Quizzes Test 2

Question 1

When the auditor wants to estimate how much misstatement there is in a client’s financial statement account balance, the auditor will likely choose between classical variables sampling and:

Answer 1

Monetary-unit sampling

Question 2

Refer to Problem 8-23, part 1. What would be your answer regarding the stratum that includes only the larger loans?

Answer 2

Does not involve sampling

Question 3

When the auditor wants to estimate how often an internal control procedure breaks down, the sampling method that should be used is:

Attribute sampling
Monetary-unit sampling
Classical variable sampling
Judgmental sampling

Answer 3

Attribute sampling

Question 4

In performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. The situation illustrates the risk of

Answer 4

Incorrect Rejection

Question 5

As a result of tests of controls, an auditor unknowingly assessed control risk too low and thus mistakenly decreased substantive testing. This assessment most likely occurred because the true deviation rate in the population was

• More than the risk of assessing control risk too low based on the auditor’s sample.
• More than the deviation rate in the auditor’s sample.
• Less than the risk of assessing control risk too low based on the auditor’s sample.
• Less than the deviation rate in the auditor’s sample.

Answer 5

-More than the deviation rate in the auditor’s sample

Question 6

Which of the following will eliminate sampling risk?

• Double the sample size.
• Use monetary-unit sampling.
• Use classical variable sampling with larger tolerable error
• Test all the items in the population.

Answer 6

Test all the items in the population.

Question 7

In applying a non-statistical approach to attribute sampling, reducing the planned assessed level of control risk generally results in a

• Higher tolerable deviation rate for tests of controls.
• Larger sample size for tests of controls.
• Smaller sample size for tests of controls.
• None of the above.

Answer 7

-Larger sample size for tests of controls.

Question 8

If an auditor encounters a significant scope limitation in conducting an audit, she or he appropriately can choose between which of the following possible response pairs?

• Disclaimer or adverse, depending on materiality
• Unqualified or adverse, depending on materiality
• Qualified or disclaimer, depending on materiality
• Qualified or adverse, depending on materiality

Answer 8

Qualified or disclaimer depending on materiality

Question 9

According to SAB No. 101 all of the following are required to recognize revenue EXCEPT:

• Persuasive evidence of an arrangement exists
• Delivery of product or rendering of service will occur within 5 business days
• The seller’s price to the buyer is fixed or determinable
• Collectability is reasonably assured

Answer 9

Delivery of product or rendering of service will occur within 5 business days

Question 10

Which of the following is an inherent risk factor that should affect the auditor’s assessment of the revenue process?

• Whether or not the client effectively segregates the credit and billing functions
• The quality of the client’s computer systems used to record and track revenue transactions
• Processes used by the client to authorize sales transactions
• Misstatements detected in prior audits

Answer 10

Misstatements detected in prior audits

Question 11

When dealing with the revenue process, which assertion is likely to be most scrutinized by the auditors?
Occurence
Completeness
Authorization
Classification

Answer 11

Occurence

Question 12

The testing of accounts receivable through the use of confirmations tests primarily which assertion?

Existence
Rights and obligations
Completeness
Valuation and allocation

Answer 12

Existence

Question 13

Which of the following is NOT typically included in the sales cycle?
Sales returns
Cost of goods sold
Allowance for uncollectible accounts
None of the above

Answer 13

COGS

Question 14

What type of audit procedure is the following: “Compare payables turnover to previous years’ data”?
Substantive analytical procedure
Test of details of transactions
Test of details of account balance
Test of controls
All of the above

Answer 14

Substantive analytical procedure

Question 15

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management’s assertion of:

• Accuracy
• Occurence
• Cutoff
• Classification

Answer 15

Cutoff

Question 16

When searching for unrecorded liabilities at year-end, an auditor most likely would examine:
-Cash receipts from related parties recorded before year-end.
-Confirmation responses from various creditors including those with small account balances.
-Cash disbursements recorded after year-end.
Invoices dated a few days before and after year-end to ascertain whether they have been properly recorded.
-Two of the above are part of the search for unrecorded liabilities

Answer 16

Two of the above