1. You note a large variation in the gross margin percentage as a result of analytical procedures performed. This means that

A) you should perform more tests.

B) the financial statements contain an error.

C) you cannot rely on the company's internal controls.

D) you should just document this difference.

2. Which of the following a substantive test could be used to determine the accuracy of sales prices?

A) inspect sales price master authorization forms for an approval signature

B) observe the point-of-sale system automatically pulls sales prices from the master file

C) ask about the process used to update sales prices in the sales price master file

D) calculate the gross margin for each product that is sold by the company

3.The highest-cost audit is incurred when the internal control system

A) is effective but you found extensive control test deviations.

B) has few effective controls but the client's personnel were well-trained and knowledgeable.

C) is very sophisticated and the tests of controls confirmed this.

D) has few effective controls and tests of balances found many errors.

4. After completing tests of key controls, you review the results and consider whether

A) the planned degree of reliance on internal controls is justified.

B) the audit evidence obtained from the study of internal controls can provide a reasonable basis for an opinion.

C) further study of internal controls is likely to justify any restriction of tests of details of balances.

D) sufficient knowledge has been obtained about the entity's entire internal control structure.

5. Key controls are controls

A) over physical risks.

B) over significant risks.

C) on which the auditors intend to rely.

D) designed by the audit committee to prevent management fraud.

6. Assume a client's internal controls require a clerk to attach a shipping document to every duplicate sales invoice. This procedure is not followed 3 percent of the time. If the auditor selects a sample of 200 duplicate sales invoices, which of the following sample results is most representative of the population?

A) three shipping documents are missing

B) six shipping documents are missing

C) five shipping document are missing

D) there were no shipping documents missing

7. You found an error in the sample tested from the population of accounts receivable that was over 90 days old. You should extrapolate this error to the population of

A) all past-due accounts receivable.

B) accounts receivable over 90 days.

C) all accounts receivable.

D) current accounts receivable.

8. The final step in evaluating results of your sample is to

A) determine the acceptability of the population.

B) determine sampling error and calculate the estimated total population error.

C) analyze exceptions or misstatements.

D) determine the error in each sample.

9. As part of an audit of sales, you will "review sales transactions for large and unusual amounts." Which type of sampling would be best suited for this audit procedure?

A) systematic

B) attribute

C) block

D) directed

10. You find that the expense reports were not properly approved while an accounts payable clerk was on vacation in July.You decide to perform a test of control on the authorization of expense reports for all the months except for July, which you will test substantively. Itis appropriate that you proceed because

A) the authorized expense reports for July are not material.

B) it would not be cost beneficial to test the entire population substantively.

C) authorizations for the month of July are not representative of the population as a whole.

D) compensating controls exist in the payroll reconciliation process.

11. For each control you plan to rely on to reduce assessed control risk, you must

A) design one or more tests of controls to verify effectiveness.

B) report all weaknesses in the management letter.

C) quantitatively determine the effect on sampling error.

D) ensure that the test applies to several different transaction audit objectives.

12. As part of audit planning, you have calculated the gross margin for the last five years and compared gross margin to industry averages. Your client's gross margin has increased by about 5% in the current year, while the industry gross average has declined. One possible cause of this increased gross margin is

A) higher cost of goods sold.

B) increased bad debt expenses.

C) fictitious revenue.

D) fictitious expenses.