Question 21

1. Tests of controls are performed to determine whether:

		Controls are operating as designed.
		Material errors exist.
		Current ratios are within loan covenant requirements.
		Company net income is consistent with prior years.

2 points

Question 22

1. After considering the client's internal control the auditors have concluded that it is well designed and is functioning more effectively than they originally anticipated. Under these circumstances the auditors would most likely:

		Cease to perform further substantive procedures.
		Reduce substantive procedures in areas where the internal control was found to be effective.
		Increase the extent of anticipated analytical procedures.
		Perform all tests of controls to the extent outlined in the preplanned audit program.

2 points

Question 23

1. Auditors are primarily concerned with internal controls that relate to:

		Financial statement assertions made by management.
		Compliance with laws and regulations.
		Generally accepted auditing standards.
		Balance sheet accounts.

2 points

Question 24

1. In order to decrease detection risk an auditor may:

		Increase substantive testing.
		Postpone the timing of substantive testing from the interim date to year end.
		Change the nature of substantive tests from a less effective to more effective procedure.
		All of the above.

2 points

Question 25

1. The risk that an auditor will fail to detect a material misstatement with their audit procedures is referred to as:

		Sampling risk.
		Detection risk.
		Nonsampling risk.
		Inherent risk.

2 points

Question 26

1. Which of the following is true?

		Interim testing is appropriate when control risk is high.
		Interim testing is appropriate when control risk is low.
		Interim testing is appropriate when the audit scope is restricted by management.
		Interim testing is appropriate when physical inventories are postponed.

2 points

Question 27

1. Audit risk is composed of:

		Inherent, control and detection risk.
		Various audit procedures.
		The control environment and risk assessment.
		The components of quality control.

2 points

Question 28

1. An increase in the tolerable misstatement will cause sample size to:

		Increase.
		Decrease.
		No effect.

2 points

Question 29

1. Which of the following is true? I. Attribute sampling is used to estimate an occurrence rate. II. Variable sampling is used to estimate a numerical amount.

		I. and II.
		I. only
		II. only
		Neither are true.

2 points

Question 30

1. Which of the following best describes sampling risk?

		An auditor may fail to recognize an exception when examining a document.
		The documents relating to a chosen sample may not be available for inspection.
		The auditor's conclusion based on the sample may be different from the conclusion had the entire population been tested.
		The auditor may fail to apply the appropriate audit procedures.

2 points

Question 31

1. When using classic variable mean per unit estimation sampling, an increase in the standard deviation would normally have what effect on sample size?

		Increase.
		Decrease.
		Minimal to no effect.
		Undeterminable.

2 points

Question 32

1. When using attribute sampling an increase in the population size from 6,000 to 20,000 items whould have what effect on sample size?

		Increase.
		Decrease.
		Minimal to no effect.
		Undeterminable.

2 points

Question 33

1. Which of the following represents a control weakness over cash?

		Cash receipts are deposited daily.
		One employee is responsible for handling cash transactions from beginning to end.
		Cash receipt and disbursement budget variances are investigated.
		The bank reconcilation is prepared by an employee not responsible for the issuance of checksd or the custody of cash.

2 points

Question 34

1. A bookkeeper steals cash receipts and covers up the fraud by posting fictitious credit memos to the customers account for which the payment was made. The best way to prevent this fraud is:

		Preparation of the bank reconciliation by someone other than the bookkeeper.
		Separate the cash receiving and bookkeeping functions.
		Encourage customers to obtain receipts.
		Match invoiceasm with receiving reports before any disbursement is made.

2 points

Question 35

1. An auditor would request a bank cutoff statement primarily in order to:

		Verify the cash balance reported on the bank confirmation inquiry form.
		Verify reconciling items in the client's bank reconciliation.
		Detect kiting.
		Detect lapping.

2 points

Question 36

1. In regard to service centers which of the following is true?

		Auditors must be concerned about controls at the service center when services provided are part of the client's information system.
		Auditors need not be concerned about controls at the service center when services provided are part of the client's information system.
		The user auditor should not rely on the report of the service center auditor as an alternative to visiting the service organization.
		The auditor should be concerned with the controls placed in operation, but need not be concerned with evidence that they are working effectively.

2 points

Question 37

1. Generalized audit software:

		Consists of a set of dummy records and files stored on the client's computer system.
		Uses test data prepared by the client.
		Are computer programs used by the auditors to locate and process data contained in the client's records.
		Are programs that control and coordinate hardware components and provide other support to application software.

2 points

Question 38

1. Audit working papers are an integral part of an examination in accordance with generally accepted auditing standards.

a. Describe three major functions of the audit working papers.

b. Distinguish between the permanent working paper file and the current working paper file.

5 points

Question 39

1. Auditors are required to consider a client's internal control. a. Describe the two purposes of the auditors' consideration of a client's internal control. b. Even the best internal control has certain limitations. List three of those limitations.

4 points

Question 40

1. True or False? Further audit procedures includes both tests of controls and substantive testing.

True

False