Chapter 13

Question 1

13-21a

An auditor’s decision either to apply analytical procedures as substantive tests or to perform substantive tests of transactions and account balances usually is determined by the

1. availability of data aggregated at a high level
2. timing of tests performed after the balance sheet date
3. auditor’s familiarity with industry trends
4. relative effectiveness and efficiency of the tests

Answer 1

4. relative effectiveness and efficiency of the tests

Question 2

13-21b

The auditor faces a risk that the audit will not detect material misstatements that occur in the accounting process. To minimize this risk, the auditor relies primarily on

1. internal control
2. tests of controls
3. substantive tests
4. statistical analysis

Answer 2

3. substantive tests

Question 3

13-21c

A conceptually logical approach to the auditor’s evaluation of internal control consists of the following four steps:

I. Determining the internal controls that should prevent or detect and correct errors and frauds.
II. Identifying control deficiencies to determine their effect on the nature, timing, or extent of auditing procedures to be applied and suggestions to be made to the client.
III. Determining whether the necessary internal control procedures are prescribed and are being followed satisfactorily.
IV. Considering the types of errors and fraud that can occur.

What should be the order in which these four steps are performed?

1. I, II, III and IV
2. I, III, IV and II
3. III, IV, I and II
4. IV, I, III and II

Answer 3

4. IV, I, III and II

Question 4

13-22a

To support the auditor’s initial assessment of control risk below the maximum, the auditor performs procedures to determine the internal controls are operating effectively. Which of the following audit procedures is the auditor performing?

1. Tests of controls
2. Substantive tests of transactions
3. Tests of details of balances
4. Tests of trends and ratios

Answer 4

1. Tests of controls

Question 5

13-22b

The primary objective of performing tests of controls is to obtain

1. sufficient appropriate audit evidence to afford a reasonable basis for the auditor’s opinion, without the need for additional evidence.
2. a reasonable degree of assurance that the​ client’s internal controls are operating effectively on a consistent basis throughout the year.
3. assurances that informative disclosures in the financial statements are reasonably adequate.
4. knowledge and understanding of the client’s prescribed procedures and methods.

Answer 5

2. a reasonable degree of assurance that the​ client’s internal controls are operating effectively on a consistent basis throughout the year.

Question 6

13-22c

Tests of controls are more likely to be omitted when

1. an account balance reflects many transactions
2. control risk is assessed as less than the maximum
3. the understanding of internal control indicates that evaluating the effectiveness of control policies and procedures is likely to be inefficient
4. the auditor wishes to increase the acceptable level of detection risk

Answer 6

3. the understanding of internal control indicates that evaluating the effectiveness of control policies and procedures is likely to be inefficient