NINJA AUD - Performing Audit Procedures and Evaluating Evidence

Question 1

An auditor MOST likely would perform substantive tests of details when:

Answer 1

analytical procedures indicate unusual fluctuations.

Question 2

F/S assertion for allowance for doubtful accounts?

Answer 2

valuation and allocation.

*Auditor would review aging of receivables to assess the reasonableness of the bad debt adjustment by the client -> affect allowance for bad debts account balance and thus, the NRV of receivables.

Question 3

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 3

substantive tests.

Question 4

In order to disclose differences from expectations in income statement accounts (more than B/S accts), the auditor would perform:

Answer 4

analytical procedures.

Question 5

If the assessed level of inherent and control risk are high…

Answer 5

the auditor would NOT rely on records. Rather, the auditor would request the client to schedule the physical inventory count (for example) at the end of the year.

Question 6

Audit evidence about control risk is obtained by performing tests of controls that evaluate the effectiveness of specific controls. Methods of determining the effectiveness of the design and operation of a control include:

Answer 6

Inquiry, inspection, observation, and reperformance.

Question 7

The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is:

Answer 7

the determination of the timing of inventory observation procedures to be performed.

Question 8

The objective of a dual-purpose test of details of transactions performed as tests of controls is to:

Answer 8

evaluate whether controls operated effectively.

Question 9

Regardless of the assessed risk of material misstatement, an auditor would perform:

Answer 9

substantive tests to restrict detection risk for significant transaction classes.

Question 10

If an auditor concludes that there is a high risk of material misstatement:

Answer 10

the auditor may expand substantive testing or select more effective substantive tests.

Question 11

In reviewing accounting estimates prepared by management, the auditor should:

Answer 11

perform retrospective review of prior-period estimates to determine a possible bias.

Question 12

risk of assessing control risk too low is:

Answer 12

the risk that the assessed level of control risk based on the sample is less than the true operating effectiveness of the control.

Question 13

Auditor concluded that performing only substantive procedures for specific relevant assertions and risk is appropriate because:

Answer 13

the auditor’s risk assessment procedures have not identified any effective controls relevant to the assertion.

Question 14

To verify that a voucher is submitted and paid only once…

Answer 14

a system must be in place that cancels the voucher (i.e. stamping “paid”)

Question 15

When the auditor will falsely place too much reliance on the internal control and will not collect enough evidence.

Answer 15

Assessing control risk too low.

Question 16

In a test of controls, sample size varies inversely with:

Answer 16

the tolerable (or maximum) rate of deviation.

As the number of allowable deviations increases, the sample size decreases. Sample size increases as the expected population deviation rate increases.

Question 17

Accounting for unused prenumbered purchases and receiving reports would violate segregation of duties because…

Answer 17

a vouchers payable clerk could write a fake purchase order, confirm receipt of the nonexistent goods, and then authorize payment to him or herself.

Question 18

The lower the assessed level of control risk…

Answer 18

The fewer substantive tests that will be needed.

Question 19

An auditor who plans to assess control risk at a low level…

Answer 19

usually performs tests of controls and only limited tests of details or substantive tests.

Question 20

In assessing control risk, an auditor selects from a variety of techniques, including:

Answer 20

reperformance and observation.

Recalculation, comparison, confirmation, and verification are all substantive tests or tests of details of transactions.

Question 21

Major reasons for maintaining an audit trail for a computer system include:

Answer 21

deterrent to fraud, monitoring purposes, and query answering.

Question 22

An auditor would favor interim testing if:

Answer 22

• the assessed RMM is low,
• the controls are strong,
• the auditor can reduce the risk that misstatements that exist at the period-end are not detected by performing appropriate procedures,
• GAAS does not require testing at the balance sheet.

Question 23

increase assessed level of control risk.

Answer 23

decrease detection risk, increase extent of tests of details.

Question 24

assessing control risk too low and decrease substantive testing because:

Answer 24

the true deviation rate in the population was more than the deviation rate in the auditor’s sample.

Question 25

The auditor needs to modify the planned assessed level of control risk when:

Answer 25

the sample deviation rate plus the allowance for sampling risks exceeds the tolerable rate.

Question 26

The sampling unit in a test of controls pertaining to the existence of payroll transactions ordinarily is:

Answer 26

a payroll register entry.

Question 27

Allowance for sampling risk =

Answer 27

upper precision limit - sample deviation rate

Question 28

When determining a sample size for a test of controls, the auditor should consider:

Answer 28

the tolerable rate of deviation from the controls (%), the likely rate of deviations (%), and the allowable risk of assessing control risk too low (the reliability level)

Question 29

The risk of assessing control risk too high is

Answer 29

the risk that the assessed level of control risk based on the sample is greater than the true operating effectiveness of the control.

Question 30

If the deviation rate in the sample is higher than the tolerable rate,

Answer 30

the auditor may assess a high level of control risk.

Question 31

If the deviation rate in the POPULATION does not exceed the tolerable rate,

Answer 31

the auditor will have assessed the level of control risk for the sample as greater than the true operating effectiveness of the control.

Question 32

In performing tests of controls over authorization of cash disbursements, which method of statistical sampling methods would be me most appropriate?

Answer 32

Attribute

Question 33

Two common types of attribute sampling are:

Answer 33

testing correct account distributions and adequate supporting documentation.

Question 34

An increase in the tolerable misstatement would:

Answer 34

decrease the sample size.

Question 35

An increase in assessed level of control risk would:

Answer 35

increase the sample size.

Question 36

When planning a particular sample for a substantive test of details,

Answer 36

the auditor should consider the preliminary estimates of materiality levels.

Question 37

In auditing payroll, analytical procedures would consist of:

Answer 37

comparing payroll costs with entity standards or budgets.

Question 38

An auditor’s decision whether to apply analytical procedures as substantive tests usually is determined by:

Answer 38

• nature of the assertion
• plausibility and predictability of the relationship.
• availability and reliability of data
• precision of the expectation

Question 39

Confirmation type?
greater degree of assurance, higher probability that it won’t be returned due to additional effort on the part of the participant.

Answer 39

Blank confirmation

Question 40

Confirmation type?

requires response from the participant by requesting that the recipient indicate agreement with an amount.

Answer 40

Positive confirmation.

Drawback - recipient will sign without verifying the information.

Question 41

negative confirmation request most likely would be used when:

Answer 41

the combined assessed level of inherent and control risk relative to A/R is low.

auditor doesn’t rely heavily on this since it’s weak form of evidence. The third party only responds when information provided by the auditor doesn’t agree with the third party’s records.

Question 42

Source of the following statement:
“Although we have not conducted a comprehensive, detailed search of our records, no other deposit or loan accounts have come to our attention except as noted below.”

Answer 42

Standard financial institution confirmation request.

Question 43

What would improve the response rate of the confirmations of A/R?

Answer 43

Including a list of items or invoices that constitute the customers’ account balances.

Question 44

In order to obtain assurance that slow-moving and obsolete items included in inventories are properly identified:

Answer 44

the auditor would examine an analysis of inventory turnover.

Question 45

In testing plant and equipment balances, an auditor may inspect new additions listed on the analysis of plant and equipment. This procedure is designed to obtain evidence concerning management’s assertions of:

Answer 45

existence or occurrence.

Question 46

Which of the following activities most likely would detect whether payroll data was altered during processing?

Answer 46

Use test data to verify the performance of edit routines

Question 47

What procedure would be most appropriate for testing the completeness assertion as it applies to inventory?

Answer 47

Performing cutoff procedures for shipping and receiving.

Question 48

To identify unrecorded trade accounts payable, the auditor should:

Answer 48

review subsequent cash disbursements to determine whether the related payables apply to the prior period.

Question 49

On receiving a client’s bank cutoff statement, an auditor most likely would trace:

Answer 49

prior-year checks listed in the cutoff statement to the year-end outstanding checklist.

Question 50

restrictions on retained earnings that result from loans, agreements, or state law.
F/S assertion?

Answer 50

presentation and disclosure.

Question 51

Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?

Answer 51

Personnel.

They are charged with planning, controlling, and coordinating employees.

Question 52

The purpose of the registrar is:

Answer 52

to keep records of outstanding stock certificates for an issuer.

Question 53

An auditor usually tests the reasonableness of dividend income from investments in publicly held companies by computing the amounts that should have been received by referring to:

Answer 53

dividend record books produced by investment advisory services.

Question 54

The purpose of tracing documents from the detail level to the journal level is:

Answer 54

to verify whether or not the transactions were properly recorded.

Question 55

In evaluating the reasonableness of an accounting estimate, the auditor focuses on the key factors and assumptions that are:

Answer 55

deviations from historical patterns.

Question 56

Nonrecurring transactions recognized in the accounting records near the balance sheet date should be reviewed by the auditor as:

Answer 56

possible related party transactions.

Question 57

transfers between categories of investments pertains to the financial statement assertion of:

Answer 57

valuation and allocation.

Question 58

The auditor should approach management’s assertions about derivatives by:

Answer 58

obtaining an understanding of the economic substance of the derivatives and examining the contracts for possible risk exposure and the need to recognize losses.

Question 59

Standards in which confirmation is presumptively required unless A/R are immaterial, use of confirmations would be ineffective, or the combined assessed level of inherent and control risk is low.

Answer 59

AICPA and PCAOB auditing standards.

ISAs do not require confirmation.

Question 60

set of standards in which the audit report does not allow reference to another audit firm involved in a portion of the audit.

Answer 60

International audit standards (ISAs).

Question 61

In order to obtain evidence about the occurrence of subsequent events, the auditor would:

Answer 61

investigate changes in capital stock recorded after year-end.

Question 62

In obtaining written representations from management, materiality limits ordinarily would apply to representations related to

Answer 62

amounts concerning related party transactions.

Question 63

When the expectations of the auditor are more precise,

Answer 63

there is a greater likelihood that significant differences from the expectations are due to misstatements. This is due to the fact that auditors are better able to anticipate appropriate client results and results that are inconsistent with the auditor’s expectations are likely to be the result of some form of financial statement error or fraud.

Question 64

The auditor determines that there is a low assessed risk of material misstatement concerning litigation, claims, and assessments. As a result, the auditor elects not to send a letter of inquiry to lawyers under which set of standards?

Answer 64

International Standards on Auditing (ISAs)

Question 65

Negative A/R confirmation when:

Answer 65

Assessed level of RMM relating to receivables is LOW; and the number of small balances is MANY.