AUDITING THEORY TEST BANKS / REVIEWERS

1. When an auditor believes that an understanding with the client has not been established, he or she should ordinarily a. Perform the audit with increase professional skepticism. b. Decline to accept or perform the audit. c. Assess control risk at the maximum level and perform a primarily substantive audit. d. Modify the scope of the audit to reflect an increased risk of material misstatement due to fraud. 2. a. b. c. d. An auditor should design the written audit program so that All material transactions will be selected for substantive testing. Substantive tests prior to the balance sheet date will be minimized. The audit procedures selected will achieve specific audit objectives. Each account balance will be tested under either tests of controls or tests of transactions.

3. Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? a. Fictitious transactions may be recorded that cause an understatement of revenues and overstatement of receivables. b. Claim received from customers for goods returned may be intentionally recorded in other customers accounts. c. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash. d. The failure to prepare shipping documents may cause an overstatement of inventory balances.