Question 13

Which of the following statements is incorrect about walk-through test?

a.This procedure is performed to evaluate the effectiveness of the design of controls and determine (confirm) whether the controls are implemented (placed in operation) by the client.

b.The nature and extent of walk-through tests performed by the auditor are such that they alone would provide sufficient appropriate audit evidence to support a control risk assessment which is less than high.

c.This procedure may be treated as part of tests of control.

d.A procedure required to be performed every year of audit and to verify the identified "what can go wrongs" that have the potential to materially affect relevant financial statement assertions related to significant accounts and disclosures within each significant class of transactions.

14.Which of the following concepts is most useful in assessing the scope of an auditor's program relating to various accounts?

The reliability of information.

Attribute sampling.

Materiality.

Management fraud.

15.Proper segregation of functional responsibilities calls for separation of the functions of

Authorization, execution, and recording.

Custody, execution, and reporting.

Authorization, payment, and recording.

Authorization, execution, and payment

16. An initial audit requires more audit time to complete than a recurring audit. One of the reasons for this is that

the client's business, industry and internal control are unfamiliar to the auditor and need to be carefully studied.

a larger proportion of customer accounts receivable need to be confirmed on an initial audit.

new auditors are usually assigned to an initial audit.

predecessor auditors need to be consumed.

17. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:

first inform management that an unqualified opinion cannot be issued.

refer a substantial portion of the audit to another CPA who will act as the principal auditor.

engage financial experts familiar with the nature of the business entity.

obtain a knowledge of matters that relate to the nature of the entity's business.

18.The main purpose of risk assessment procedures is to

Test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatement at the assertion level.

All of the other choices are correct.

Detect material misstatements at the assertion level.

Obtain an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement at the financial statement and assertion levels.

19.In planning an examination, the auditor would consider all of the following matters, except

The kind of opinion (unqualified, qualified, disclaimer, or adverse), likely to be given.

Preliminary judgment about materiality levels for audit purposes.

Financial statement items likely to require adjustment.

Anticipated reliance on internal controls.

20.The audit plan sets the scope, timing and direction of the audit, and guides the development of the more detailed audit strategy, which are discrete and sequential activities.

The audit strategy is more detailed than the audit plan and includes the nature, timing and extent of audit procedures to be performed by engagement team members in order to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.

False, True

True, False

True, True

False, False

21.During the audit the independent auditor identified the existence of a weakness in the client's internal control and communicated this finding in writing to the client's senior management and those charged with governance. The auditor should

Consider the effects of the condition on the audit.

Withdraw from the engagement.

Consider the weakness a scope limitation and therefore disclaim an opinion.

Suspend all audit activities pending directions from the client's audit committee.

22.Which of the following control activities refers to information processing control?

Checking of accuracy, completeness, and authorization of transactions, which include general controls and application controls.

The safeguarding of assets, records, periodic counts, and reconciliations that creates asset accountability.

Reviews of actual performance versus budgets and prior performance.

The separation of the functions to minimize the opportunities for a person to be able to perpetrate and conceal errors or fraud in the normal course of his/her duties.

23.Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?

Square footage of selling space.

Objectivity of audit committee members.

Management's plans to repurchase stock.

Turnover of personnel in the accounting department.

24.Which of the following is incorrect regarding the concept of materiality of financial information?

Judgments about materiality are made in the light of surrounding circumstances, and are affected by the size (amount or quantitative) or nature (qualitative) of a misstatement, or a combination of both.

Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Judgments about matters that are material to users of the financial statements are based on a consideration of the common financial information needs of users as a group. The possible effect of misstatements on specific individual users, whose needs may vary widely, is not considered.

The determination of materiality is mechanical, mathematical and straightforward in nature.

25.Which of the following is least likely to be appropriate as the basis for determining the preliminary judgment about materiality in the audit of financial statements?

Losses

Assets

Current liabilities

Revenues