Exam 3?

Question 1

T/F If, when obtaining an understanding of control activities of a relatively small​ client, the auditor identified no control​ activities, the auditor would probably set a high assessment of control risk.

Answer 1

True

Question 2

Research indicates that the most effective way to prevent and deter fraud is to

Answer 2

Implement programs and controls that are based on core values embraced by the company.

Question 3

Auditing standards require that auditors document

Answer 3

Results of the procedures performed to address the risk of management override of controls

Question 4

Which of the following is not a likely source of information to assess fraud​ risks?

Answer 4

Consideration of fraud risks discovered during recent audits of other clients

Question 5

The primary emphasis by auditors is on controls over

Answer 5

Classes of transactions

Question 6

Fictitious revenues

Answer 6

Lower accounts receivable turnover.

Question 7

T/F The auditor uses the control risk assessment and results of tests of controls to determine planned detection risk.

Answer 7

T

Question 8

Auditing standards specifically require auditors to identify​ ________ as a fraud risk in most audits.

Answer 8

Revenue recognition

Question 9

When assessing control​ risk,

Answer 9

Many auditors use a control risk matrix to assist in the control risk assessment process.

Question 10

It is generally possible for small companies to have all of the following except for

Answer 10

Internal Auditors

Question 11

How must significant deficiencies and material weaknesses be communicated to those charged with​ governance?

Answer 11

Written communication is required.

Question 12

Auditing by testing automated system of internal controls and account balances electronically is known as

Answer 12

Auditing through the computer.

Question 13

When dealing with the administration of the IT function and the segregation of IT duties

Answer 13

In complex​ environments, management may establish IT steering committees.

Question 14

The employee in charge of authorizing credit to the​ company’s customers does not fully understand the concept of credit risk. This lack of knowledge would

Answer 14

Constitute a deficiency in operation of system of internal controls.

Question 15

Which of the following statements related to application controls is​ correct?

Answer 15

Application controls relate to the processing of transactions.

Question 16

______ inquiry is used to obtain information about facts and details that the auditor does not​ have, usually about past or current events or processes.

Answer 16

Informational

Question 17

An auditor traces the sales prices to the authorized price list in effect at the date of the transaction. Which of the following procedures has the auditor​ performed?

Answer 17

Reperformance

Question 18

Which of the following components of the control environment define the existing lines of responsibility and​ authority?

Answer 18

Organizational Structure

Question 19

Which of the following is not a risk factor that the auditor should take into account when considering the possibility of fraudulent financial reporting at an audit​ client?

Answer 19

Significant accounting estimates are not difficult for the auditor to verify and justify.

Question 20

If a control total were to be computed on each of the following data​ items, which would best be identified as a hash total for a payroll IT​ application?

Answer 20

Employee Numbers

Question 21

When the auditor identifies risk at the assertion​ level,

Answer 21

The auditor may need to obtain audit evidence that is more reliable and relevant.

Question 22

Which of the following is an accurate statement regarding the misappropriation of​ assets?

Answer 22

Misappropriation of assets can easily increase in size over time and can lead to significant reputational harm.

Question 23

For financial statement​ audits, auditors need to understand controls that are relevant to the audit in order to

Answer 23

Identify and assess the risks of material misstatements

Question 24

What type of report is issued when one or more material system of internal control weaknesses​ exist?

Answer 24

Adverse

Question 25

Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two​ requirements?

Answer 25

A statement that management is responsible for establishing and maintaining an adequate system of internal control structure and procedures for financial reporting

Question 26

With which of​ management’s assertions with respect to implementing system of internal controls is the auditor primarily​ concerned?

Answer 26

Reliability of financial reporting

Question 27

Which of the following is a factor that relates to incentives or pressures to commit fraudulent financial​ reporting?

Answer 27

Excessive pressure for management to meet debt repayment requirements

Question 28

A(n) ________ is a computer resource deployment and procurement model that enables an organization to obtain IT resources and applications from any location via an Internet connection.

Answer 28

Cloud Computing Environment

Question 29

The​ ________ is helpful in preventing classification errors if it accurately describes which type of transaction should be in each account.

Answer 29

Chart of accounts

Question 30

T/F If auditors determine that there is not a significant risk of material improper revenue​ recognition, no documentation of this decision is required.

Answer 30

False