and hash totals. c) Reduce the level of required tests of controls to a relatively small amount. d) Access information stored on computer files while having a limited understanding of the entity's hardware and software features.
d) Trace a transaction from each major class of transactions from origination through the entity's information system until it is reflected in the entity's financial reports.
A walkthrough is one procedure used by an auditor as part of the internal control audit. A walkthrough requires an auditor to a) Tour the organization's facilities and locations before beginning any audit work. b) Trace a transaction from every class of transactions from origination through the entity's information system. c) Trace a transaction from each major class of transactions from origination through the entity's information system. d) Trace a transaction from each major class of transactions from origination through the entity's information system until it is reflected in the entity's financial reports.
a) Believes the internal controls are unlikely to be effective.
After obtaining an understanding of an entity's internal control system, an auditor may set control risk at high for some assertions because the auditor a) Believes the internal controls are unlikely to be effective. b) Determines that the pertinent internal control components are not well documented. c) Performs tests of controls to restrict detection risk to an acceptable level. d) Identifies internal controls that are likely to prevent material misstatements.
c) Measure the sufficiency of the evidential matter obtained.
An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to a) Eliminate the risk of nonsampling errors. b) Reduce audit risk and materiality to a relatively low level. c) Measure the sufficiency of the evidential matter obtained. d) Minimize the failure to detect errors and fraud.
d) General controls.
An auditor anticipates assessing control risk at a low level in an IT environment. Under these circumstances, on which of the following controls would the auditor initially focus? a) Data capture controls. b) Application controls. c) Output controls. d) General controls.
a) Tolerable deviation rate (7 percent) was less than the computed upper deviation rate (8 percent).
An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2½ percent of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the a) Tolerable deviation rate (7 percent) was less than the computed upper deviation rate (8 percent). b) Expected population deviation rate (7 percent) was more than the percentage of errors in the sample (3½ percent). c) Computed upper deviation rate (8 percent) was more than the percentage of errors in the sample (3½ percent). d) Expected population deviation rate (2½ percent) was less than the tolerable deviation rate (7 percent).
b) 4½ percent.
An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2½ percent of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent. Tolerable deviation rate (7 percent) was less than the computed upper deviation rate (8 percent). Based on the information above, the planned allowance for sampling risk was a) 5½ percent. b) 4½ percent. c) 3½ percent. d) 1 percent.
a) Classical variables sampling.
An auditor is performing substantive procedures of pricing and extensions of perpetual inventory balances consisting of a large number of items. Past experience indicates that there may be numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate? a) Classical variables sampling. b) Monetary-unit sampling. c) Stop-n-go sampling. d) Attribute sampling.
a) No reply to a positive confirmation request is received.
An auditor should perform alternative procedures to substantiate the existence of accounts receivable when a) No reply to a positive confirmation request is received. b) No reply to a negative confirmation request is received. c) The collectibility of the receivables is in doubt. d) Pledging of the receivables is probable.
b) Understanding of the system.
An auditor's flowchart of an entity's accounting system is a diagrammatic representation that depicts the auditor's a) Program for tests of controls. b) Understanding of the system. c) Understanding of the types of fraud that are probable, given the present system. d) Documentation of the study and evaluation of the system.
d) Affect the financial statement assertions.
An auditor's primary consideration regarding an entity's internal controls is whether they a) Prevent management override. b) Relate to the control environment. c) Reflect management's philosophy and operating style. d) Affect the financial statement assertions.
c) A disclaimer of opinion.
AnnaLisa, an auditor for N. M. Neal & Associates, is prevented by the management of Lileah Company from auditing controls over inventory. Lileah is a public company. Management explains that controls over inventory were recently implemented by a highly regarded public accounting firm that the entity hired as a consultant and insists that it is a waste of time for AnnaLisa to evaluate these controls. Inventory is a material account, but procedures performed as part of the financial statement audit indicate the account is fairly stated. AnnaLisa found no material weaknesses in any other area of the entity's internal control relating to financial reporting. What kind of report should AnnaLisa issue on the effectiveness of Lileah's internal control? a) An unqualified report. b) An adverse report. c) A disclaimer of opinion. d) An exculpatory opinion.
c) The deviation rate in the auditor's sample is less than the tolerable deviation rate, but the deviation rate in the population exceeds the tolerable deviation rate.
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is that a) The deviation rates of both the auditor's sample and the population exceed the tolerable deviation rate. b) The deviation rates of both the auditor's sample and the population are less than the tolerable deviation rate. c) The deviation rate in the auditor's sample is less than the tolerable deviation rate, but the deviation rate in the population exceeds the tolerable deviation rate. d) The deviation rate in the auditor's sample exceeds the tolerable deviation rate, but the deviation rate in the population is less than the tolerable deviation rate.
b) Concluding that controls are ineffective.
Assessing control risk below high involves all of the following except a) Identifying specific controls to rely on. b) Concluding that controls are ineffective. c) Performing tests of controls. d) Analyzing the achieved level of control risk after performing tests of controls.
d) The planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.
Assume an auditor is evaluating a statistical attribute sample of 50 items that resulted in three deviations. What should the auditor conclude if the tolerable deviation rate is 7 percent, the expected population deviation rate is 5 percent, and the allowance for sampling risk is 2 percent? a) The planned assessed level of control risk should be modified because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected population deviation rate. b) The sample results should be accepted as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate. c) The sample results should be accepted as support for the planned assessed level of control risk because the tolerable deviation rate less the allowance for sampling risk equals the expected population deviation rate. d) The planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.
a) Understating 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) Understating the sales journal. b) Overstating the accounts receivable control account. c) Overstating the accounts receivable subsidiary ledger. d) Understating the cash receipts journal.
b. Yes/Yes
Considering each independently, a change in which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account? Expected Misstatement/Tolerable Misstatement a. No/No b. Yes/Yes c. No/Yes d. Yes/No
c) Controls to monitor the inventory taking process.
Entity-level controls can have a pervasive effect on the entity's ability to meet the control criteria. Which one of the following is not an entity-level control? a) Controls to monitor results of operations. b) Management's risk assessment process. c) Controls to monitor the inventory taking process. d) The period-end financial reporting process.
b) Treasurer.
For effective internal control purposes, which of the following individuals should be responsible for mailing signed checks? a) Receptionist. b) Treasurer. c) Accounts payable clerk. d) Payroll clerk.
c) Write-offs of customer accounts.
For the control activities to be effective, employees maintaining the accounts receivable subsidiary ledger should not also approve a) Employee overtime wages. b) Credit granted to customers. c) Write-offs of customer accounts. d) Cash disbursements.
b. Decrease sample size/Increase sample size
How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details? Increase in Tolerable Misstatement/Increase in Assessed Level of Control Risk a. Decrease sample size/Decrease sample size b. Decrease sample size/Increase sample size c. Increase sample size/Decrease sample size d. Increase sample size/Increase sample size
d) Fictitious sales in the current year.
If accounts receivable turnover (credit sales/receivables) was 7.1 times last year compared to only 5.6 times in the current year, it is possible that there were a) Unrecorded credit sales in the current year. b) Unrecorded cash receipts last year. c) More thorough credit investigations made by the company late last year. d) Fictitious sales in the current year.
b) Self-assessment processes in conjunction with entity-level controls.
If the financial reporting risks for a location are low and the entity has good entity-level controls, management may rely on which of the following for its assessment? a) Documentation and test controls over specific risks. b) Self-assessment processes in conjunction with entity-level controls. c) Documentation and test entity-level controls over the entire entity. d) Selective control test at that location.
b) Completeness.
If the number of days' sales in accounts receivable (365 days/receivables turnover) decreases significantly, which of the following assertions for accounts receivable most likely is violated? a) Existence or occurrence. b) Completeness. c) Rights and obligations. d) Classification.
c) Entering of the voucher into the voucher register.
In a properly designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition, and receiving report are verified. The next step in the system is a) Cancelation of the supporting documents. b) Entry of the check amount in the check register. c) Entering of the voucher into the voucher register. d) Approval of the voucher for payment.
b) Recompute the calculations on vendors' invoices.
In a properly designed purchasing process, the same employee most likely would match vendors' invoices with receiving reports and a) Post the detailed accounts payable records. b) Recompute the calculations on vendors' invoices. c) Reconcile the accounts payroll ledger. d) Cancel vendors' invoices after payment.
c) Accept the other auditor's opinion after evaluating the auditor's work and make reference to the other auditor's report in her audit opinion.
In auditing ICFR for a public company, Emily finds that the entity has a significant subsidiary located in a foreign country. Emily's accounting firm has no offices in that country, and the entity has thus engaged another reputable firm to conduct the audit of internal control for that subsidiary. The other auditor's report indicates that there are no material weaknesses in the foreign subsidiary's ICFR. What should Emily do? a) Disclaim an opinion because she cannot rely on the opinion of another auditor in dealing with a significant subsidiary. b) Accept the other auditor's opinion and express an unqualified opinion, making no reference to the other auditor's report in her audit opinion. c) Accept the other auditor's opinion after evaluating the auditor's work and make reference to the other auditor's report in her audit opinion. d) Qualify the opinion because she is unable to conduct the testing herself, and this constitutes a significant scope limitation.
a) An unqualified report.
In auditing a public company, Natalie, an auditor for N. M. Neal & Associates, identifies four deficiencies in ICFR. Three of the deficiencies are unlikely to result in financial misstatements that are material. One of the deficiencies is reasonably likely to result in misstatements that are not material but significant. What type of audit report should Natalie issue? a) An unqualified report. b) An adverse report. c) A disclaimer of opinion. d) An exculpatory opinion.
c) The acceptable level of risk.
In classical variables sampling, which of the following must be known in order to estimate the appropriate sample size required to meet the auditor's needs in a given situation? a) The qualitative aspects of misstatements. b) The total dollar amount of the population. c) The acceptable level of risk. d) The estimated percentage of deviations in the population.
b) Valuation and allocation.
In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of a) Existence. b) Valuation and allocation. c) Completeness. d) Rights and obligations.
d) All of the above are correct.
Internal control is a process designed to provide reasonable assurance regarding the achievement of which objective? a) Effectiveness and efficiency of operations. b) Reliability of financial reporting. c) Compliance with applicable laws and regulations. d) All of the above are correct.
b) Receiving department.
Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the a) Department that initiated the requisition. b) Receiving department. c) Purchasing agent. d) Accounts payable department.
d) The independent auditor can serve as part of the entity's control environment and continuous monitoring.
Monitoring is a major component of the COSO Internal Control—Integrated Framework. Which of the following is not correct in how the company can implement the monitoring component? a) Monitoring can be an ongoing process. b) Monitoring can be conducted as a separate evaluation. c) Monitoring and other audit work conducted by internal audit staff can reduce external audit costs. d) The independent auditor can serve as part of the entity's control environment and continuous monitoring.
c) The auditor cannot infer that all nonrespondents have verified their account information.
Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because a) A majority of recipients usually lack the willingness to respond objectively. b) Some recipients may report incorrect balances that require extensive follow-up. c) The auditor cannot infer that all nonrespondents have verified their account information. d) Negative confirmations do not produce evidence that is statistically quantifiable.
c) Purchased and received before the end of the year was recorded.
Purchase cutoff procedures should be designed to test whether all inventory a) Purchased and received before the end of the year was paid for. b) Ordered before the end of the year was received. c) Purchased and received before the end of the year was recorded. d) Owned by the entity is in the possession of the entity at the end of the year.
c) Substantive procedures to restrict detection risk for significant transaction classes.
Regardless of the assessed level of control risk, an auditor would perform some a) Tests of controls to determine the effectiveness of internal controls. b) Analytical procedures to verify the design of internal controls. c) Substantive procedures to restrict detection risk for significant transaction classes. d) Dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.
d) Assess whether the service organization's controls are suitably designed and operating effectively.
SOC 1, Type 2 reports issued by the service organization's auditor typically a) Provide reasonable assurance that their financial statements are free of material misstatements. b) Ensure that the entity will not have any misstatements in areas related to the service organization's activities. c) Ensure that the entity is billed correctly. d) Assess whether the service organization's controls are suitably designed and operating effectively.
a) The controls are operating effectively.
Samples to test internal controls are intended to provide a basis for an auditor to conclude whether a) The controls are operating effectively. b) The financial statements are materially misstated. c) The risk of incorrect acceptance is too high. d) Materiality for planning purposes is at a sufficiently low level.
c) Significant deficiencies in the design or operation of internal control.
Significant deficiencies and material weaknesses must be communicated to an entity's audit committee because they represent a) Material fraud or illegal acts perpetrated by high-level management. b) Disclosures of information that significantly contradict the auditor's going concern assumption. c) Significant deficiencies in the design or operation of internal control. d) Potential manipulation or falsification of accounting records.
c) Significant deficiencies in the design or operation of the internal control.
Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent a) Disclosures of information that significantly contradict the auditor's going concern assumption. b) Material fraud or illegal acts perpetrated by high-level management. c) Significant deficiencies in the design or operation of the internal control. d) Manipulation or falsification of accounting records or documents from which financial statements are prepared.
b) Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.
Smith Corporation has numerous customers. A customer file is maintained and includes a customer record with a name, an address, a credit limit, and an account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to a) Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations. b) Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit. c) Request a printout of all account balances so that they can be manually checked against the credit limits. d) Request a printout of a sample of account balances so that they can be individually checked against the respective credit limits.
d) The auditor should provide recommendations for improving internal control in the audit report.
The Sarbanes-Oxley Act of 2002 requires management to include a report on the effectiveness of ICFR in the entity's annual report. It also requires auditors to report on the effectiveness of ICFR. Which of the following statements concerning these requirements is false? a) The auditor should evaluate whether internal controls over financial reporting are designed and operating effectively. b) Management's report should state its responsibility for establishing and maintaining an adequate internal control system. c) Management should identify material weaknesses in its report. d) The auditor should provide recommendations for improving internal control in the audit report.
b) 2.
The following table depicts the possible outcomes for the auditor's estimated computed upper deviation rate based on a sample relative to the auditor's tolerable deviation rate (i.e., the computed upper deviation rate will either be above or below the tolerable deviation rate). The table also depicts the two possible states of the actual population deviation rate compared with the auditor's tolerable deviation rate (the actual population deviation rate is unknown to the auditor). Estimate Based on Sample Results/Actual Population Deviation Rate < Tolerable Deviation Rate/Actual Population Deviation Rate > Tolerable Deviation Rate Computed upper deviation rate < tolerable deviation rate/1/3 Computed upper deviation rate > tolerable deviation rate/2/4 Suppose as a result of sample testing of controls, an auditor assesses control risk higher than necessary given the actual (but unknown) population deviation rate and thereby increases substantive testing. This is illustrated by which of the four possible outcome conditions in the table above? a) 1. b) 2. c) 3. d) 4.
b) Observation by the auditor of the employees performing control activities.
The highest-quality and most reliable audit evidence that segregation of duties is properly implemented is obtained by a) Inspection of documents prepared by a third party but which contain the initials of those applying entity controls. b) Observation by the auditor of the employees performing control activities. c) Inspection of a flowchart of duties performed and available personnel. d) Inquiries of employees who apply control activities.
a. Low/High/Likely
The negative request form of accounts receivable confirmation is useful particularly when The Assessed Level of Control Risk Relating to Receivables Is/The Number of Small Balances Is/Consideration by the Recipient Is a. Low/High/Likely b. Low/Low/Unlikely c. High/Low/Likely d. High/High/Likely
a) Effectiveness of the audit.
The risk of incorrect acceptance relates to the a) Effectiveness of the audit. b) Efficiency of the audit. c) Planning materiality. d) Allowable risk of tolerable misstatement.
c) Receiving reports.
To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all a) Vendor invoices. b) Purchase orders. c) Receiving reports. d) Canceled checks.
a) A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.
When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in misstatements. This explains why a) A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded. b) Deviations would result in errors in the accounting records only if the deviations and the misstatements occurred on different transactions. c) Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in misstatements at a higher rate. d) A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material misstatement.
d) The walkthrough of the control system conducted at interim.
When auditors report on the effectiveness of internal control "as of" a specific date and obtain evidence about the operating effectiveness of controls at an interim date, which of the following items would be the least helpful in evaluating the additional evidence to gather for the remaining period? a) Any significant changes that occurred in internal control subsequent to the interim date. b) The length of the remaining period. c) The specific controls tested prior to the "as of" date and the results of those tests. d) The walkthrough of the control system conducted at interim.
c) The vendor shipping document and the purchase order.
When goods are received, the receiving clerk should match the goods with a) The purchase order and the requisition form. b) The vendor invoice and the purchase order. c) The vendor shipping document and the purchase order. d) The vendor invoice and the vendor shipping document.
a) 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.
d) Review of cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
Which of the following audit procedures is best for identifying unrecorded trade accounts payable? a) Examination of unusual relationships between monthly accounts payable balances and recorded cash payments. b) Reconciliation of vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. c) Investigation of payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. d) Review of cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
a) Inquiry of entity personnel.
Which of the following audit techniques would most likely provide an auditor with the least assurance about the effectiveness of the operation of a control? a) Inquiry of entity personnel. b) Reperformance of the control by the auditor. c) Observation of entity personnel. d) Walkthrough.
c) Decrease/Increase/Decrease
Which of the following combinations results in the greatest decrease in sample size in an attribute sample for a test of controls? Desired Confidence Level/Tolerable Deviation Rate/Expected Population Deviation Rate a) Decrease/Decrease/Increase b) Increase/Increase/Decrease c) Decrease/Increase/Decrease d) Decrease/Increase/Increase
d) Accounting for unused prenumbered purchase orders and receiving reports.
Which of the following control activities is not usually performed in the accounts payable department? a) Matching the vendor's invoice with the related receiving report. b) Approving vouchers for payment by having an authorized employee sign the vouchers. c) Indicating the asset and expense accounts to be debited. d) Accounting for unused prenumbered purchase orders and receiving reports.
d) The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.
Which of the following controls is most likely to help ensure that all credit revenue transactions of an entity are recorded? a) The billing department supervisor sends a copy of each approved sales order to the credit department for comparison to the customer's authorized credit limit and current account balance. b) The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account each month. 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.
c) Controls that operate on a continuous basis.
Which of the following controls would most likely be tested during an interim period? a) Controls over nonroutine transactions. b) Controls over the period-end financial reporting process. c) Controls that operate on a continuous basis. d) Controls over transactions that involve a high degree of subjectivity.
c) Segregation of duties between receiving cash and posting the accounts receivable ledger.
Which of the following internal controls would be most likely to deter the lapping of collections from customers? a) Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries. b) Authorization of write-offs of uncollectible accounts by a supervisor independent of the credit approval function. c) Segregation of duties between receiving cash and posting the accounts receivable ledger. d) Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries.
a) Unrecorded sales for the year.
Which of the following is most likely to be detected by an auditor's review of an entity's sales cutoff? a) Unrecorded sales for the year. b) Lapping of year-end accounts receivable. c) Excessive sales discounts. d) Unauthorized goods returned for credit.
c) The financial statement amounts exposed to the deficiency.
Which of the following is not a factor that might affect the likelihood that a control deficiency could result in a misstatement in an account balance? a) The susceptibility of the related assets or liability to loss or fraud. b) The interaction or relationship of the control with other controls. c) The financial statement amounts exposed to the deficiency. d) The nature of the financial statement accounts, disclosures, and assertions involved.
a) The systems analyst reviews output and controls the distribution of output from the IT department.
Which of the following most likely represents a weakness in internal control of an IT system? a) The systems analyst reviews output and controls the distribution of output from the IT department. b) The accounts payable clerk prepares data for computer processing and enters the data into the computer. c) The systems programmer designs the operating and control functions of programs and participates in testing operating systems. d) The control clerk establishes control over data received by the IT department and reconciles control totals after processing.
c) Search for unrecorded liabilities.
Which of the following procedures is least likely to be performed before the balance sheet date? a) Test of internal control over cash. b) Confirmation of receivables. c) Search for unrecorded liabilities. d) Observation of inventory.
d) Variable sampling.
Which of the following sampling methods would be used to estimate a numeric measurement of a population, such as a dollar value? a) Random sampling. b) Numeric sampling. c) Attribute sampling. d) Variable sampling.
d) The cost-benefit relationship is a primary criterion that should be considered in designing an internal control system.
Which of the following statements about internal control is correct? a) A properly maintained internal control system reasonably ensures that collusion among employees cannot occur. b) The establishment and maintenance of internal control is an important responsibility of the internal auditor. c) An exceptionally strong internal control system is enough for the auditor to eliminate substantive procedures on a significant account balance. d) The cost-benefit relationship is a primary criterion that should be considered in designing an internal control system.
a) The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit.
Which of the following statements concerning control deficiencies is true? a) The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit. b) All significant deficiencies are material weaknesses. c) All control deficiencies are significant deficiencies. d) An auditor must immediately report material weaknesses and significant deficiencies discovered during an audit to the PCAOB.
c) The auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan.
Which of the following statements concerning monetary-unit sampling is correct? a) The sampling distribution should approximate the normal distribution. b) Overstated units have a lower probability of sample selection than units that are understated. c) The auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan. d) The sampling interval is calculated by dividing the number of physical units in the population by the sample size.
a) An auditor needs to estimate the dollar amount of the standard deviation of the population in order to use classical variables sampling.
Which of the following statements concerning the auditor's use of statistical sampling is correct? a) An auditor needs to estimate the dollar amount of the standard deviation of the population in order to use classical variables sampling. b) An assumption of monetary-unit sampling is that the underlying accounting population is normally distributed. c) A classical variables sample needs to be designed with special considerations to include negative balances in the sample. d) The selection of zero balances usually does not require special sample design considerations when using monetary-unit sampling.
d) There is an inverse relationship between the sample size and the tolerable deviation rate.
Which of the following statements is correct concerning statistical sampling in tests of controls? a) Deviations from controls at a given rate usually result in misstatements at a higher rate. b) As the population size doubles, the sample size should also double. c) The qualitative aspects of deviations are not considered by the auditor. d) There is an inverse relationship between the sample size and the tolerable deviation rate.
c) Inclusion of zero and negative balances generally does not require special design considerations.
Which of the following would most likely be an advantage in using classical variables sampling rather than monetary-unit sampling? a) An estimate of the standard deviation of the population's recorded amounts is not required. b) The auditor rarely needs the assistance of a computer program to design an efficient sample. c) Inclusion of zero and negative balances generally does not require special design considerations. d) Any amount that is individually significant is automatically identified and selected.
