Question 1

When assessing accounts for misstatement, the auditor frequently sets tolerable limits to guide her decisions regarding the need for adjusting journal entries.

Accepted Answer

A) True 
 B)False

Question 2

When using a statistical sampling plan, the auditor calculates a precision interval around the population estimate. This involves:

Accepted Answer

A)  setting the tolerable misstatement amount. 
B)  differentiating between known and estimated misstatements. 
C)  determining the amount of the adjustment. 
D)  All of the above.

Question 3

Which of the following procedures would you perform for an audit of cash and cash equivalents at year-end?

Accepted Answer

A)  Obtain the cut-off bank statement from the client. 
B)  Trace deposits in transit to the bank statement and to the books for proper recording. 
C)  Perform the bank reconciliation. 
D)  All of the above.

Question 4

Which of the following is NOT a transaction cycle?

Accepted Answer

A)  Cash receipts. 
B)  Inventory. 
C)  Cash disbursements. 
D)  All are transaction cycles.

Question 5

Statistical analyses are required whenever an auditor estimates the unknown error for an account balance.

Accepted Answer

A) True 
 B)False

Question 6

Generally, as acceptable risk is reduced, sample size:

Accepted Answer

A)  decreases. 
B)  increases. 
C)  can either increase or decrease depending on the circumstances. 
D)  can increase or decrease depending on the risk.

Question 7

Which of the below is considered a sampling frame?

Accepted Answer

A)  Individual accounts receivable accounts. 
B)  Individual inventory accounts. 
C)  A transaction file. 
D)  None of the above.

Question 8

Incorrect acceptance can occur when:

Accepted Answer

A)  there is an efficiency problem. 
B)  the sample size is too small. 
C)  there is a sampling error. 
D)  All of the above.

Question 9

Which of the following is an example of sampling error?

Accepted Answer

A)  Selection of the wrong transactions. 
B)  Misapplication of random sampling. 
C)  Selecting transactions not representative of the population. 
D)  All of the above are examples of sampling errors.

Question 10

Which of the following accounts presents the greatest inherent risk?

Accepted Answer

A)  Cash. 
B)  Marketable securities. 
C)  Accounts receivable. 
D)  Sales.

Question 11

The initials "PBC" mean:

Accepted Answer

A)  paid by client. 
B)  prepared by client. 
C)  prepared before client. 
D)  None of the above.

Question 12

Classical variables sampling can:

Accepted Answer

A)  be applied to overstatements. 
B)  be applied to understatements. 
C)  is easier to use than other methods. 
D)  Both a and b.

Question 13

Replacement value is used to estimate fair value.

Accepted Answer

A) True 
 B)False

Question 14

The lead schedule should refer to:

Accepted Answer

A)  the financial statements. 
B)  the lead schedule for each account listed in the working trial balance. 
C)  the person preparing the schedule. 
D)  Both b and c.

Question 15

Incorrect rejection is an audit effectiveness issue.

Accepted Answer

A) True 
 B)False

Question 16

When using sample results to estimate unknown error, the auditor may construct a confidence interval to determine if the estimated error is within the bounds set by the tolerable misstatement amount.

Accepted Answer

A) True 
 B)False

Question 17

The auditor selects 25 invoices for testing and detects no errors. As a result, she concludes that the expense account is fairly stated. Unbeknown to the auditor, the client has altered some of the invoices to reduce the amount reported as expense. This is an example of:

Accepted Answer

A)  an efficiency problem. 
B)  incorrect acceptance. 
C)  a sampling error. 
D)  Both b and c.

Question 18

Cut-off procedures:

Accepted Answer

A)  can be tested at interim and rolled forward. 
B)  can be tested at any point in the audit. 
C)  apply only to balance sheet accounts. 
D)  can only be tested at year-end.

Question 19

The auditor sends positive confirmations to the client's suppliers in order to fulfill which assertion?

Accepted Answer

A)  Existence. 
B)  Disclosure. 
C)  Presentation. 
D)  Completeness.

Question 20

Which of the following audit procedures can be used as a substitute for confirmations not returned?

Accepted Answer

A)  Subsequent account activity. 
B)  Subsequent account adjustments. 
C)  Subsequent payments. 
D)  All of the above.

Exam 9: Substantive Procedures and the Financial Statement Audit

When assessing accounts for misstatement, the auditor frequently sets tolerable limits to guide her decisions regarding the need for adjusting journal entries.

When using a statistical sampling plan, the auditor calculates a precision interval around the population estimate. This involves:

Which of the following procedures would you perform for an audit of cash and cash equivalents at year-end?

Which of the following is NOT a transaction cycle?

Statistical analyses are required whenever an auditor estimates the unknown error for an account balance.

Generally, as acceptable risk is reduced, sample size:

Which of the below is considered a sampling frame?

Incorrect acceptance can occur when:

Which of the following is an example of sampling error?

Which of the following accounts presents the greatest inherent risk?

The initials "PBC" mean:

Classical variables sampling can:

Replacement value is used to estimate fair value.

The lead schedule should refer to:

Incorrect rejection is an audit effectiveness issue.

When using sample results to estimate unknown error, the auditor may construct a confidence interval to determine if the estimated error is within the bounds set by the tolerable misstatement amount.

The auditor selects 25 invoices for testing and detects no errors. As a result, she concludes that the expense account is fairly stated. Unbeknown to the auditor, the client has altered some of the invoices to reduce the amount reported as expense. This is an example of:

Cut-off procedures:

The auditor sends positive confirmations to the client's suppliers in order to fulfill which assertion?

Which of the following audit procedures can be used as a substitute for confirmations not returned?