test 3 - MC

Question 1

Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor’s

a.Audit strategy.

b.Tests of controls.

c.Risk assessment procedures.

d.Tests of transactions.

Answer 1

Risk assessment procedures.

Question 2

Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests?
1. risk assessment procedures
2. tests of controls
3. substantive tests of transactions
4. substantive analytical procedures
5. tests of details of balances

a.2,3, and 5
b.3,4, and 5
c.1, 2, and 3
d.2,3, and 4

Answer 2

3,4, and 5

Question 3

The purpose of tests of controls is to provide reasonable assurance that the

a.internal control procedures are functioning as intended.

b.entity has complied with requirements of quality control.

c.accounting treatment of transactions and balances is valid and proper.

d.entity has complied with ISA disclosure requirements.

Answer 3

internal control procedures are functioning as intended.

Question 4

In order to promote audit efficiency, the auditor considers cost in selecting audit tests to perform. Which of the following audit tests would be the costliest?

a.Risk assessment procedures

b.Tests of controls

c.Substantive analytical procedures

d.Tests of details of balances

Answer 4

Tests of details of balances

Question 5

Which of the following is true?

a.Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.

b.Tests of details of balances focus on comparisons of recorded amounts to expectations

c.Tests of details of balances focus on the auditor’s understanding of internal controls.

d.Tests of details of balances focus on the transactions during the period for both balance sheet and income statement accounts.

Answer 5

Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.

Question 6

The reliance the auditor places on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily

a.PARALLEL
b.EQUAL
c.INVERSE
d.DIRECT

Answer 6

INVERSE

Question 7

The ________ is the combination of the types of tests to obtain sufficient appropriate evidence for a cycle. There are likely to be variations in the mix from cycle to cycle depending on the circumstances of the audit.

a.Testing mix

b.Procedures mix

c.Audit process mix

d.Evidence mix

Answer 7

Evidence mix

Question 8

Several factors influence the auditor’s choice of the types of tests to select, including

a.the effectiveness of the internal controls

b.the relative costs of each type of test.

c.the availability of the types of evidence.

d.All of these influence the auditor’s choice

Answer 8

All of these influence the auditor’s choice

Question 9

If the auditor finds extensive control test deviations and significant misstatements while performing substantive tests of transactions and substantive analytical procedures,

a.the cost of the audit should decrease.

b.the auditor will conclude that internal controls are effective.

c.extensive tests of details of balances will need to be performed.

d.All of these would apply

Answer 9

extensive tests of details of balances will need to be performed.

Question 10

Which of the following audit tests would be regarded as a test of controls?

a.Tests of the signatures on canceled checks to board of directors’ authorizations

b.Tests of the additions to property, plant, and equipment by physical inspections

c.Comparison of the inventory pricing to vendors’ invoices

d.Review of the specific items making up the balance in a given general ledger account.

Answer 10

Tests of the signatures on canceled checks to board of directors’ authorizations

Question 11

Which audit tests involve physical examination and confirmation?

a.Tests of transactions

b.Tests of controls

c.Analytical procedures

d.Tests of details of balances

Answer 11

Tests of details of balances

Question 12

Which of the following misstatements is most likely to be uncovered during an audit of a client’s bank reconciliation?

a.payment to an employee for more than the hours actually worked

b.duplicate payment of a vendor’s invoice

c.billing a customer at a lower price than indicated by company policy

d.failure to record a collection of a note receivable by the bank on the client’s behalf

Answer 12

failure to record a collection of a note receivable by the bank on the client’s behalf

Question 13

In an effort to satisfy the completeness objective, the auditor could perform which of the following test of details of balance procedures?

a.Review financial statements to make sure that material savings accounts and certificates of deposit are disclosed separately

b.Trace the book balance on the reconciliation to the general ledger.

c.Perform a four-column proof of cash.

d.Trace outstanding checks to subsequent period bank statements

Answer 13

Perform a four-column proof of cash.

Question 14

The starting point for the verification of the balance in the general bank account is to obtain

a.A bank reconciliation from the client.

b.The client’s year-end bank statement.

c.The client’s cash account from the general ledger.

d.A cutoff bank statement directly from the bank.

Answer 14

A bank reconciliation from the client.

Question 15

The bank reconciliation

a.Should be performed by someone who handles cash disbursements.

b.Must be done on a daily basis if the client uses electronic banking.

c.Ensures that no cash has been embezzled.

d.Should be performed by someone independent of the handling or recording of cash receipts.

Answer 15

Should be performed by someone independent of the handling or recording of cash receipts.

Question 16

As part of their internal control procedures, management needs to have procedures in place to properly classify financial instruments as trading, available-for-sale, or held-to- maturity, based on if returns are SPPI and

a.COST
b.INTENT OR BUSINESS MODEL
c.PROBABLE FUTURE GAIN OR LOSS
d.MATURITY DATE

Answer 16

INTENT OR BUSINESS MODEL

Question 17

Which of the following best describes one of the primary objectives of audit documentation?

a.Defend against claims of a deficient audit

b.Provide a basis for reviewing the work of subordinates

c.Provide reasonable assurance that the audit was conducted in accordance with auditing standards.

d.Provide additional support of recorded amounts to the client

Answer 17

Provide reasonable assurance that the audit was conducted in accordance with auditing standards.

Question 18

Which of the following would be correct for information usually included in the Permanent File

a.Accounting Policies Articles of Incorporation, Lead sheets, Supporting Schedules

b.Indenture Covenants, Accounting Policies, Prospectus, Articles of Incorporation

c. Chart of Accounts, Accounting Policies, Working Trial Balance, Audit Programs

d.Audit Programs, Working Trial Balance, Adjusting Entries, Supporting Schedules

Answer 18

Indenture Covenants, Accounting Policies, Prospectus, Articles of Incorporation

Question 19

Analytical procedures are so important that they are required during the

a. Tests of control and completion phases

b.Planning and test of control phases

c.Planning and completion phases

d.Planning, Test of control, and completion phases

Answer 19

Planning and completion phases

Question 20

Which of the following would be considered a lead sheet?

a.Listing showing the accounts from the general ledger making up the cash and bank line item on the balance sheet

b.The bank reconciliation showing the bank accounts

c.The working paper showing the tick legend used by the auditor

d.The adjusted trial balance listing with balance sheet and income statement accounts

Answer 20

Listing showing the accounts from the general ledger making up the cash and bank line item on the balance sheet