Chapter 9 & 10 MCQ

Question 1

Which of the following audit tests is usually the most costly to​ perform?

Answer 1

tests of details of balances

Question 2

A PA has designed an audit approach where she places maximum possible reliance on controls. This means that she will be​ _______.

Answer 2

following a combined audit approach

Question 3

The procedures to test the effectiveness of control policies and procedures in support of a reduced assessed control risk are called​ _______.

Answer 3

tests of controls

Question 4

Control risk has been assessed at​ 100% for your client. What audit approach will you​ follow?

Answer 4

A substantive approach

Question 5

Which of the following statements is true about the​ auditor’s obligation to communicate significant control deficiencies under CAS​ 265?

Answer 5

If the client does not have an audit​ committee, then the communication should go to whoever in the organization has overall responsibility for internal​ control, such as the board of directors or the​ owner-manager.

Question 6

If no material fluctuations are found using analytical procedures and the auditor concludes that differences should not have​ occurred, _______.

Answer 6

other tests may be reduced

Question 7

When considering the relationships between types of audit tests and​ evidence, which of the following procedures is suitable for use for all types of audit tests​ (procedures to obtain an understanding of internal​ control, tests of​ controls, analytical​ procedures, and tests of details of​ balances)?

Answer 7

Inquiries of the client

Question 8

Cost of the procedures is a practical consideration all auditors must incorporate when developing an audit plan​ (audit efficiency). Which of the following is true about the relative costs of further audit​ procedures?

Answer 8

Substantive tests of details are often considerably more costly than any of the other types of procedures because they often involve more auditor time and effort.

Question 9

A standard audit program can dramatically increase​ _______.

Answer 9

Audit efficiency

Question 10

When the auditor has determined that there is a significant risk of misstatement for a particular assertion​ (for example, completeness of​ revenue), what type of audit testing does CAS 330​ require?

Answer 10

substantive tests

Question 11

After considering a​ client’s internal​ controls, an auditor has concluded that the internal controls are well designed and are functioning as intended. Under these​ circumstances, the auditor would most likely​ _______.

Answer 11

use a combined audit approach that includes tests of controls and substantive tests

Question 12

The auditor would like to design a test of control to test that statements are mailed to all customers each month. Which of the following typical tests of controls would be​ suitable?

Answer 12

Inquire about who is responsible for mailing the statements.

Question 13

Which of the following audit tests is usually the least costly to​ perform?

Answer 13

Analytical procedures

Question 14

The​ highest-cost audit will be incurred when the auditor expects that the internal control system would​ _______.

Answer 14

be effective but the auditor found extensive control test deviations

Question 15

When developing an audit plan for further audit procedures at the assertion​ level, auditors​ _______.

Answer 15

must design specific audit procedures to address significant risks that have been identified through performing risk assessment procedures

Question 16

It is important that sales be billed and recorded in the journal as soon as possible after​ _______.

Answer 16

shipment takes place

Question 17

Risks of fraud are assessed at which​ level(s) of the​ audit?

Answer 17

overall​ audit, cycle, and account

Question 18

CAS 240 requires which of the following to be considered a significant​ risk?

Answer 18

Revenue recognition

Question 19

Julianne is performing an analysis of the bad debt expense as a percentage of total sales. When performing the analytical​ procedure, it is important that Julianne​ _______.

Answer 19

has an expectation of the result that should be obtained

Question 20

When the auditor wishes to report significant deficiencies in the​ client’s internal control​ system, it will be communicated to the​ client’s audit committee in the​ _______.

Answer 20

internal control letter

Question 21

An example of an audit procedure that relates to the​ auditor’s understanding of internal control is to​ _______.

Answer 21

inspect documents and records

Question 22

A procedure that an auditor would most likely use in performing tests of control procedures that involve segregation of functions and that leave no transaction trail is​ _______.

Answer 22

observation

Question 23

​Ideally, tests of controls should be applied to controls​ _______.

Answer 23

for the entire period under audit

Question 24

The purpose of tests of controls is to provide reasonable assurance that the​ _______.

Answer 24

accounting control procedures are operating effectively

Question 25

When a compensating control​ exists, a weakness in the system​ _______.

Answer 25

is no longer a concern because the potential for misstatement has been sufficiently reduced

Question 26

During a change to an entire IT​ system, if conversion controls are poor or are not​ documented, the auditor will need to​ _______.

Answer 26

conduct a conversion audit

Question 27

Once an understanding of internal controls is obtained that is sufficient for audit​ planning, then the auditor must first assess​ _______.

Answer 27

whether the financial statements are auditable

Question 28

The auditor would like to design a test of control to test that there is a separation of duties between​ billing, recording​ sales, and handling of cash receipts. Which of the following typical tests of controls would be​ suitable?

Answer 28

Inquire about the duties of the accounting personnel.

Question 29

When the auditor identifies opportunities for the client to make operational improvements in the internal control system to address less significant​ weaknesses, it will be communicated to the client management in the​ _______.

Answer 29

management letter

Question 30

​Narratives, flowcharts, and internal control questionnaires are three commonly used methods of​ _______.

Answer 30

documenting the​ auditor’s understanding of internal controls