Deck 3

Question 1

the audit ____ outlines the nature, extent, and timing of the audit procedures

Answer 1

PLAN; NOT strategy

Question 2

when audit procedures are performed before year-end, the auditor must assess the INCREMENTAL RISK involved and determine whether sufficient alternative procedures exist to extend the interim conclusions to year-end (T/F)

Answer 2

TRUE

Question 3

What do these correlate to? (COVERUP)

1. Completeness
2. CutOFF
3. Valuation, allocation, and accuracy
4. Existence and occurrence
5. Rights and obligations
6. Understandability of presentation and classification

Answer 3

F/S ASSERTIONS

Question 4

in assessing the _____ of internal auditors, the independent CPA considers info obtained from previous experience, from discussion with mgmt, from external quality reviews if performed, and from professional internal auditing standards (ex: The Institute of Internal Auditors)

Answer 4

OBJECTIVITY

Question 5

______ is reflected by the internal auditor’s education, professional certification, experience, performance evaluations, audit plan, audit procedures, and the quality of audit documentation

Answer 5

COMPETENCE

Question 6

______ auditors may assist the auditor in obtaining an understanding of internal control and in performing tests of controls and substantive tests.

Answer 6

INTERNAL

Question 7

the auditor ordinarily considers materiality for planning purposes in terms of the ______ (smallest or largest) aggregate level of misstatements that could be considered material to any one of the F/S

Answer 7

SMALLEST

Question 8

if there is a high likelihood of misstatements then the auditor sets materiality at a _____ (higher or lower) amount, which results in the auditor looking closer at audit evidence

Answer 8

LOWER

Question 9

an increase in materiality levels would result in a _____ (increase or decrease) in audit risk, which would result in less substantive testing

Answer 9

DECREASE

Question 10

substantive tests include tests of ____ (examining transactions and balances) and analytical procedures (evaluating financial information through analysis)

Answer 10

DETAILS

Question 11

______ procedures involve comparison of recorded amounts to independent expectations developed by the auditor

Answer 11

ANALYTICAL PROCEDURES

Question 12

Variations in business cycle are attributed or described in terms of how long they last (duration) and the degree of peak or trough (intensity) (T/F)

Answer 12

TRUE

Question 13

avg. length of workweek, money supply, prices of selected stocks, orders for goods, price changes of materials, index of consumer expectations, building permits, unfilled orders, average new unemployment claims are all examples of _____ indicators, which tend to PREDICT economic activity.

Answer 13

LEADING INDICATORS

Question 14

Inventories-to-sales ratios, the prime rate charged by banks, bank loans outstanding, average duration of unemployment, and the consumer debt-to-income ratio are all examples of _______ indicators, which tend to FOLLOW economic activity.

Answer 14

LAGGING INDICATORS

Question 15

Manufacturing and trade sales, the number of employees on nonagricultural payrolls, production, and sales are examples of ______ indicators which tend to change at approximately the SAME time as the whole economy

Answer 15

COINCIDENT INDICATORS

Question 16

performing tests of controls is done _____ (before or after) the auditor completes their risk assessment and may be done in conjunction with substantive audit procedures if they are deemed insufficient alone

Answer 16

AFTER

Question 17

during a ______, potential output will exceed actual output

Answer 17

RECESSION

Question 18

The engagement quality reviewer is required to identify the documentation reviewed, but is not required to include an assessment of workpapers reviewed. (T/F)

Answer 18

TRUE

Question 19

walkthrough procedures usually performed in an issuer’s integrated audit include inquiry, observation, inspection of relevant documentation, and reperformance of controls (T/F)

Answer 19

TRUE

Question 20

inherent limitations of internal control include concepts like collusion, human error, and mgmt override (T/F)

Answer 20

TRUE

Question 21

One of the primary purposes of performing analytical procedures during the planning stage is to identify the risks of material misstatement due to fraud (T/F)

Answer 21

TRUE

Question 22

tests of controls used in assessing control risk include inquiry, inspection, observation, recalculation (related to a control), and reperformance (T/F)

Answer 22

TRUE

Question 23

substantive testing includes verification, confirmation, analytical procedures done during planning and final review (T/F)

Answer 23

TRUE

Question 24

Although both qualitative and quantitative factors impact the assessment of materiality, it must always be expressed as a specific _______ amount.

Answer 24

QUANTITATIVE

Question 25

broad actions that affect the entire audit engagement that include things like increasing supervision, emphasizing professional skepticism, and incorporating unpredictability into the audit procedures is ______ response

Answer 25

OVERALL RESPONSE

Question 26

(T/F) when auditors decide to perform tests of controls, they have made a preliminary assessment that controls are operating effectively. *When many internal control weaknesses are identified, the auditor would NOT be likely to perform tests of controls. The assessed level of control risk is increased, and more reliance would be placed on substantive tests as opposed to tests of controls.

Answer 26

TRUE

Question 27

In an environment that is highly automated, an auditor determines that it is not possible to reduce detection risk solely by substantive tests of transactions. Factors unique to electronic processing may make it impractical or impossible to reduce detection risk to an acceptable level through substantive testing alone. In such cases, tests of _____ should be performed to support a lower level of assessed control risk.

Answer 27

TESTS OF CONTROLS

Question 28

when there is a high risk of material misstatement for a particular account, the auditor should ________ (increase or decrease) the tolerable misstatement for that account. The auditor is less willing to tolerate errors in that account due to the increased risk.

Answer 28

DECREASE

Question 29

if the auditor determines that an increase in the tolerable misstatement is appropriate, then the sample size will _____ (increase or decrease). Increasing the level of tolerable misstatement implies a higher tolerance for error resulting in the nature of the audit procedures to become less detailed, the timing may shift towards later stages, and the extent of the procedures may decrease as less detail is needed

Answer 29

DECREASE

Question 30

in designing a written audit plan, an auditor should establish specific audit objectives that relate primarily to F/S assertions (T/F)

Answer 30

TRUE