Test Wrong Answers Part III

Question 1

A management’s specialist is best described as

Answer 1

An individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements

NOTE: A specialist engaged by the auditor, not management, to assist the auditor in obtaining sufficient appropriate audit evidence is an auditor’s specialist, not a management’s specialist.

Question 2

When should an auditor test an indirect control?

Answer 2

When the control being tested depends upon the indirect control and the auditor determines it is also necessary to obtain audit evidence about the operating effectiveness of the indirect control.

Question 3

When commenting in a comfort letter on information other than audited financial statements, an auditor should

Answer 3

Describe the criteria specified by the requesting party

Question 4

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 4

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

Question 5

Which of the following boards is responsible for establishing requirements for professional accountants for the International Federation of Accountants?

Answer 5

International Ethics Standards Board for Accountants

Question 6

Which of the following situations most likely could lead to an embezzlement scheme?

Answer 6

Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement.

Question 7

Regarding identified or suspected noncompliance with laws and regulations, the auditor should include in the audit documentation all of the following except

Answer 7

US GAAS does not require the inclusion of a copy of the law or regulation related to the noncom­pliance. Examples of documentation of findings may include copies of records or documents and minutes of discussions held.

Question 8

In performing interviews and examining documents related to preliminary work in a financial statement audit of a non-issuer, an auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result?

Answer 8

Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit.

Question 9

Which of the following statements is correct concerning analytical procedures used in planning an audit engagement?

Answer 9

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

Question 10

US GAAS distinguishes the auditor’s responsibilities related to compliance with laws and regulations by using the following two categories:

Answer 10

Those that have a direct effect on the determination of material amounts and disclosures in the financial statements vs. those that do not have such a direct effect, but noncompliance with them may have a material effect on the financial statements

Question 11

Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?

Answer 11

There are significant unexplained variances between standard and actual labor cost.

Significant unexplained variances between standard and actual labor cost could cause an auditor to suspect a payroll fraud scheme

Question 12

Which of the following statements most likely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files?

Answer 12

It is usually easier for unauthorized persons to access and alter the files.

Many internal control procedures once performed by separate individuals in manual systems may be concentrated in systems that use computer processing. Therefore, an individual who has access to the computer may be in a position to perform incompatible functions.

Question 13

An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting

Answer 13

Cash receipts and accounts receivable

When the auditor has already gathered evidence supporting cash receipts and accounts receivable, the same evidence would support sales. Thus, having already gathered this evidence and having assessed control risk as low for the existence or occurrence assertion regarding sales transactions, the auditor most likely would conclude that he or she has substantial evidence for sales and would limit substantive tests of sales transactions.

Question 14

A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards by

Answer 14

Maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure

Question 15

The overall objectives of the auditor, in conducting an audit of financial statements in accordance with US GAAS

Answer 15

(1) obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and
(2) report on the financial statements, and communicate as required by US GAAS, in accordance with the auditor’s findings

Question 16

When evaluating internal control of an entity that processes sales transactions on the Internet, an auditor would be most concerned about the

Answer 16

Potential for computer disruptions in recording sales

Question 17

Which of the following procedures would an auditor most likely perform before the balance sheet date?

Answer 17

Obtain an understanding of internal control

Question 18

Which of the following situations most likely represents the highest risk of a misstatement arising from the misappropriation of assets?

Answer 18

A large number of bearer bonds on hand;

large amounts of cash on hand or processed;

inventory items that are small in size, of high value, or in high demand;

easily convertible assets, such as bearer bonds, diamonds, or computer chips;

or fixed assets that are small in size, marketable, or lacking observable identification of ownership.

Question 19

For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the

Answer 19

Internal auditor

The cash receipts accountant, the cash disbursements accountant, and the controller should not reconcile the monthly statements as they are involved in the executing or recording of cash transactions.

Question 20

The overall audit strategy provides a basis for the

Answer 20

detailed audit plan