EXAM 4 Flashcards
(78 cards)
1
Q
when confirming accounts payable, emphasis should be put on what kind of accounts?
A
accounts with small or zero balances from known suppliers
2
Q
Which of the following would detect the understatement of a purchase discount?
A
Compare purchase disbursement records and checks with invoice terms
3
Q
Which of the following situations indicates a potential material weakness in internal control over acquisition and expenditure?
A
The same person authorizes voucher packages and signs checks.
4
Q
Which of the following client control activities is not usually performed in the vouchers payable (accounts payable) department?
A
Controlling the mailing of the check and remittance advice
5
Q
What evidence is appropriate to determine whether recorded purchase transactions are valid and the vendors charged the correct prices?
A
Receiving reports and purchase orders
6
Q
Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?
A
Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.
7
Q
Improperly capitalizing an expense item results in
A
overstatement of profit in the current year and understatement in future years.
8
Q
Which of the following personnel department procedures reduces the risk of payroll fraud and represents an appropriate responsibility for the department?
A
Authorizing the addition or deletion of employees from the payroll.
9
Q
The sampling unit in a test of controls pertaining to the existence or occurrence of payroll transactions ordinarily is a(an)
A
payroll register (journal) entry.
10
Q
An auditor most likely would assess control risk at the maximum if the payroll department supervisor is responsible for
A
distribute payroll checks to all employees.
11
Q
An auditor most likely would extend substantive tests of payroll when
A
overpayments are discovered in performing tests of controls.
12
Q
- Are vendor’s monthly statements reconciled with individual accounts payable accounts?
A
Accuracy
13
Q
- Are all purchases made only on the basis of approved purchase requisitions?
A
Occurrence
14
Q
- Are vendors’ invoices listed immediately upon receipt?
A
Completeness
15
Q
- Are vendors invoices matched against purchase orders and receiving reports before a liability is recorded?
A
Occurrence
16
Q
- Is the accounts payable customer ledger balanced periodically with the general ledger control account?
A
Accuracy
17
Q
- Does the accounting manual give instructions to date purchase entries on the date of receipt of goods?
A
Cuttoff
18
Q
- Are shipping documents authorized and prepared for goods retumed to vendors?
A
Occurrence
19
Q
- Is the accounts payable department notified of goods returned to vendors?
A
Completeness
20
Q
- The entity has legal right to property and equipment acquired during the year.
A
d. Examine deeds and title insurance certificates.
21
Q
- Recorded property and equipment represent assets that actually exist at the balance-sheet date.
A
g. Physically examine all major property and equipment additions
22
Q
- Net property and equipment are properly valued at the balance-sheet date
A
b. Review the provision for depreciation expense and determine whether depreciable lives and methods used in the current year are consistent with those used in the prior year.
23
Q
For which of the following objectives would auditors be least likely to use analytical procedures near the end of the audit?
A
Obtaining evidence about assertions related to account balances or classes of transactions
24
Q
Which of the following best describes the auditors’ responsibility with respect to management’s estimates?
A
Evaluating the reasonableness of management’s estimates.
25
Why should auditors be particularly concerned with "miscellaneous," "other," and "clearing" accounts classified as revenues or expenses?
These accounts may represent attempts of earnings management.
26
An important method used by auditors to learn of material contingencies is
obtaining responses to an attorney letter.
27
Which of the following items would appear in written representations in the audit of a public entity but not a nonpublic entity?
Management's opinion as to the effectiveness of its internal control over financial reporting.
28
If auditors are appointed on January 3, 2020, the date of the financial statements is December 31, 2020, the date of the auditors' report is February 7, 2021, and the audit report release date is March 3, 2021, what is the appropriate date of the written representations?
February 7, 2021
29
Which of the following is not a purpose of the review of audit documentation by a supervisor during fieldwork?
To ensure that the overall scope of the audit was appropriate.
30
Which of the following conditions or set of circumstances would not ordinarily raise questions about the entity's ability to continue as a going concern:
Legal proceedings that may have a significant negative impact on the entity.
31
Auditors conclude that the omission of a substantive procedure considered necessary at the time of the examination may impair their present ability to support the previously-expressed opinion. Auditors need not try to perform the omitted procedure if
the results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence.
32
Analytical procedures performed near the end of an audit generally include
considering unusual or unexpected account balances that were not previously identified.
33
1. Respond directly to auditors' initial inquiries regarding litigation, claims, and assessments
Client
34
2. Initiate request for attorney letter
Auditors
35
3. Respond to attorney letter
Attorney
36
4. Provide initial description and evaluation of litigation, claims, and assessments
Client
37
5. Request attorney letter
Client
38
6. Perform various procedures relating to litigation, claims, and assessments
Auditors
39
7. Identify whether client's views expressed in the attorney letter are appropriate
Attorney
40
8. Party the attorney informs if an unasserted claim must be disclosed
Client
41
1. Discusses management's responsibility for the fairness of the financial statements.
WR
written representations
42
2. Is obtained on the date of the auditors report.
WR
written representations
43
3. Provides auditors with significant evidence regarding litigation, claims, and
assessments
A
attorney letter
44
4. Discusses the absence of fraud activity by the client and its personnel.
WR
written representations
45
5. Is not required by generally accepted auditing standards
M
management letter
46
6. Is intended to be returned to auditors as a form of evidence.
A and WR
attorney letter and written representations
47
7. Is typically prepared following the audit report release date
M
management letter
48
8. Is signed by an executive of the client.
A and WR
attorney letter and written representations
49
Which of the following major stages of the audit is most closely related to attributes sampling?
Performing tests of controls.
50
Which of the following steps in attributes sampling is most closely related to identifying key controls corresponding to the relevant management assertions?
Determine the objective of sampling.
51
Which of the following factors has a direct relationship with sample size in an attributes sampling application?
Tolerable rate of deviation - NO
expected population deviation rate - YES
52
Which of the following sampling risks does the audit team control in an attributes sampling application (ROO = risk of overreliance, ROU = risk of underreliance)?
ROO - YES
ROU - NO
53
Why is the audit team more concerned with controlling the exposure to the risk of overreliance than with the risk of underreliance?
The risk of overreliance can ultimately result in the audit team's failing to reduce audit risk to acceptable levels.
54
Which of the following would not result in the audit team's selecting a larger sample of controls for examination?
An increase in the tolerable rate of deviation from 3 percent to 6 percent.
55
Baily Cox, an audit manager, judged that the test of controls of the company's 50,000 purchase transactions should be based on a tolerable rate of deviation of 6 percent, a risk of
overreliance of 5 percent, and an expected population deviation rate of 3 percent. Using AICPA sample size tables, Cox determined that the appropriate sample size in this situation would be:
195.
56
Francona Madden, an audit manager, considered the control risk assessments listed in the left column of the following table in evaluating A. Cardinal's internal control over sales transactions. The sample sizes for the substantive procedures of the customer accounts receivable are shown to the right of each control risk. What risk of overreliance (ROO) could be assigned for tests of controls at each control risk level?
From top to bottom: 1 percent, 5 percent, 10 percent.
57
Assume that Dylan Lee found two deviations in a sample of 90 transactions. Using AICPA sample evaluation tables, Lee determined that the ULRD at a 5 percent risk of overreliance is:
6.9 percent.
58
The interpretation of the ULRD in an attributes sampling application is:
the estimated rate of deviation in the population with probability equal to the risk of overreliance that the population deviation rate is higher.
59
If an audit team examined 100 transactions and found one deviation from an important control activity, the audit conclusion could be that control risk can be assessed at the associated control risk level when:
more information about decision criteria is available.
60
If an audit team calculated a ULRD of 5 percent when the tolerable rate of deviation was 4 percent, both at the same risk of overreliance, control risk should be:
increased and substantive procedures should be adjusted accordingly.
61
In which of the following circumstances would the audit team most likely use attributes sampling?
Selecting purchase orders for indication of proper authorization.
62
Using AICPA sample evaluation tables, determine the conclusion from a statistical sample of internal controls when a sample of 125 documents indicates five deviations if the tolerable rate of deviation is 5 percent, the expected population deviation rate is 2 percent, and the allowance for sampling risk is 3 percent.
Use the evidence to assess a higher control risk than planned because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.
63
An audit team designed a sample that would provide a 10 percent risk of overreliance that not more than 7 percent of sales invoices lacked credit approval. From previous audits, the audit team expected that 3 percent of the sample invoices lacked proper approval. From the sample of 90 invoices, 7 were found to lack credit approval. Using AICPA sample evaluation tables, the audit team determined that the ULRD was:
12.8 percent.
64
An audit team designed a sample that would provide a 10 percent risk of overreliance that not more than 7 percent of sales invoices lacked credit approval. From previous audits, the audit team expected that 3 percent of the sample invoices lacked proper approval. From the sample of 90 invoices, 7 were found to lack credit approval. Using AICPA sample evaluation tables
Based on the above information, the audit team determined that the allowance for sampling risk was:
5.0 percent.
65
If the _____ exceeds the ______ , the audit team would decide to rely on internal control as planned and maintain control risk at planned levels.
tolerable rate of deviation; ULRD
66
If the sample evidence does not support the planned level of control risk, the audit team could:
All of the choices are acceptable.
increase the assessed level of control risk.
perform additional substantive procedures, reducing the necessary level of detection risk.
expand the sample to achieve an observed ULRD less than the tolerable rate of deviation.
67
Which of the following best describes the method of determining the ULRD?
Sample rate of deviation + Allowance for sampling risk.
68
Which of the following factors used to determine sample size is normally based on the extent to which the audit team expects to rely on the internal control being examined?
Tolerable rate of deviation.
69
A type of sampling application in which a relatively small initial sample is examined and decisions regarding expanding that sample are based on the results of this initial sample is known as:
sequential sampling.
70
Jerry Tim is examining an important internal control in the audit of Langly Company. In past audits, deviations from this control have been observed at a minimal rate (less than 0.1 percent); however, because the account balance affected by this control is highly susceptible to fraud, it is important that Tim obtain a high level of assurance that deviations occur at no higher than a predetermined (low) rate. Which of the following sampling methods would Tim most likely use to evaluate this control?
Discovery sampling.
71
In which step of a sampling plan is nonstatistical sampling different from statistical sampling?
Evaluate the sample results.
72
Which of the following major stages of the audit is most closely related to variables sampling?
Performing substantive procedures.
73
When making a decision about the dollar amount in an account balance based on a sample, the audit team considers the risk of incorrect acceptance to be more serious than the risk of incorrect rejection because:
the incorrect acceptance decision impairs the effectiveness of the audit.
74
When determining sample size under PPS sampling, an audit team does not need to make a judgment or estimate of:
standard deviation.
75
If the _______ is less than the _______, the audit team would conclude that the account balance is fairly stated.
Upper limit on misstatements; tolerable misstatement.
76
In which of the following stages of the audit is variables sampling most appropriately used?
Performing substantive tests of details to achieve the appropriate level of defèction risk
77
Which of the following represents.the appropriate relationship between the factor and sample size using PPS?
tolerable misstatement
population size
Tolerable misstatement - Inverse
Population size - Direct
78
Which of the following components is not used in determining the upper limit on misstatements?
Tolerable misstatement
