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Audit chapter 8-13

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Audit Midterm 2

Frage 1 von 63

1

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the

Wähle eine der folgenden:

  • A) inherent risk.

  • B) acceptable audit risk.

  • C) statistical risk.

  • D) financial risk.

Erklärung

Frage 2 von 63

1

Initial audit planning involves four matters. Which of the following is not one of these?

Wähle eine der folgenden:

  • A) Develop an overall audit strategy.

  • B) Request that bank balances be confirmed.

  • C) Schedule engagement staff and audit specialists.

  • D) Identify the client's reason for the audit.

Erklärung

Frage 3 von 63

1

A written understanding detailing what the auditors will do in determining if the financial statements are fair representations of the company’s financial statements and what the auditor expects from the client in performing an audit will normally be expressed in the

Wähle eine der folgenden:

  • A) management letter requested by the auditor.

  • B) engagement letter.

  • C) audit Plan.

  • D) audit Strategy for the client.

Erklärung

Frage 4 von 63

1

The audit team gathers information about a new client's business and industry in order to obtain:

Wähle eine der folgenden:

  • A) an understanding of the clients internal control system for financial reporting.

  • B) an understanding of how economic events and transactions have an effect on the company's financial statements.

  • C) information about control risk.

  • D) information regarding whether the company is engaging in financial statement fraud.

Erklärung

Frage 5 von 63

1

An auditor should examine minutes of the board of directors' meetings

Wähle eine der folgenden:

  • A) through the date of the financial statements.

  • B) through the date of the audit report.

  • C) only at the beginning of the audit.

  • D) on a test basis.

Erklärung

Frage 6 von 63

1

Related party

Wähle eine der folgenden:

  • A) transactions must be disclosed in the footnotes even if the amounts are immaterial.

  • B) disclosures include the nature of the related party relationship and a description of the transaction.

  • C) transactions are considered arm's-length transactions.

  • D) disclosures are required only for public companies.

Erklärung

Frage 7 von 63

1

Which of the following is most correct with respect to the use of analytical procedures?

Wähle eine der folgenden:

  • A) Analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption.

  • B) Analytical procedures must be used throughout the audit.

  • C) Analytical procedures used in the testing phase of the audit are primarily used to direct an auditor's attention so that the auditor's understanding of the business is improved.

  • D) Analytical procedures are performed by studying plausible relationships between financial and non financial data.

Erklärung

Frage 8 von 63

1

One major limitation in the application of the audit risk model is the difficulty of measuring the components of the model.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 9 von 63

1

If it is probable that the judgment of a reasonable person would have been changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No. 2:

Wähle eine der folgenden:

  • A) material.

  • B) insignificant.

  • C) significant.

  • D) relevant.

Erklärung

Frage 10 von 63

1

The scope paragraph of the standard unqualified auditor's report states that "...the standards require that we plan and perform the audit to obtain ____________ assurance about whether the financial statements are free of material misstatement." What type of assurance is given?

Wähle eine der folgenden:

  • Immediate

  • Limited

  • Reasonable

  • Absolute

Erklärung

Frage 11 von 63

1

When dealing with audit risk,

Wähle eine der folgenden:

  • A) auditors cannot accept any level of risk in performing the audit function.

  • B) most risks that auditors encounter are relatively easy to measure.

  • C) the audit risk model is only used for classes of transactions.

  • D) the audit risk model helps the auditor to decide how much and what types of evidence to accumulate.

Erklärung

Frage 12 von 63

1

If planned detection risk is reduced, the amount of evidence the auditor accumulates will

Wähle eine der folgenden:

  • A) increase.

  • B) decrease.

  • C) remain unchanged.

  • D) be indeterminate.

Erklärung

Frage 13 von 63

1

Auditors typically rely on internal controls of their private company clients

Wähle eine der folgenden:

  • A) only as needed to complete the audit and satisfy Sarbanes-Oxley requirements.

  • B) only if the controls are determined to be effective.

  • C) only if the client asks an auditor to test controls.

  • D) only if the controls are sufficient to increase control risk to an acceptable level.

Erklärung

Frage 14 von 63

1

Section 404 of the Sarbanes-Oxley Act requires that public companies issue an internal control report.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 15 von 63

1

When a company designs and implements internal controls, cost of the controls is not a valid consideration.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 16 von 63

1

To issue an unqualified opinion on internal control over financial reporting, there must be no identified material weaknesses and no restrictions on the scope of the audit.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 17 von 63

1

In an audit of a nonpublic company, the less control risk there is, the smaller the amount of planned substantive evidence that is required.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 18 von 63

1

An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as

Wähle eine der folgenden:

  • A) collusion.

  • B) a material weakness.

  • C) a control deficiency.

  • D) a significant deficiency.

Erklärung

Frage 19 von 63

1

In performing the audit of internal control over financial reporting, the auditor emphasizes internal control over classes of transactions because

Wähle eine der folgenden:

  • A) the accuracy of accounting system outputs depends heavily on the accuracy of inputs and processing.

  • B) the class of transaction is where most fraud schemes occur.

  • C) account balances are less important to the auditor then the changes in the account balances.

  • D) classes of transactions tests are the most efficient manner to compensate for inherent risk.

Erklärung

Frage 20 von 63

1

Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the

Wähle eine der folgenden:

  • A) adequacy of the computer system.

  • B) proper implementation by management.

  • C) ability of the internal audit staff to maintain it.

  • D) competency and dependability of the people using it.

Erklärung

Frage 21 von 63

1

Which of the following statements is most correct with respect to separation of duties?

Wähle eine der folgenden:

  • A) A person who has temporary or permanent custody of an asset should account for that asset.

  • B) Employees who authorize transactions should not have custody of related assets.

  • C) Employees who open cash receipts should record the amounts in the subsidiary ledgers.

  • D) Employees who authorize transactions should have recording responsibility for these

Erklärung

Frage 22 von 63

1

Which of the following deals with ongoing or periodic assessment of the quality of internal control by management?

Wähle eine der folgenden:

  • A) verifying activities

  • B) monitoring activities

  • C) oversight activities

  • D) management activities

Erklärung

Frage 23 von 63

1

Without an effective ________, the other components of the COSO framework are unlikely to result in effective internal control, regardless of their quality.

Wähle eine der folgenden:

  • A) risk assessment policy

  • B) monitoring policy

  • C) control environment

  • D) system of control activities

Erklärung

Frage 24 von 63

1

When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be

Wähle eine der folgenden:

  • A) tracing.

  • B) vouching.

  • C) performing a walkthrough.

  • D) testing controls.

Erklärung

Frage 25 von 63

1

Narratives, flowcharts, and internal control questionnaires are three common methods of

Wähle eine der folgenden:

  • A) testing the internal controls.

  • B) documenting the auditor's understanding of internal controls.

  • C) designing the audit manual and procedures.

  • D) documenting the auditor's understanding of a client's organizational structure.

Erklärung

Frage 26 von 63

1

You are performing the audit of internal control for Clifton Company. Which of the following would represent a material weakness in internal control?

Wähle eine der folgenden:

  • A) The company's audit committee has experienced unusual turnover of members.

  • B) The company's CFO was indicted for embezzling from the company.

  • C) Bank reconciliations are done monthly.

  • D) The CEO retired after twenty years of service to the company.

Erklärung

Frage 27 von 63

1

The auditor must communicate:

Wähle eine der folgenden:

  • A) only material weaknesses in internal control to those charged with governance.

  • B) both significant deficiencies and material weaknesses in internal control to those charged with governance.

  • C) any significant deficiencies in internal control to those charged with governance using a management letter.

  • D) issues regarding internal control to those charged with governance in writing within 90 days following the audit report release.

Erklärung

Frage 28 von 63

1

Which of the following represents a correct statement regarding internal control testing?

Wähle eine der folgenden:

  • A) When auditors plan to use evidence about the operating effectiveness of internal control contained in prior audits, auditing standards require tests of the controls' effectiveness at least every other year.

  • B) The greater the risk, the less audit evidence the auditor should obtain that controls are operating effectively.

  • C) The auditor uses control risk assessment and results of tests of controls to determine planned detection risk and the related substantive tests for the financial statement audit.

  • D) Testing of internal controls can only be performed by the auditor at the end of the fiscal year.

Erklärung

Frage 29 von 63

1

A control available in a small company, which may be necessitated because of lack of competent personnel, is:

Wähle eine der folgenden:

  • A) a wider segregation of duties.

  • B) a voucher system.

  • C) fewer transactions to process.

  • D) the owner-manager's direct involvement in the control process.

Erklärung

Frage 30 von 63

1

Which of the following may represent the biggest challenge smaller public companies and nonpublic companies face in implementing effective internal control?

Wähle eine der folgenden:

  • A) lack of expertise

  • B) Reduced importance

  • C) Limited resources

  • D) Limited available guidance

Erklärung

Frage 31 von 63

1

The two main categories of fraud are fraudulent financial reporting and misappropriation of assets.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 32 von 63

1

Fraud is more prevalent in large businesses than small businesses and not-for-profit organizations.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 33 von 63

1

The pressure to do "whatever it takes" to meet goals is one of the main reasons why financial statement fraud occurs.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 34 von 63

1

Management and the board of directors are responsible for setting the "tone at the top."

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 35 von 63

1

Because fraud perpetrators are often knowledgeable about audit procedures, auditors should incorporate unpredictability into the audit plan.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 36 von 63

1

Which of the following best defines fraud in a financial statement auditing context?

Wähle eine der folgenden:

  • A) Fraud is an unintentional misstatement of the financial statements.

  • B) Fraud is an intentional misstatement of the financial statements.

  • C) Fraud is either an intentional or unintentional misstatement of the financial statements, depending on materiality.

  • D) Fraud is either an intentional or unintentional misstatement of the financial statements, depending on consistency.

Erklärung

Frage 37 von 63

1

In the fraud triangle, fraudulent financial reporting and misappropriation of assets

Wähle eine der folgenden:

  • A) share little in common.

  • B) share most of the same risk factors.

  • C) share the same three conditions of the fraud triangle.

  • D) share most of the same conditions of the fraud triangle.

Erklärung

Frage 38 von 63

1

Which of the following questions is the auditor not required to ask company management when assessing fraud risk?

Wähle eine der folgenden:

  • A) Does management have knowledge of any fraud or suspected fraud within the company?

  • B) What is the nature of the fraud risks identified by management?

  • C) Is management using all assets effectively?

  • D) What internal controls have been implemented to address the fraud risks?

Erklärung

Frage 39 von 63

1

Since IT systems can often initiate transactions automatically, proper authorization depends on software procedures and accurate master files used to make the authorization decision.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 40 von 63

1

One potential disadvantage of IT systems is the reduction or elimination of source documents, which reduces the visibility of the audit trail.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 41 von 63

1

Knowledge of both general and application controls is crucial for auditors in understanding how accounting information is recorded and reported.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 42 von 63

1

The objective of the test data approach is to determine whether the client's computer programs can correctly process valid and invalid transactions.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 43 von 63

1

Parallel testing is used when old and new systems are operated simultaneously in all locations.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 44 von 63

1

The continued integration of IT in accounting systems can impact a company by:

Wähle eine der folgenden:

  • A) increasing the costs of handling a large amount of data.

  • B) increasing the number of manual controls needed.

  • C) giving management higher-quality information more quickly than a manual system, thus helping management in their decision making process.

  • D) decreasing the segregation of duties.

Erklärung

Frage 45 von 63

1

Old and new systems operating simultaneously in all locations is a test approach known as:

Wähle eine der folgenden:

  • A) pilot testing.

  • B) horizontal testing.

  • C) integrative testing.

  • D) parallel testing.

Erklärung

Frage 46 von 63

1

When purchasing software or developing in-house software,

Wähle eine der folgenden:

  • A) cost should be the only factor.

  • B) extensive testing of the software is generally not required.

  • C) a team of both IT and non-IT personnel should be involved in the decision process.

  • D) the librarian and the IT manager should be the only ones involved in the decision process.

Erklärung

Frage 47 von 63

1

The most important output control is

Wähle eine der folgenden:

  • A) distribution control, which assures that only authorized personnel receive the reports generated by the system.

  • B) review of data for reasonableness by someone who knows what the output should look like.

  • C) control totals, which are used to verify that the computer's results are correct.

  • D) logic tests, which verify that no mistakes were made in processing.

Erklärung

Frage 48 von 63

1

Analytical procedures are normally designed at the account level, whereas tests of controls and substantive tests of transactions are normally designed at the transaction-related objective level.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 49 von 63

1

The auditor's understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor's initial assessment of control risk.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 50 von 63

1

Tests of controls provide evidence about the likelihood for misstatements in a client’s financial system.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 51 von 63

1

When designing an audit program for tests of details of balances, the auditor should make assumptions about inherent risk and control risk, and predictions concerning the outcome of tests of controls, substantive tests of transactions, and analytical procedures.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 52 von 63

1

The auditor must communicate significant deficiencies in internal control only after the entire audit is complete to ensure the auditor has a sufficient understanding of the circumstances surrounding the deficiency.

Wähle eins der folgenden:

  • WAHR
  • FALSCH

Erklärung

Frage 53 von 63

1

Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests?
1. risk assessment procedures
2. tests of controls
3. substantive tests of transactions
4. substantive analytical procedures
5. tests of details of balances

Wähle eine der folgenden:

  • A) 1, 2, and 3

  • B) 3, 4, and 5

  • C) 2, 3, and 5

  • D) 2, 3, and 4

Erklärung

Frage 54 von 63

1

The purpose of tests of controls is to provide reasonable assurance that the

Wähle eine der folgenden:

  • A) accounting treatment of transactions and balances is valid and proper.

  • B) internal control procedures are functioning as intended.

  • C) entity has complied with GAAP disclosure requirements.

  • D) entity has complied with requirements of quality control.

Erklärung

Frage 55 von 63

1

Which of the following is true?

Wähle eine der folgenden:

  • A) Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.

  • B) Tests of details of balances focus on the transactions during the period for both balance sheet and income statement accounts.

  • C) Tests of details of balances focus on the auditor's understanding of internal controls.

  • D) Tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor.

Erklärung

Frage 56 von 63

1

A system walkthrough is primarily used to help the auditor

Wähle eine der folgenden:

  • A) test the ending account balances.

  • B) test the details of transactions.

  • C) determine whether internal controls have been properly implemented.

  • D) determine whether the audit engagement should be accepted.

Erklärung

Frage 57 von 63

1

Analytical procedures

Wähle eine der folgenden:

  • A) involve comparisons of recorded amounts to expectations developed by management.

  • B) are only performed during the planning stage of the audit.

  • C) are required to be performed when auditing an account balance.

  • D) provide substantive evidence.

Erklärung

Frage 58 von 63

1

In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform. Which of the following audit tests would be the most costly?

Wähle eine der folgenden:

  • A) substantive analytical procedures

  • B) risk assessment procedures

  • C) tests of controls

  • D) tests of details of balances

Erklärung

Frage 59 von 63

1

Which of the following is generally not included in the "evidence mix"?

Wähle eine der folgenden:

  • A) tests of controls

  • B) substantive tests of transactions

  • C) risk assessment procedures

  • D) tests of details of balances

Erklärung

Frage 60 von 63

1

The document that details the specific audit procedures for each type of test is the

Wähle eine der folgenden:

  • A) audit strategy.

  • B) audit program.

  • C) audit procedure.

  • D) audit risk model.

Erklärung

Frage 61 von 63

1

Fülle die Lücken, um den Text zu vervollständigen.

In accumulating final evidence upon which to base an audit opinion, the auditor should perform four activities. List the activities below.



Read information in the annual report to make sure that it is consistent with the financial statements.

Erklärung

Frage 62 von 63

1

Fülle die Lücken, um den Text zu vervollständigen.

Why do auditors use the audit risk model when planning an audit?
Auditors use the audit risk model to help them decide how much and what types of evidence to accumulate for each relevant audit objective.
PDR _ __AAR¬¬¬____
IR x CR




Erklärung

Frage 63 von 63

1

Fülle die Lücken, um den Text zu vervollständigen.

Control activities help assure that the necessary actions are taken to address risks to the achievement of the company’s objectives. List the five types of control activities.

•
• Proper ities
•
•
•

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