Audit Midterm 2

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

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

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

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

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

Related party

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

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

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:

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?

When dealing with audit risk,

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

Auditors typically rely on internal controls of their private company clients

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

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

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.

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

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

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

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

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

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

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

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

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

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

The auditor must communicate:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

When purchasing software or developing in-house software,

The most important output control is

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.

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.

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

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.

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.

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

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

Which of the following is true?

A system walkthrough is primarily used to help the auditor

Analytical procedures

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?

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

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

In accumulating final evidence upon which to base an audit opinion, the auditor should perform four activities. List the activities below. [blank_start]Perform final analytical procedures.[blank_end] [blank_start]Evaluate the going-concern assumption[blank_end] [blank_start]Obtain a client representation letter[blank_end] Read information in the annual report to make sure that it is consistent with the financial statements.

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 [blank_start]PDR = Planned Detection Risk[blank_end] [blank_start]IR = Inherent Risk[blank_end] [blank_start]CR = Control Risk[blank_end] [blank_start]AAR = Acceptable Audit Risk[blank_end]

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. • [blank_start]Adequate separation of duties[blank_end] • Proper [blank_start]authorization of transactions and activ[blank_end]ities • [blank_start]Adequate documents and records[blank_end] • [blank_start]Physical control over assets and records[blank_end] • [blank_start]Independent checks on performance[blank_end]