Question 1

Professional skepticism means that the auditor:

Accepted Answer

A)  should not trust the client. 
B)  should allow negative past opinions formed about the client to affect the current year under audit. 
C)  not be satisfied with less than persuasive evidence because of positive attitudes towards the client. 
D)  All of the above. 
A)  should not trust the client. 
B)  should allow negative past opinions formed about the client to affect the current year under audit. 
C)  not be satisfied with less than persuasive evidence because of positive attitudes towards the client. 
D)  All of the above.

Question 2

AS#3 addresses audit documentation standards.

Accepted Answer

A) True 
 B)False

Question 3

Related-party transactions frequently present greater risk than those transacted at "arm's length".

Accepted Answer

A) True 
 B)False

Question 4

The risk of associating with a client known to have a dubious reputation for honesty is referred to as:

Accepted Answer

A)  audit risk. 
B)  detection risk. 
C)  engagement risk. 
D)  Both b and c 
A)  audit risk. 
B)  detection risk. 
C)  engagement risk. 
D)  Both b and c

Question 5

An audit by the IRS may indicate an illegal act.

Accepted Answer

A) True 
 B)False

Question 6

Audit risk is a function of inherent risk, control risk, and engagement risk.

Accepted Answer

A) True 
 B)False

Question 7

Auditors are not allowed to roll-forward tests of ITGC to year-end.

Accepted Answer

A) True 
 B)False

Question 8

Jose is a senior auditor in charge of testing controls over financial reporting.
The audit procedures require that Jose "maintain professional skepticism in assessing
controls for fraud risk." In the course of his testing, Jose finds a transaction that
occurred on January 5 at 11:30 P.M. that decreased the bad debts reserve account
enough to increase earnings per share to $.20, which met analysts' predictions. Jose
has a bad feeling about this transaction. For documentation purposes, he must articulate
the red flags for fraud risk for this transaction.
Required:
(a)What are the red flags for fraud risk demonstrated by this transaction?
(b) For each red flag state (a) why it is important, in other words what it suggests to
the auditor and (b) the follow-up procedure that Jose might use.

Accepted Answer

(a) The fraud risk red flags demonstrate

Question 9

The terms statistical testing and risk are intertwined. Below, describe how each of the statistical terms relates to sample size or sampling error and the different types of risk.
Statistical Terms
(a) Likely rate of deviation
(b) Tolerable rate of deviation
(c) Assessing control risk too high
(d) Assessing control risk too low
(e) Incorrect acceptance
(f) Incorrect rejection

Accepted Answer

Statistical Terms
(a) Likely rate of dev

Question 10

An expert system can be used to:

Accepted Answer

A)  assist in planning the audit. 
B)  assist in selecting samples. 
C)  assist in evaluating results from testing details of balances. 
D)  All of the above. 
A)  assist in planning the audit. 
B)  assist in selecting samples. 
C)  assist in evaluating results from testing details of balances. 
D)  All of the above.

Question 11

An auditor tests a sample of transactions for proper authorization. She concludes that the control is not operating effectively, although it actually is. This is an example of:

Accepted Answer

A)  sampling error. 
B)  sampling risk. 
C)  detection risk. 
D)  All of the above. 
A)  sampling error. 
B)  sampling risk. 
C)  detection risk. 
D)  All of the above.

Question 12

Sampling error occurs when incorrect conclusions are drawn from testing a sample versus the entire population.

Accepted Answer

A) True 
 B)False

Question 13

Selecting the wrong control to test is an example of non sampling risk.

Accepted Answer

A) True 
 B)False

Question 14

Entity-level controls include ITGC.

Accepted Answer

A) True 
 B)False

Question 15

As the expected population deviation rate increases, the:

Accepted Answer

A)  degree of assurance desired by the sample's audit evidence increases. 
B)  tolerable rate of deviation decreases. 
C)  tolerable rate of deviation increases. 
D)  degree of assurance desired by the sample's audit evidence decreases. 
A)  degree of assurance desired by the sample's audit evidence increases. 
B)  tolerable rate of deviation decreases. 
C)  tolerable rate of deviation increases. 
D)  degree of assurance desired by the sample's audit evidence decreases.

Question 16

The difference between a significant deficiency and a material weakness is:

Accepted Answer

A)  one of dollars amounts; the material weakness has a greater dollar impact than a significant deficiency. 
B)  a material weakness has a reasonable possibility that a material misstatement will not be detected; a significant deficiency is less severe. 
C)  a material weakness has a reasonable probability that a material misstatement will not be detected; a significant deficiency is less severe. 
D)  All of the above. 
A)  one of dollars amounts; the material weakness has a greater dollar impact than a significant deficiency. 
B)  a material weakness has a reasonable possibility that a material misstatement will not be detected; a significant deficiency is less severe. 
C)  a material weakness has a reasonable probability that a material misstatement will not be detected; a significant deficiency is less severe. 
D)  All of the above.

Question 17

It is acceptable for auditors to reduce test of balances and transactions if the ITGC are effective.

Accepted Answer

A) True 
 B)False

Question 18

The ICFR attests that the controls were operating effectively:

Accepted Answer

A)  for the entire period under audit. 
B)  since the date of the previous ICFR. 
C)  for the majority of time under audit. 
D)  None of the above. 
A)  for the entire period under audit. 
B)  since the date of the previous ICFR. 
C)  for the majority of time under audit. 
D)  None of the above.

Question 19

If detection risk is set too "high," then the sample sizes needed for testing are increased.

Accepted Answer

A) True 
 B)False

Question 20

Deciding that internal controls are effective when they in fact they are not is an example of assessing control risk too high.

Accepted Answer

A) True 
 B)False

Professional skepticism means that the auditor:

AS#3 addresses audit documentation standards.

Related-party transactions frequently present greater risk than those transacted at "arm's length".

The risk of associating with a client known to have a dubious reputation for honesty is referred to as:

An audit by the IRS may indicate an illegal act.

Audit risk is a function of inherent risk, control risk, and engagement risk.

Auditors are not allowed to roll-forward tests of ITGC to year-end.

An expert system can be used to:

An auditor tests a sample of transactions for proper authorization. She concludes that the control is not operating effectively, although it actually is. This is an example of:

Sampling error occurs when incorrect conclusions are drawn from testing a sample versus the entire population.

Selecting the wrong control to test is an example of non sampling risk.

Entity-level controls include ITGC.

As the expected population deviation rate increases, the:

The difference between a significant deficiency and a material weakness is:

It is acceptable for auditors to reduce test of balances and transactions if the ITGC are effective.

The ICFR attests that the controls were operating effectively:

If detection risk is set too "high," then the sample sizes needed for testing are increased.

Deciding that internal controls are effective when they in fact they are not is an example of assessing control risk too high.

An Introduction to Auditing

Overview of an Integrated Audit

The Auditors Role in Society

Legal Environment Affecting Audits Pt Iii Executing an Integrated Audit

Client Acceptance and Continuance and Preliminary Engagement Procedures

Audit Planning and Risk Assessment

Internal Control, Understanding the Clients Internal Control Over Financial Reporting and Auditing Design Effectiveness

Substantive Procedures and the Financial Statement Audit

Auditing Revenue Process: Sales, Billing and Collection in the Health-Care Provider and Retailing Industries

Completing the Integrated Audit and Reporting

The Acquisition and Payments Cycle and Related Accounts: Purchases, Cash Disbursements and Other Related Activities in the Automotive Industry

Auditing Human Resources Cycle Process: Personnel and Payroll in Service Industries

Auditing Inventory Processes: Tracking and Costing Products in the Land Development and Home Building Industry

Assets, Liabilities and Equity Related to the Financing Cycle

Topics Beyond the Integrated Audit

Filters

Exam 8: Planning and Testing Operating Effectiveness of Internal Control Over Financial Reporting

Professional skepticism means that the auditor:

AS#3 addresses audit documentation standards.

Related-party transactions frequently present greater risk than those transacted at "arm's length".

The risk of associating with a client known to have a dubious reputation for honesty is referred to as:

An audit by the IRS may indicate an illegal act.

Audit risk is a function of inherent risk, control risk, and engagement risk.

Auditors are not allowed to roll-forward tests of ITGC to year-end.

An expert system can be used to:

An auditor tests a sample of transactions for proper authorization. She concludes that the control is not operating effectively, although it actually is. This is an example of:

Sampling error occurs when incorrect conclusions are drawn from testing a sample versus the entire population.

Selecting the wrong control to test is an example of non sampling risk.

Entity-level controls include ITGC.

As the expected population deviation rate increases, the:

The difference between a significant deficiency and a material weakness is:

It is acceptable for auditors to reduce test of balances and transactions if the ITGC are effective.

The ICFR attests that the controls were operating effectively:

If detection risk is set too "high," then the sample sizes needed for testing are increased.

Deciding that internal controls are effective when they in fact they are not is an example of assessing control risk too high.

An Introduction to Auditing

Overview of an Integrated Audit

The Auditors Role in Society

Legal Environment Affecting Audits Pt Iii Executing an Integrated Audit

Client Acceptance and Continuance and Preliminary Engagement Procedures

Audit Planning and Risk Assessment

Internal Control, Understanding the Clients Internal Control Over Financial Reporting and Auditing Design Effectiveness

Substantive Procedures and the Financial Statement Audit

Auditing Revenue Process: Sales, Billing and Collection in the Health-Care Provider and Retailing Industries

Completing the Integrated Audit and Reporting

The Acquisition and Payments Cycle and Related Accounts: Purchases, Cash Disbursements and Other Related Activities in the Automotive Industry

Auditing Human Resources Cycle Process: Personnel and Payroll in Service Industries

Auditing Inventory Processes: Tracking and Costing Products in the Land Development and Home Building Industry

Assets, Liabilities and Equity Related to the Financing Cycle

Topics Beyond the Integrated Audit

Filters