Review Questions

Question 1

Which of the following areas of professional responsibility should be observed by a CPA not in public practice?

Answer 1

Independence

CPA not in public practice need not adhere to the independence standards but must adhere to the objectivity standards.

Question 2

Within the context of quality control, a primary purpose of the engagement performance element is to help ensure that

Answer 2

Engagements are adequately supervised.

Question 3

On June 1, 20X8, a CPA obtained a $100,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA’s net worth. The CPA paid the loan in full on December 31, 20X9. On April 3, 20X9, the client asked the CPA to audit the client’s financial statements for the year ended December 31, 20X9. Is the CPA considered independent with respect to the audit of the client’s December 31, 20X9 financial statements?

Answer 3

Yes, because the CPA was not required to be independent at the time the loan was granted.

Independence was not required at the time the loan was obtained, and because it is fully secured it is grandfathered by the Code of Professional Conduct.

Question 4

The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter’s resolution, the CPA firm’s procedures should enable the assistant to

Answer 4

Document the details of the disagreement with the conclusion reached.

The quality control standards require documentation of the considerations involved in the resolution of differences of opinion.

Question 5

Should an auditor communicate the following matters to an independent audit committee of a public entity?

Answer 5

both significant audit adjustments and management’s consultation with other accountants about significant accounting matters should be communicated to an audit committee.

Question 6

Which of the following representations should not be included in a report on internal control related matters noted in an audit?

Answer 6

There are no significant deficiencies in the design or operation of internal control.

Question 7

Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

Answer 7

Comparing the financial statements to anticipated results

Analytical procedures are required to be performed during planning and the comparison of actual to budget is a commonly performed analytical procedure.

Question 8

Which of the following most likely would be considered an inherent limitation of the potential effectiveness of an entity’s internal control?

Answer 8

Management override.
Mistakes in judgment.
Collusion among employees

Question 9

Which of the following are correct concerning the likelihood of loss and the potential amount involved with a material weakness?

Answer 9

Likelihood of loss- Reasonable possibility

Potential amount involved- Material

Question 10

An auditor should obtain sufficient knowledge of an entity’s information system to understand the

Answer 10

Process used to prepare significant accounting estimates.

It also states that this knowledge is obtained to help the auditor to understand (1) the entity’s classes of transactions, (2) how transactions are initiated, (3) the accounting records and support, and (4) the accounting processing involved from initiation of a transaction to its inclusion in the financial statements

Question 11

Which of the following is not a threat to compliance that a MIB would generally have to worry about?

Answer 11

An independence threat that arose because an external auditor was threatened with having his firm fired from an audit engagement by the client’s CFO.

MIBS do not do attest work and therefore do not need to worry about independence threats.

Question 12

Must a CPA in public practice be independent in fact and appearance when providing the following services?

Answer 12

an accountant need not be independent to provide compilation services or prepare tax returns.

Question 13

The most likely explanation why the auditor’s examination cannot reasonably be expected to bring noncompliance with all laws by the client to the auditor’s attention is that

Answer 13

Illegal acts by clients often relate to operating aspects rather than accounting aspects.

Question 14

Which of the following matters would an auditor most likely consider to be a material weakness to be communicated to those charged with governance of an audit client?

Answer 14

Ineffective oversight of financial reporting by those charged with governance.

Question 15

Analytical procedures are required for which of the following?

Answer 15

Analytical procedures are required (1) as a risk assessment procedure relating to audit planning and (2) near the end of the audit.

Analytical procedures may be performed as substantive procedures, they are not required.

Professional standards indicate that analytical procedures are most effective when they are applied to plausible and predictable relationships, often involving income statement accounts.

Question 16

Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during risk assessment?

Answer 16

Square footage of selling space.

The square footage of selling space may be used in considering the overall reasonableness of sales.

Question 17

An auditor’s letter issued on significant deficiencies relating to an entity’s internal control observed during a financial statement audit should

Answer 17

(1) indicate that the audit’s purpose was to report on the financial statements and not to express an opinion on internal control,
(2) include the definition of a significant deficiency, and (3) restrict distribution of the report.

Question 18

Which of the following is the most important consideration of an auditor when examining the stockholders’ equity section of a client’s balance sheet?

Answer 18

Auditor’s primary concern when examining the stockholders’ equity section of the balance sheet is that proper authorization exists for transactions affecting the capital stock account.

Question 19

If, during an audit, the successor auditor becomes aware of information that may indicate that financial statements reported on by the predecessor auditor may require revision, the successor auditor should

Answer 19

Ask the client to arrange a meeting among the three parties to discuss the information and attempt to resolve the matter.

Question 20

Section 404 of the Sarbanes-Oxley Act of 2002 requires each annual report of an issuer to include which of the following?

Answer 20

Management’s assessment of the effectiveness of internal control over financial reporting.

Question 21

Which of the following statement is correct concerning analytical procedures used during risk assessment in an audit engagement?

Answer 21

They usually use financial and nonfinancial data aggregated at a high level.

Question 22

Which of the following ratios would an engagement partner most likely consider in the overall review stage of an audit?

Answer 22

Cost of goods sold/average inventory

Represents the turnover of inventory and provides information related to inventory valuation.

Question 23

Quality control for a CPA firm, as referred to in Statements on Quality Control Standards, applies to

Answer 23

Auditing and accounting and review services

Question 24

Which of the following factors most likely would influence an auditor’s determination of the auditability of an entity’s financial statements?

Answer 24

The adequacy of the accounting records.

Question 25

Which of the following bodies enforce the audit requirements of the Employee Retirement Security Act of 1974 (ERISA) with respect to employee benefit plans?

Answer 25

The Department of Labor.

Question 26

Analytical procedures performed during the risk assessment phase of an audit should focus on

Answer 26

(1) enhancing the auditor’s understanding of the client’s business and the transactions and events that have occurred since the last audit date, and
(2) identifying areas that may represent specific risks relevant to the audit.

Question 27

If the independent auditor decides that the work performed by internal auditors may have a bearing on the independent auditor’s own procedures, the independent auditor should consider the objectivity of the internal auditors. One method of judging objectivity is to

Answer 27

Review the recommendations made in the reports of internal auditors.

Question 28

In identifying matters for communication with those charged with governance of an audit client, an auditor most likely would ask management whether

Answer 28

It consulted with another CPA firm about accounting matters.

AU-C 260 requires that when the auditor is aware of such consultation with another CPA, s/he should discuss with the audit committee his/her views about significant matters that were the subject of such consultation; accordingly, such a discussion with management is to be expected.

Question 29

An auditor’s engagement letter most likely would include a statement that

Answer 29

Limits the auditor’s responsibility to detect errors and fraud.

Question 30

Independence standards of the GAO for audits in accordance with generally accepted government auditing standards describe three types of impairments of independence. Which of the following is one of these types of impairments?

Answer 30

personal,
external, and
organizational.

Question 31

Failure to detect material dollar misstatements in the financial statements is a risk which the auditor primarily mitigates by

Answer 31

Performing substantive procedures.

Question 32

Which of the following computer-assisted auditing techniques processes client input data on a controlled program under the auditor’s control to test controls in the computer system?

Answer 32

Parallel simulation

Question 33

A CPA might find information on the structure of relational database tables through which language interface?

Answer 33

Data definition language

This answer is correct because data definition language is used to define a database, including creating, altering, and deleting tables and establishing various constraints.

Question 34

Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance?

Answer 34

Completeness

Whether the inventory on hand is properly included in the reported ending inventory balance deals with the risk of omission, which involves the completeness assertion.

Question 35

Which of the following is a technique to continuously test controls within a computer system?

Answer 35

Extended records.
Systems control audit review files.
Transaction tagging.

Question 36

Where no independent stock transfer agents are employed and the corporation issues its own stocks and maintains stock records, canceled stock certificates should

Answer 36

Be defaced to prevent reissuance and attached to their corresponding stubs.

Question 37

In an environment that is highly automated, an auditor determines that it is not possible to reduce detection risk solely by substantive tests of transactions. Under these circumstances, the auditor most likely would

Answer 37

Perform tests of controls to support a lower level of assessed risk of misstatement

Question 38

The size of a sample designed for dual-purpose testing should be

Answer 38

The larger of the samples that would otherwise have been designed for the two separate purposes

The auditor should select the larger of the required sample sizes.

Question 39

In connection with his test of the accuracy of inventory counts, a CPA decides to use discovery sampling. Discovery sampling may be considered a special case of

Answer 39

Sampling for attributes.

In discovery sampling there should be no opportunity to observe more than one occurrence, because it is designed to sample for serious or critical errors. Once a critical or serious error is discovered, the sampling plan will probably be abandoned and a more comprehensive examination undertaken

Question 40

After issuance of the auditor’s report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unless

Answer 40

New information is discovered concerning undisclosed related-party transactions of the previously audited period.

when an auditor becomes aware of information which relates to financial statements previously reported on by him/her and which existed at the date of the report, but which was not known to the auditor at the date of the report, inquiries are required if the additional information is of such a nature and from such a source that s/he would have investigated it had it come to his/her attention during the examination.

Question 41

The most likely risk involved with a bill and hold transaction at year-end is a(n)

Answer 41

Sale may inappropriately have been recorded as of year-end.

A bill and hold transaction results in the recording of a sale prior to delivery of the goods—accordingly, sales may be inappropriately recorded.

Question 42

Which of the following eliminates voluminous details from the auditor’s working trial balance by classifying and summarizing similar or related items?

Answer 42

Lead schedules

Question 43

The tolerable rate of deviations for a test of a control is generally

Answer 43

Higher than the expected rate of errors in the related accounting records

The tolerable rate of deviations is the maximum rate of deviations from a prescribed control procedure that an auditor would be willing to accept and, unless the expected error rate is lower, reliance on internal control is not justified

Question 44

Before accepting an engagement to audit a new client, a CPA is required to obtain

Answer 44

The prospective client’s consent to make inquiries of the predecessor auditor, if any.

Question 45

The employment restrictions in the Code of Professional Conduct apply to:

Answer 45

All “partners and professional employees (POPEs)

Whereas the financial rules for independence focus on “covered members,” the employment rules apply to POPEs.

Question 46

Which of the following would be used on a review engagement?

Answer 46

Comparison of current year to prior year account balances

reviews which consist primarily of inquiries and analytical procedures

Question 47

For an entity that does not receive governmental financial assistance, an auditor’s standard report on financial statements generally would not refer to

Answer 47

The entity’s internal control structure.

If an entity is receiving governmental financial assistance, it is subject to audits conducted under Government Auditing Standards (the Yellow Book) in addition to GAAS. Government standards require specific consideration of the internal control structure established to ensure compliance with the laws and regulations

Question 48

Which of the following is most likely to result in modification of a compilation report?

Answer 48

A departure from generally accepted accounting principles.

Question 49

An auditor decides to issue a qualified opinion on an entity’s financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor’s report should state that the qualification pertains to

Answer 49

The possible effects on the financial statements.

Question 50

There are many kinds of statistical estimates that an auditor may find useful, but basically every accounting estimate is either of a quantity or of an error rate. The statistical terms that roughly correspond to “quantities” and “error rate,” respectively, are

Answer 50

Variables and attributes

Statistical sampling accounting applications are either based on variables sampling or attribute sampling. Variables sampling is measurement of a continuous variable (i.e., a variable such as number of items in inventory or amount of accounts receivable). The variable being estimated can take on a continuum of values (e.g., zero to infinity). Variable sampling is based upon the normal distribution. Attribute sampling is based on the binomial distribution and sample items must be binary in nature (i.e., right or wrong, correct or incorrect, etc.) Attribute sampling is most applicable to tests of compliance and variables sampling is most applicable to substantive tests.

Question 51

An auditor is auditing a mutual fund company that uses a transfer agent to handle accounting for shareholders. Which of the following actions by the auditor would be most efficient for obtaining information about the transfer agent’s internal control?

Answer 51

Use reports on internal control suitability of design and operating effectiveness produced by the agent’s own auditor.

The transfer agent is operating as a service organization, and when a service organization is involved and is to be relied upon, the most efficient approach is for an auditor to obtain that organization’s service auditor report on its internal control. In this situation a “type 2” report will provide information on both the suitability of design control and control operating effectiveness. A “type 1” report only addresses suitability of design.

Question 52

Which of the following factors are included in an entity’s control environment?

Answer 52

The audit committee, integrity and ethical values, and organization structure are all included.

Question 53

Which of the following procedures is least likely to be performed before the balance sheet date?

Answer 53

Search for unrecorded liabilities.

The search for unrecorded liabilities is performed near the completion of the audit in large part using transactions recorded after year-end to determine that proper cutoffs have been made.

Question 54

The expected population deviation rate of client billing errors is 3%. The auditor has established a tolerable rate of 5%. In the review of client invoices the auditor should use

Answer 54

Attribute sampling

Attribute sampling is used to reach a conclusion about a population in terms of a rate of occurrence (Audit Sampling Guide).

Question 55

An auditor examining inventory most likely would use variables sampling rather than attributes sampling to

Answer 55

Estimate whether the dollar amount of inventory is reasonable.

Variables sampling deals with dollar amounts (or quantities), and accordingly, this answer is correct because it involves the dollar amount of inventory. Attributes sampling addresses deviation rates from various controls.

Question 56

An auditor should consider which of the following when evaluating the ability of a company to continue as a going concern?

Answer 56

(1) dispose of assets
(2) borrow money or restructure debt,
(3) reduce or delay expenditures, and
(4) increase ownership equity.

Question 57

A summary of findings rather than assurance is most likely to be included in

Answer 57

Agreed-upon procedures report.

Question 58

For a nonpublic company audit report, a statement that the auditor has audited the financial statements followed by the titles of the financial statements is included in the

Answer 58

The opening paragraph of the auditor’s standard report.

Question 59

Which of the following statements concerning prospective financial statements is correct?

Answer 59

Financial forecasts may be issued for general or limited use. However, projections must have restricted (limited) use. Accordingly, both forecasts and projections may be issued for limited use, whereas only a forecast may be issued for general use.

Question 60

Which of the following are required on all attestation engagements?

Answer 60

Suitable criteria-YES
Written assertion-NO

While an attestation engagement will always have subject matter, it sometimes will not have a written assertion. For example, consider a situation in which the CPA’s client is not responsible for the subject matter; in such a circumstance it may not be possible to obtain a written assertion from the individual who is the responsible party.

Question 61

The objective of a review of interim financial information of a public entity (issuer) is to provide an accountant with a basis for reporting whether

Answer 61

Material modifications should be made to conform with generally accepted accounting principles.

Question 62

When an accountant is not independent with respect to an entity, which of the following types of compilation reports may be issued?

Answer 62

A compilation report with wording that indicates the accountant’s lack of independence may be issued.

Question 63

In an integrated audit, which of the following lead(s) to an adverse opinion on internal control?

Answer 63

Material weaknesses- YES

Significant deficiencies- NO

Question 64

Which type of report on a service organization controls (SOC) is presented in the Professional Standards, but is least related to SysTrust?

Answer 64

SOC 1

SOC 1 engagement is based on an entity’s internal control over financial reporting more directly than upon SysTrust Principles.

Question 65

The AICPA has outlined auditor reports based on three services that may be provided on service organization controls (SOC). The type most likely to result in a restricted use report on controls at a service organization related to security, availability, processing integrity, confidentiality, and/or privacy is

Answer 65

SOC 2

SOC 1: Restricted use reports on controls at a service organization relevant to a user entity’s internal control over financial reporting.
SOC 2: Restricted use reports on controls at a service organization related to security, availability, processing integrity, confidentiality, and/or privacy.
SOC 3: General use SysTrust reports related to security, availability, processing integrity, confidentiality, and/or privacy.

Question 66

Which of the following bodies promulgates standards for audits of federal financial assistance recipients?

Answer 66

Government Accountability Office.

Question 67

Whenever a CPA believes that modification of the standard report is not adequate to indicate the deficiencies in the financial statements, he or she should

Answer 67

Withdraw from the review engagement and provide no further services with respect to those financial statements.

Question 68

If management declines to present supplementary information required by the Governmental Accounting Standards Board (GASB), the auditor should issue a(n)

Answer 68

Unmodified opinion with an additional other-matter paragraph.

Question 69

An auditor identified a material weakness in December. The client was informed and corrected it shortly after the “as of date” (December 31); the auditor agrees that the correction eliminates the material weakness as of January 31. The appropriate report under a PCAOB Standard 5 audit of internal control is

Answer 69

Adverse

PCAOB Standard 5 requires an adverse audit report when a material weakness exists at year-end, the “as of date.”

Question 70

An auditor should disclose the substantive reasons for expressing an adverse opinion in a basis for modification paragraph

Answer 70

Preceding the opinion paragraph.

Question 71

Which of the following items should be included in prospective financial statements issued in an examination engagement performed in accordance with Statements on Standards for Attestation Engagements?

Answer 71

All significant assumptions used to prepare the financial statements.

Question 72

How does an auditor make the following representations when issuing the nonpublic company standard auditor’s report on comparative financial statements?

Answer 72

Consistent application of accounting principles-IMPLICITLY

Reasonableness of accounting estimates-EXPLICITLY

Question 73

A CPA’s report on an examination of a forecast should include all of the following except

Answer 73

An opinion as to whether the forecast is fairly presented.

A forecast examination report presents an opinion concluding whether the forecast meets AICPA guidelines, not on whether the forecast is fairly presented.

Question 74

Which of the following types of audit opinion(s) are appropriate when circumstances result in a scope limitation in relation to an audit of a public company’s internal control?

Answer 74

The PCAOB’s auditing standards states that when there are restrictions on the scope of the engagement, the auditor should withdraw from the engagement or disclaim an opinion.

Question 75

In which of the following should an auditor’s report refer to the lack of consistency when there is a change in accounting principle that is significant?

Answer 75

An emphasis-of-matter paragraph following the opinion paragraph

Question 76

While performing a COMPILATION of financial statements, information indicating that the entity whose information is being compiled may lack the ability to continue as a going concern has come to the accountant’s attention. The client agrees that such a situation does exist, but refuses to add disclosures relating to it. What effect is this most likely to have on the accountant’s report?

Answer 76

The report should indicate a departure from generally accepted accounting principles, with addition of an emphasis-of-matter paragraph.

Question 77

An independent accountant’s report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that the

Answer 77

Accountant’s review report is not a part of the registration statement within the meaning of the Securities Act of 1933.

Question 78

Mill, CPA, was engaged by a group of royalty recipients to apply agreed-upon procedures to financial data supplied by Modern Co. regarding Modern’s written assertion about its compliance with contractual requirements to pay royalties. Mill’s report on these agreed-upon procedures should contain a(n)

Answer 78

List of the procedures performed (or reference thereto) and Mill’s findings.

Question 79

When a predecessor auditor reissues the report on the prior period’s financial statements at the request of the former client, the predecessor auditor should

Answer 79

(1) read the financial statements of the current period,
(2) compare the prior period financial statements with the subsequent financial statements being presented for comparative purposes, and
(3) obtain a letter of representations from the successor auditor.

Question 80

Before reissuing the prior year’s auditor’s report on the financial statements of a former client, the predecessor auditor should obtain a letter of representations from the

Answer 80

Former client’s management

Successor auditor

Question 81

How does an accountant make the following representations when issuing the standard report for the compilation of a nonpublic entity’s financial statements?

Answer 81

The financial statements have not been audited-EXPLICITLY

The accountant has performed a compilation engagement-EXPLICITLY

Question 82

When the report of a group auditor makes reference to the examination made by another auditor, the other auditor may be named if express permission to do so is given and

Answer 82

The report of the other auditor is presented together with the report of the group auditor.

Question 83

The integrated audit of a public company resulted in the CPA’s issuance of an adverse opinion on internal control. Which of the following statements is correct when management believes that the material weakness is eliminated and the auditors, after performing appropriate procedures, agree?

Answer 83

The auditors may issue another report, this one indicating that the material weakness no longer exists.

Question 84

Which of the following is correct relating to an accountant’s responsibility when submitting compiled financial statements to the management of a client that has informed the auditor that the financial statements are for management use only?

Answer 84

Each page of the financial statements should have a restriction such as “Restricted for Management’s Use Only.”

Question 85

In reviewing the financial statements of a nonissuer, an accountant is required to modify the standard report for which of the following matters?

Inability to assess the risk of material misstatement due to fraud
Discovery of significant deficiencies in the design of the entity’s internal control

Answer 85

NEITHER

A departure from GAAP is the primary cause of a review report modification. SSARS provide guidance on review reports.

Question 86

A material weakness that exists at year-end may result in what type of audit opinion when conducting an audit of a public company’s internal control?

Answer 86

Adverse

Question 87

Comparative financial statements include the financial statements of a prior period which were examined by a predecessor auditor, whose report is not presented. If the predecessor auditor’s report was qualified, the successor auditor should

Answer 87

Disclose the reasons for any qualification included in the predecessor auditor’s opinion.

Question 88

An accountant’s review report on interim financial information of a public entity is most likely to include a

Answer 88

Description of the procedures for a review.

Question 89

Each page of a nonissuer’s financial statements reviewed by an accountant should include the following reference:

Answer 89

SSARS require that each page of the financial statements include a reference such as “See Accountant’s Review Report.”

Question 90

For purposes of an audit of internal control performed under Public Company Accounting Oversight Board standards, the “as of date” is ordinarily

Answer 90

The last day of the fiscal period.

Question 91

An accountant’s compilation report should be dated as of the date of

Answer 91

Completion of the compilation.

Question 92

In connection with the audit of a current issue of long-term bonds payable, the auditor should

Answer 92

Ascertain that the client has obtained the opinion of counsel on the legality of the issue.

Question 93

To determine the number of items to be selected in a sample for a particular substantive test of details, the auditor should consider all of the following except

Answer 93

Deviation rate.

Deviation rate applies to attribute sampling which is appropriate for tests of controls, not substantive tests.

Question 94

Auditors often make use of computer programs that perform routine processing functions such as sorting and merging. These programs are made available by electronic data processing companies and others and are specifically referred to as

Answer 94

Utility programs.

Compiler programs translate programming languages such as COBOL or FORTRAN to machine language.

Question 95

An auditor expressed a qualified opinion on the prior year’s financial statements because of a lack of adequate disclosure. These financial statements are properly restated in the current year and presented in comparative form with the current year’s financial statements. The auditor’s updated report on the prior year’s financial statements should

Answer 95

Express an unmodified opinion on the restated financial statements of the prior year.

(with an other-matter paragraph describing the circumstance).

Question 96

The WebTrust seal of assurance relates most directly to

Answer 96

Websites.

The WebTrust seal is designed to provide assurance on website security, availability, processing integrity, online privacy and confidentiality.

Question 97

An auditor may express an opinion on an entity’s accounts receivable balance even if the auditor has disclaimed an opinion on the financial statements taken as a whole provided the

Answer 97

Report on the accounts receivable is presented separately from the disclaimer of opinion on the financial statements.

Question 98

An unmodified attestation report ordinarily may refer to

Answer 98

Either the assertion or the subject matter to which the assertion relates.

Question 99

According to the AICPA Statements on Standards for Attestation Engagements, a public accounting firm should establish quality control policies to provide assurance about which of the following matters related to agreed-upon procedures engagements?

Answer 99

The practitioner is independent from the client and other specified parties.

Quality control standards require compliance with relevant ethical requirements, including independence for all attestation engagements.

Question 100

Which of the following statements is correct concerning an auditor’s required communication of significant deficiencies?

Answer 100

Distribution of an auditor’s report on significant deficiencies should be restricted to management and the audit committee.

Question 101

What is the primary objective of using stratification as a sampling method in auditing?

Answer 101

To decrease the effect of variance in the total population.

Question 102

Which of the following is least likely to be included in the audit report on the financial statements of a public company?

Answer 102

A title such as “Report of Independent Certified Public Accounting Firm.”

Audit reports for public companies should be titled “Report of Independent Registered Public Accounting Firm.”

Question 103

For purposes of an audit of internal control performed under Public Company Accounting Oversight Board requirements, an account is significant if there is more than a

Answer 103

Remote likelihood that it could contain material misstatements.

Question 104

An auditor tests an entity’s policy of obtaining credit approval before shipping goods to customers in support of management’s financial statement assertion of

Answer 104

Valuation or allocation.

Testing credit approval helps assure that goods are shipped to customers who are likely to be able to pay; accordingly the valuation assertion for receivables is being directly tested.

Question 105

According to PCAOB standards which of the following is a control deficiency that is at least a significant deficiency?

Answer 105

Weak controls over the selection and application of accounting principles.