Question 1

Explain the differences between the main objectives of tests of controls and substantive procedures.

Accepted Answer

Tests of controls are conducted to estab

Question 2

When conducting substantive testing, an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.

Accepted Answer

A) True 
 B)False

Question 3

Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size, resulting in the sampling interval.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is a factor that influences the sample size when testing controls?

Accepted Answer

A)  an increase in the auditor's assessment of the risk of material misstatement 
B)  an increase in the tolerable rate of deviation 
C)  stratification of the population when appropriate 
D)  an increase in tolerable misstatement 
A)  an increase in the auditor's assessment of the risk of material misstatement 
B)  an increase in the tolerable rate of deviation 
C)  stratification of the population when appropriate 
D)  an increase in tolerable misstatement

Question 5

Non-statistical sampling involves random selection and probability theory to evaluate the results.

Accepted Answer

A) True 
 B)False

Question 6

Non-sampling risk arises when an auditor:

Accepted Answer

A)  does not use sampling. 
B)  uses an inappropriate audit procedure. 
C)  tests all of the items in a population. 
D)  spends too much time testing the accounts most at risk of material misstatement. 
A)  does not use sampling. 
B)  uses an inappropriate audit procedure. 
C)  tests all of the items in a population. 
D)  spends too much time testing the accounts most at risk of material misstatement.

Question 7

Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.

Accepted Answer

A) True 
 B)False

Question 8

Sampling risk is the risk that the sample chosen by the auditor is not representative of the population available for testing.

Accepted Answer

A) True 
 B)False

Question 9

When control risk is high, the audit strategy is to:

Accepted Answer

A)  do little or no tests of controls and increase reliance on substantive testing of transactions and account balances. 
B)  assume the client's management is dishonest and immediately report them to the CRA. 
C)  increase reliance on tests of controls and reduce reliance on substantive testing of transactions and account balances.. 
D)  refuse to continue with the remainder of the audit due to the high risk of fraud. 
A)  do little or no tests of controls and increase reliance on substantive testing of transactions and account balances. 
B)  assume the client's management is dishonest and immediately report them to the CRA. 
C)  increase reliance on tests of controls and reduce reliance on substantive testing of transactions and account balances.. 
D)  refuse to continue with the remainder of the audit due to the high risk of fraud.

Question 10

When evaluating sample test results, which of the following statements is incorrect?

Accepted Answer

A)  If an auditor discovers errors when testing transactions or account balances, they will need to project the error to the population being tested. 
B)  An auditor will not consider whether the population was stratified before being sampled. 
C)  If an error is considered to be unique it will be removed before projecting remaining errors to the population. 
D)  If the rate of deviation exceeds the tolerable rate the auditor will extend their testing. 
A)  If an auditor discovers errors when testing transactions or account balances, they will need to project the error to the population being tested. 
B)  An auditor will not consider whether the population was stratified before being sampled. 
C)  If an error is considered to be unique it will be removed before projecting remaining errors to the population. 
D)  If the rate of deviation exceeds the tolerable rate the auditor will extend their testing.

Question 11

Before selecting a sample, an auditor will use professional judgment to:

Accepted Answer

A)  set the required level of confidence. 
B)  set the tolerable error rate. 
C)  select an appropriate population for testing. 
D)  all of the above. 
A)  set the required level of confidence. 
B)  set the tolerable error rate. 
C)  select an appropriate population for testing. 
D)  all of the above.

Question 12

An increase in the number of sampling units in the population will result in a decrease in the sample size.

Accepted Answer

A) True 
 B)False

Question 13

An account is at a higher risk of misstatement when it requires:

Accepted Answer

A)  complex calculations. 
B)  estimation. 
C)  both a and b 
D)  simple valuation techniques. 
A)  complex calculations. 
B)  estimation. 
C)  both a and b 
D)  simple valuation techniques.

Question 14

Which of the following statements is incorrect?

Accepted Answer

A)  When detection risk is set as high, an auditor will require a high level of confidence that the transactions and accounts are not materially misstated. 
B)  An auditor may decide to stratify the population before selecting a sample .from it. 
C)  An auditor will use professional judgment to determine the tolerable error and required level of confidence. 
D)  An auditor will use professional judgment when considering what would be considered an error within the population tested. 
A)  When detection risk is set as high, an auditor will require a high level of confidence that the transactions and accounts are not materially misstated. 
B)  An auditor may decide to stratify the population before selecting a sample .from it. 
C)  An auditor will use professional judgment to determine the tolerable error and required level of confidence. 
D)  An auditor will use professional judgment when considering what would be considered an error within the population tested.

Question 15

Tolerable error is the minimum error an auditor is willing to accept within the population tested.

Accepted Answer

A) True 
 B)False

Question 16

Christopher Mikos has been involved in testing controls at Highbridge Falls. Which of these control tests would be deemed ineffective?

Accepted Answer

A)  reading a client's policy manual 
B)  entering invalid passwords to to see whether access is denied 
C)  both a and b 
D)  none of the above are effective controls 
A)  reading a client's policy manual 
B)  entering invalid passwords to to see whether access is denied 
C)  both a and b 
D)  none of the above are effective controls

Question 17

Helen Lam assessed control risk to be low. What is the appropriate audit strategy she should adopt?

Accepted Answer

A)  predominantly substantive audit approach 
B)  control testing strategy 
C)  combined audit strategy 
D)  substantive year end testing 
A)  predominantly substantive audit approach 
B)  control testing strategy 
C)  combined audit strategy 
D)  substantive year end testing

Question 18

When testing controls, a decrease in the sample size will occur when there is:

Accepted Answer

A)  an increase in the tolerable rate of deviation. 
B)  a decrease in the tolerable rate of deviation. 
C)  an increase in the extent to which the auditor's risk assessment takes into account relevant controls. 
D)  an increase in the number of sampling units in the population. 
A)  an increase in the tolerable rate of deviation. 
B)  a decrease in the tolerable rate of deviation. 
C)  an increase in the extent to which the auditor's risk assessment takes into account relevant controls. 
D)  an increase in the number of sampling units in the population.

Question 19

Michael Fernandez has decided to perform substantive procedures at a major retailer. Which one of the following is not a substantive procedure?

Accepted Answer

A)  re-performing control procedures to test their effectiveness 
B)  inspecting documents to verify the dates of the transactions 
C)  bank confirmations regarding interest rates on borrowings by client 
D)  recalculating an interest expense using confirmed interest rates 
A)  re-performing control procedures to test their effectiveness 
B)  inspecting documents to verify the dates of the transactions 
C)  bank confirmations regarding interest rates on borrowings by client 
D)  recalculating an interest expense using confirmed interest rates

Explain the differences between the main objectives of tests of controls and substantive procedures.

When conducting substantive testing, an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.

Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size, resulting in the sampling interval.

Which of the following is a factor that influences the sample size when testing controls?

Non-statistical sampling involves random selection and probability theory to evaluate the results.

Non-sampling risk arises when an auditor:

Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.

Sampling risk is the risk that the sample chosen by the auditor is not representative of the population available for testing.

When control risk is high, the audit strategy is to:

When evaluating sample test results, which of the following statements is incorrect?

Before selecting a sample, an auditor will use professional judgment to:

An increase in the number of sampling units in the population will result in a decrease in the sample size.

An account is at a higher risk of misstatement when it requires:

Which of the following statements is incorrect?

Tolerable error is the minimum error an auditor is willing to accept within the population tested.

Christopher Mikos has been involved in testing controls at Highbridge Falls. Which of these control tests would be deemed ineffective?

Helen Lam assessed control risk to be low. What is the appropriate audit strategy she should adopt?

When testing controls, a decrease in the sample size will occur when there is:

Michael Fernandez has decided to perform substantive procedures at a major retailer. Which one of the following is not a substantive procedure?

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Risk Assessment I

Risk Assessment II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Execution of the Audit Testing of Controls

Execution of the Audit Performing Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Substantive Testing and Income Statement Accounts

Completing and Reporting on the Audit

Filters

Exam 6: Gaining an Understanding of the Clients System of Internal Controls

Explain the differences between the main objectives of tests of controls and substantive procedures.

When conducting substantive testing, an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.

Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size, resulting in the sampling interval.

Which of the following is a factor that influences the sample size when testing controls?

Non-statistical sampling involves random selection and probability theory to evaluate the results.

Non-sampling risk arises when an auditor:

Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.

Sampling risk is the risk that the sample chosen by the auditor is not representative of the population available for testing.

When control risk is high, the audit strategy is to:

When evaluating sample test results, which of the following statements is incorrect?

Before selecting a sample, an auditor will use professional judgment to:

An increase in the number of sampling units in the population will result in a decrease in the sample size.

An account is at a higher risk of misstatement when it requires:

Which of the following statements is incorrect?

Tolerable error is the minimum error an auditor is willing to accept within the population tested.

Christopher Mikos has been involved in testing controls at Highbridge Falls. Which of these control tests would be deemed ineffective?

Helen Lam assessed control risk to be low. What is the appropriate audit strategy she should adopt?

When testing controls, a decrease in the sample size will occur when there is:

Michael Fernandez has decided to perform substantive procedures at a major retailer. Which one of the following is not a substantive procedure?

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Risk Assessment I

Risk Assessment II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Execution of the Audit Testing of Controls

Execution of the Audit Performing Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Substantive Testing and Income Statement Accounts

Completing and Reporting on the Audit

Filters