MET MG 592

subject Type Homework Help
subject Pages 8
subject Words 1779
subject Authors Alvin A. Arens, Mark S. Beasley, Randal J. Elder

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1) Companies would normally recognize an account payable when the goods are
received by the company.
A) True
B) False
2) The primary audit objectives to focus on when auditing debt are:
A) accuracy and completeness
B) accuracy and existence
C) completeness and valuation
D) accuracy and valuation
3) The chart of accounts is a control and is closely related to the controls related to
adequate documents and records.
A) True
B) False
4) The sales and collection cycle applies to businesses that transfer goods to customers
or provides services to businesses.
A) True
B) False
5) Two determinants of the persuasiveness of evidence are:
A) competence and sufficiency
B) relevance and reliability
C) appropriateness and sufficiency
D) independence and effectiveness
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6) Which of the following is not a business function within the "Sales" class of
transactions?
A) processing customer orders
B) granting credit
C) processing and recording sales returns and allowances
D) shipping goods
7) The risk of material misstatement differs from detection risk in that it:
A) arises because audit procedures have been misapplied
B) can be controlled and changed by the auditor
C) can be assessed in quantitative and non-quantitative terms
D) is controllable by the client
8) The nature, extent, and timing of substantive tests of payroll transactions vary
depending, in part, on assessed control risk.
A) True
B) False
9) Which of the following is the best audit procedure for the discovery of damaged
merchandise in a client's ending inventory?
A) Compare the physical quantities of slow-moving items with corresponding
quantities of the prior year
B) Observe merchandise and raw materials during the client's physical inventory count
C) Review the management's inventory representation letter for accuracy
D) Test overall fairness of inventory values by comparing the company's turnover ratio
with the industry average
10) The most difficult type of cash embezzlement for the auditor to detect is when the
cash is stolen before it can be recorded in the cash receipts journal.
A) True
B) False
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11) Which of the following may represent the biggest challenge smaller public
companies face in implementing effective internal control?
A) a lack of expertise
B) reduced importance
C) limited resources
D) limited available guidance
12) No reference is made in the auditor's report to other auditors who perform a portion
of the audit when:
I.The other auditor audited an immaterial portion of the audit.
II.The other auditor is well known or closely supervised by the principle auditor.
III.The principle auditor has thoroughly reviewed the work of the other auditor.
A) I and II
B) I and III
C) II and III
D) I, II and III
13) Match nine of the terms (a-i) with the definitions provided below (1-9):
a.Business risk
b.Preliminary judgment about materiality
c.Inherent risk
d.Planned detection risk
e.Audit assurance
f.Acceptable audit risk
g.Tolerable misstatement
h.Control risk
i.Materiality
________ 1> A measure of the risk that audit evidence for a segment will fail to detect
misstatements exceeding a tolerable amount, should such misstatements exist.
________ 2> The risk that the auditor or audit firm will suffer harm because of a client
relationship, even though the audit report rendered for the client was correct.
________ 3> A measure of the auditor's assessment of the likelihood that misstatements
exceeding a tolerable amount in a segment will not be prevented or detected by the
client's internal controls.
________ 4> A measure of how much risk the auditor is willing to take that the
financial statements may be materially misstated after the audit is completed and an
unqualified audit opinion has been issued.
________ 5> The materiality allocated to any given account balance.
________ 6> The maximum amount by which the auditor believes that the statements
could be misstated and still not affect the decisions of reasonable users.
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________ 7> This term is synonymous with acceptable audit risk.
________ 8> The magnitude of an omission or misstatement of accounting information
that makes it probable that the judgment of a reasonable person would have been
changed.
________ 9> A measure of the auditor's assessment of the likelihood that there are
material misstatements before considering the effectiveness of internal control.
14) When a client uses an outside payroll service for processing payroll, professional
auditing standards permit the auditor to rely on the internal controls of the service
organization if the service organization's auditor has issued a favorable report on the
internal controls of the service organization.
A) True
B) False
15) Inherent risk is typically assessed at a moderate level for inventory due to the nature
of the asset.
A) True
B) False
16) A sample in which the characteristics of the sample are the same as those of the
population is a(n):
A) variables sample
B) representative sample
C) attributes sample
D) random sample
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17) Once the auditor determines that the company's policy for accruing wages is
consistent with prior years, the appropriate audit procedure to test for accuracy and
cutoff is:
A) recalculating the client's accrual
B) performing extensive tests of controls
C) performing extensive tests of details
D) none of the above
18) Net income before tax is the normal base used to determine materiality in a
non-for-profit company.
A) True
B) False
19) An examination results in a conclusion that represents ________ assurance.
A) limited assurance
B) negative
C) positive
D) unequivocal
20) The audit objective of posting and summarization is associated with the
management assertion of accuracy.
A) True
B) False
21) Any company that has more than 10 percent of its stock owned by one person is
considered to be closely held.
A) True
B) False
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22) In performing your audit you noticed that often times goods are shipped that are not
matched with the corresponding sales invoice. This control deficiency could cause:
A) understatement of revenues and overstatement of inventory
B) overstatement of revenues and understatement of inventory
C) understatement of revenues and inventory
D) overstatement of revenues and inventory
23) An acceptable audit risk assessment of low indicates a risky client requiring more
extensive evidence, assignment of more experienced personnel, and/or a more extensive
review of audit files.
A) True
B) False
24) Which of the following further audit procedures are used to determine whether all
six transaction related audit objectives have been achieved for each class of
transactions?
A) tests of controls
B) risk assessment procedures
C) substantive tests
D) preliminary analytical procedures
25) When a qualified or adverse opinion is issued, the qualifying paragraph is inserted:
A) between the introductory and scope paragraphs
B) between the scope and opinion paragraphs
C) after the opinion paragraph, as a fourth paragraph
D) immediately after the address, as the first paragraph
26) In a lockbox system, bank employees are responsible for opening cash receipts and
maintaining records of all payments made by customers at the lockbox address.
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A) True
B) False
27) Describe three computer auditing techniques available to the auditor.
28) Explain the allocation audit objective and explain why it is important to have
accurate allocation within the financial statements, in relationship to Property, Plant,
and Equipment
29) Auditors generally use a financial statement cycle approach when performing a
financial statement audit. Describe the transaction flow, using specific examples, from
journals to financial statements that produce financial statements.
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30) What should be audited on an interbank transfer schedule?
31) Identify the three categories of application controls, and give one example of each.

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