AUD Deck 4

Question 1

What is Fraud Risk?

Answer 1

Fraud risk is the risk that misstatements will arise from FRAUDULENT FINANCIAL REPORTING or MISAPPROPRIATION OF ASSETS

Question 2

What is non-sampling risk?

Answer 2

MISAPPLYING AUDIT PROCEDURES

Question 3

the average duration of unemployment is ________ (lagging/leading) economic indicator

Answer 3

LAGGING

Question 4

______ (lagging/leading) indicators tend to occur before the fact or predict economic activity

Answer 4

LEADING

Question 5

_____ (lagging/leading) indicators tend to follow economic activity or occur as a result of economic activity (give signal after the fact)

Answer 5

LAGGING

Question 6

_______ indicators occur contemporaneously with economic activity

Answer 6

COINCIDENT

Question 7

manufacturing and trade sales are an example of ______ indicators along with industrial production

Answer 7

COINCIDENT

Question 8

What does inherent limitations of internal control include?

Answer 8

COLLUSION, HUMAN ERROR, and MANAGEMENT OVERRIDE

Question 9

What is the primary objective of a walkthrough?

Answer 9

help the auditor obtain evidence about the DESIGN and IMPLEMENTATION of internal control

Question 10

a ________ follows a transaction from its origination until it is reflected in the F/S

Answer 10

WALKTHROUGH

Question 11

Performing tests of controls occurs _____ (before/after) the auditor completes the risk assessment, which includes performing analytical procedures

Answer 11

AFTER

Question 12

_____ (preventative/detective) controls are applied BEFORE the processing of transactions

Answer 12

PREVENTATIVE

Question 13

a ______ is a way an auditor can describe their understanding of internal control

Answer 13

NARRATIVE

Question 14

______ visualize the logical flow of data AND THE PHYSICAL aspects of that flow

Answer 14

FLOWCHARTS

Question 15

______ depict the logical flow of data BUT NOT THE PHYSICAL ASPECTS

Answer 15

DATA FLOW DIAGRAMS

Question 16

the _____ (less/more) complex the IT System, the more extensive the documentation (ex: flowcharts, narratives, questionnaires, decision tables, etc)

Answer 16

MORE

Question 17

if there is a high likelihood of misstatements then auditor sets materiality at a _____ (higher/lower) amount which results in the auditor looking closer at audit evidence

Answer 17

LOWER

Question 18

Inspecting documentation, inquiry, observation, and reperformance are procedures to obtain audit evidence about?

Answer 18

Control Risk / Test of Controls

MCQ-02487

Question 19

the _____ (higher/lower) the auditor’s risk assessment, the closer to period end substantive procedures should be performed

Answer 19

HIGHER

Question 20

effective controls ____ (increase/decrease) control risk and reduce the RMM allowing ____ (less/more) interim testing to occur

Answer 20

DECREASE, MORE

Question 21

in an environment that is highly automated may make it impractical or impossible to reduce detection risk to an acceptable level through substantive testing alone resulting in __________ need to be performed (to support a lower level of assessed control risk)

Answer 21

TESTS OF CONTROLS

Question 22

when many internal control weaknesses are identified, the auditor would not be likely to perform tests of controls. the assessed level of control risk is decreased and more reliance would be placed on substantive tests as opposed to tests of controls (T/F)

Answer 22

FALSE; the assessed level of control risk would INCREASE

Question 23

when performing additional tests of controls, an auditor is attempting to support a ______ (higher/lower) level of control risk

Answer 23

LOWER

Question 24

the auditor should test controls when auditor’s risk assessment is based on the assumption that controls are operating effectively or when substantive procedures alone are insufficient (T/F)

Answer 24

TRUE

Question 25

an auditor of a nonissuer should design tests of ______ (controls/details) to ensure that sufficient audit evidence supports the planned level of assurance at the relevant assertion level

Answer 25

DETAILS

Question 26

tests of _____ (controls/details) would help evaluate management’s assertions that controls exist and are operating effectively

Answer 26

CONTROLS

Question 27

_________ (substantive analytical procedures/test of details) are used when there is a large volume of predictable transactions and when RMM is low

Answer 27

SUBSTANTIVE ANALYTICAL PROCEDURES

Question 28

what are the tests of controls used in assessing control risk?

Answer 28

INQUIRY, INSPECTION, OBSERVATION, REPERFORMANCE

Question 29

the auditor determines whether a risk is significant or not by its INHERENT RISK ALONE (T/F)

Answer 29

TRUE

Question 30

if detection risk increases, then substantive tests _______ (increase/decrease). the auditor may reduce sample size.

Answer 30

DECREASE

MCQ-09815

Question 31

An uninterrupted power supply is considered a general control. (T/F)

Answer 31

FALSE, PHYSICAL CONTROL

Question 32

What are physical controls?

Answer 32

Physical controls MONITOR and CONTROL the ENVIRONMENT of the workplace and computing facilities. They also monitor and control access to and from such facilities.

Question 33

What is a Dual-Purpose Test?

Answer 33

it’s a tests of controls that is performed concurrently with tests of details on the same transaction

Question 34

tests of _____ (controls/details) is to SUPPORT relevant assertions or to detect material misstatements

Answer 34

DETAILS

Question 35

__________ in a going concern situation include plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures, or plans to increase ownership equity

Answer 35

MITIGATING FACTORS