21.

Which of the following statements describes why a properly designed and executed audit may not
detect a material irregularity?

a. Audit procedures that are effective for detecting an unintentional misstatement may be ineffective
for an intentional misstatement that IS concealed through collusion.

b. An audit is designed to provide reasonable assurance of detecting material errors, but there is no
similar responsibility concerning material irregularities.

c. The factors considered in assessing control risk indicated an increased risk of intentional
misstatements, but only a low risk of unintentional errors in the financial statements.

d. The auditor did not consider the factors influencing audit risk for account balances that have effects
pervasive to the financial statements taken as a whole.

22. When an auditor increases the planned assessed level of control risk because certain control procedures
were determined to be ineffective, the auditor would most likely increase the

a. extent of tests of details b. level of inherent risk

c. extent of tests of controls d. level of detection risk

23. An auditor's primary consideration regarding an entity's internal control system policies and procedures
is whether the policies and procedures

a. affect the financial statement assertions.

b. prevent management override.

c. relate to the control environment.

d. reflect management's philosophy and operating style.

24. When there are numerous property and equipment transactions during the year, an auditor who plans
to assess control risk at a low level usually performs

a. analytical procedures for property and equipment balances at the end

b. tests of controls and extensive tests of property and equipment balances at the end of the year.

c. analytical procedures for the current year propelty and equipment transactions.

d. tests of controls and limited tests of current year property and equipment transactions.

25. When an auditor assesses control risk below the maximum level, the auditor is required to document his
or her

Basis for understanding that Understanding of the entity 's

control risk is below the internal control system
maximum level elements

a. No No

b. Yes Yes

c. Yes No

d. No Yes

26. An auditor most likely would review an entity's periodic accounting for the numerical sequence of
shipping documents and invoices to support management's financial statement assertion of
a. Existence c. rights and obligations

b. valuation d. completeness

27. An advantage of using internal control flowcharts instead of internal control 'questionnaires to
document information about internal control is that flowcharts

a. identify internal control weaknesses more prominently.

b. provide a visual depiction of clients' activities.

c. indicate whether control procedures are operating effectively.

d. reduce the need to observe clients employees performing routine; tasks.

28. Which of the following audit techniques most likely would provide an auditor with the greatest
assurance about the effectiveness, of the operation of an internal control procedure?

a. Confirmation with outside parties.

b. Inquiry of client personnel.

c. Recomputation Of account balance amounts.

d. Observation of client personnel.