Chapter 6 SB HW

Question 1

The nature, timing, and extent of substantive tests is determined by the level of ______ risk.

Answer 1

detection

Question 2

Setting an audit strategy ______.

Answer 2

requires a detailed understanding of the entity’s internal controls

Question 3

When an assertion being tested is not significant, the control has been effective in prior audits, or for efficiency, auditors may test controls at an ______ date.

Answer 3

Interim

Question 4

Management and the board of directors are responsible for ______.

Answer 4

1. Establishing performance measures
2. Evaluating performance of internal control
3. Implementing corrective actions

Question 5

True or false: Monitoring is an effective component of internal control, whether or not deficiencies are communicated to those with oversight responsibilities in a timely manner.

Answer 5

False; deficiencies must be communicated to those with oversight responsibility in a timely manner.

Question 6

In determining whether an IT specialist is needed, the auditor should consider the ______.

Answer 6

1. Participation in e-commerce
2. Complexity of IT systems and controls
3. Extent data is shared among systems

Question 7

True or false: An IT specialist can be used to compensate for the auditor’s lack of sufficient IT-related knowledge.

Answer 7

False; auditors should have sufficient IT related knowledge.

Question 8

Auditors may rely on ______ likely to prevent or detect and correct a material misstatement.

Answer 8

any control

Question 9

The last step in the decision process under either audit strategy is performing
__________ procedures.

Answer 9

substantive

Question 10

The proper execution of transactions is ensured by ______ controls.

Answer 10

processing

Question 11

Processing steps and computer processing are included in a ______ flowchart.

Answer 11

systems

Question 12

The auditor uses the combination of the achieved level of ________ risk and the assessed level of _________ risk to determine the required level of __________ risk needed to bring audit risk to an acceptably low level.

Answer 12

control; inherent; detection

Question 13

If the auditor determines that internal controls are not properly designed or not implemented, the auditor will ______.

Answer 13

1. Set the level of control risk at high
2. Use substantive procedures to reduce the RMM to an acceptable level

Question 14

Monitoring of internal controls ______.

Answer 14

1. Is intended to assess quality of performance over time
2. Should be done to determine operating effectiveness
3. May identify the need for control redesign

Question 15

To obtain an understanding of an entity’s internal controls, auditors may use ______.

Answer 15

Inquiry, Inspection, Observation, Tracing

Question 16

When audit risk is low and the risk of material misstatement is high, detection risk will be set at ______.

Answer 16

low

Question 17

After planned tests of controls have been completed, the auditor should reach a conclusion on the ______ level of control risk.

Answer 17

achieved

Question 18

Many organizations prepare ______ which include documentation of the accounting system and related control activities.

Answer 18

procedures manuals

Question 19

To understand management’s and the board of directors’ attitudes, awareness, and actions concerning it, the auditor should gain sufficient knowledge about the ___________.

Answer 19

control environment

Question 20

In order to provide evidence to support the lower level of control risk when using a reliance strategy, auditors perform ______.

Answer 20

tests of controls

Question 21

When a service organization provides accounting services to an entity and those services affect the entity’s accounting records, ______.

Answer 21

1. They are considered part of the entity’s information system
2. The entity’s external auditor must be concerned with the internal control system at the service organization

Question 22

When audit risk is low and the risk of material misstatement is high, substantive tests should be performed ______.

Answer 22

mostly at year-end