AUD 2/3 REVIEW

Question 1

Analytical procedures are required for which of the following?

Answer 1

Audit planning and final review.

Question 2

An auditor’s tests of controls for completeness for the revenue cycle usually include determining whether:

Answer 2

An invoice is prepared for each shipping document. The auditor often traces a sample of shipping documents to sales invoices to test completeness of sales.

Question 3

When auditing a client’s fair values, the auditor should obtain sufficient appropriate evidence to determine that the client’s fair value measurements and disclosures are in conformity with GAAP. Which of the following would not be considered part of the auditor’s responsibility pertaining to the audit of a client’s fair value reporting?

Answer 3

Determine how future conditions may impact the client’s fair value measurements. (The auditor should base his or her evaluation of the client’s fair value reporting based on information that exists at the time of the audit (only).)

Question 4

As part of the current audit, the auditor performs a preliminary review of a large client’s internal controls over accounts receivable. Which of the items below would the auditor flag as an internal control weakness over accounts receivable?

Answer 4

An aging schedule is prepared and all accounts ninety days or more are written off with prior authorization of the controller. (There is a weakness in internal control because the head of the recordkeeping function, the controller, is also the only person required to approve the accounts receivable write-off. The write-off should also be reviewed and approved by the Treasurer.)

Question 5

When a client’s accounts payable computer system was relocated, the administrator provided support through a virtual private network (VPN) connection to a server. Subsequently, the administrator left the company. No changes were made to the accounts payable system at that time. Which of the following situations represents the greatest security risk?

Answer 5

User accounts are not removed upon termination of employees.

Question 6

The auditor should consider certain factors in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details. In determining whether and to what extent analytical procedures should be used, which of the following should the auditor consider?

Answer 6

The nature of the assertion tested. (The other factors the auditor considers are the plausibility and predictability of the data relationship, availability and reliability of data used to develop the expectation, and the precision of the expectation.)

Question 7

Which of the following factors affecting the risk associated with a control is not a consideration when designing the current-year audit procedures in an audit of internal control over financial reporting for an issuer?

Answer 7

Whether the control has been documented in flowchart or narrative form.

Question 8

When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. This consideration should:

Answer 8

Be related to preliminary judgments about materiality levels.

Question 9

An auditor who discovers that a client’s employees paid small bribes to municipal officials most likely would withdraw from the engagement if:

Answer 9

Management fails to take the appropriate remedial action.

Question 10

An employee obtains a blank check, makes it payable to a fictitious company, and then cashes it. Each of the following control procedures should prevent this threat to the expenditure cycle, except:

Answer 10

Bank reconciliations.

Question 11

When an auditor has substantial doubt about an entity’s ability to continue as a going concern because of the probable discontinuance of operations, the auditor most likely would express a qualified opinion if:

Answer 11

Information about the entity’s ability to continue as a going concern is not disclosed.

Question 12

In assessing the tolerable rate of deviations of a test of controls that was performed using statistical sampling, an auditor should consider that:

Answer 12

Deviations from pertinent controls at a given rate ordinarily result in misstatements at a lower rate. (In other words, sometimes the control is not working but that does not mean there is a dollar misstatement. Therefore, the actual misstatement rate could be lower than the control deviation rate.)

Question 13

In assessing control risk, an auditor ordinarily selects from a variety of techniques, including:

Answer 13

Reperformance. (Confirmation, verification, and analytical procedures are substantive procedures.)

Question 14

An auditor may decide not to test controls related to certain assertions because the auditor believes:

Answer 14

Evaluating the effectiveness of controls is inefficient.

Question 15

An auditor of a nonissuer should design tests of details to ensure that sufficient audit evidence supports which of the following?

Answer 15

The planned level of assurance at the relevant assertion level.

Question 15

Which of the following statements is correct concerning the use of negative confirmation requests?

Answer 15

Unreturned negative confirmation requests rarely provide significant explicit evidence.

Question 16

PCAOB has established risk assessment standards for issuer audits. Which of the following is not a financial statement assertion as recognized by PCAOB standards?

Answer 16

Cutoff (existence/completeness), PCAOB standards include the assertions of Existence or Occurrence, Completeness, Valuation or Allocation, Rights and Obligations, and Presentation and Disclosure.

Question 17

Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?

Answer 17

Reconcile the amounts included in the statement of cash flows to the other financial statements’ balances and amounts.

Question 18

Under which circumstance would an auditor be most likely to perform substantive tests before the balance sheet date?

Answer 18

The account in question has very little activity from year to year.

Question 19

Which of the following disclaimers of liability included within a response to an auditor’s confirmation request would allow the auditor to rely on the confirmation as appropriate audit evidence for an audit of a nonissuer?

Answer 19

Information is furnished as a matter of courtesy without a duty to do so and without responsibility, liability, or warranty, expressed or implied.

Question 20

An auditor believes that there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. In evaluating the entity’s plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity’s plans to:

Answer 20

Extend the due dates of existing loans. (Any option to decrease expenses now).