14. In testing the existence assertion, an auditor ordinarily works from the

a. Financial statements to the accounting records.

b. General journal to the general ledger.

c. Supporting evidence to the accounting records.

d. Accounting records to the supporting evidence.

15. Which assertion is addressed when the auditor takes a sample of shipping documents and agrees them to related sales invoices associated with the sales journal?

1. Existence/occurrence.
2. Completeness.
3. Rights and obligations.
4. Valuation or allocation.

16. Which of the following statements best describes an auditor’s current responsibility to detect financial reporting fraud?

a. The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements and determine whether internal control procedures are adequate to prevent the occurrence of fraud.

b. The auditor should consider the types of misstatements that could occur and determine whether the audit committee is effective in monitoring senior management.

c. The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements and design the audit to provide reasonable assurance of detecting material errors and fraud.

4. The auditor is obligated to detect all material “errors,” but no material “fraud,” since management makes a statement of fact in the standard “management representations letter” that there is no such fraud.

17. An auditor’s responsibility for illegal acts by clients that have financial statement impact

a. Is limited to making an inquiry of management about such matters.

b. Is unrelated to the closeness of the illegal act to the financial reporting process.

c. Requires the CPA to assess the risk of material misstatements due to illegal acts, particularly those illegal acts that are directly associated with financial reporting.

d. Is limited to understanding the internal controls over compliance with applicable laws.

18. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding

a. disagreements the predecessor had with the client concerning auditing procedures and accounting principles.

b. the predecessor's evaluation of matters of continuing accounting significance.

c. the degree of cooperation the predecessor received concerning the inquiry of the client's lawyer.

d. the predecessor's assessments of inherent risk and judgments about materiality.

19. Which of the following items is an example of an inherent limitation in an internal control system?

1. Inappropriate segregation of employee duties.
2. Human error in decision making.
3. Ineffective board of directors.
4. Understaffed internal audit functions.

20. The auditor may assess control risk “at the maximum level” for some financial statement assertions because the auditor believes that

1. The design of relevant internal controls appears to be ineffective.
2. Internal control is thoroughly documented.
3. Tests of control are not likely to find any instances where the controls under consideration were not performed as intended.
4. A wholly substantive audit approach is less efficient than an audit approach that relies on the effectiveness of internal controls.

21. Which of the following was not one of the “sponsoring organizations” behind “COSO”?

a. Financial Executives International (FEI).

b. Institute of Internal Auditors (IIA).

3. American Accounting Association (AAA).
4. Association of Certified Fraud Examiners (ACFE).

22. Why do auditors focus heavily on a client's various transaction cycles when assessing the risk of material misstatement?

a. Because the auditor may choose to rely on internal control instead of performing any substantive procedures for material elements of the financial statements.

b. Because the audit risk model is applicable to the financial statements as a whole.

c. Because the auditor is required to detect all significant deficiencies in the entity's internal control.

d. Because inherent risk and control risk are essentially constant within a given transaction cycle.

23. For every material element of the financial statements, regardless of the assessed level of control risk, the auditor of a nonissuer must perform some

1. Tests of control to determine the effectiveness of internal controls.
2. Substantive procedures in search of material misstatements.

c. Dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.

d. Analytical procedures to determine the reasonableness of such elements.

24. Which of the following statements is most accurate about the reliability of audit evidence?

a. The more effective the entity's internal controls, the more assurance it provides about the reliability of the accounting data and financial statements.

b. The reliability of audit evidence refers to the amount of corroborative evidence obtained.

c. Information obtained indirectly from independent outside sources is more persuasive than the auditor's direct personal knowledge obtained through observation and inspection.

d. To be viewed as reliable, audit evidence must be obtained from outside the audited entity.

25. Which of the following procedures would an auditor most likely perform for December year-end accounts receivable confirmation when the auditor did not receive replies to second requests?

a. Review the cash receipts journal for the two months prior to year-end.

b. Intensify the study of the internal control structure concerning the revenue cycle.

c. Inspect the documents associated with the recorded sales transaction, including the customer’s purchase order and the entity’s shipping document and sales invoice.

4. Increase the assessed level of detection risk for the existence assertion.

26. Which of the following most likely would be detected by an auditor's review of a client's sales cutoff?

a. Shipments lacking sales invoices and shipping documents.

b. Prematurely recorded sales transactions.

c. Lapping of year-end accounts receivable.

d. Transactions with related parties that were not adequately disclosed.

27. To verify the year-end bank balance identified on a client’s cash reconciliation, the auditor would most likely agree that bank balance to the

1. Cash lead schedule.
2. General ledger account balance.
3. Interbank transfer schedule.
4. Standard bank confirmation.

28. Suppose that an auditor has calculated the receivables turnover ratio for a client and has determined that the client’s ratio is low relative to the entity’s recent past and others in the industry. This primarily raises a concern to the auditor about which one of the following assertions related to accounts receivable?

a. Valuation.

b. Rights.

c. Completeness.