Multiple Choice Questions
1. Which of the following is a step in an auditor’s decision to assess control risk below the maximum?
a. Apply analytical procedures to both financial data and nonfinancial information to detect conditions that could indicate weak controls.
b. Perform tests of details of transactions and account balances to identify potential errors and fraud.
c. Identify the controls that are likely to detect or prevent material misstatements.
d. Document that the additional audit effort to perform tests of controls exceeded the potential reduction in substantive testing.

2. Samples to test controls are intended to provide the basis for an auditor to conclude whether
a. The controls are operating effectively.
b. The financial statements are materially misstated.
c. The risk of incorrect acceptance is too high.
d. Materiality for planning purposes is at a sufficiently low level.

3. An auditor uses the knowledge of internal control and the final assessed level of control risk primarily to determine the nature, timing, and extent of the
a. Attribute tests.
b. Compliance tests.
c. Tests of controls.
d. Substantive tests.

4. When numerous property and equipment transactions occur during the year, an auditor who plans to assess control risk at a low level usually performs
a. Tests of controls and extensive tests of property and equipment balances at year-end.
b. Analytical procedures for the current year’s property and equipment transactions.
c. Tests of controls and limited tests of the current year’ property and equipment transactions.
d. Analytical procedures for property and equipment balances at the end of the year.

5. Regardless of the assessed level of control risk, the auditor should perform some
a. Tests of controls to determine the effectiveness of controls.
b. Analytical procedures to verify the design of controls.
c. Substantive tests to restrict detection risk for significant transaction classes.
d. Dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.

6. The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the
a. Audit effectiveness.
b. Audit efficiency.
c. Preliminary estimates of materiality levels.
d. Tolerable misstatement.

7. The likelihood of assessing control risk too high is the risk that the sample selected to test controls
a. Does not support the auditor’s planned assessed level of control risk when the true operating effectiveness of internal control justified such an assessment.
b. Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes.
c. Contains proportionately fewer deviations from prescribed internal controls that exist in the balance or class as a whole.
d. Does not support the tolerable misstatement for some or all of management’s assertions.

8. As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than is appropriate. The most likely explanation for this situation is that
a. The deviation rates of both the auditor’s sample and the population exceed the tolerable rate.
b. The deviation rates of both the auditor’s sample and the population are less than the tolerable rate.
c. The deviation rate in the auditor’s sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.
d. The deviation rate in the auditor’s sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate.

9. In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was
a. The only deviation discovered in the sample.
b. Identical to a deviation discovered during the prior year’s audit.
c. Caused by an employee’s misunderstanding of instructions.
d. Initially concealed by a forged document.

10. Which of the following procedures most likely will provide an auditor evidence about whether an entity’s controls are suitably designed to prevent or detect material misstatements?
a. Re-performing the controls for a sample of transactions.
b. Performing analytical procedures using data aggregated at a high level.
c. Vouching a sample of transactions directly related to the controls.
d. Observing the entity’s personnel applying the controls.