Need help with 30 multiple choice auditing questions

Audit: Exam 1 1. Which of the following procedures would an auditor likely include in the initial planning of a financial statement audit? a. Obtain an attorney's letter b. Examining documents to detect illegal acts having a material effect on the financial statements c. Considering whether the client's accounting estimates are reasonable in the circumstances d. None of the above 2. In the consideration of internal control, the auditor is basically concerned that internal control provides reasonable assurance that: a. Controls have not been circumvented by collusion b. Misstatements have been prevented or detected c. Operational efficiency has been achieved in accordance with management plans d. Management cannot override controls 3. Which of the following procedures is least likely to be performed as a part of obtaining an understanding during an audit engagement of a new audit client previously audited by another CPA? a. Communication with the predecessor auditor b. Performing analytical procedures c. Obtaining confirmation of cash balances d. Considering internal control 4. 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 justifies 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 than exist in the balance or class as a whole d. None of the above 5. Factors or components of the control environment include all except: a. Organizational structure b. Human resources c. Integrity and ethical values d. All of the above are factors 6. Which of the following controls would an auditor be least likely to review? a. Segregation of the asset handling and recordkeeping functions b. Company policy regarding credit and collection efforts c. Cost records classified by date of product introduction d. Authorization of additions to plant and equipment 7. If internal control is properly designed, the same employee should not be permitted to: a. Sign checks and cancel supporting documents b. Receive merchandise and prepare a receiving report c. Prepare disbursement vouchers and sign checks d. Initiate a request to order merchandise and approve merchandise received 8. Which of the following does the auditor have control over? a. Inherent risk b. Audit risk c. Control risk d. None of the above 9. Which of the following documentation is not required for an audit in accordance with Generally Accepted Auditing Standards? a. An indication that the accounting records agree or reconcile with the financial statements b. The basis for the auditor's conclusions when the assessed level of control risk is below the maximum level c. A client engagement letter d. All of the above are required 10. Which of the following would have the greatest inherent risk? a. Bonds payable b. Retained earnings c. Cash d. Stockholder's equity 11. Which of the following accounts would you most likely use PPS or Probability Proportionate to Size? a. Accounts payable where you believe there are several understated accounts b. Retained earnings c. An account that is anticipated to have many overstatements d. None of the above 12. An independent auditor might consider the procedures performed by the internal auditors because: a. They are employees whose work must be reviewed during substantive testing b. They are employees whose work might be relied upon c. Their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations d. Their degree of independence may be inferred by the nature of their work 13. When an auditor increases the risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the: a. Extent of tests of details b. Levels of inherent risk c. Extent of tests of controls d. Level of detection risk 14. Which of the following is not a typical analytical procedure? a. Study of relationships of the financial information with relevant nonfinancial information b. Comparison of the financial information with similar information regarding the industry in which the entity operates c. Comparison of recorded amounts of major disbursements with appropriate invoices d. All of the above are typical analytical procedures 15. When tests of controls reveal that controls are not operating as anticipated, it is most likely that the assessed level of the risk of material misstatement will: a. Be less than the planned level b. Equal the planned level c. Be greater than the planned level d. Be less than the actual level 16. If, compared to last year, the expected population deviation rate increased and the population total went from 12,000 down to 10,000, the current year sample size would: a. Increase b. Decrease c. Unable to determine d. No effect on sample size since they are offset 17. Which of the following has the lowest authoritative status but may be useful in assisting the auditor in applying the SASs? a. Statements on Auditing Standards b. Auditing Statements of Position c. Journal of Accountancy articles d. Auditing interpretations 18. 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 low b. Insiders recently purchased additional shares of the entity's stock c. Management places substantial emphasis on meeting earnings projections d. The rate of change in the entity's industry is slow 19. In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items: a. Which include fraud will not be overlooked when the auditor exercises compatible reciprocal options b. May occur in a systematic pattern, thus using random sampling is more representative of the population c. May occur more than once in a sample d. Do not have to be prenumbered in order for the auditor to use the technique 20. When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining: a. Whether the predecessor's work should be utilized b. Whether the company follows the policy of rotating its auditors c. Whether the predecessor's opinion on internal control of the company has been satisfactory d. Whether the engagement should be accepted 21. Failure to detect material dollar misstatements in the financial statements is a risk, which the auditor primarily mitigates by: a. Performing substantive procedures b. Performing tests of controls c. Assessing internal control d. Obtaining a client representation letter 22. The tolerable deviation rate for a test of controls is generally: a. Lower than the expected rate of deviations in the related accounting records b. Higher than the expected rate of deviations in the related accounting records c. Equal to the expected rate of deviations in the related accounting records d. Unrelated to the expected rate of deviations in the related accounting records 23. Builder Retailing, Inc. has an internal auditing staff of four fulltime auditors. The auditor has determined that the internal auditors are competent and objective. The auditor may not share which of the following responsibilities with Builder's internal auditors? a. Age accounts receivable b. Prepare the unadjusted trial balance c. Receive and prepare a confirmation schedule d. Internal auditors may help the auditors with any of the above 24. Which of the following is not an objective of a welldesigned system of internal control? a. Accurate reliable financial statements b. Safeguarding of assets c. Adherence with applicable laws and regulations d. Maintaining proper segregation of duties 25. An auditor obtains knowledge about a new client's business and its industry in order to: a. Plan the audit b. Make an acceptable decision c. Help determine who is to be assigned the audit d. All of the above 26. Of the following, which is the least persuasive type of audit evidence? a. Documents mailed by outsiders to the auditor b. Correspondence between auditor and vendors c. Copies of sales invoices inspected by the auditor d. Computations made by the auditor 27. Which of the following is not an interrelated component of internal control? a. Control activities b. Risk assessment c. Monitoring d. Management integrity 28. Which of the following is not a typical analytical procedure? a. Study of relationships of the financial information with relevant nonfinancial information b. Comparison of the financial information with similar information regarding the industry in which the entity operates c. Comparison of recorded amounts of major disbursements with appropriate invoices d. Comparison of current year's financial statement with last years 29. Which of the following might lead to a Type 2 risk? a. Tolerable deviation rate increases b. Making an incorrect rejection decision c. A lower audit risk is chosen d. Choose a lower detection risk 30. In comparison to the external auditor, an internal auditor is more likely to be concerned with: a. Internal administrative procedures b. Cost accounting procedures c. Operational auditing d. All of the above Audit: Exam 1 1. Which of the following procedures would an auditor likely include in the initial planning of a financial statement audit? a. Obtain an attorney's letter b. Examining documents to detect illegal acts having a material effect on the financial statements c. Considering whether the client's accounting estimates are reasonable in the circumstances d. None of the above Because initial planning activities include formal acceptance by the client, verifying compliance with independence , formation of audit team and to determine time and extent of procedures to be applied. 2. In the consideration of internal control, the auditor is basically concerned that internal control provides reasonable assurance that: a. Controls have not been circumvented by collusion b. Misstatements have been prevented or detected c. Operational efficiency has been achieved in accordance with management plans d. Management cannot override controls Because the function of internal control is to provide reasonable assurance that either the material misstatements have prevented or discovered with reasonable promptness, thus assuring the reliability and integrity of the financial records. 3. Which of the following procedures is least likely to be performed as a part of obtaining an understanding during an audit engagement of a new audit client previously audited by another CPA? a. Communication with the predecessor auditor b. Performing analytical procedures c. Obtaining confirmation of cash balances d. Considering internal control 4. 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 justifies 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 than exist in the balance or class as a whole d. None of the above 5. Factors or components of the control environment include all except: a. Organizational structure b. Human resources c. Integrity and ethical values d. All of the above are factors The seven control environment factors are as follows: (1) Integrity and ethical values, (2) Commitment to competence, (3) Human resource policies and practices, (4) Assignment of authority and responsibility, (5) Management's philosophy and operating style, (6) Board of directors or audit committee participation, and (7) Organizational structure. 6. Which of the following controls would an auditor be least likely to review? a. Segregation of the asset handling and recordkeeping functions b. Company policy regarding credit and collection efforts c. Cost records classified by date of product introduction d. Authorization of additions to plant and equipment Because an auditor is usually not concerned with the product introduced. 7. If internal control is properly designed, the same employee should not be permitted to: a. Sign checks and cancel supporting documents b. Receive merchandise and prepare a receiving report c. Prepare disbursement vouchers and sign checks d. Initiate a request to order merchandise and approve merchandise received Because the preparation of disbursement vouchers and signing of checks places an individual in a position in which she/he can lead to fraud by preparing both erroneous vouchers and then pay them 8. Which of the following does the auditor have control over? a. Inherent risk b. Audit risk c. Control risk d. None of the above Only the detection risk is controlled by auditors. 9. Which of the following documentation is not required for an audit in accordance with Generally Accepted Auditing Standards? a. An indication that the accounting records agree or reconcile with the financial statements b. The basis for the auditor's conclusions when the assessed level of control risk is below the maximum level c. A client engagement letter d. All of the above are required AS per 10. Which of the following would have the greatest inherent risk? a. Bonds payable b. Retained earnings c. Cash d. Stockholder's equity Because inherent risk is generally higher where there is higher degree of estimation and judgments is involved and transactions are highly complex 11. Which of the following accounts would you most likely use PPS or Probability Proportionate to Size? a. Accounts payable where you believe there are several understated accounts b. Retained earnings c. An account that is anticipated to have many overstatements d. None of the above 12. An independent auditor might consider the procedures performed by the internal auditors because: a. They are employees whose work must be reviewed during substantive testing b. They are employees whose work might be relied upon c. Their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations d. Their degree of independence may be inferred by the nature of their work 13. When an auditor increases the risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the: a. Extent of tests of details b. Levels of inherent risk c. Extent of tests of controls d. Level of detection risk 14. Which of the following is not a typical analytical procedure? a. Study of relationships of the financial information with relevant nonfinancial information b. Comparison of the financial information with similar information regarding the industry in which the entity operates c. Comparison of recorded amounts of major disbursements with appropriate invoices d. All of the above are typical analytical procedures 15. When tests of controls reveal that controls are not operating as anticipated, it is most likely that the assessed level of the risk of material misstatement will: a. Be less than the planned level b. Equal the planned level c. Be greater than the planned level d. Be less than the actual level 16. If, compared to last year, the expected population deviation rate increased and the population total went from 12,000 down to 10,000, the current year sample size would: a. Increase b. Decrease c. Unable to determine d. No effect on sample size since they are offset 17. Which of the following has the lowest authoritative status but may be useful in assisting the auditor in applying the SASs? a. Statements on Auditing Standards b. Auditing Statements of Position c. Journal of Accountancy articles d. Auditing interpretations 18. 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 low b. Insiders recently purchased additional shares of the entity's stock c. Management places substantial emphasis on meeting earnings projections d. The rate of change in the entity's industry is slow 19. In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items: a. Which include fraud will not be overlooked when the auditor exercises compatible reciprocal options b. May occur in a systematic pattern, thus using random sampling is more representative of the population c. May occur more than once in a sample d. Do not have to be prenumbered in order for the auditor to use the technique 20. When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining: a. Whether the predecessor's work should be utilized b. Whether the company follows the policy of rotating its auditors c. Whether the predecessor's opinion on internal control of the company has been satisfactory d. Whether the engagement should be accepted 21. Failure to detect material dollar misstatements in the financial statements is a risk, which the auditor primarily mitigates by: a. Performing substantive procedures b. Performing tests of controls c. Assessing internal control d. Obtaining a client representation letter Because substantive tests are used to control the risk of incorrect acceptance of a population which is materially in error. The auditor usually faces two risks. The first risk is that material misstatements may occur in the accounting process, and the second risk is that material misstatements that have occurred will not be detected in the course of auditor's examination. The auditor relies on internal control to reduce the first risk and substantive tests to reduce the second risk. 22. The tolerable deviation rate for a test of controls is generally: a. Lower than the expected rate of deviations in the related accounting records b. Higher than the expected rate of deviations in the related accounting records c. Equal to the expected rate of deviations in the related accounting records d. Unrelated to the expected rate of deviations in the related accounting records 23. Builder Retailing, Inc. has an internal auditing staff of four fulltime auditors. The auditor has determined that the internal auditors are competent and objective. The auditor may not share which of the following responsibilities with Builder's internal auditors? a. Age accounts receivable b. Prepare the unadjusted trial balance c. Receive and prepare a confirmation schedule d. Internal auditors may help the auditors with any of the above 24. Which of the following is not an objective of a welldesigned system of internal control? a. Accurate reliable financial statements b. Safeguarding of assets c. Adherence with applicable laws and regulations d. Maintaining proper segregation of duties Because it does not matter, how well designed and operated is internal system but it is not absolute assurance and only a reasonable assurance. 25. An auditor obtains knowledge about a new client's business and its industry in order to: a. Plan the audit b. Make an acceptable decision c. Help determine who is to be assigned the audit d. All of the above 26. Of the following, which is the least persuasive type of audit evidence? a. Documents mailed by outsiders to the auditor b. Correspondence between auditor and vendors c. Copies of sales invoices inspected by the auditor d. Computations made by the auditor Because copies of sales invoices represent internally generated evidence and are considered less reliable than externally generated evidence received directly by the auditor 27. Which of the following is not an interrelated component of internal control? a. Control activities b. Risk assessment c. Monitoring d. Management integrity Because five components of internal control are Risk assessment, Control environment, control activities, information and communication and Monitoring. 28. Which of the following is not a typical analytical procedure? a. Study of relationships of the financial information with relevant nonfinancial information b. Comparison of the financial information with similar information regarding the industry in which the entity operates c. Comparison of recorded amounts of major disbursements with appropriate invoices d. Comparison of current year's financial statement with last years 29. Which of the following might lead to a Type 2 risk? a. Tolerable deviation rate increases b. Making an incorrect rejection decision c. A lower audit risk is chosen d. Choose a lower detection risk 30. In comparison to the external auditor, an internal auditor is more likely to be concerned with: a. Internal administrative procedures b. Cost accounting procedures c. Operational auditing d. All of the above