AUD 2

Question 1

The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the

Answer 1

Authorization of transactions from the custody or related assets
Hiring personnel represents an authorization function while distributing checks represents a custody function

Question 2

A permanent file contains information that is referred to for

Answer 2

More than one audit period

Question 3

Three conditions that are generally present when fraud occurs are

Answer 3

(1) incentive or pressure
(2) opportunity
(3) ability to rationalize

Question 4

Overall responses to the risk of material misstatements due to fraud are

Answer 4

(1) assigning personnel with particular skills relating to the area and considering the necessary extent of supervision to the audit
(2) increasing the consideration of management’s selection and application of accounting principles
(3) making audit procedures less predictable

Question 5

A high risk of material misstatement requires that the auditor

Answer 5

Select more effective substantive tests

Question 6

Analytical procedures involve

Answer 6

The comparison of recorded amounts, or ratios developed from recorded amounts, to expectations developed by the auditor

Question 7

In auditing accounts payable, the auditor is more concerned

Answer 7

That the balance may be understated (completeness)

Question 8

Statistical sampling allows an auditor to:

Answer 8

1) design an efficient sample;
2) measure the sufficiency of the evidential matter obtained
3) evaluate the sample results

Question 9

Incorrect rejection

Answer 9

Auditor to conclude that the financial statements are materially misstated, when in fact they are not

Question 10

Incorrect acceptance

Answer 10

Auditor to conclude that financial statements are not materially misstated, when in fact they actually are