Auditors should make inquiries about whether there is knowledge of fraud in the
company. Such inquiries should be made of:
(a) management.
(b) the audit committee.
(c) internal auditors.
(d) All of the above.
The process of client acceptance or continuance involves:
(a) deciding whether the auditor is willing to audit the client.
(b) wants the firm as a client.
(c) can do a good job auditing the client.
(d) All of the above.
Each of the following is a control used to combat denial of service attacks except:
(a) firewalls.
(b) patches.
(c) electronic vaulting.
(d) cookie detection.
The risk of associating with a client known to have a dubious reputation for honesty is
referred to as:
(a) audit risk.
(b) detection risk.
(c) engagement risk.
(d) Both b and c.
The existence assertion is audited by:
a. tracing transactions from the payroll master file to the payroll register.
b. tracing transactions from the payroll register to the source documents.
c. tracing transactions from the bank statement to the general ledger.
d. Answers A & B only.
Most dual-purpose audit tests:
a. begin by selecting amounts that have been recorded.
b. begin by selecting amounts from accounts known to have weak controls.
c. begin by selecting all transactions for the current period.
d. All of the above.
Which of the following is true regarding an auditor’s assessment of management
estimates for calculations related to inventory valuation in the land development and
home building industry?
a. Greater uncertainty exists regarding estimates of future cash flows when
development and construction are still in the early stages.
b. Since prospective buyers can cancel the contracts, management estimates expected
cancellations using current engineering specifications.
c. If an auditor assessed the company’s process and underlying assumptions in a prior
period, the assessment does not need to be updated for subsequent audits unless there is
a change in the underlying assumptions.
d. Auditors typically engage a specialist to perform detailed calculations of discounted
cash flows expected from inventory.
Benford’s law assists in the audit of which area(s):
(a) leases.
(b) cash disbursements.
(c) accruals and reserves.
(d) All of the above.
Discuss an auditor’s objectives in the audit of long-term liabilities. Describe appropriate
analytical procedures an auditor may apply to long-term liabilities.
A management representation letter is an important item of audit evidence that auditors
must obtain at the beginning of the engagement to establish an understanding of the
terms of the engagement.
“Tone at the top” is an example of a ‘soft” internal control.
Blanket purchase orders usually are for an unlimited quantity.
Inherent risk cannot be controlled by the auditor.
According to the AICPA Code of Conduct, an individual will be considered part of the
immediate family, if they are a close relative, such as a parent or sibling.
If the internal control environment is strong, the auditor need not search for unrecorded
liabilities.
An auditor’s professional competence is directly related to the audit fees it is able to
negotiate as part of the client acceptance or continuance activities.
A construction problem that is not immediately evident is referred to as a latent defect.
Segregation of duties calls for separation of the development and operations
responsibilities.
Typical debt disclosures include future cash payments for each of the five years
following the latest balance sheet date.
Substantive analytical procedures may occur prior to fieldwork. Suggested edit to make
question more clear
In the Barchris case, the Court held that the auditor is not liable for subsequent events
occurring after the audit report date but before the registration date.
Going through the deliberate process of considering ethical issues, stakeholders, values
and options does not ensure a moral outcome.
In a manufacturing environment using a backflush system, a typical trigger for posting
inventory transactions is the company’s vulnerability to shrinkage losses.
If a company’s audit committee is not actively involved in the financial reporting
function, this is viewed by auditors as a weakness in internal control.
Statements on Standards for Accounting and Review Services (SSARS) are codified in
the AP section of the AICPA Professional Standards.