5. An external auditor is interested in whether or not a company has implemented an effective risk management process because:

A. It reduces the likelihood that an organisation will fail.

B. It provides a framework for the company to develop controls to manage or mitigate those risks.

C. It provides a framework to reduce financial report misstatements.

D. All of the options given.

6. An auditor suspects that fictitious sales may have been recorded during the year. Which of the following analytical procedures results would most likely indicate that fictitious sales were recorded?

A. Uncollectible account write-offs increased by 10%, sales increased by 10%, and accounts receivable increased by 10%.

B. Gross margin decreased from 40 to 35%.

C. The number of days sales in accounts receivable decreased from 64 to 38.

D. Accounts receivable turnover decreased from 7.1:1 to 4.3:1.

7. The accounts payable department receives the purchase order issued to order goods to accomplish all of the following except:

A. Comparing invoice price to purchase order price.

B. Assuring that the purchase had been properly authorised.

C. Assuring that the party requesting the goods had received the goods.

D. Comparing quantity ordered to the quantity purchased.

8. Assume the auditor finds that the controls are working properly. Which of the following are correct inferences regarding the planning of the remainder of the audit?

A. The auditor will not need to perform direct tests on the valuation of accounts receivable.

B. The auditor cannot conclude that the internal controls over credit are effective unless the auditor determines that the credit limits are reasonable.

C. The auditor does not need to confirm accounts receivable because the risk of a material misstatement of receivables is mitigated by the controls.

D. The auditor does not need to perform any more direct tests of the account balances if the auditor had tested the IT general controls.