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Worksheets450 Exam 2 Review
Total questions: 19
Worksheet time: 19mins
Actions, policies, and procedures that reflect the overall attitude of management, directors, and owners of the entity about internal control relate to which of the following internal control components?
Control environment
Information and communication
Risk assessment
Monitoring
A material weakness in internal control represents a control deficiency that
more than remotely adversely affects a company’s ability to initiate, authorize, record, process, or report external financial statements reliably
results in a reasonable possibility that internal control will not prevent or detect material financial statement misstatements
exists because a necessary control is missing or not properly designed
reduces the efficiency and effectiveness of the entity’s operations
The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the
factors that raise doubts about the auditability of the financial statements
operating effectiveness of internal control policies and procedures
risk that material misstatements exist in the financial statements
possibility that the nature and extent of substantive tests may be reduced
An auditor’s decision either to apply analytical procedures as substantive tests or to perform substantive tests of transactions and account balances usually is determined by the
availability of data aggregated at a high level
timing of tests performed after the balance sheet date
auditor’s familiarity with industry trends.
relative effectiveness and efficiency of the tests
To support the auditor’s initial assessment of control risk below maximum, the auditor performs procedures to determine that internal controls are operating effectively. Which of the following audit procedures is the auditor performing?
Tests of controls
Substantive tests of transactions
Tests of details of balances
Tests of trends and ratios
Tests of controls are most likely to be omitted when
an account balance reflects many transactions
control risk is assessed at less than the maximum
the understanding of internal control indicates that evaluating the effectiveness of control policies and procedures is likely to be inefficient.
the auditor wishes to increase the acceptable level of detection risk.
Which of the following controls would be most effective in detecting a failure to record cash received from customers paying on their accounts?
A person in accounting reconciles the bank deposit to the cash receipts journal.
Transactions recorded in the cash receipts journal are posted on a real-time basis to the accounts receivable database file
Monthly statements are sent to customers and any discrepancies are resolved by someone independent of cash handling and accounting
Deposits of cash received are made daily
The accounting system automatically obtains the unit price based on scans of bar codes for merchandise sold. This control is most relevant to which transaction-related Objective for sales
Posting and Summarization
Occurrence
Completeness
Accuracy
An auditor is performing substantive tests of transactions for sales. One step is to trace a sample of debit entries from the accounts receivable database back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step?
Sales invoices represent existing sales
All sales have been recorded.
All sales invoices have been correctly posted to customer accounts.
Debit entries in the accounts receivable database are correctly supported by sales invoices.
Of the four factors that determine the initial sample size in attributes sampling (population size, tolerable exception rate, acceptable risk of overreliance, and expected population exception rate), which factor has the least effect on sample size?
Population size
Expected population exception rate
Tolerable exception rate
Acceptable risk of overreliance
An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor
minimize the failure to detect errors and fraud
eliminate the risk of nonsampling errors
design more effective audit procedures
measure the sufficiency of the audit evidence by quantifying sampling risk
Which of the following best illustrates the concept of sampling risk?
The documents related to the chosen sample may not be available to the auditor for inspection
An auditor may fail to recognize errors in the documents from the sample
A randomly chosen sample may not be representative of the population as a whole for the characteristic of interest
An auditor may select audit procedures that are not appropriate to achieve the specific objective.
A client acquired 25% of its outstanding capital stock after year end but prior to the date of the auditor’s report. The auditor should
disclose the acquisition in the opinion paragraph of the auditor’s report.
advise management to adjust the balance sheet to reflect the acquisition.
issue pro forma financial statements giving effect to the acquisition as if it had occurred at year end.
advise management to disclose the acquisition in the notes to the financial statements.
Which of the following is not a required item to be communicated by the auditor to the audit committee or others charged with governance?
Information about the auditor’s responsibility in an audit of financial statements
Information about the overall scope and timing of the audit
Significant findings arising from the audit
Recommendations for improving the client’s business
When a contingency is resolved subsequent to the issuance of audited financial statements, which correctly contained disclosure of the contingency in the footnotes based on information available at the date of issuance, the auditor should
inform the appropriate authorities that the report cannot be relied on.
take no action regarding the event.
insist that the client issue revised financial statements.
inform the audit committee that the report cannot be relied on.
Which of the following would be least likely to be included in a standard inquiry to the client’s attorney?
A list provided by the client of pending litigation or asserted or unasserted claims with which the attorney has had some involvement
A request that the attorney provide information about the status of pending litigation
A request for the attorney to identify any pending litigation or threatened legal action not identified on a list provided by the client
A request for the attorney to opine on the correct accounting treatment associated with an outstanding claim or pending lawsuit outcome
The general cash account is considered a significant account in almost all audits
where the ending balance is material.
where either the beginning or ending balance is material.
even when the ending balance is immaterial.
except those of not-for-profit organizations.
Confirmation of accounts receivable selected from the trial balance is the most common test of details of balances for the ________ of accounts receivable.
valuation
accuracy
presentation
detail-tie-in
Which one the following procedures performed for the billing function provides evidence for the completeness assertion?
making sure that no shipment has been billed more than twice
making sure that each shipment is billed to the proper customer
making sure that all shipments have been billed
making sure that each shipment is billed at the correct amount
