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Auditing > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Except for cash sales, every transaction in the sales and collection cycle is handled in one of two balance sheet accounts:
a. Sales on account and A/R
b. SR&A and A/R
c. A/R and ADA
d. Bad debt expense and ADA

A

c. A/R and ADA

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2
Q

Which of these is a type of shipping document?
a. Credit memo
b. Sales order
c. Bill of lading
d. Remittance advice

A

c. Bill of lading

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3
Q

The auditor’s framework for assessing control risk is:
a. Generally accepted auditing standards (GAAS)
b. Seven transaction-related audit objectives
c. Committee of Sponsoring Organizations (COSO)
d. NIST Risk Management Framework

A

b. Seven transaction-related audit objectives

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4
Q

A lower assessed level of control risk will result in:
a. Decreased in detection risk
b. Increase in the amount of substantive tests
c. Increased testing of controls
d. Decrease in inherent risk

A

c. Increased testing of controls

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5
Q

Which is NOT a violation of the recorded sales occurrence audit objective?
a. Sales recorded in the journal but no shipment made
b. Sales recorded more than once
c. Unbilled shipment
d. Sales made to nonexistent customers

A

c. Unbilled shipment

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6
Q

For testing sales returns & allowances, which objective should be emphasized?
a. Occurrence
b. Completeness
c. Accuracy
d. Timing

A

a. Occurrence

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7
Q

The most difficult type of cash embezzlement for auditors to detect is:
a. In the absence of prenumbered sales invoices
b. If cash prelists are not prepared
c. When it occurs before the cash is recorded
d. After the internal verification process

A

c. When it occurs before the cash is recorded

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8
Q

Sampling risk is the risk that an auditor reaches an incorrect conclusion because the sample is:
a. Based on ineffective controls
b. Not representative of the population
c. Selected using an appropriate sampling method
d. In excess of the exception rate

A

b. Not representative of the population

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9
Q

In nonstatistical sampling, auditors:
a. Use judgement in selecting the sample
b. Do not quantify sampling risk
c. Use a 95 percent confidence level
d. Must use a probabilistic sample selection

A

b. Do not quantify sampling risk

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10
Q

Every possible combination of population items has an equal chance of being included in the sample describes what type of sample method?
a. Block sample selection
b. Systematic sample selection
c. Haphazard sample selection
d. Simple random selection

A

d. Simple random selection

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11
Q

In which type of exception is it necessary to estimate the total dollar amount of the exception?
a. Deviations from the client’s established controls
b. Monetary misstatements in populations of transaction data
c. Monetary misstatements in populations of account balance details
d. Occurrence rates of monetary errors below tolerable limits

A

c. Monetary misstatements in populations of account balance details

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12
Q

The “tolerable exception rate” is established as the threshold for:
a. Test of controls
b. Substantive tests of transactions
c. Probabilistic sample size error rate
d. Tests of details of account balances

A

a. Test of controls

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13
Q

The risk that the auditor concludes, based on the sample, that the controls are more effective than they actually are is termed:
a. Estimated population exception rate
b. Sampling risk
c. Risk of overreliance
d. Sample exception rate

A

c. Risk of overreliance

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14
Q

The combination of which two factors has the greatest effect on sample size:
a. ARO plus TER
b. TER minus EPER
c. EPER plus SER
d. TER minus CUER

A

b. TER minus EPER

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15
Q

The cash receipts occurrence transaction audit objective affects which accounts receivable balance audit objective?
a. Existence
b. Completeness
c. Accuracy
d. Cutoff

A

b. Completeness

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16
Q

What accounting activity do accounting standards require auditors to presume to be a specific fraud risk?
a. Inventory valuation
b. Expensing bad debt
c. Amortization of bond premiums
d. Revenue recognition

A

d. Revenue recognition

17
Q

Substantive analytical procedures are performed with all of the following except:
a. Phase I - performance materiality planning
b. Phase II - setting the tolerable exception rate
c. Phase III - before tests of details of balances
d. Phase IV - presentation of financial statements review

A

b. Phase II - setting the tolerable exception rate

18
Q

The completeness substantive test of the details of the account receivable balances is analyzing if the account is understated or not:
a. True
b. False

A

a. True

19
Q

Confirmation is used to satisfy the following audit objectives except:
a. Existence
b. Completeness
c. Accuracy
d. Cutoff

A

b. Completeness

20
Q

A negative confirmation requires a debtor to respond:
a. Only when the debtor disagrees with the stated amount
b. Only when the debtor vouches an invoice amount
c. Only directly confirm the stated balance
d. Only by filling in the missing balance amount

A

a. Only when the debtor disagrees with the stated amount

21
Q

All of the following are common types of differences in confirmation except:
a. Bad debt expense has been written off
b. Goods have been returned
c. Goods have not been received
d. Payment has already been made

A

a. Bad debt expense has been written off

22
Q

Which is not a primary sampling method for calculating dollar misstatements in account balances:
a. Nonparametric sampling
b. Monetary unit sampling
c. Variables sampling
d. Nonstatistical sampling

A

a. Nonparametric sampling

23
Q

Which is the application of performance materiality to a sampling procedure?
a. Risk of overreliance
b. Stratified sampling
c. Risk of incorrect acceptance
d. Tolerable misstatement

A

d. Tolerable misstatement

24
Q

The acceptable risk of incorrect acceptance is the risk that the sample supports the conclusion that the recorded balance is materially misstated when in fact it is not materially misstated:
a. True
b. False

A

b. False

25
Q

When auditors use stratified sampling, they test only the material sub-populations (such as high dollar accounts) and not the immaterial ones:
a. True
b. False

A

b. False

26
Q

To generalize from a sample to the population, the auditor should calculate the point estimate and adjust by the:
a. Estimated population exception rate
b. Tolerable exception rate
c. Acceptable risk of incorrect acceptance
d. Acceptable risk of overreliance

A

c. Acceptable risk of incorrect acceptance

27
Q

Which is not a benefit of monetary unit sampling?
a. Not biased by dollar amount
b. Usually reduces audit costs
c. Easy audit procedure to apply
d. Provides a statistical conclusion

A

a. Not biased by dollar amount

28
Q

Which of these variable sampling methods is conducted by taking the dollar discrepancy between company and audited values to project the population?
a. Ratio estimation
b. Difference estimation
c. Mean-per-unit estimation
d. High-low estimation

A

b. Difference estimation

Auditing (3 decks)

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