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1.An audit plan is a a. detailed plan of analytical procedures and all substantive tests to be performed in the course of the audit. b. document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to audit. c. generic document that auditing firms have developed to lead the process of the audit through a systematic and logical process. d. budget of the time that should be necessary to complete each phase of the audit procedures.
Which of the following is most likely to be presumed to represent a fraud risk on an audit? a. Improper interest expense accrual d. Introduction of significant new products .2. plant and equipment asset account b. Improper revenue recognition c. Capitalization of repairs and maintenance expense into the property.
Control risk b. Control activities c. The control environment .Which of the following is not an element of an entity s internal control? a. The information system d.
To obtain evidence about control risk. Confirmation c. including: a. Comparison . Analysis b. an auditor ordinarily selects tests from a variety of techniques. Reperformance d.
Limited liability. Reasonable assurance.The basic concept of internal control which recognize that the cost of internal control should not exceed the benefits expected to be derived is known as: a. Management responsibility c. Management by exception b. d. .
Non-routine control d. Walkthrough control .A control that reduces the risk that an existing or potential control weakness will result in a failure to meet a control objective is referred to as a: a. Conditional control c. Compensating control b.
Increased reliance on internal auditors to monitor accounting systems.Which of the following is one of the most fundamental and effective controls? a. b. d. c. . Segregation of incompatible duties across several people. Having internal auditors report only to the Board of Directors. Increased use of computers for recording accounting transactions.
Significant Risk d. Sampling Risk . Business Risk b. Inherent risk c.An identified and assessed risk of material misstatement that in the auditor s judgment require special audit consideration a.
Auditor s experience with the entity d. Complexity of the entity c.The nature and extent of planning will vary according to the following. Changes in circumstances that occur during the audit engagement . except a. Size of the auditing firm b.
A flowcharting approach b.Which method provides the auditor with the best visual grasp of a system and a means for analyzing complex operations? a. A matrix approach d. A detailed narrative approach . A questionnaire approach c.
Search for unrecorded liabilities has been performed and documented. Reportable conditions have been communicated to the audit committee of the board of directors. c. . d. Consideration of the entity s internal control has been completed.The audit program usually cannot be finalized until the a. Engagement letter has been singed by the auditor and the client. b.
High Audit Risk High Low Moderate High Materiality High Low Low High . and materiality would lead the auditor to most audit work? Engagement Risk a. audit risk. Moderate c.Which of the following combinations of engagement risk. Low b. Low d.
issue a disclaimer of opinion c. send the client a bill for service rendered . withdraw from the engagement without issuing a report b.When it is concluded by the auditor during the planning phase that the client is not auditable because the accounting records are deficient. the auditor must not a. issue an adverse opinion d.
Which of the following statements is correct concerning the concept of materiality? a. Materiality depends only on the peso amounts of an item relative to other items in the financial statements c. Materiality depends on the nature of an item rather than peso amount. d. . Materiality is a matter of professional judgment. materiality is determined by reference to PICPA guidelines b.
The auditor can simultaneously obtain an understanding of internal control and perform tests of controls. Tests of controls are necessary if the auditor plans to use the primarily substantive approach. the auditor will always assess control risk at maximum. After performing tests of controls.Which of the following statements is true? a. d. b. . c. Tests of controls are necessary if the auditor plans to assess the level of control risk at maximum.
Reperforming the activities for a sample of transactions. d. b. Observing the entity s personnel applying the activities. Performing analytical procedures using data aggregated at a high level. Vouching a sample of transactions directly related to the activities. c. .Which of the following procedures most likely would provide an auditor with evidence about whether an entity s internal control activities are suitably designed to prevent or detect material misstatements? a.
Attorney s responses to the auditor s inquiries. d. . c. b.Which of the following types of evidence would an auditor most likely examine to determine whether controls are operating as designed? a. Client records documenting the use of computer programs. Letters of representations corroborating inventory pricing. Confirmations of receivables verifying account balances.
c. d. internal auditors have direct access to the board of directors and entity management. the audit committee is active in overseeing the entity s financial reporting policies.Management s attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity s control environment when a. b. external policies established by parties outside the entity affect its accounting practices. management is dominated by one individual who is also a shareholder. .
. Study of the relationships of financial data with relevant nonfinancial data. Tracing transactions through the system to determine whether procedures are being applied as prescribed. Study of the relationships of elements of financial data that would be expected to conform to a predictable pattern based upon the entity s experience. anticipated results (e. c. budgets and forecasts). Information to develop this estimate can be obtained from all of the following.g. b. Comparison of financial data with data for comparable prior periods.Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. except a. . and similar data for the industry in which the entity operates. d.
False d. timing and extent of audit procedures to be performed by engagement team members in order to obtain sufficient appropriate audit evidence to reduce audit risk to a n acceptable low level. True . II. timing and direction of the audit. True. The overall audit strategy is more detailed that the audit plan and includes the nature. True. The audit plan sets the scope. a. False. False. False c.I. and guides the development of the more detailed audit strategy. true b.
which of the following statements is always true? a. . b. d. The client s audit committee should not be told of the specific audit procedures that will be performed. An engagement should not be accepted after the fiscal year-end. It is an acceptable practice to carry out substantial parts of the examination at interim dates. An inventory count must be observed at the balance sheet date c.With respect to the auditor s planning of a yearend examination.
d. the auditor applies the following steps: a. e. c. Determine whether the necessary policies and procedures have been designed and whether they have been in operation. Consider the types of errors or fraud that could occur in the absence of necessary controls. The proper sequence in applying these steps is: a. AECBD . Determine the internal control policies and procedures necessary to prevent or detect errors or fraud that could occur in case of the absence of controls. Identify control weaknesses. EACBD b. b. CBAED d. Design substantive audit programs. CDEAB c.In studying internal control and assessing control risk.
b. . A broad scope of internal audit activities. Audit committee passivity when conducting oversight functions. c. d. Lack of performance of criminal background investigation for likely customers. A whistle-blower program that encourages anonymous submissions.Which of the following is most likely to indicate a significant deficiency relating to a client s antifraud programs? a.
b. Understatement of revenues and receivables. and inventory. Understatement of revenues. Inadequate controls over the invoicing function allow goods to be shipped that are not invoiced. The inadequate controls could cause an a. . receivables. Overstatement of revenues and receivables. and an overstatement of inventory d. and an understatement of inventory c. Overstatement of revenues.Alpha Company uses its sales invoices for posting perpetual inventory records. and inventory. receivables.