AUDITING THEORY (Finals Review Activity) D22

Audit documentation is an important aspect of the audit because it provides evidence that the audit

• was performed in accordance with PSAs

• acquired reasonable assurance

• was executed with sufficient professional judgement and professional skepticism

• was completed on a timely basis

Which of the following would cause an auditor of an entity’s financial statements to issue either a qualified opinion or a disclaimer of opinion?

• The use of inappropriate accounting principle.

• Inadequate disclosure of an uncertainty.

• Scope limitation involving a recorded uncertainty.

• Unreasonable accounting estimate.

In which of the following circumstances is substantive testing of accounts receivable

before the balance sheet date most appropriate?

• The client has a new sales incentive program in place.

• Internal controls during the remaining period are effective.

• There is a high turnover of senior management.

• It is the first engagement of a new client.

If control risk increases, which of the following statements is correct?

• Inherent risk will increase.

• Audit risk will decrease.

• Detection risk will decrease.

• No change

An entity's internal control should always be aware of any new methods of perpetuating fraud in the organization, this is reflective in the component of

• Risk Assessment

• Control Environment

• Control Activities

• Monitoring Activities

An auditor traces the serial numbers on equipment to a client’s sub-ledger. Which of the following management assertions is supported by this test?

• Presentation and disclosure

• Rights and obligations

• Valuation and allocation

• Completeness

The entity’s information system may include the use of

• Manual Elements

• Automated Elements

• Manual and Automated Elements

• None of the choices are correct

Which of the following presumptions is correct about the reliability of audit evidence?

• Information obtained indirectly from outside sources is the most reliable evidential matter.

• To be reliable, audit evidence should be conclusive rather than persuasive.

• Reliability of audit evidence refers to the amount corroborative evidence obtained.

• An effective internal control structure provides more assurance about the reliability of audit evidence.

An auditor is evaluating a client's controls. Which of the following situations would be the most difficult control issue for an auditor to detect?

• The accounting staff neglects the control, due to increased transactions to be processed.

• The technology department writes a program that does

  not properly implement the control, due to a lack of understanding.

• Someone erroneously disables edit checks in a software program designed to identify control exceptions.

• Two employees, who work in different departments, are circumventing a control.

A client has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements?

• Unqualified opinion

• Qualified opinion

• Disclaimer opinion

• Adverse opinion