Auditing - Mid Term #2

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Auditing Multiple Choice - Mid-Term #2

  
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1.  Analytical procedures may be classified as being primarily  
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B.
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D.
2.  A successor would most likely make specific inquiries of the predecessor auditor regarding 
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B.
C.
D.
3.  Which audit procedure is most effective in testing credit sales for overstatement?  
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B.
C.
D.
4.  In planning a statistical sample for tests of controls, an auditor increases the expected population exception rate from the prior year’s rate because of the results of the prior year’s tests of controls. As a result, the auditor will most likely increase the planned
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B.
C.
D.
5.  Analytical procedures used in planning an audit should focus on identifying
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D.
6.  Which of the following will most likely indicate the existence of related parties?
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B.
C.
D.
7.  To verify that all sales transactions have been recorded, a substantive test of transactions should be complete on a representative sample drawn from  
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B.
C.
D.
8.  An auditor uses assessed control risk to  
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B.
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D.
9.  If, from a random sample, an auditor can state with a 5% ARACR that the exception rate in the population does not exceed 20%, the auditor can state that the exception rate does not exceed 25% with
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B.
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D.
10.  Which of the following is an effective audit planning procedure that helps prevent misunderstandings and inefficient use of audit personnel?
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B.
C.
D.
11.  For all audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent                                 In the Planning Stage          As a Substantive Test         In the Completion Stage  
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B.
C.
D.
12.  A material weakness in internal control represents a control deficiency that  
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D.
13.  Which of the following situations has the best chance of being detected when a CPA compares 2009 revenues and expenses with the prior year and investigates all changes exceeding a fixed percent?  
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B.
C.
D.
14.  In general, an internal control deficiency may be defined as a condition under which misstatements would ordinarily not be detected within a timely period by  
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B.
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D.
15.  The concept of materiality will be least important to the CPA in determining the  
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D.
16.  Copies of sales invoices show different unit prices for apparently identical items. Select the control that should have prevented the misstatement.  
A.
B.
C.
D.
17.  An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor  
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C.
D.
18.  A conceptually logical approach to the auditor’s evaluation of internal control consists of the following four steps: I.   Determining the internal controls that should prevent or detect errors and fraud. II.  Identifying control deficiencies to determine their effect on the nature, timing, or extent of auditing procedures to be applied and suggestions to be made to the client. III. Determining whether the necessary internal control procedures are prescribed and are being followed satisfactorily. IV. Considering the types of errors and fraud that can occur. What should be the order in which these four steps are performed?  
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B.
C.
D.
19.  When a customer fails to include a remittance advice with a payment, it is common for the person opening the mail to prepare one. Consequently, mail should be opened by which of the four company employees?  
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B.
C.
D.
20.  When an auditor issues an unqualified opinion about internal control over financial reporting for a public company, the auditor has obtained reasonable assurance that  
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B.
C.
D.
21.  When a nonpublic company auditor’s tests of controls identify deficiencies in internal control over financial reporting, the auditor  
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B.
C.
D.
22.  What is the independent auditor’s principal purpose for obtaining an understanding of internal control and assessing control risk in a financial statement audit?  
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B.
C.
D.
23.  Which of the following documents best illustrates the concept of sampling risk?  
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D.
24.  An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when the  
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D.
25.  Which of the following statements is not correct about materiality?  
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D.
26.  Company personnel account for the sequence of shipping documents and verify that an entry for each shipment is included in the sales journal. This control relates most directly to the sales transaction-related audit objective of  
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B.
C.
D.
27.  The auditor looks for an indication on duplicate sales invoices to see whether the invoices have been verified. This is an example of a. b. c. d.
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B.
C.
D.
28.  A key internal control in the sales and collection cycle is the separation of duties between cash handling and record keeping. The objective most directly associated with this control is to verify that  
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B.
C.
D.
29.  When auditing related party transactions, an auditor places primary emphasis on
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B.
C.
D.
30.  Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to afford a reasonable basis for an opinion?  
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B.
C.
D.
31.  Edison Corporation has a few large accounts receivable that total $1,400,000. Victor Corporation has a great number of small accounts receivable that also total $1,400,000. The importance of a misstatement in any one account is therefore greater for Edison than for Victor. This is an example of the auditor’s concept of  
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B.
C.
D.
32.  In assessing whether to accept a client for an audit engagement, a CPA should consider                                 Client Business Risk                            Acceptable Audit Risk  
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B.
C.
D.
33.  Which of the following is least likely to be comparable between similar corporations in the same industry line of business?  
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B.
C.
D.
34.  As a result of test of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was  
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B.
C.
D.
35.  A manufacturing company received a substantial sales return in the last month of the year, but the credit memorandum for the return was not prepared until after the auditors had completed their testing. The returned merchandise was included in the physical inventory. Select the control that should have prevented the misstatement.  
A.
B.
C.
D.
36.  Which one of the following statements is correct concerning the concept of materiality?  
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B.
C.
D.
37.  From a random sample of items listed from a client’s inventory count, an auditor estimates with a 90% confidence level that the CUER is between 4% and 6%. The auditor’s major concern is that there is one chance in twenty that the true exception rate in the population is
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B.
C.
D.
38.  Which of the following statements about test of controls is incorrect? Tests of controls  
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D.
39.  In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 will have material effect on an entity’s income statement, but that misstatements will have to aggregate $20,000 to materially effect the balance sheet. Ordinarily, it is appropriate to design audit procedures that are expected to detect misstatements that aggregate  
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B.
C.
D.
40.  To support the auditor’s initial assessment of control risk below maximum, the auditor performs procedures to determine that internal controls are operating effectively. Which of the following audit procedures is the auditor performing?  
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B.
C.
D.
41.  When approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining whether
A.
B.
C.
D.
42.  Which of the following is ordinarily considered a test of control audit procedures?  
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B.
C.
D.
43.  Which of the following controls most likely will be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?  
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B.
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D.
44.  If all other factors specified in a sampling plan remain constant, changing the TER from 8% to 12% will cause the required sample size to a. increase. b. remain the same. c. decrease. d. become indeterminate.
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B.
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D.
45.  The primary objective of performing tests of controls is to obtain  
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D.
46.  Based on evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk control level that is substantially the same as the planned audit control risk, the auditor could  
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B.
C.
D.
47.  An auditor is performing substantive test of transactions for sales. One step is to trace a sample of debit entries from the accounts receivable master file back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step?  
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B.
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D.
48.  The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the  
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D.
49.  If an auditor wishes to select a random sample that must have a 10% ARACR and a TER of 10%, the size of the sample selected will decrease as the estimate of the
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B.
C.
D.
50.  The auditor faces a risk that the audit will not detect material misstatements that occur in the accounting process. To minimize this risk, the auditor relies primarily on  
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C.
D.
51.  Which of the following most accurately describe the auditor’s responsibilities for reporting on internal control required by PCAOB standards? The auditor tested  
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B.
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D.
52.  A sales invoice for $5,200 was computed correctly, but, by mistake, was key-entered as $2,500 to the sales journal and to the accounts receivable master file. The customer remitted only $2,500, the amount on his monthly statement. Select the control that should have prevented the misstatement.  
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B.
C.
D.
53.  Which of the following statements about tests of controls is most accurate?  
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D.
54.  When considering internal control, an auditor must be aware of the concept of reasonable assurance, which recognizes that the  
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D.
55.  An auditor of a public company identifies a material weakness in internal control. The auditor  
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D.
56.  When using the work of a specialist, the auditor may identify and refer to the specialist in the auditor’s report if the
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D.
57.  Which of the following best describes the element of inherent risk that underlies the application of generally accepted auditing standards, specifically the standards of fieldwork and reporting?  
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D.
58.  For which of the following tests would an auditor most likely use attribute sampling? a. b. c.
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C.
D.
59.  If all other factors specified in a sampling plan remain constant, changing the ARACR from 10% to 50% will cause the required sample size to
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B.
C.
D.
60.  Inherent risk and control risk differ from planned detection risk in that they  
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D.
61.  On the basis of audit evidence gathered and evaluated, an auditor decides to increase assessed control risk from that originally planned. To achieve an audit risk level (AcAR) that us substantially the same as the planned audit risk level (AAR), the auditor will  
A.
B.
C.
D.
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