Audit 4 - Questions (exam 2)

The acceptable level of detection risk is inversely related to the

• Assurance provided by substantive procedures

• Risk of misapplying auditing procedures

• Preliminary judgment about materiality levels

• Risk of failing to discover material misstatements

An auditor’s decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the

• Availability of data aggregated at a high level

• Auditor’s determination about whether audit risk can be sufficiently reduced

•   Timing of tests performed after the balance sheet date.

• Auditor’s familiarity with industry trends

In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations.  The auditor most likely would give broader consideration to the implications of a deviation if it was

• The only deviation discovered in the sample

• Identical to a deviation discovered during the prior year’s audit

• Caused by an employee’s misunderstanding of instructions

• Initially concealed by a forged document

Which of the following factors has the least influence on an auditor’s consideration of the reliability of data for purposes of analytical procedures?

• Whether the data were processed in a computer system or in a manual accounting system

• Whether sources within the entity were independent of those who are responsible for the amount being audited

• Whether the data were subject to audit testing in the current or prior year

• Whether the data were obtained from independent sources outside the entity or from sources within the entity

A number of factors influence the sample size for a substantive test of details of an account balance.  All other factors being equal, which of the following would lead to a larger sample size?

 

• A lower assessed risk of material misstatement

• Increased use of analytical procedures to obtain evidence about particular assertions

• Smaller expected frequency of deviations

• Smaller measure of tolerable misstatement

Which of the following statements about analytical procedures is true?

• Analytical procedures may be omitted entirely for some financial statement audits

• Analytical procedures used as risk assessments should not use nonfinancial information

• Analytical procedures usually are effective and efficient for tests of controls

• Analytical procedures alone may provide the appropriate level of assurance for some assertions.

While performing a test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated.  It was, in fact, not materially misstated.  This situation illustrates the risk of

• Incorrect rejection

• Incorrect acceptance

•   Overreliance

• Underreliance

Which of the following most likely would be an advantage in using classical variables sampling rather than monetary-unit sampling?

• An estimate of the standard deviation of the population’s recorded amounts is not required.

• The auditor rarely needs the assistance of a computer program to design an efficient sample.

• Inclusion of zero and negative balances usually does not require special design considerations

• Any amount that is individually significant is automatically identified and selected.

In selecting a sample using monetary-unit sampling, the dollar is the sampling unit.  For example, if the 300^th dollar of invoices is selected

• Only that dollar is audited.

• Only an invoice with exactly $300 is audited.

• An invoice of less than $300 cannot be selected.

• The invoice containing the 300^th dollar is audited.

Analytical procedures are most appropriate when testing which of the following types of transactions

• Payroll and benefit liabilities

• Acquisitions and disposals of fixed assets

• Operating expense transactions

• Noncurrent debt transactions.