AUD 2

Question 1

In assessing internal auditor objectivity, the independent auditor should …

Answer 1

Consider the organizational level to which the internal auditor reports

Question 2

The external auditor cannot rely on what of the internal auditor?

Answer 2

Professional judgement -all judgement calls must be made by thr external or indepenet auditor

Question 3

If the auditor intends to use the information produced by the client they do NOT need to make sure that..

Answer 3

The info is consistent with prior year’s audit

Question 4

The ultimate purpose of assessing control risk is

Answer 4

To evaluate that material misstatements may exist in the financial statements

Question 5

The lower the assessed level of control risk, do we need more or less evidence that controls are operating effectively?

Answer 5

More assurance since we are relying on that the controls are operating effectively

Question 6

Document completion date is how many days from the report release date based on PCAOB vs Auditing standards?

Answer 6

45 days for PCAOB

60 days for auditing standards

Question 7

Most persuasive evidence is defined as what?

Answer 7

Something not prepared by the client. Such as bank statements that are obtained from the client but created by independent sources

Question 8

Audit documentation should

Answer 8

Show that accounting records agree or reconcile to the financial statements

Audit documentation is not the support for the financial statements -the client’s books and records are FS support.

Question 9

Analytical procedures are what?

Answer 9

Evaluations of financial information made by studying the relationships among data and comparing it between CY and PY

Question 10

An unjustified accounting change may result in what type of opinion ?

Answer 10

Qualified or adverse

Question 11

A material weakness in internal control may result in what type of opinion?

Answer 11

Unmodified opinion. Although it must be reported to management and those charged with governance. It would not need to be disclosed in emphasis of matter paragraph.

Question 12

Regardless of control risk level, and auditor would do what?

Answer 12

Still perform substantive tests.

They would not do test of controls if it is not sufficient to do so.

Question 13

Detection risk is inversely related to control risk. So an auditor uses control risk to what?

Answer 13

Determine acceptable level of detection risk for financial statement assertions.

Question 14

To test controls for balance sheet date at an interim date and auditor must

Answer 14

Do substantive tests for the period between the interim date and the balance sheet date

Question 15

The objective of test of details is

Answer 15

To evaluate whether internal controls are operated effectively

Question 16

Internal control over safeguarding of assets may include controls relating to what ?

Answer 16

Financial reporting objectives (like use of lockbox for collecting cash or using passwords)
and
Operations objectives (prevent the excess use of materials in production)

Question 17

The risk of material misstatement includes

Answer 17

The auditor’s assessment of:

• inherent risk (material misstatement may occur due to complex situation or faulty estimates or high volume of testing)
• control risk (material misstatement will not be detected by the entity’s internal controls)

Question 18

Benefit of information technology used for internal control

Answer 18

Enchanted timeliness of information

Question 19

Independent auditor can assign what task if any, to the internal auditor ?

Answer 19

Allow internal auditor to perform test of internal controls but their involvement should be limited

Question 20

Directional testing or testing the existence assertion is testing what exactly and how ?

Answer 20

Testing to make sure something isn’t overstated by vouching to source documentation

Question 21

Document release date

Answer 21

Date on which financials are delivered to the client, client has permission to use the report and the retention period starts.

Question 22

Date of completion

Answer 22

Date after which existing documentation must not be deleted and additions to the file must be documented

Question 23

Variable sampling

Answer 23

Used to estimate numerical measurement of a population such as the dollar value of inventory. This is used in substantive testing.

Question 24

Discovery method sampling

Answer 24

Type of attribute sampling or control testing. Used when looking for a critical characteristic like fraud

Question 25

Attribute sampling

Answer 25

Used to estimate the rate of occurrence of a specific characteristic. Used in control testing.

Question 26

Days sales in accounts receivable =

Answer 26

Accounts receivable / (net sales/365)

Question 27

Auditor would consider what ratio at end of audit

Answer 27

COGS/ average inventory

The better the inventory ratio, the better the turnover so the company is doing good

Question 28

Testing bank balances at EOY is an example of what assertion?

Answer 28

Completeness
Valuation
Allowance

Not cutoff

Question 29

Inherent and control risk are both part of what?

Answer 29

Auditors risk of material misstatement

Question 30

Auditor is not responsible for determining what in relation to FMV?

Answer 30

The future conditions impact on the FMV

Question 31

If illegal acts are made in the past but immaterial to financial statements the auditor should be skeptical of what now for the current audit?

Answer 31

Reconsider the intended degree of reliance of the management rep letter

Question 32

Confirmations of accounts receivable is what assertion.

Answer 32

Existence

Question 33

Nonstatistical sampling requires …

Answer 33

Judgement to select a sample