A set of characteristics that helps to define a seriousness about employees’ attitudes
about the control activities in a company is referred to as
A. management assertions.
B. the control environment.
C. control risk assessment.
D. functional responsibilities.
After the auditor has defined the population to be examined, the next step would be to
A. define the characteristic of interest.
B. select the sample items.
C. determine the sample size.
D. measure the sample items.
Which of the following is not a purpose of the review of audit documentation by a
supervisor during fieldwork?
A. To ensure that all appropriate steps in the audit plan were performed
B. To ensure that referencing among audit documentation is clear
C. To ensure that the explanations included in the audit documentation are
understandable
D. To ensure that the overall scope of the audit was appropriate
If an entity had litigation pending at the date of the financial statements and auditors
learn of the outcome of this litigation following the date of their report (but prior to the
audit report release date), this is known as a(n)
A. omitted procedure.
B. prior period adjustment.
C. subsequent event.
D. subsequently discovered fact.
Which of the following is not required to become a certified internal auditor (CIA)?
A. Hold a college degree.
B. Pass a two-day examination.
C. Have a full-time position as an internal auditor.
D. Meet an experience requirement.
Which of the following deviations would probably be of most concern to auditors?
A. A deviation resulting from an employee’s unintentional error
B. A deviation that represents an isolated and nonrecurring mistake
C. A deviation that represents an employee’s careless attention to duties
D. A deviation that has no implications with regard to the effectiveness of other controls
Which of the following statements is true concerning auditors’ responsibilities during
the audit?
A. Auditors must exercise the level of care, skill, and judgment expected of a
reasonably prudent auditor under the circumstances.
B. Auditors must plan the audit to gather sufficient competent evidence to guarantee the
accuracy of the financial statements.
C. Auditors are strictly liable for failures to discover client fraud.
D. Auditors are not liable unless they commit gross negligence or intentionally
disregard generally accepted auditing standards.
For the copy of the purchase order that goes to the receiving department, it is best to
A. leave off the description of the goods ordered.
B. leave off the quantity of the goods ordered.
C. leave off the name of the vendor.
D. have the receiving department forward all copies of the purchase order to accounts
payable.
An auditor has identified the controller’s review of the bank reconciliation as a control
to test. In connection with this test, the auditor interviews the controller to understand
the specific data reviewed on the reconciliation. In addition, the auditor verifies that the
bank reconciliation is properly prepared by the accountant and reviewed by the
controller as evidenced by their respective sign-offs. Which of the following types of
audit procedures do these actions illustrate?
A. Observation and inspection of records
B. Confirmation and reperformance
C. Inquiry and inspection of records
D. Analytical procedures and reperformance
Which of the following steps would not normally be included in a program for a
physical inventory observation?
A. Vouch unit prices to vendors’ invoices or other cost records.
B. Obtain the client’s inventory counting instructions and review them for
completeness.
C. Inspect the tags used and unused and record the tag numbers used.
D. Obtain the numbers of the last five receiving reports and last five shipping
documents.
Which of the following statements is not true regarding variables sampling?
A. Two approaches to variables sampling are monetary unit sampling and classical
variables sampling.
B. Both statistical and nonstatistical approaches to variables sampling can be used
under GAAS.
C. The objective of variables sampling is to estimate either the true balance or the
extent of misstatement in an account balance or class of transactions.
D. Variables sampling is appropriate when the distribution of the population is binary in
nature.
The auditors conclude that an entity’s illegal act, which has a material effect on the
financial statements, has not been properly accounted for or disclosed. Depending on
the overall materiality and pervasiveness of the effect of this illegal act on the financial
statements, the auditors should express either a(n)
A. adverse opinion or a disclaimer of opinion.
B. qualified opinion or an adverse opinion.
C. disclaimer of opinion or an unmodified opinion with a separate emphasis-of-matter
paragraph.
D. unmodified opinion with a separate emphasis-of-matter paragraph or a qualified
opinion.
Which of the following elements, if present, would support a finding of constructive
fraud on the part of auditors?
A. Gross negligence in conducting the engagement
B. Ordinary negligence in conducting the engagement
C. Failure to perform the engagement in accordance with the terms in the engagement
letter
D. Actions that demonstrated scienter
The reprocessing of actual data using programs developed by the audit team to evaluate
program controls is called
A. test data.
B. test deck.
C. generalized audit software.
D. parallel simulation.
In a sampling application to determine the average age of employees in management
positions, the sample estimate was 50 years, reliability was 80 percent, and precision
was 10 years. Which of the following would most likely result from an increase in the
desired level of reliability to 90 percent?
A. The sample estimate would increase to 55 years.
B. The precision interval would be 40 to 60 years.
C. The precision interval would be 35 to 65 years.
D. The precision interval would have a lower probability of including the true
(unknown) population average.
Which of the following statements is true regarding performance materiality in a
monetary unit sampling application?
A. Performance materiality replaces the overall level of financial statement materiality.
B. Expected misstatement is the application of performance materiality to a particular
sampling procedure.
C. Performance materiality addresses the risk that the aggregate of individually material
misstatements may not cause the financial statements to be materially misstated.
D. Performance materiality provides auditors with a conservative measure that
considers the presence of undetected misstatements.
To provide assurance that each voucher is submitted and paid only once, an auditor
most likely would examine a sample of paid vouchers and determine whether each
voucher is
A. supported by a vendor’s invoice.
B. stamped “paid” by the check signer.
C. prenumbered and accounted for.
D. approved for authorized purchases.
Romo, CPA performed nonstatistical sampling to examine the inventory balances of
Jones Company. The sample included 125 of the total 1,250 items with a recorded value
of $550,000. Romo determined the expected misstatement to be $25,000 and the
tolerable misstatement to be $40,000. The sample had a recorded value of $54,000 and
an audited value of $52,000. What conclusion did Romo draw regarding the account
balance?
A. Conclude that the account balance is fairly stated, since the estimated misstatement
is greater than the expected misstatement.
B. Conclude that the account balance is not fairly stated, since the estimated
misstatement is greater than the tolerable misstatement.
C. Conclude that the account balance is not fairly stated, since the estimated
misstatement is less than the expected misstatement.
D. Conclude that the account balance is fairly stated, since the estimated misstatement
is less than the tolerable misstatement.
In which of the following types of sampling applications is the auditor exposed to
sampling risk?
A. Statistical sampling: Yes; Nonstatistical sampling: Yes
B. Statistical sampling: Yes; Nonstatistical sampling: No
C. Statistical sampling: No; Nonstatistical sampling: Yes
D. Statistical sampling: No; Nonstatistical sampling: No
Which of the following is not a substantive audit procedure for estimates of
management?
A. Recalculating the mathematical estimate.
B. Observing whether estimates are prepared by qualified personnel.
C. Developing an independent estimate based on alternative assumptions.
D. Comparing the estimates of management to subsequently discovered facts before the
end of fieldwork.
Auditors may conclude that depreciation charges are too small by noting
A. insured values much larger than book values.
B. large numbers of fully depreciated assets.
C. frequent trade-ins of relatively new assets.
D. large and frequent losses on assets retired.
The Standards for the Professional Practice of Internal Auditing of the Institute of
Internal Auditors (IIA) does not include the broad category of
A. proficiency and due care.
B. nature of work.
C. performance of the engagement.
D. quality control.
A sample selection method in which a series of contiguous items are selected from the
population is referred to as
A. block selection.
B. haphazard selection.
C. systematic random selection.
D. unrestricted random selection.
Which of the following statements about audit sampling risks is correct?
A. Nonsampling risk arises from the possibility that, when a substantive test is related
to a sample of items, conclusions might be different than if the auditor had tested each
item in the population.
B. Nonsampling risk can arise because an auditor failed to recognize misstatements.
C. Sampling risk is derived from the uncertainty in applying audit procedures to
specific risks.
D. Sampling risk includes the possibility of selecting audit procedures that are not
appropriate to achieve the specific objective.
Which of the following is an acceptable response to fraud risks related to sales that
were identified in an audit?
A. Exercise professional skepticism when performing sales testing.
B. Increase the assessment of control risk for sales.
C. Increase the assessment of detection risk for sales.
D. Perform additional substantive sales procedures on a surprise basis.
A furniture company ordered 84 tables from a supplier. The supplier accidentally sent
only 48 tables, but the receiving department at the furniture company accepted the
tables. The invoice was eventually received but was for the 84 tables ordered. The
furniture company paid the entire amount. Which of the following controls would have
been least likely to have prevented this erroneous payment?
A. The copy of the purchase order sent to the furniture company’s receiving department
should not have shown an expected quantity.
B. Personnel in the furniture company’s accounts payable department should compare
the receiving report to the purchase invoice before creation of the voucher.
C. Personnel in the furniture company’s cash disbursements department should compare
the check that is prepared to all of the backup documentation.
D. Personnel in the furniture company’s purchasing department should compare the
purchase requisition to the purchase order.
Comparing data on separate files can be accomplished by using computer-assisted audit
techniques (CAATs) to determine whether comparable information is in agreement.
Examples of such comparisons would not include
A. payroll details with personnel records.
B. current and prior inventory to details of purchases and sales.
C. paid vouchers to disbursements.
D. observation of inventory accounts.
Restrictions imposed by an entity prohibited the observation of physical inventories,
which accounted for 35% of total assets. Alternative auditing procedures were not
feasible, although the auditors were able to examine satisfactory evidence for all other
items in the financial statements. The auditors would most likely express
A. a qualified opinion on the entity’s financial statements, referring to a departure from
generally accepted accounting principles.
B. a disclaimer of opinion on the entity’s financial statements.
C. an unmodified opinion on the entity’s financial statements with an additional
paragraph.
D. an unmodified opinion on the entity’s financial statements with a modification of the
Auditor’s Responsibility section.
Which of the following statements is correct regarding internal control?
A. A well-designed internal control environment ensures the achievement of an entity’s
control objectives.
B. An inherent limitation to internal control is the fact that controls can be circumvented
by management override.
C. A well-designed and operated internal control environment should detect collusion
perpetrated by two people.
D. Internal control is a necessary business function and should be designed and
operated to detect all errors and fraud.
Management’s responsibility in a computer system would not include
A. ensuring that the documentation of the system is complete and up to date.
B. maintaining a system of transaction processing that includes an audit trail.
C. assessing the control risk.
D. making computer resources and knowledgeable personnel available for questions.
Which of the following procedures should an accountant perform during an engagement
to review the financial statements of a nonpublic entity?
A. Communicate reportable conditions discovered during the assessment of control
risk.
B. Obtain a client representation letter from members of management.
C. Send bank confirmation letters to the entity’s financial institutions.
D. Examine cash disbursements in the subsequent period for unrecorded liabilities.
Managing Business Risk is the responsibility of
A. the auditors.
B. management.
C. the SEC.
D. the PCAOB.
For each of the items below, indicate through the appropriate letter the element of a
system of quality control to which it is most closely related.
A. Leadership responsibilities
B. Relevant ethical requirements
C. Acceptance and continuance of clients
D. Human resources
E. Engagement performance
F. Monitoring
___ 1. Reviewing selected administrative and personnel records.
___ 2. Obtaining written confirmations regarding compliance with appropriate
independence requirements.
___ 3. Ensuring that financial considerations do not override the quality of work
performed.
___ 4. Establishing policies and procedures for resolving differences of opinion within
the engagement team.
___ 5. Devoting sufficient resources for developing, communicating, and supporting the
firm’s quality control policies and procedures.
___ 6. Evaluating the integrity and business reputation of the client.
___ 7. Identifying circumstances and relationships that create threats to auditor
independence.
___ 8. Ensuring the firm’s ability to perform the engagement with an appropriate level
of professional competence.
___ 9. Maintaining engagement documentation for an appropriate period of time.
___ 10. Assessing the appropriateness of the firm’s guidance materials and professional
aids.
Certain conditions and circumstances are often present when management fraud occurs.
Which of the following is not such a condition or circumstance?
A. Unfavorable industry conditions
B. Lack of working capital
C. High liquidity
D. Slow customer collections