Question 1: The preliminary judgment about materiality and the amount of audit evidence accumulated are ________ related.
a) directly
b) indirectly
c) not
d) inversely
Question 2: An auditor who audits a business cycle that has low inherent risk should:
a) increase the amount of audit evidence gathered.
b) assign more experienced staff to that area.
c) increase the performance materiality level for the area.
d) expand planning procedures
Question 3: When allocating performance materiality:
a) it is easy to predict in advance which accounts are most likely to be misstated.
b) only overstatements need to be considered.
c) professional judgment is critical.
d) the sum of all the performance materiality levels cannot exceed the preliminary judgment about materiality.
Question 4: Why do auditors establish a preliminary judgment about materiality?
a) To determine the appropriate level of audit experience required for the work.
b) So that the client can know what records to make available to the auditor.
c) To plan the appropriate audit evidence to accumulate and develop an overall audit strategy.
d) To finalize the assessment of control risk.
Question 5: Auditors are ________ to document the known and likely misstatements in the financial statements under audit.
a) permitted
b) required
c) not allowed
d) strongly encouraged
Question 6: Two key concepts that underlie management's design and implementation of internal control are:
a) costs and materiality.
b) absolute assurance and costs.
c) inherent limitations and reasonable assurance.
d) collusion and materiality.
Question 7: The PCAOB places responsibility for the reliability of internal controls over the financial reporting process on:
a) the company's board of directors.
b) the audit committee of the board of directors.
c) management.
d) the CFO and the independent auditors.
Question 8: Reasonable assurance allows for:
a) low likelihood that material misstatements will not be prevented or detected by internal controls.
b) no likelihood that material misstatements will not be prevented or detected by internal control.
c) moderate likelihood that material misstatements will not be prevented or detected by internal control.
d) high likelihood that material misstatements will not be prevented or detected by internal control.
Question 9: Which of the following deal with ongoing or periodic assessment of the quality of internal control by management?
a) Quality monitoring activities
b) Monitoring activities
c) Oversight activities
d) Management activities
Question 10: The auditors primary purpose in auditing the client's system of internal control over financial reporting is:
a) to prevent fraudulent financial statements from being issued to the public.
b) to evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements.
c) to report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements.
d) to efficiently conduct the Audit of Financial Statements ·
Question 11: Which of the following is a factor that relates to incentives or pressures to commit fraudulent financial reporting?
a) Significant accounting estimates involving subjective judgments.
b) Excessive pressure for management to meet debt repayment requirements.
c) Management's practice of making overly aggressive forecasts.
d) High turnover of accounting, internal audit, and information technology staff
Question 12: Who is most likely to perpetrate fraudulent financial reporting?
a) Members of the board of directors
b) Production employees
c) Management of the company
d) The internal auditors
Question 13: In the fraud triangle, fraudulent financial reporting and misappropriation of assets:
a) share little in common.
b) share most of the same risk factors.
c) share the same three conditions.
d) share most of the same conditions.
Question 14: Company management is often under pressure to increase revenue and/or net income. One approach is to use a "bill and hold" arrangement. This is an example of which of the following?
a) Significant accounting estimates
b) Fictitious revenue recorded
c) Premature revenue recognized
d) Alteration of cutoff documents
Question 15: Which party has the primary responsibility to oversee an organization's financial reporting and internal control process?
a) The board of directors
b) The audit committee
c) Management of the company
d) The financial statement auditors
Question 16: The auditor's objective in determining whether the client's automated controls can correctly handle valid and invalid transactions as they arise is accomplished through the:
a) test data approach.
b) generalized audit software approach.
c) microcomputer-aided auditing approach.
d) generally accepted auditing standards
Question 17: When the client changes the computer software:
a) no additional testing is needed by the auditor.
b) and application controls are effective, the auditor can easily identify when software changes are made.
c) and general controls are effective, the auditor can easily identify when software changes are made.
d) application and general controls can no longer by relied upon by the auditor
Question 18: Controls that are designed for each software application and are intended to help a company satisfy the transaction-related audit objectives are:
a) user controls.
b) general controls.
c) audit controls.
d) application controls.
Question 19: General controls may include firewalls which are used to protect from:
a) erroneous internal handling of data.
b) insufficient documentation of transactions.
c) illogical programming commands.
d) unauthorized external users
Question 20: Old and new systems operating simultaneously in all locations is a test approach known as:
a) pilot testing.
b) horizontal testing.
c) integrative testing.
d) parallel testing.
Question 21: Which of the following procedures would most likely be performed in response to the auditor's assessment of the risk of monetary misstatements in the financial statements?
a) Ratio analysis
b) Tests of controls
c) Tests of details of balances
d) Risk assessment procedures
Question 22: When the auditor has completed the tests of details of balances and enters phase 4 of the audit process, she must still perform audit procedures for which of the following?
a) Contingent liabilities and employee compensation
b) Contingent liabilities and subsequent events
c) Subsequent events and contractual commitments
d) Subsequent events and unrecorded liabilities
Question 23: A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a:
a) test of controls.
b) substantive test.
c) test of attributes.
d) monetary-unit sampling test.
Question 24: An increased extent of tests of controls is most likely to occur when:
a) it is a first-year audit.
b) the auditor is doing a "fraud audit."
c) controls are effective and the preliminary control risk assessment is low.
d) controls are ineffective and the preliminary control risk assessment is high.
Question 25: 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 of transactions
d) Preliminary analytical procedures