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auditing international approach
Questions and Answers of
Auditing International Approach
What is the difference between unrestricted random selection and systematic sampling?
Name the factors the auditor should consider in deciding on the size of a sample for a test of controls.
In performing the sampling plan, how should the auditor classify unlocated documents?
List the decision rules the auditor can use in evaluating sample results.
When nonstatistical sampling is used, two decisions are made judgmentally. These two are determined scientifically when statistical sampling is used. What are these two decisions?
In what situation is the assessed level of control risk most likely to be maximum?
What assessed level of control risk requires documentary support?
Describe the three ways in which substantive tests may be revised.
What is a reportable condition?
To whom should reportable conditions be communicated?
What is a material weakness?
Which of the following statements is true?a. Tests of controls are necessary if the auditor plans to use the primarily substantive approach.b. Tests of controls are necessary if the auditor plans to
In considering the evidence needed to assess control risk during the period from interim to year-end, all of the following should be considered except thea. Significance of the assertion being
The assessment of control risk can be made at any of the following times excepta. Immediately after obtaining an understanding of internal control.b. After some tests of controls are performed
Which of the following statements is true?a. If control risk is assessed at maximum, the nature of related substantive tests should be changed from more to less effective.b. If control risk is
Which of the following would not be a method used to conduct tests of controls?a. Inquiry.c. Confirmation.b. Walkthrough.d. Observation.
What is the reason for ensuring that every copy of a vendor's invoice has a receiving report?a. To ascertain that merchandise billed by the vendor was received by the company.b. To ascertain that
Which of the following procedures is most likely to ensure that employee job time tickets are accurate?a. Approve the payroll voucher in the accounts payable department.b. Keep employment
Which of the following audit techniques most likely would provide an auditor with the most assurance about effectiveness of the operation of an internal control procedure?a. Inquiry of client
The likelihood of assessing control risk too low is the risk that the sample selected to test controlsa. Does not support the tolerable misstatement for some or all of management's assertions.b. Does
The likelihood of assessing control risk too low relates to thea. Effectiveness of the audit.b. Efficiency of the audit.c. Preliminary estimates of materiality levels.d. Allowable risk of tolerable
Which of the following is not an auditing procedure that is commonly used in performing tests of controls?a. Inquiry.c. Comparison.b. Observation.d. Inspection.
The proper use of prenumbered termination notice forms by the payroll department should provide assurance that alla. Uncashed payroll checks were issued to employees who have not been terminated.b.
As a result of tests of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population wasa. Less
After obtaining an understanding of internal control and assessing control risk, an auditor decided to perform tests of controls. The auditor most likely decided thata. It would be efficient to
Which of the following statements is correct concerning reportable conditions in an audit?a. An auditor is required to search for reportable conditions during an audit.b. All reportable conditions
Which of the following statements is correct concerning statistical sampling in tests of controls?a. As the population size increases, the sample size should increase proportionately.b. Deviations
The likelihood of assessing control risk too high is the risk that the sample selected to test controlsa. Does not support the auditor's planned assessed level of control risk when the true operating
A partially completed charge sales systems flowchart is on page 312. The flowchart depicts the charge sales activities of the Bottom Manufacturing Corporation.A customer's purchase order is received,
The flowchart on page 313 depicts the activities relating to the shipping, billing, and collection processes used by Smallco Lumber, Inc.Required:a. Identify the financial statement assertions and
The Art Appreciation Society operates a museum for the benefit and enjoyment of the community. During hours when the museum is open to the public, two clerks who are positioned at the entrance
Dunbar Camera Manufacturing, Inc., is a manufacturer of high-priced precision motion picture cameras in which the specifications of component parts are vital to the manufacturing process. Dunbar buys
You were engaged to audit the financial statements of Blank City Newspapers, Inc., for the year ended December 31. The company publishes a newspaper with a daily circulation of approximately 65,000
During the audit of Clements Manufacturing Company, Bill Gahagan, CPA, noticed that scrap steel from the manufacturing process was piled in an unfenced vacant lot next to the plant. No records were
During the course of an audit, Mr. Robin, CPA, observed that one of the clerks in the small toy department consistently was taking money from the customers in areas other than at the cash register.
During an audit of a loan company, the auditor discovered that the recipient of a loan with a principal balance of \(\$ 2,100\) had received only \(\$ 2,000\) when the loan was written. The auditor
During the course of an audit, Ms. Command, the senior, decided to use non statistical sampling (per SAS No. 39 guidelines) on a test of controls. The sampling plan included the following.1. The
An auditor is applying statistical sampling for attributes to the testing of extensions on sales invoices. There are 250 invoices with an average of four sales on each invoice. The auditor uses 1,000
Jiblum, CPA, is planning to use sampling in a test of controls relating to sales. Jiblum has begun to develop an outline of the main steps in the sampling plan as follows:1. State the objective or
While obtaining an understanding of internal control for a client's system of cash disbursements, an auditor decided to test the controls by taking a sample of vendor invoices and examining them to
Describe three types of acts by entity personnel that represent errors.
Describe three types of acts that represent fraud.
Describe the broad framework of the auditor's responsibility to detect errors and fraud.
Describe the broad-based matters that the auditor must consider at the financial statement level when deciding on the scope of the audit work necessary to provide reasonable assurance of detecting
Describe the narrowly focused matters that the auditor must consider at the account balance level when deciding on the scope of the audit work necessary to provide reasonable assurance of detecting
What two steps should the auditor take if he or she determines that a difference between amounts on the client's accounting records and audited amounts is fraud that could not be material to the
What four steps should the auditor take if he or she determines that a difference between amounts on the client's accounting records and audited amounts is fraud that could be material to the
What type of audit report should the auditor issue if a material fraud is detected and the financial statements are not revised?
Give five reasons why fraudulent financial reporting is committed.
Name two situations that will increase the risk of fraudulent financial reporting.
Describe three risk factors relating to fraudulent financial reporting.
Describe four recommendations made by the National Commission on Fraudulent Financial Reporting.
Fraudulent financial reporting has been described as a function of three requirements. Describe these requirements (not the primary or secondary indicators of each requirement).
Describe the two types of illegal acts
Summarize the auditor's detection and reporting responsibilities for each of the two types of illegal acts.
Which of the following is not an example of an error?a. Entity personnel make mistakes in gathering or processing accounting data from which financial statements are prepared.b. Entity personnel
Which of the following is an incorrect statement?a. The auditor should assess the risk that errors and fraud may cause the financial statements to contain a material misstatement.b. The auditor
Which of the following statements concerning illegal acts by clients is correct?a. An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial
When an auditor becomes aware of a possible illegal act by a client, the auditor should obtain an understanding of the nature of the act toa. Increase the assessed level of control risk.b. Recommend
What assurance does the auditor provide that errors, fraud, and direct-effect illegal acts that are material to the financial statements will be detected?a. Negative.b. Limited.c. Absolute.d.
Which of the following statements best describes an auditor's responsibility to detect errors and fraud?a. The auditor should study and evaluate the client's internal control, and design the audit to
Which of the following statements describes why a properly designed and executed audit may not detect a material fraud?(a.) Audit procedures that are effective for detecting an unintentional
An auditor concludes that a client's illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the materiality of the effect
Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements?a. Turnover of senior accounting personnel is
Which of the following statements reflects an auditor's responsibility for detecting errors and fraud?a. An auditor is responsible for detecting employee errors and simple fraud, but not for
During the annual audit of Ajax Corp., a publicly held company, Jones, CPA, a continuing auditor, determined that illegal political contributions had been made during each of the past seven years,
Jones, CPA, is auditing the financial statements of XYZ Retailing, Inc. What assurance does Jones provide that direct effect illegal acts that are material to XYZ's financial statements, and illegal
An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor should withdraw from the engagement if thea. Auditor is precluded
John Petite was performing his first audit as a senior. His client was a small toy store with a reputation as a solid and expanding merchandiser. John's CPA firm had performed the audit for several
During the audit of Irreg. Company, Betty Bestow was examining the endorsements on payroll checks and comparing the endorsements to the names of the payees on the face of the checks. In prior audits,
Warren Presit was the senior in charge of the audit of Put-on, Inc., a maker of men's fashion shoes. He had instructed his assistant, Stephie Scent, to examine support for every sales invoice
Smog, Inc. is a manufacturer of equipment designed to limit emissions from the tailpipes of automobiles. An audit of the financial statements of Smog, Inc. was being performed by Clean \& Clean, a
The studies conducted by the Treadway Commission revealed that fraudulent financial reporting usually occurs as the result of certain environmental, institutional, or individual influences and
In the last decade, there has been significant growth in the number and size of legal actions against accounting firms. A study of several years' lawsuits suggests that auditors' legal problems arose
Modern Office Furnishings, Inc. (MOF) is a relatively small public company. Its stock is listed on the NASDAQ national exchange. MOF manufactures and sells a limited variety of office furnishings
What is the auditor's overall objective in an audit of financial statements?
How does the auditor determine the objectives of auditing each account?
What five general assertions does management make regarding individual account balances and disclosures?
How do auditors determine what audit procedures to apply to a particular account?
Provide four examples of control risk assessment procedures.
What are substantive tests?
Explain the relation between control risk assessment procedures and substantive tests.
Provide two examples of tests of details of balances and transactions.
What are analytical procedures?
List five sources from which expectations for analytical procedures may be developed.
In what two stages of an audit are analytical procedures required to be performed?
What is the significance of the lack of privileged communication between an auditor and his or her client?
What are the two types of working paper files?
What is the purpose of the permanent audit file?
List five types of data found in the current audit files.
Explain the difference between adjusting and reclassifying entries proposed by the auditor.
What is a lead schedule?
Who has the final responsibility for determining whether or not a proposed adjusting entry will be recorded?
State three ways of indicating the performance of audit work in the working papers.
What is the purpose of an index system for the working papers? Describe the system illustrated in the text.
An auditor's overall objective in a financial statement audit is toa. Determine that all individual accounts and footnotes are fairly presented.b. Employ the audit risk model.c. Express an opinion on
When auditing individual accounts and disclosures, an auditor's objective is to determine the validity of management'sa. Calculations.b. Recording process.c. Assertions.d. Internal control.
All of the following are general audit objectives for auditing an account or disclosure excepta. Existence.b. Reliability.c. Valuation.d. Completeness.
Recording a sale for goods not shipped and failing to record a sale for goods that are shipped violate the accounts receivable assertions ofa. Existence and valuation.b. Rights and completeness.c.
Management makes all of the following assertions about the financial statements in general excepta. The entity will continue as a going concern for a period of at least one year from the balance
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