Test 2 Flashcards
(129 cards)
1
Q
COSO internal control categories include ______ of financial reporting and ______ with applicable laws and regulations.
A
reliability, compliance
2
Q
An employee knowingly doing something to bypass the internal control system is an act of ______.
A
deliberate circumvention
3
Q
Which of the following are true regarding management responsibilities?
A. Management is responsible for monitoring, supervising, and maintaining control activities.
B. Management is responsible for documentation maintenance to provide evidence that the internal control system is designed and operating effectively.
C. There are criminal penalties for the Board of Directors of firms issuing materially misleading financial statements.
D. Managers should make their own judgments about the necessity of specific controls.
A
A. Management is responsible for monitoring, supervising, and maintaining control activities.
B. Management is responsible for documentation maintenance to provide evidence that the internal control system is designed and operating effectively.
D. Managers should make their own judgments about the necessity of specific controls.
4
Q
The higher the assessment of control risk, the ______ the assessment of risk of material misstatement.
A
Higher
5
Q
True or false: To achieve the specific objectives of each of the three goals, the COSO framework defines five components of a properly designed internal control system that work independently of each other to support the system’s overall effectiveness.
A
False
6
Q
The COSO definition states that internal control is designed to provide ______ _______ regarding the achievement of objectives in three categories.
A
reasonable assurance
7
Q
Two or more people working together to circumvent the internal control system is called ______ and it cannot be prevented by separation of duties.
A
Collusion
8
Q
The foundation for all other components of internal control is the ______ ______.
A
control environment
9
Q
Which of the following are true regarding the maintenance of internal controls?
A. Internal auditors are responsible for monitoring and maintaining control activities.
B. Managers are responsible for establishing a control environment.
C. Specific controls are required for all systems regardless of benefits versus costs.
D. Management should assess the risks it wishes to control.
A
B. Managers are responsible for establishing a control environment.
D. Management should assess the risks it wishes to control.
10
Q
The risk of material misstatement is composed of ______ risk and ______ risk.
A
inherent, control
11
Q
COSO developed a(n) ______ framework to facilitate the assessment and mitigation of business risks a company faces.
A
enterprise risk management
12
Q
The five basic components of a properly designed internal control system as defined by COSO are:
(1) control environment,
(2) _______ assessment,
(3) _______ activities,
(4) _______ and
(5) information and _______.
A
risk assessment
control activities
monitoring
communication
13
Q
Specific actions a client’s management and employees take to help ensure management’s directives are carried out are called _______ ________.
A
control activities
14
Q
Obtaining an understanding of the information system relevant to financial reporting includes understanding ______.
A. how the entity communicates with vendors and customers to ensure they receive clear communication and information
B. how the information system captures events and conditions other than transactions significant to the financial statements
C. the nature of the underlying accounting records, information and accounts used to execute a transaction
A
B. how the information system captures events and conditions other than transactions significant to the financial statements
C. the nature of the underlying accounting records, information and accounts used to execute a transaction
15
Q
Integrity, ethical values and competence of the entity’s people are all _______ _______ factors.
A
control environment
16
Q
what are COSO’s 5 components?
A
control environment
risk assessment
control activities
monitoring
information & communication
17
Q
an audit team’s responsibility would not include:
designing the client’s internal controls
documentation of understanding of a client’s internal controls
communicating internal control deficiencies
assessing the effectiveness of a client’s internal controls
A
designing the client’s internal controls
18
Q
which of the following activities performed by a department supervisor most likely would help in the prevention or detection of a payroll fraud?
A. distributing paychecks directly to department store employees
B. setting the pay rate for departmental employees
C. hiring employees and authorizing them to be added to payroll
D. approving a summary of hours each employee worked during the pay period
A
D. approving a summary of hours each employee worked during the pay period
19
Q
each of the following types of controls in considered to be a entity-level control except those:
A. relating to the control environment
B. pertaining to the company’s risk assessment process
C. regarding the company’s annual stockholder meeting
D. address policies over significant risk management practices
A
C. regarding the company’s annual stockholder meeting
20
Q
what is the definition of control risk?
A
the risk that a material misstatement will not be prevented or detected on a timely basis by the client’s internal controls
21
Q
why would an auditor use only substantive procedures to evaluate specific relevant assertions and risks?
A
because testing the operating effectiveness of the relevant controls would not be efficient
22
Q
Which ASB management assertion best applies?
match sipping documents with sales invoices before a sale is recorded
A
occurence
23
Q
Which ASB management assertion best applies?
balance total of individual customer receivable with the Trade A/R control accounts
A
classification
24
Q
Which ASB management assertion best applies?
sales manager approves taking discounts
A
allocation or valuation
25
Which ASB management assertion best applies?
computer check for billing the quantity shipped, list price, and total
accuracy
26
Which ASB management assertion best applies?
account for numerical sequence of pre-numbered shipping documents
completeness
27
if the auditor plans to assess control risk at less than the maximum and rely on controls, and the nature, times, and extent of further audit procedures are based on that lower assessment, the auditor must...
A. perform only substantive procedures
B. obtain evidence that the controls selected for testing are designed effectively and operated effectively during the entire period of reliance
C. assess control risk at less than the maximum for all relevant assertions
D. provide additional examples of responses to assessed fraud risks relating to fraudulent financial reporting
B. obtain evidence that the controls selected for testing are designed effectively and operated effectively during the entire period of reliance
28
An entity's internal control consists of the policies and procedures established to provide reasonable assurance that specific entity objectives will be achieved. Only some of these objectives, policies, and procedures are relevant to a financial statement audit. Which one of the following would most likely be considered for testing in a financial statement audit?
A. Timely reporting and review of quality control results.
B. Maintenance of control over unused checks.
C. Marketing analysis of sales generated by advertising projects.
D. Maintenance of statistical production analyses.
B. Maintenance of control over unused checks.
29
The primary responsibility for establishing and maintaining internal controls rests with...
management
30
Internal controls are designed to provide reasonable assurance that
A. Management's plans have not been circumvented by worker collusion.
B. The internal auditing department's guidance and oversight of management's performance is accomplished effectively and efficiently.
C. Management's planning, organizing, and directing processes are properly evaluated.
D. Material errors or fraud would be prevented or detected and corrected within a timely period by employees in the course of performing their assigned duties.
D. Material errors or fraud would be prevented or detected and corrected within a timely period by employees in the course of performing their assigned duties.
31
When auditing financial statements of a private company, the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements?
A. Perform exhaustive tests of accounting controls and evaluate the company's control system effectiveness.
B. Determine whether the company's control policies are designed well enough to prevent material misstatements.
C. Prepare auditing working papers that document the auditor's understanding of the company's internal control.
D. Design procedures to search for significant deficiencies in the actual operation of the company's internal control.
C. Prepare auditing working papers that document the auditor's understanding of the company's internal control.
32
The overall attitude and awareness of an entity's board of directors concerning the importance of the client's internal control usually is reflected in its:
control environment
33
Misappropriation of assets is another term for _______.
employee fraud
34
In the fraud context, the reason for a person to take a fraudulent action that is believed to be unsharable with others is a...
motive
35
An entity's auditors, accountants and security personnel must be acquainted with the basics of fraud awareness ______.
because not all fraud schemes can be thwarted or detected
to ensure all fraud schemes are stopped before they occur
because not all fraud schemes can be thwarted or detected
36
Which of the following are true regarding management responsibilities?
There are criminal penalties for the Board of Directors of firms issuing materially misleading financial statements.
A. There are criminal penalties for the Board of Directors of firms issuing materially misleading financial statements.
B. Management is responsible for monitoring, supervising, and maintaining control activities.
C. Management is responsible for documentation maintenance to provide evidence that the internal control system is designed and operating effectively.
D. Managers should make their own judgments about the necessity of specific controls.
C, B, D
37
All entities recognize the need for a formalized process to identify, assess and manage factors, events and conditions, known as _______ _______, that can prevent the organization from achieving it objectives.
business risk
38
In a well-functioning internal control system, once the risks to management’s objectives have been identified, ______ are established to eliminate, mitigate, or compensate for the risks.
internal control activities
39
Professional standards recognize that to make effective decisions, managers must have access to _______, _______, and _______ information.
timely, reliable, relevant
40
The foundation for all other components of internal control is the _______ _______.
control environment
41
COSO developed an ______ framework to facilitate the assessment and mitigation of business risks a company faces.
enterprise risk management
42
Which of the following are included in common monitoring controls?
A. supervisory review of controls
B. self-assessments by boards regarding the effectiveness of their oversight
C. periodic evaluation of controls by internal audit
D. external auditor inquiries of internal auditors and the audit committee
A. supervisory review of controls
B. self-assessments by boards regarding the effectiveness of their oversight
C. periodic evaluation of controls by internal audit
43
Specific actions a client's management and employees take to help ensure management's directives are carried out are called _______ _______.
control activities
44
Integrity, ethical values and competence of the entity's people are all _______ _______ factors.
control environment
45
Common monitoring controls include ______.
A. quality assurance review of the internal audit department
B. analysis of and follow up items that might by indicative of a control failure
C. regular management and supervisory control activities
D. self-assessments by management regarding the tone they set
A. quality assurance review of the internal audit department
B. analysis of and follow up items that might by indicative of a control failure
D. self-assessments by management regarding the tone they set
46
When an employee embezzles company funds from an electric utility company for the purpose of paying expenses of an anti-nuclear protest organization, the fraudster's motive is said to be:
psychotic
egocentric
ideological
economic
idealogical
47
A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows:
Clerk 1 - Review vendor invoices for proper signature approval.
Clerk 2 - Enters vendor invoice into the accounting system and verifies payment terms.
Clerk 3 - Posts entered vendor invoices to accounts payable ledger for payment and mails checks.
Treasurer - Review the vendor invoices and signs each check.
Which of the following would indicate a weakness in the company's internal controls?
clerk 3
mails the checks and remittances after they have been signed
48
Which of the following is not considered one of the three factors increasing the probability of fraud?
Motive
Lack of training
Opportunity
Rationalization
Lack of training
49
Which of the following would be consistent with an employee taking cash receipts from customers on account?
A. The total of the accounts receivable subsidiary ledger balances is less than the accounts receivable control account.
B. The total of the accounts receivable subsidiary ledger balances is greater than the accounts receivable control account.
C. Total cash receipts from customers for the month are less than credit sales for the month.
D. Total cash receipts from customers for the month are greater than credit sales for the month.
A. The total of the accounts receivable subsidiary ledger balances is less than the accounts receivable control account.
50
Which of the following should be performed by the persons opening the mail and recording payments?
A. Restrictive endorsement on all checks.
B. Entering of payment information into customer accounts.
C. The preparation of the deposit slip and the delivery of the checks to the bank.
D. The segregation of all payments made on accounts listed as past due.
A. Restrictive endorsement on all checks.
51
Auditors are auditing the cash receipts for Great Wall Corporation. For the audit procedure performed, select the control objective being tested.
For a sample of recorded cash receipts, the auditors compared the date of receipt to the recording date.
Existence
Completeness
Authorization
Accuracy
Classification
Accounting and posting
Proper period
Proper period
52
Auditors are auditing the cash receipts for Great Wall Corporation. For the audit procedure performed, select the control objective being tested.
The auditors traced a sample of daily cash reports to the cash receipts journal.
Existence
Completeness
Authorization
Accuracy
Classification
Accounting and posting
Proper period
Completeness
53
Auditors are auditing the cash receipts for Great Wall Corporation. For the audit procedure performed, select the control objective being tested.
The auditors vouched a sample of recorded cash receipts to the deposits in the bank statement.
Existence
Completeness
Authorization
Accuracy
Classification
Accounting and posting
Proper period
Existence
54
Auditors are auditing the cash receipts for Great Wall Corporation. For the audit procedure performed, select the control objective being tested.
The auditors recalculate the cash listed on the daily deposit for a sample of recorded cash receipts.
Existence
Completeness
Authorization
Accuracy
Classification
Accounting and posting
Proper period
Accuracy
55
Auditors are auditing the cash receipts for Great Wall Corporation. For the audit procedure performed, select the control objective being tested.
The auditors traced a sample of recorded cash receipts to postings in the correct customers' accounts.
Existence
Completeness
Authorization
Accuracy
Classification
Accounting and posting
Proper period
Accounting and posting
56
When auditing financial statements of a private company, the minimum work an auditor must perform in connection with a company's internal control is best described by which of the following statements?
a. Perform exhaustive tests of accounting controls and evaluate the company's control system effectiveness
b. Determine whether the company's control policies are designed well enough to prevent material misstatements
c. Prepare auditing working papers that document the auditor's understanding of the company's internal control
d. Design procedures to search for significant deficiencies in the actual operation of the company's internal control.
c. Prepare auditing working papers that document the auditor's understanding of the company's internal control
57
If the auditor plans to assess control risk at less than the maximum and rely on controls, and the nature, timing, and extent of further audit procedures are based on that lower assessment, the auditor must
a. Provide additional examples of responses to assessed fraud risks relating to fraudulent financial reporting
b. Obtain evidence that the controls selected for testing are designed effectively and operated effectively during the entire period of reliance
c. Perform only substantive procedures
d. Assess control risk at less than the maximum for all relevant assertions.
b. Obtain evidence that the controls selected for testing are designed effectively and operated effectively during the entire period of reliance
58
An entity's internal control consists of the policies and procedures established to provide reasonable assurance that specific entity objectives will be achieved. Only some of these objectives, policies, and procedures are relevant to a financial statement audit. Which one of the following would most likely be considered for testing in a financial statement audit?
a. Timely reporting and review of quality control results.
b. Maintenance of control over unused checks
c. Marketing analysis of sales generated by advertising projects
d. Maintenance of statistical production analyses.
b. Maintenance of control over unused checks
59
The primary responsibility for establishing and maintaining internal controls rests with
a. The internal auditors.
b. Management
c. The Public Company Accounting Oversight Board
d. The external auditors.
b. Management
60
Internal controls are designed to provide reasonable assurance that
a. Management's plans have not been circumvented by worker collusion
b. The internal auditing department's guidance and oversight of management's performance is accomplished effectively and efficiently
c. Management's planning, organizing, and directing processes are properly evaluated
d. Material errors or fraud would be prevented or detected and corrected within a timely period by employees in the course of performing their assigned duties
d. Material errors or fraud would be prevented or detected and corrected within a timely period by employees in the course of performing their assigned duties
61
A material weakness is a situation in which
a. There is a remote likelihood that a material misstatement would be detected on a timely basis
b. It is probable that an immaterial financial statement misstatement would not be detected on a timely basis.
c. It is reasonably possible that a material misstatement would not be detected on a timely basis
d. It is reasonably possible that an immaterial misstatement would not be detected on a timely basis.
c. It is reasonably possible that a material misstatement would not be detected on a timely basis
62
The auditor should assess control risk for each relevant assertion by evaluating the evidence obtained from all sources, including
a. The auditor's testing of controls for the audit of internal control on an issuer
b. Misstatements detected during the financial statement audit.
c. Any control deficiencies identified during the audit.
d. All of the choices are correct.
d. All of the choices are correct.
63
The overall attitude and awareness of an entity's board of directors concerning the importance of the client's internal control usually is reflected in its:
a. computer-based control activities
b. system of separation of duties.
c. control environment
d. safeguards over access to assets.
c. control environment
64
To test the operating effectiveness of a control, an audit team might use a combination of each of the following tests except for:
a. Inquiry of client personnel
b. Confirmation of balances
c. Inspection of documentation
d. Observation of company operations.
b. Confirmation of balances
65
Management's report on internal controls must include each of the following except:
a. a statement that management is responsible for establishing and maintaining adequate internal control over financial reporting
b. a statement identifying the framework management uses to evaluate the effectiveness of the company's internal control.
c. a statement providing management's assessment of the effectiveness of the company's internal control.
d. a statement providing management's evaluation of the company's control environment.
d. a statement providing management's evaluation of the company's control environment.
66
After obtaining an understanding of the entity's internal control and assessing control risk, an auditor of a non-public company decided not to perform additional tests of controls. The auditor most likely concluded that the:
a. additional evidence to support a further reduction in control risk was not cost beneficial
b. assessed level of inherent risk exceeded the assessed level of control risk
c. internal control structure was properly designed and justifiably may be relied on
d. evidence obtainable through tests of controls would not support an increased level of control risk.
a. additional evidence to support a further reduction in control risk was not cost beneficial
67
Auditors must gain an understanding of internal controls that are in place to mitigate assessed fraud risk and, at a minimum, ______
a. present the understanding in a report to the Board of Directors or audit committee
b. include a paragraph documenting the understanding in the audit report
c. document that understanding in the work papers
c. document that understanding in the work papers
68
Employee fraud _______.
Multiple select question.
a. is easiest to catch in the conversion stage
b. generally includes a cover-up
c. usually involves some type of falsification
d. is also called misappropriation of assets
b. generally includes a cover-up
c. usually involves some type of falsification
d. is also called misappropriation of assets
69
Which of the following are fraudster behaviors?
Multiple select question.
a. drinking too much
b. irritability
c. working late
d. sleeping too much
a. drinking too much
b. irritability
c. working late
70
A typical white collar criminal has Blank______.
Multiple select question.
a. no arrest record
b. been with the company over 10 years
c. attended college
d. some type of religious affiliation
a. no arrest record
c. attended college
d. some type of religious affiliation
71
Incentive/pressure, opportunity and attitude/rationalization are the conditions that make up the ________ _________.
fraud triangle
72
An entity's auditors, accountants and security personnel must be acquainted with the basics of fraud awareness _________
a. because not all fraud schemes can be thwarted or detected
b. to ensure all fraud schemes are stopped before they occur
a. because not all fraud schemes can be thwarted or detected
73
Fraudster behaviors often include ________.
Multiple select question.
a. inability to relax
b. defensiveness
c. working standing up
d. frequent vacations
a. inability to relax
b. defensiveness
c. working standing up
74
A typical white collar criminal is ______.
a. generally acting alone
b. typically over 40 years of age
c. not married
d. socially conforming
a. generally acting alone
d. socially conforming
75
Incentive/pressure, attitude/rationalization and _____________ are the conditions that make up the fraud triangle.
opportunity
76
The most common motivation in business frauds is ________.
a. the feeling of moral superiority
b. stealing for the sake of stealing
c. economic benefits
d. desire for personal prestige
c. economic benefits
77
Failure to count inventory on a regular basis provides ________ to commit fraud.
a. opportunity
b. pressure
c. rationalization
d. incentive
a. opportunity
78
In the fraud context, the reason for a person to take a fraudulent action that is believed to be unsharable with others is a(n) ___________.
motive
79
An attitude that says "I am underpaid and due additional compensation" is an example of fraud _________.
rationalization
80
Improper segregation of duties provides ________ to commit fraud.
a. incentive
b. rationalization
c. pressure
d. opportunity
d. opportunity
81
Giving managers and employees the freedom to do business, __________,
a. can mean giving them freedom that enables committing fraud
b. reduces the opportunity for them to commit fraud
c. has been shown to have no effect on the commission of frauds
a. can mean giving them freedom that enables committing fraud
82
The Sarbanes-Oxley Act of 2002 ________ an anonymous employee hotline for reporting ethical problems
a. requires
b. recommends
c. does not recommend
a. requires
83
Fraud rationalizations include _______.
Multiple select question.
a. "A successful image is important."
b. "Nobody will get hurt."
c. "I am in a position to make decisions without review."
d. "I'll pay the money back."
a. "A successful image is important."
b. "Nobody will get hurt."
d. "I'll pay the money back."
84
Which of the following statements are correct?
Multiple select question.
a. The possibility of detection can be an effective fraud deterrent.
b. Trustworthy employees may be the only internal control some entities need.
c. Fraud cover-up attempts rarely appear in the accounting records.
d. A control violation may be the audit team's first indication of fraud.
a. The possibility of detection can be an effective fraud deterrent.
d. A control violation may be the audit team's first indication of fraud.
85
It is usually best to have an anonymous employee hotline responded to by ______.
a. an outside third-party agency
b. the entity's internal auditors
c. the board of directors
d. the entity's external auditors
a. an outside third-party agency
86
A code of conduct for employees _________.
Multiple select question.
a. must be supported by the control environment
b. helps send the right message from the top
c. is more likely to be supported if the Board chairman follows it
d. must be elaborate to be effective
a. must be supported by the control environment
b. helps send the right message from the top
c. is more likely to be supported if the Board chairman follows it
87
Adjusting and correcting entries that result from bank reconciliations are found in the cash ______ journal.
Multiple select question.
a. general
b. receipts
c. payment
d. disbursements
b. receipts
d. disbursements
88
Control activities often take away the Blank______ for a fraudster to commit a fraud.
a. rationalization
b. opportunity
c. motivation
b. opportunity
89
True or false:
The bank reconciliation is an opportunity for management to monitor the separation of duties between cash receipts and disbursements.
True
90
The responsibility for setting the tone at the top rests with ____________
a. the Board of Directors
b. upper management
c. the audit committee
b. upper management
91
All the debits to the cash accounts are found in the cash __________ __________.
receipts journal
92
Detection risk is set based on the level of _________ ________ and risk of material misstatement.
audit risk
93
Which of the following statements are correct?
Multiple select question.
a. Tests of controls over cash often support a reduction in control risk.
b. Substantive procedures over cash are only performed if control risk is assessed as high.
c. Most audit clients have strong controls over cash.
a. Tests of controls over cash often support a reduction in control risk.
c. Most audit clients have strong controls over cash.
94
The auditors' information source for validating the bank reconciliation is typically a(n) ____________ bank statement.
cutoff
95
The primary document used to test the cash balance in the financial statements is the company's _________ __________.
bank reconciliation
96
When a material misstatement is not prevented or detected by the client's internal controls or auditors' substantive procedures, _________ __________ has been manifested.
audit risk
97
Substantive procedures over cash will __________.
a. only be performed if inherent risk is high
b. only be performed if control risk cannot be reduced
c. always be performed
c. always be performed
98
The cutoff bank statement _________.
Multiple select question.
a. normally covers a one-week period after the year end date
b. verifies the existence of year-end deposits in transit
c. qualifies as external evidence
d. helps search for unrecorded liabilities
b. verifies the existence of year-end deposits in transit
c. qualifies as external evidence
d. helps search for unrecorded liabilities
99
A description of the goods being shipped as well as the quantity shipped is found on the ______.
packing slip
shipping order
shipment record
packing slip
100
True or false: Physical protection of accounts receivable files is an important facet of control.
true
101
The risk that an unqualified opinion will be issued on financial statements that contain a material misstatement is the definition of ______ risk.
inherent
detection
control
audit
audit
102
The core revenue recognition principle is that revenue should be recognized when...
A. goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services.
B. the company completes the production of the product or service.
C. the customer makes payment for the good or service.
A. goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services.
103
True or false: There is no such thing as a typical revenue and collection cycle.
true
104
The form the carrier signs to verify goods are shipped is a(n) ______.
shipping order
packing slip
bill of lading
shipment record
bill of lading
105
Access to accounts receivable records gives an individual ______,
Multiple select question.
authorization
recording responsibility
custody of assets
authorization
recording responsibility
106
When the auditor evaluates the reasonableness of the allowance for doubtful accounts, _______ is a high risk assertion.
valuation
107
The risk that an unqualified opinion will be issued on financial statements that contain a material misstatement is the definition of ______ risk.
audit
108
Sales must be realized or realizable and earned in order to be recorded under the accounting standards related to ______ ______.
revenue recognition
109
If a control is missing or ineffective, ______.
Multiple select question.
A. there is most certainly an error or fraud in the financial statements
B. the risk of material misstatement increases
C. auditors need to design substantive procedures related to control failure
B. the risk of material misstatement increases
C. auditors need to design substantive procedures related to control failure
110
Which of the following is NOT a basic activity in the revenue and collection cycle for a typical manufacturing company?
Purchasing raw materials
Collecting and depositing cash
Delivering goods and services
Receiving and processing customer orders
Billing customers
Purchasing raw materials
111
Substantive procedures are ______.
a. always performed in the revenue cycle
b. never performed in the revenue cycle
c. only performed if inherent risk is assessed as high
d. only performed in the revenue cycle if control risk is high
a. always performed in the revenue cycle
112
A description of the goods being shipped as well as the quantity shipped is found on the ______.
packing slip
shipping order
shipment record
packing slip
113
True or false: Auditing standards recommend but generally do not require the use of confirmations for accounts receivable.
False
114
Audit risk is manifested when a material misstatement enters the financial reporting process, which is known as ______ risk.
control
inherent
detection
misstatement
inherent
114
Difficulties in estimating the allowance for doubtful accounts can be due to ______.
Multiple select question.
change in customer base
revised credit policies
changing economic conditions
a decrease in sales
change in customer base
revised credit policies
changing economic conditions
115
If controls are not in place or personnel are not performing control activities effectively, auditors need to design ______ procedures to try to detect whether control failures have produced material misstatements in the financial statements.
substantive
115
A blank form confirmation:
(multiple)
may result in a lower response rate.
may produce better evidence than a positive confirmation.
is a variation of a negative confirmation.
requires the customer to confirm a balance.
may result in a lower response rate.
may produce better evidence than a positive confirmation.
116
Which of the following statements regarding the revenue cycle are correct?
There is always a presumptive risk of fraud.
Tests of controls often support a reduction in control risk.
Most auditing clients have inadequate controls.
It consists of routine transactions.
There is always a presumptive risk of fraud.
Tests of controls often support a reduction in control risk.
It consists of routine transactions.
117
The most effective alternative procedure to confirmations to ensure existence is examining ______.
subsequent cash receipts
sales order, invoices and shipping documents
correspondence files for past-due accounts
subsequent cash receipts
118
Justifications for not using confirmations may include ______.
Multiple select question.
confirmations would be ineffective
other procedures provide sufficient, competent evidence
receivables are not material
other procedures require less of the auditor's time
confirmations would be ineffective
other procedures provide sufficient, competent evidence
receivables are not material
119
When an auditor receives an oral response to a confirmation ______.
Multiple select question.
alternative audit procedures may be warranted
the definition of external confirmation has been met
a written response still needs to be requested
alternative audit procedures may be warranted
a written response still needs to be requested
120
Accounts receivable confirmation is a substantive procedure designed to obtain evidence of the ______ and rights and obligations of customers' balances directly from the customer.
existence
121
A blank form is a variation of the _______ confirmation.
positive
122
When customers are not willing or able to return confirmations, examining subsequent cash receipts, sales orders, invoices, and shipping documents, and correspondence files for past-due accounts are alternative procedures that may be performed to ensure _______.
existence
123
If a customer confirms that an account exists, the auditor ______.
has evidence to support the adequacy of the allowance for doubtful accounts
has adequate evidence to support collectability and valuation
must still review the account for collectability
must still review the account for collectability
124
Which of the following statements are correct?
Multiple select question.
A. Auditors may not receive an oral response to a confirmation.
B. Confirming a specific transaction is often more effective than confirming the account balance.
C. Confirmations of accounts, loans, and notes receivable produces sufficient evidence of the rights assertion.
D. Confirmation returned as "undeliverable" are always a red flag.
B. Confirming a specific transaction is often more effective than confirming the account balance.
D. Confirmation returned as "undeliverable" are always a red flag.
125
Accounts receivable confirmation is a substantive procedure designed to obtain evidence of the ______ of customers' balances directly from the customer.
Multiple select question.
payment terms
existence
rights & obligations
collectability
existence
rights & obligations
126
A customer is asked to respond whether the balance is correct or incorrect on a(n)
________ confirmation.
positive
127
