CPA Section 2 AUD

Question 1

When performing risk assessment procedures, the auditor should document all of the following concerning risks identified, the related controls evaluated, and the responses to the risks assessed including:

Answer 1

key elements of the understanding obtained regarding each of the aspects of the entity and its environment identified.

Question 2

What is an accountant’s responsibility for using the work of other accountants in a review of group financial statements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARSs)?

Answer 2

Read the review or audit reports of component accountants, considering any impact of report modifications on the group review report.

Question 3

In assessing the objectivity of internal auditors, an independent auditor should:

Answer 3

determine the organizational level to which the internal auditors report.

Question 4

Processing data through the use of simulated files provides an auditor with information about the operat­ing effectiveness of control policies and procedures. One of the techniques involved in this approach makes use of:

Answer 4

an integrated test facility.

Question 5

_____ creates a fictitious entity in an actual entity’s database in order to test transactions right along with live input. It is a control over PROCESSESING

Answer 5

An integrated test facility

Question 6

An auditor most likely would test for the presence of unauthorized EDP program changes by running a:

Answer 6

source code comparison program.

Question 7

____program compares the coding of the program from its last run with the original program

Answer 7

A source code comparison

Question 8

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?
Interrelationships of financial information, The nature of the assertion tested, OR, Nonfinancial information that may affect financial information

Answer 8

Nature of assertion only

Fuck interrelationships

Question 9

The primary objective of procedures performed to obtain an understanding of internal control is to provide an auditor with:

Answer 9

knowledge necessary for audit planning.

Question 10

The extent and nature of the risk to internal control associated with IT are dependent on the nature and characteristics related to the entity’s:

Answer 10

Info system

Question 11

The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation

Answer 11

of the risk that material misstatements may exist in the financial statements.

Question 12

Test data is processed by the .

Answer 12

client’s computer programs under the auditor’s control

Question 13

The test data need consist of only those valid and invalid conditions that interest the auditor.
Only one transaction of each type need be tested
The test data must consist of all possible valid and invalid conditions.

T/F

Answer 13

TRUE
TRUE
FALSE - It cant consist of all possible conditions b/c who can do that bro

Question 14

Test data is data specifically designed and developed to test

Answer 14

the accuracy and completeness of a computer program.

Question 15

Obtaining an understanding of internal control involves

Answer 15

evaluating the design of a control and determining whether it has been implemented.

Question 16

Obtaining and understanding internal controls involves Understanding controls that exist in the audited company’s industry

Answer 16

False - fuck the existing controls

Question 17

Since the production cycle handles raw products and materials, it is important to maintain proper

Answer 17

custody of the assets, as assets can easily be misappropriated during this cycle.

Question 18

An auditor used test data to verify the existence of controls in a certain computer program. Even though the program performed well on the test, the auditor may still have a concern that:

Answer 18

the program tested is the same one used in regular production runs.

Question 19

The test data method is a technique used with

Answer 19

audit software

Question 20

Regarding test data, If the entire system is changed and the record formats are obsolete, then and only then will the

Answer 20

test data not be relevant in subsequent audit periods.

Question 21

the ___should approve all sales

Answer 21

credit department

Question 22

When trying to detect whether data was altered in a computer system, the auditor needs to

Answer 22

test the computer system by using test data

Question 23

For a new client, reading a _____would help the auditor obtain an understanding of the industry in which the client operates,

Answer 23

specialized trade journal

Question 24

Input controls, processing controls, and output controls are all examples of _____, which ARE NOT ____

Answer 24

application controls

general controls

Question 25

Program change control is an example of what kind of control

Answer 25

general controls in an IT environment

Question 26

Examples of general controls are

Answer 26

1. program change controls,
2. controls that restrict access to programs or data,
3. controls over the implementation of new releases of packaged software applications
4. controls over system software that restrict access to or monitor the use of system utilities that could change financial data

Question 27

Risk assessment procedures include:

Answer 27

inquiries of management and others within the entity,
analytical procedures, and
observation and inspection.

Question 28

auditing related party transactions, an auditor ordinarily places primary emphasis on:

Answer 28

the adequacy of the disclosure of the related party transactions.

Question 29

Embedded audit modules:

Answer 29

enable continuous monitoring of transaction processing.

Question 30

Analyzing the efficiency of programming is a characteristic of ___

Answer 30

mapping.

Question 31

. The higher the risk of material misstatement, the ____the detection risk must be

Answer 31

lower

Question 32

RMM x DR = what?

Answer 32

Audit Risk

Question 33

Audit Risk = ( __ x __) x __

Answer 33

IR x CR x DR

Question 34

Which of the following input controls is a numeric value computed to provide assurance that the original value has not been altered in construction or transmission?

Answer 34

Check digit

Question 35

What input control is a nonsense total

Answer 35

hash total

Question 36

when planning an examination, an auditor should (materiality)

Answer 36

make preliminary judgments about materiality levels for audit purposes.

Question 37

Whether or not a real-time program contains adequate controls is most effectively determined by the use of:

Answer 37

integrated test facility

Question 38

Which of the following audit risk components may be assessed in nonquantitative terms?

Answer 38

Control risk, detection risk, and inherent risk

Question 39

Considering whether the client’s accounting estimates are reasonable in the circumstances is done in what phase

Answer 39

performance

Question 40

Determining the extent of involvement of the client’s internal auditors is done in what phase

Answer 40

planning

Question 41

What type of audit opinion should be issued if the financial statements contain an unsubstantiated disclosure which asserts that a material and pervasive related party transaction was equivalent to an arm’s-length transaction?

Answer 41

adverse

Question 42

Measurements and review of the entity’s financial performance is what type of I/C component

Answer 42

control activity

Question 43

In auditing an entity’s computerized payroll transactions, an auditor would be least likely to use test data to test controls concerning:
control and distribution of unclaimed checks. … why?

Answer 43

When using test data, the auditor is looking for controls that are built into the system, not controls that operate outside of the compute

Question 44

Which of the following controls is a processing control designed to ensure the reliability and accuracy of data processing?

Answer 44

Limit Test - validity check

Question 45

A limit test or limit check is used to ____data during input or processing to validate data.

Answer 45

edit

Question 46

Validity controls are designed to

Answer 46

ensure that all recorded transactions are those that should have been recorded

Question 47

Employers bond employees who handle cash receipts because fidelity bonds reduce the possibility of employing dishonest individuals and:

Answer 47

deter(discourage) dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts.

Question 48

not all related party transactions are outside the ordinary course of business, and audit responses should be commensurate with the assessed risk of material misstatement.

Answer 48

True

Question 49

A CPA firm has decided to rely on the audit work performed by another audit firm. Which of the following procedures should the CPA firm perform when taking responsibility for the other firm’s audit work?

Answer 49

Review the other firm’s audit workpapers and reperform a subset of audit testing to validate the firm’s conclusions

Question 50

However, if the principal auditor is unable to satisfy himself or herself about the quality of the other auditor’s work,

Answer 50

a reference to the quality of the other auditor’s work is made and a clear separation of responsibilities is described in the audit opinion.

Question 51

An embedded audit module is able to identify and report

Answer 51

specific transactions.

Question 52

If an entity’s management does not take remedial action in response to an auditor’s report of noncompliance under applicable law or regulations by employees, the auditor’s ability to rely on management representations may be affected. In this case, the auditor should

Answer 52

first speak with those charged with governance and then seek legal advice.

Question 53

Begin by understanding the overall risks to internal control over financial reporting at the financial statement level. is what kind of approach

Answer 53

top-down

Question 54

If in an audit engagement, the acceptable levels of both audit risk and materiality are lower, the auditor will plan more work on individual accounts in order to

Answer 54

find smaller errors.

Question 55

The consideration of the financial statement accounts likely to contain a misstatement is the consideration of what risk

Answer 55

inherent risk

Question 56

The auditor cannot verify the reliable operation of programmed controls by

Answer 56

manually re-performing input data and comparing the simulated results with the actual results of processed data.

Question 57

In parallel simulation, actual client data is reprocessed using an auditor software program. An advantage of using parallel simulation, instead of performing tests of controls without a computer, is that:

Answer 57

the size of the sample can be greatly expanded at relatively little additional cost.

Question 58

Which of the following would an auditor ordinarily consider the greatest risk regarding an entity’s use of electronic data interchange (EDI)?

Answer 58

improper distribution

Question 59

In the definition, internal control in a business entity is said to be effected by the public’s perception of the risk associated with the entity.

Answer 59

false boy we dont curr

Question 60

3 examples of embedded modules

Answer 60

1. Mapping is a technique for determining whether a computer program contains any unexecuted code that should be examined.
2. Retrieval and analysis programs such as generalized audit software offer the features and flexibility suitable for verifying the correctness of information on a computer file.
3. The snapshot method is a technique utilized to capture and print all data pertinent to the analysis of a specific moment in the processing cycle.

Question 61

Determining that proper amounts of depreciation are expensed provides assurance about management’s assertions of ___ and ___

Answer 61

: presen & disclosure

Question 62

Application controls relate to the use of information technology (IT) to

Answer 62

initiate, authorize, record, process, and report transactions or other financial data

Question 63

EDIT CHECKS are

Answer 63

programmed routines designed to check input data and processing results for completeness, accuracy and reasonableness.

Question 64

Management override of controls can occur in unpredictable ways. Due to this fact, the auditor should perform procedures, in addition to the procedures already performed to address identified risks of material misstatements due to fraud, that include which of the following?

Evaluating the business rationale for significant unusual transactions

Answer 64

Yes
Yes
Yes

Question 65

Governance board CAN be responsible for making estimates

Answer 65

false - only management

Question 66

An auditor should gain an understanding of the planning requirement to understand the entity and its environment of business risks, even if they are not likely to result in material misstatement to the financial statements

Answer 66

false – they have to be material misstatements to understand the busienss riskss

Question 67

Which of the following should an auditor do when control risk is assessed at the maximum level?

Test more controls

Answer 67

false – you cant rely on controls. you document the assessment

Question 68

Which of the following best describes the reason an auditor performs a walkthrough of transactions from inception through financial statement presentation?

To ensure that the single transaction type involved in a walkthrough is properly recorded in the general ledger
To determine if a necessary control is missing or ineffective
To determine the different types of significant transactions handled by the process

Answer 68

No
Yes
Yes

Question 69

the nature of the walkthrough is meant to help the auditor to understand the

Answer 69

process (item III) and determine the effectiveness of controls (item II).

Question 70

An auditor who uses the work of a specialist may refer to the specialist in the auditor’s report if the:

Answer 70

auditor modifies the report because of the difference between the client’s and the specialist’s valuations of an asset.

Question 71

The auditor should not refer to the work or findings of a specialist in an audit report with an

Answer 71

unmodified opinio

Question 72

Consider the results of audit procedures performed with respect to the current year’s financial statements is meant to do what

Answer 72

update the understanding of the auditor of an audit client during a review

Question 73

Control risk should be assessed in terms of:

Answer 73

financial statement assertions

Question 74

The cost of two reviewers and signers for checks in payment of inventory purchases under $10,000 is probably significantly greater than the internal control benefit b/c the average check is $12,000

Answer 74

false – the average check has to be under $10,000

Question 75

The average check written by ABC Company for inventory purchases is over $5,000; therefore, the management of ABC Company has decided to require two signatures on their checks for inventory purchases only if the check is in excess of $10,000. This is an example of a reasonable limitation on internal control based on:

Answer 75

cost-benefit considerations in implementing controls.

Question 76

Human resource policies and practices is an example of what

Answer 76

control environment

Question 77

Assignment of authority and responsibility is an example of what

Answer 77

Assignment of authority and responsibility

Question 78

Communication and enforcement of integrity and ethical values
Commitment to competence
are xamples of what

Answer 78

control environment

Question 79

What type of audit opinion should the auditor issue if it is determined that noncompliance with laws and regulations has a material effect on the financial statements, but is not pervasive to the financial statements, and the circumstance is not properly presented and disclosed?

Answer 79

qualified –if it was pervasive and not disclosed / it would be adverse

Question 80

MD&A stands for what

Answer 80

management discussion and analysis

Question 81

n an engagement to examine management’s discussion and analysis (MD&A), which of the following best defines control risk?

Answer 81

The risk that material misstatements in the MD&A presentation will not be prevented in a timely manner

Question 82

a concurrent audit technique where a special set of dummy master files is established and test transactions are entered to test the programs using the dummy files during regular processing runs. is an example of what

Answer 82

integrated test facility

Question 83

If new information becomes available that could require a reevaluation of the quantitative level of materiality applied during an audit of an issuer, then the auditor should:

Answer 83

raise or lower accordingly

Question 84

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management’s financial statement assertion of:

Answer 84

valuation and allocation

Question 85

The auditor would consider the purchase of stock by management or the sale of stock by members of the board to be risk factors for fraud

Answer 85

false no you wouldnt

Question 86

____will frequently be the most effective way to achieve the objectives of understanding the likely sources of potential misstatements.

Answer 86

Performing walkthroughs

Question 87

nderstand the flow of transactions related to relevant assertions, including how transactions are initiated, authorized, processed, and recorded
Verify that the auditor has identified points with the company’s processes at which a misstatement could arise that would be material
Identify controls that management has implemented to address these potential misstatements
Identify controls that management has implemented over the prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could result in a material misstatement of the financial statements

Answer 87

this is how identifying potential misstatements are found

Question 88

An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing, and extent of the:

Answer 88

substantive tests

Question 89

The assessment of risk of material misstatement can be:

expressed in quantitative terms, such as percentages.
expressed in qualitative terms, such as “high,” “medium,” or “low.”
assessed at the financial statement level.
assessed at the relevant assertion level.

Answer 89

All of the above baby

Question 90

To determine whether a particular assertion is relevant to a significant account balance or disclosure, the auditor should evaluate:

Answer 90

the nature of the assertion,
the volume of transactions or data related to the assertion, and
the nature and complexity of the systems, including the use of information technology, by which the entity processes and controls information supporting the assertion.

Question 91

By definition, the test data approach is the use of

Answer 91

simulating transactions to test processing & controls of client computer program while the client’s accounting sys is under the auditor’s contorl

Question 92

he auditor is required to design and perform further audit procedures that are responsive to the

Answer 92

assessed risks of material misstatement at the relevant assertion level.

Question 93

the characteristics of the relevant class of transactions, account balance, or disclosure involved,

the nature of the specific controls used by the entity and whether they are manual or automated, and

Answer 93

considerations when designing further audit procedures

Question 94

Encryption performed by physically secure hardware devices is more secure than encryption performed by

Answer 94

software.

Question 95

are internal controls that are intended to reduce the risk of an existing or potential control weakness when duties cannot be appropriately segregated.

Answer 95

Compensating controls

Question 96

An accounting estimate is an ____of a financial statement element, item, or account made by management.

Answer 96

approximation

Question 97

Application controls are classified as follows:

Answer 97

Input controls
Processing controls
Output controls

Question 98

Due to the significant judgment involved in the interpretation of the accounting principles surrounding revenue recognition and the accounting estimates often involved,

Answer 98

the risk of material misstatement may be greater for improper revenue recognition.

Question 99

Risk of a material misstatement of recognized revenue is likely to be high due to more transactions center around the revenue accounts than any other accounts in the chart of accounts.

Answer 99

False - it is the interpretation of acct principles

Question 100

Incorporating additional elements of unpredictability in the selection of further audit procedures to be performed is what type of response

Answer 100

overrall

Question 101

Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating audit evidence is what type of response

Answer 101

overrall

Question 102

An auditor should design the audit to provide reasonable assurance of

Answer 102

detecting errors and fraud that are material to the financial statements.