Questions

Question 1

Attribute Sampling

Answer 1

measures how many times an attribute (e.g., the absence of a required signature on a receiving report) occurs in a sample. Variable sampling measures the variance of dollar amounts in the sample items (e.g., that the extended dollar amount on a receiving report is correctly calculated). Attribute sampling would be used to inspect employee time-cards for proper approval by supervisors. Attribute sampling is not appropriate to examine account balances, such as accounts receivable, inventory, or fixed assets; that would require the use of variable sampling

Question 2

For which of the following audit tests would an auditor most likely use attribute sampling?

Answer 2

Inspecting employee time-cards for proper approval by supervisors

Question 3

Preparing financial statements

Answer 3

The AICPA does not prohibit auditors from assisting in the preparation of financial statements, whereas the SEC does. Both the AICPA and SEC prohibit auditors from preparing source documents and recording transactions.

Question 4

In terms of services that can be performed, the AICPA and SEC vary in what services can be performed by auditors of private and public (issuers) companies. Which of the following bookkeeping services is allowed by the AICPA but prohibited by the SEC?

Answer 4

Preparing financial statements

Question 5

Auditor’s engagement letter

Answer 5

“At the conclusion of our audit, we will request certain written representations from you about the financial statements and related matters.”

Question 6

Section 103 of SOX Title I, “Auditing, Quality Control, and Independence Standards and Rules,” dictates that:

Answer 6

the PCAOB has the authority to set, amend, update, and modify auditing, quality control, and ethics standards