Problem 1. Which one of the following is among the three components of audit risk?
a. incurrence risk
b. occurrence risk
c. rejection risk
d. control risk
Problem 2. The Hochfelder Case is important because it limited auditor liability under:
a. the 1933 Securities Act.
b. the 1934 Securities Exchange Act.
c. common law.
d. RICO.
Problem 3. Which of the following is an INCORRECT statement concerning one of the field work standards?
a. Audit planning includes the development of audit strategies.
b. Audit planning is aimed primarily at effectiveness, with little effect on efficiency.
c. Understanding of the internal control structure is necessary in order to plan the audit.
d. The auditor must have a reasonable basis, in the form of gathered evidence, for expressing an opinion.
Problem 4. An auditor would be most likely to issue a "summary of findings" in connection with which one of the following types of services?
a. a financial statement audit
b. consulting services
c. an operational audit
d. a review
Problem 5. Making sure that the detail of and accounts receivable file agrees with the general ledger before the file is used to produce confirmations is an example of which of the following audit procedures?
a. Confirmation.
b. Recalculation.
c. Reperformance.
d. Vouching.
Problem 6. The auditor has some control over:
a. the assessed level of inherent risk.
b. the actual level of inherent risk.
c. both the actual level and the assessed levels of inherent risk.
d. neither the actual level nor the assessed level of inherent risk.
Problem 7. Concerning such matters as the integrity of management, errors, and illegal acts, the auditor should plan the audit with an attitude of:
a. cautious mistrust.
b. professional skepticism.
c. seasoned pessimism.
d. adversarial pursuit.
Problem 8. Incompatible duties are those that allow an irregularity to be perpetrated:
a. and concealed by a single employee.
b. and concealed through collusive actions.
c. by a single employee.
d. by accounting personnel.
Problem 9. In making judgments about materiality at the account balance level, the auditor must consider the relationship between it and financial statement materiality. This should lead the auditor to plan the audit to detect misstatements that:
a. are individually material to the statements taken as a whole.
b. are individually immaterial to the statements taken as a whole.
c. may be immaterial individually, but may aggregate with misstatements in other accounts to a material level.
d. bring the cumulative total of known misstatements to the level of materiality established by management.
Problem 10. Which one of the following is NOT an inherent limitation in an entity's internal controls?
a. mistakes in judgment
b. collusion
c. cost versus market
d. breakdowns
Problem 11. Use of auditor judgment or of a risk matrix is necessary in revising planned detection risk whenever:
a. risk assessments are not quantified.
b. assessed control risk at the account balance level does not support the planned level of control risk.
c. control risk is assessed above the minimum.
d. control risk is assessed below the maximum.
Problem 12. The auditor has decided to use PPS sampling in the confirmation of individual sales transactions with customers. The population and the logical sampling unit are most likely to be, respectively:
a. all customer accounts and the individual dollars in the accounts.
b. customer accounts with debit balances and individual dollars in the accounts.
c. the sales invoice file and the individual dollars on the invoices.
d. all recorded sales during the year and individual sales invoices.
Problem 13. Which of the following is NOT considered an access control?
a. the use of a librarian
b. management review of computer utilization reports
c. parity check
d. the use of passwords
Problem 14. Which of the following is NOT an element of a computer-based system?
a. software
b. data
c. procedures
d. organizational personnel
Problem 15. The use of computer systems in accounting creates more areas where errors can occur. Which of the following should be of most concern?
a. errors on customer invoices
b. customer credit reports
c. conversion of source data to computer-readable format
d. accounts receivable master file
Fill in the Blank - Type your response after the question
Problem 16. Differences exist between the Securities Act of 1933 and 1934. More cases have been brought against auditors under the 1934 Act because it applies to annual filings and:
Problem 17. The type of risk that is independent of the audit of the financial statements and therefore cannot be changed is:
Problem 18. Occasionally, employees will work together to conceal fraud. This is known as:
Problem 19. Sometimes the auditor does not have the book value of the individual items in the sample. In this case, the sampling technique to be used is:
Problem 20. According to the Sarbanes-Oxley Act of 2002, the establishment and maintenance of internal controls is the responsibility of:
True or False - Highlight those statements which are TRUE
Problem 21. The fact that a company's management does not place a high priority on the entity's values creates a high-risk condition.
Problem 22. The AICPA provides a broad range of services to its members and the accounting profession. Membership into this organization is mandatory for Certified Public Accountants.
Problem 23. In order to fully understand the internal controls of an organization, the auditor must consider circumstances and judgment.
Problem 24. The steps for assessing the risk of material misstatement in the financial statements include evaluating the types of misstatements that might occur and evaluating the likelihood and magnitude of potential misstatements.
Problem 25. Computer abuse and computer fraud essentially mean the same thing.
Problem 26. A CPA Risk Advisory service consists of decision makers who are not a member of management or a board of directors.
Problem 27. Internal control can provide absolute assurance to a company's management and board of directors regarding the entity's ability to achieve objectives.
Problem 28. The auditor has a responsibility to determine if substantial doubt exists, as of the date of the audit report, regarding the entity's ability to continue as a going concern for the following year.
Problem 29: What is generalized audit software? What are the tasks for which auditors would use it? What are the advantages and disadvantages of using generalized audit software? Will this software be more appropriate for auditing your organization's computer information system, or would it be necessary to develop customized audit software? What type of software will work best for your work environment? Please explain.
Problem 30: What is the difference between assurance and attestation services? Please provide examples of each.
Problem 31: Is it probable that the use of information technology will eventually eliminate the audit trail, making it impossible to trace individual transactions from their origin to the summary total on the financial statements? Please explain. How do the AICPA and the PCAOB want the auditor to address controls in the light of this technological shift?
Problem 32: What are internal controls? Why are they important? Provide some examples of internal controls.