Subject: AUDIT AND ASSURANCE. Answer all the MCQ's. Choose the correct option for each question.

13. Which of the following is an effective control that encourages receiving department personnel to count and inspect all merchandise received?

a. Quantities ordered are excluded from the receiving department copy of the purchase order.

b. Vouchers are prepared by accounts payable department personnel only after they match item counts on the receiving report with the purchase order.

c. Receiving department personnel are expected to match and reconcile the receiving report with the purchase order.

d. Internal auditors periodically examine, on a surprise basis,the receiving department copies of receiving reports.

14. Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because:

a. this is a duplication of cutoff tests.

b. accounts payable balances at the balance sheet date may not be paid before the audit is completed.

c. Correspondence with the audit clients attorney will reveal all legal action by vendors for nonpayment.

d. There is likely to be other reliable external evidence available to support the balances.

15. Which of the following audit procedures is least likely to detect an unrecorded liability?

a. Analysis and recomputation of interest expense.

b. Analysis and recomputation of depreciation expense.

c. Mailing of standard bank confirmation form.

d. Readings of the minutes of meetings of the board of directors.

16. An auditor discovers that an account balance believed to be materially misstated based on an audit sample was not materially misstated based on the total population of the account balance. This is an example of which of the following types of sampling risks?

a. Incorrect rejection.

b. Assessing control risk too low.

c. Assessing control risk too high.

d. Incorrect acceptance

17. In a probability-proportional-to-size(PPS) sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of 12,000 had an audited amount of $11,000.If this were the only misstatement discovered by the auditor,the projected misstatement of this account would be:

a. 833

b. 960

c. 1000

d. 2000

18. In attribute sampling, a 25% change in which of the following factors will have the smallest effect on the size of the sample?

a. Tolerable rate of deviation.

b. Number of items in the population.

c. Degree of assurance desired.

d. Planned assessed level of control risk.

19. For which of the following audit tests would an auditor most likely use attribute sampling?

a. Inspecting purchase orders for proper approval by supervisors.

b. Making an independent estimate of recorded payroll expense.

c. Determining that all payables are recorded at year end.

d. Selecting accounts receivable for confirmation of account balances.

20. An auditor is selecting vouchers for testing an entitys internal control activities related to proper approval of vouchers before checks are prepared.The auditor is matching random numbers with voucher numbers to determine which vouchers to inspect.If a random number matches a voided voucher,that voucher ordinarily would be replaced by another voucher in the random sample if the voided voucher.

a. Cannot be located in the voucher file.

b. Represents a dollar amount that is material

c. Indicates a deviation from the prescribed activity.

d. Is voided according to the control procedure

21. An auditor is performing attribute testing on a sample of 50 documents that results in three deviations.If the tolerable rate is 7% the expected population deviation rate is 5% and the allowance for sampling risk is 1% the auditor will most likely:

a. Increase the level of control risk because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate.

b. Accept the sample results and reduce control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.

c. Accept the sample results and reduce control risk because the sample deviation plus the allowance for sampling risk is less than or equal to the tolerable rate.

d. Increase the level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.

22. Which of the following statements is generally correct about the sample size in statistical sampling when testing internal controls?

a. As the population size doubles, the sample size should increase by about 67%.

b. The sample size is inversely proportional to the expected error rate.

c. There is no relationship between the tolerable error rate and the sample size.

d. The population size has little effect or no effect on the sample size.

23. An auditor is using statistical sampling in testing whether cash disbursements were properly authorized.The sample results indicate that the sample rate of risk exceeds the tolerable rate.Under these circumstances,the auditor most likely would reduce the

a. Planned reliance on the prescribed control.

b. Assessed level of control risk.

c. Planned reliance on substantive tests.

d. Tolerable rate of deviations.