AUD 8

Question 1

The existence of audit risk is recognized by the statement in the auditor’s standard report that the

Answer 1

auditor obtains reasonable assurance about whether the financial statements are free of material misstatements

Question 2

an example of an analytical procedure is the comparison of

Answer 2

financial information with similar information regarding the industry in which the entity operates

Question 3

An entity prepares it financial statements on its income tax basis. A description of how that basis differs from GAAP should be included in the

Answer 3

notes to the financial statements

Question 4

when performing a review of a nonpublic company, the auditors should obtain in representation letter acknowledgement of management for its responsibility for each of the following EXCEPT:

Answer 4

responsibility for identifying all illegal acts committed by employees

Question 5

the date of the management representation letter should coincide with the

Answer 5

date of the auditor’s report

Question 6

which of the following statements is correct concerning statistical sampling in tests of controls?

Answer 6

deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate

Question 7

which of the following is NOT a principle included in trust services engagements?

Answer 7

independence

Question 8

which of the following circumstances most likely would cause an auditor to suspect that there are material misstatements in an entity’s financial statements?

Answer 8

supporting accounting record and files that should be readily available are not produced promptly when requested

Question 9

in attribute sampling, a 25% change in which of the following factors will have the smallest effect on the size of the sample?

Answer 9

number of items in the population because population size isn’t considered in determining the sample size for an attributes sampling application.

Question 10

when an adverse opinion is expressed, the opinion paragraph should include a direct reference to

Answer 10

a separate paragraph which discuses the basis for the opinion rendered.

Question 11

analytical procedures performed during the risk assessment phase of an audit should focus on

Answer 11

enhancing the auditors understanding of the transactions and events that have occurred since the last audit

Question 12

An auditor’s primary consideration regarding an entity’s internal control structure policies and procedures is whether they

Answer 12

affect the financial statement assertions

Question 13

Validity Check

Answer 13

the computer flags any transmission for which the control field value didn’t match that of existing file record. A check to see if the data carry valid values.

Question 14

which of the following computer-assistend auditing techniques processes client input data on a control program under the auditor’s control to test controls in the computer system?

Answer 14

parallel simulation.

Question 15

an advantage that using statistical sampling methods have over non statistical sampling methods in tests of controls is that the statistical methods

Answer 15

provide an objective basis for quantitatively evaluating sample risk

Question 16

An auditor includes an “emphasis-of-matter” paragraph in an otherwise unmodified report in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. This inclusion of the emphasis-of-matter paragraph

Answer 16

is appropriate and would not negate the unmodified opinion.

Question 17

while observing a client’s annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client’s perpetual records. This situation could be the result of the clients failure to record:

Answer 17

sales returns. This could have been an omitted journal entry. the failure to record sales returns results in a situation in which the item is returned by a customer and included in the inventory count, but not recorded in the perpetual records.

Question 18

which of the following procedures would an auditor most likely perform when auditing the Statement of Cash Flows?

Answer 18

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

Question 19

considering only the provisions of the AICPA code of professional conduct, which of the following services may a CPA perform for a commission or contingent fee?

Answer 19

representation of a nonattest client in an IRS examination.

Question 20

an auditor most likely would be responsible for assuring that management communicates significant deficiencies in the design of the internal control structure

Answer 20

to specific legislative and regulatory bodies when reporting under government auditing standards.

Question 21

in the first audit of a new client, an auditor was able to extend auditing procedures to gather sufficient evidence about consistency. under these circumstances, the auditor should:

Answer 21

not refer to consistency in the auditor’s report. if the consistency requirement is met, no need to mention it in the report.

Question 22

a CPA might find information on the structure of relational database tables through which language of interface?

Answer 22

data definition language. this is used to define database, including creating, altering, and deleting tables and establishing various constraints.