AUD Becker 3 Flashcards
What factor most likely would assist an independent auditor is assessing the objectivity of the internal auditor?
The organizational status of the director of internal audit.
When assessing internal auditors’ objectivity, an independent auditor should
Consider the policies the prohibit the internal auditors from auditing areas where they were recently assigned.
What is NOT a required part of the understanding between the client and the auditor?
Mgmt’s responsibility to correct deficiencies in internal control identified by the auditor.
Which of the following factors would a CPA ordinarily consider in the planning stage?
I. Financial statement accounts likely to contain a misstatement?
II. Conditions that require extension of audit tests?
I. Financial statement accounts likely to contain a misstatement? YES
II. Conditions that require extension of audit tests? NO
In using the work of a specialist, an auditor of a nonissuer may refer to the specialist in the auditors report if, as a result of the specialists findings, the auditor
Becomes aware of conditions causing substantial doubt about the entity’s ability to continue as a going concern.
In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods
Influence the design of internal control
When assessing an internal auditor’s competence, a CPA ordinarily obtains information about all of the following EXCEPT
Access to information about related parties
Samples to test internal control are intended to provide a basis for the auditor to conclude whether
The controls are operating effectively.
When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor most likely would increase
Extent test of details
The acceptable level of detection risk is inversely related to
Assurance provided by substantive tests
Regardless of the assessed level of control risk, an auditor would perform some
Substantive tests to restrict detection risk for significant transaction classes.
As the acceptable level of detection risk decreases, the assurance directly provided from
Substantive tests should increase
In a financial statement audit, inherent risk is evaluated to help an auditor assess
The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls
What is an important consideration when deciding the nature of tests to use in a financial statement audit?
The procedures to be applied on a particular engagement are a matter of the auditor’s professional judgement.
Which statement is true regarding the three fraud risk factors (incentives/pressures, opportunity, and rationalization/attitude)?
The fraud risk factors should be discussed by engagement personnel during planning.
What factor would most likely would heighten an auditors concern about the risk of fraudulent financial reporting?
An overly complex organizational structure involving unusual lines of authority.
Prior to, or in conjunction with, the information gathering procedures for an audit, audit team members should discuss the potential for material misstatements due to fraud. What is the mind set that the audit team should maintain?
Questioning.
What is the primary objective of the fraud brainstorming session
Assess the potential for material misstatement due to fraud.
What statement is true concerning analytical procedures used in planning an audit engagement?
They usually use financial and non financial data aggregated at a high level.
If the assessed level of fraud risk is high
The auditor should attempt to reduce detection risk.
Which of the following procedures would LEAST likely result in the discovery of possible noncompliance with laws and regulations?
Reviewing an internal control questionnaire.
While performing analytical procedures in the planning state, the auditor most likely would develop expectations by reviewing?
Unaudited information from the internal quarterly reports.
When the auditor’s risk assessment is based on the effective operation of controls, the audit will most likely involve
identifying specific internal controls relevant to specific assertions
An auditor of a nonissuer should design tests of details to ensure that sufficient audit evidence supports
the planned level of assurance at the relevant assertion level
Test of controls include such procedures as
Inspecting documentation
Inquiry - alone is not sufficient
Observation
Reperformance
As part of understanding internal control, an auditor is NOT required to
Obtain knowledge about the operating effectiveness of internal control
What would be difficult to determine because electronic evidence may not be retrievable after a specific period of time?
The timing of control and substantive tests.
What is not a financial statement assertion related to account balances?
Valuation and Competence
What is an example of fraudulent financial reporting?
Company management changes inventory count tags and overstates ending inventory, while understanding COGS.
What is meant by the term “fraud risk factors?”
Factors whose presence often has been observed in circumstances where frauds have occurred.
When considering internal control, an auditor should be aware of the concept of reasonable assurance which recognizes that
The cost of an entity’s internal control should not exceed the benefits expected to be derived.
An entity’s ongoing monitoring activities often include
Reviewing the purchasing function
What is a provision of the Foreign Corrupt Practices Act?
Every publicly held company must devise, document, and maintain internal control sufficient to provide reasonable assurance that internal control objectives are met.
What statement is correct concerning the relevance of various types of controls to a financial audit?
Controls over the reliability of financial reporting are ordinarily most directly relevant to an audit, but other controls may be relevant.
What statement regarding auditor documentation of the client’s internal control is correct?
No one particular form of documentation is necessary, and the extent of documentation may vary.
What may not be required on a particular audit of a nonissuer (nonpublic) company?
Test of controls
