Question 1

Risks of fraud are assessed at which level(s)of the audit?

Accepted Answer

A) overall audit,transaction-related audit objectives 
B) balance-related audit objectives only 
C) overall audit,cycle,and account 
D) cycle,account,and transaction-related audit objectives

Question 2

A)Describe the five types of audit tests used to determine whether financial statements are fairly stated.Identify which types are substantive tests and which are used to reduce assessed control risk.B)There are several types of audit procedures that relate to the auditor's understanding of internal control.One type of procedure is to update and evaluate the auditor's previous experience with the entity.Identify the four additional types of procedures related to understanding internal control.

Accepted Answer

The answer of A)Describe the five types of audit tests...

Question 3

Performance of tests of controls provide evidence in support of the specific controls that contribute to the auditor's assessed control risk (where it is reduced below 100%).Also,when dual-purpose tests are used,evidence is also obtained in support of

Accepted Answer

A) the nature of illegal acts that occurred. 
B) the quantitative effects of fraud risks. 
C) statistical ratios to assist analytical review. 
D) monetary correctness of transactions.

Question 4

The highest-cost audit will be incurred when the auditor expects that the internal control system would

Accepted Answer

A) be effective but the auditor found extensive control test deviations. 
B) have few effective controls but client's personnel were well-trained and knowledgeable. 
C) be very sophisticated and the tests of controls confirmed this. 
D) have few effective controls and tests of balances found many errors.

Question 5

The auditor would like to design a test of control to test that there is a separation of duties between billing,recording sales,and handling of cash receipts.Which of the following typical tests of controls would be suitable?

Accepted Answer

A) Match the amounts billed to the amounts recorded. 
B) Verify that sales have been recorded in the proper period. 
C) Trace cash receipts to the duplicate bank deposit slips. 
D) Inquire about the duties of the accounting personnel.

Question 6

In the context of an audit of financial statements,substantive tests are audit procedures that

Accepted Answer

A) may be eliminated under certain conditions. 
B) are designed to discover significant subsequent events. 
C) may be either direct tests of financial balances or analytical tests. 
D) will increase proportionately with the auditor's reliance on internal control.

Question 7

You are a senior at a PA firm and this is your junior's first day.He would like you to explain to him the different types of audit tests that should be performed over the course of an audit to obtain sufficient and appropriate audit evidence.Be sure to indicate which component of audit risk each type of test is linked to.

Accepted Answer

The answer of You are a senior at a PA...

Question 8

Conversion is the process of

Accepted Answer

A) testing data. 
B) cleaning data in the legacy system. 
C) testing data during an implementation. 
D) transferring data from a legacy system to a new system.

Question 9

When auditors perform audit procedures relating to contingent liabilities and subsequent events,what evidence do the auditors gather for the financial statements as a whole?

Accepted Answer

A) perform preliminary analytical procedures 
B) evidence from test of controls 
C) evidence from substantive testing 
D) obtain client representation letter

Question 10

The auditor selects several transactions in each functional area and traces them through the entire accounting system,paying special attention to evidence about whether or not the control features are in operation.This is an example of a

Accepted Answer

A) sequence test. 
B) test of controls. 
C) substantive test. 
D) functional test.

Question 11

Which of the following ultimately determines the specific audit procedures necessary to provide an auditor with a reasonable basis for the expression of an opinion?

Accepted Answer

A) the audit program 
B) the auditor's professional judgment 
C) generally accepted auditing standards 
D) the auditor's working papers

Question 12

Choosing the appropriate analytical procedures requires the auditor to use

Accepted Answer

A) the standards developed by the auditor's firm. 
B) automated working paper software. 
C) computer-assisted audit techniques. 
D) professional judgment.

Question 13

A planned approach to gather evidence taking into account assessed risks,is called an

Accepted Answer

A) audit approach. 
B) audit plan. 
C) audit program. 
D) audit strategy.

Question 14

The auditor of ABC Ltd.has concluded that there are significant risks of misstatement of revenue at the company with potential overstatement of revenue.Which of the following audit tests should the auditor conduct to address this significant risk?

Accepted Answer

A) control tests of authorization to ensure that credit limits for sales are all approved by the sales manager 
B) analytical review of sales comparing sales trends over the last five years by division and to the industry 
C) examination of sales after the year end to quantify potential cutoff errors (income from the subsequent period included in the current year) 
D) risk assessment procedures looking carefully at inherent risks associated with the handling of cash in the sales cycle

Question 15

Analytical procedures are mandatory during which phases of the audit?

Accepted Answer

A) tests of controls and tests of details 
B) planning and risk response 
C) planning and tests of details 
D) tests of details and final evaluation

Question 16

Describe a dual-purpose test.

Accepted Answer

The answer of Describe a dual-purpose test....

Question 17

The auditor has completed analyzing the results of tests of details of the accounts receivable ending balance.Errors totaling $25 000 were found.These exceptions are

Accepted Answer

A) indications that the credit limit is being incorrectly applied. 
B) probably cutoff errors that can be explained. 
C) an indication of potential errors in the ending balance. 
D) financial statement misstatements.

Question 18

A PA is conducting the audit of Middi Furniture Company,a medium-sized company with few effective controls and significant inherent risks.Management has decided that it is not cost-effective to implement better internal controls.What audit strategy will the PA likely select for this client?

Accepted Answer

A) combined audit approach for all transaction cycles and accounts 
B) substantive audit approach for all transaction cycles and accounts 
C) combined audit approach for all cycles except cash and inventory 
D) substantive audit approach for all cycles except sales and payroll

Question 19

When the auditor has determined that there is a significant risk of misstatement for a particular assertion (for example,completeness of revenue),what type of audit testing does CAS 330 require?

Accepted Answer

A) tests of risk assessment 
B) tests of understanding of internal control 
C) control tests 
D) substantive tests

Question 20

The auditor has decided that there is a risk of material misstatement with respect to sales revenue.Which of the following audit tests should the auditor use to quantify the potential error?

Accepted Answer

A) discuss the process used to assign credit limits with the sales manager and the controller 
B) send external confirmations to customers with accounts receivable balances 
C) determine whether all sales tested have a supporting customer purchase order 
D) determine whether all sales tested have a matching bill of lading

Exam 10: Develop Risk Response: Audit Strategy and Audit Program

Risks of fraud are assessed at which level(s) of the audit?

Performance of tests of controls provide evidence in support of the specific controls that contribute to the auditor's assessed control risk (where it is reduced below 100%) .Also,when dual-purpose tests are used,evidence is also obtained in support of