The likelihood that material misstatements may have entered the accounting system and not been detected

The likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control is referred to as

a. risk of material misstatement
b. inherent risk
c. control risk
d. detection risk


Answer: a. risk of material misstatement

One of the typical characteristics of management fraud is

a. falsification of documents in order to misappropriate funds from an employer
b. conversion of stolen inventory to cash deposited in a falsified bank account
c. victimisation of investors through the use of materially misleading financial statements
d. illegal acts committed by management to evade laws and regulations


Answer: c. victimisation of investors through the use of materially misleading financial statements

Which of the following circumstances would most likely cause an audit team to perform extended procedures?

a. supporting documents are produced when requested
b. the company has recently hired a new chief financial officer after the previous on retired
c. the company maintains several different petty cash funds
d. the client made several large adjustments at or near year-end


Answer: d. the client made several large adjustments at or near year-end

The risk that the auditors' own procedures will lead to the decision that material misstatements do not exist in the financial statements

The risk that the auditors' own procedures will lead to the decision that material misstatements do not exist in the financial statements when in fact such misstatements do exist is

a. audit risk
b. inherent risk
c. control risk
d. detection risk


Answer: d. detection risk

The risk of material misstatements is composed of which audit risk components?

a. inherent risk, control risk and detection risk
b. inherent risk and detection risk
c. inherent risk and control risk
d. control risk and detection risk


Answer: c. inherent risk and control risk

When evaluating whether accounting estimates made by mangement are reasonable, the audit team would be most interested in which of the following?

a. evidence of a conservative systematic bias
b. assumptions that are similar to industry guidelines
c. key factors that are consistent with prior periods
d. measurements that are objective and not susceptible to bias


Answer: a. evidence of a conservative systematic bias

Auditing standards do not require auditors of financial statements to

Auditing standards do not require auditors of financial statements to

a. assess the risk of occurrence of errors and frauds
b. understand the nature of errors and frauds
c. report all errors and frauds found to police authorities
d. design audits to provide reasonable assurance of detecting errors and frauds


Answer: c. report all errors and frauds found to police authorities

Enterprise risk management is the responsibility of:

a. company management
b. the external auditors
c. the company's insurance providers
d. all of the answers are correct


Answer: a. company management

Failure to meet company objectives is a result of

a. audit risk
b. inherent risk
c. information risk
d. business risk


Answer: d. business risk

A primary advantage of using CAATs in the audit of an advanced computerized system is that it enables the auditor to

A primary advantage of using CAATs in the audit of an advanced computerized system is that it enables the auditor to

a. substantiate the accuracy of data through self-checking digits and hash totals
b. utilise the speed and accuracy of the computer
c. verify the performance of machine operations that leave visible evidence of occurrence
d. gather and store large quantities of supportive audit evidence in machine-readable form


Answer: b. utilise the speed and accuracy of the computer

An audit plan contains

a. specifications of audit standards relevant to the financial statements being audited
b. documentation of the assertions under audit, the evidence obtained, and the conclusions reached
c. specifications of procedures that auditors believe appropriate for the financial statements under audit
d. reconciliation of the account balances in the financial statements with the account balances in the client's general ledger


Answer: c. specifications of procedures that auditors believe appropriate for the financial statements under audit

If sales were overstated by recording a false credit sale at the end of the year, where could you find the false "dangling debit?"

a. cost of goods sold
b. inventory
c. bad debt expense
d. accounts receivable


Answer: d. accounts receivable

Confirmations of accounts receivable provide evidence primarily about which two assertions?

Confirmations of accounts receivable provide evidence primarily about which two assertions?

a. existence and rights & obligations
b. valuation and rights & obligations
c. completeness and valuation
d. existence and completeness

Answer: a. existence and rights & obligations

The revenue cycle of a company generally includes which accounts?

a. inventory, accounts payable, and general expenses
b. cash, notes payable, and capital stock
c. cash, accounts receivable, and sales
d. inventory, general expenses, and payroll


Answer: c. cash, accounts receivable, and sales

When auditing the existence assertion for an asset, auditors proceed from the

a. general ledger back to the supporting original transaction documents
b. supporting original transaction documents to the general ledger
c. financial statement amounts back to the potentially unrecorded items
d. potentially unrecorded items forward to the financial statement amounts


Answer: a. general ledger back to the supporting original transaction documents

Audit documentation that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account

Audit documentation that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account for the year under audit will be found in the

a. planning memorandum in the current file
b. administrative audit documentation in the current file
c. permanent file audit documentation
d. current file audit documentation


Answer: d. current file audit documentation

With respect to the concept of materiality, which one of the following statements is correct?

a. materiality is a matter or professional judgment
b. materiality depends on the nature of the transaction rather than the dollar amount of the transaction
c. materiality depends on the dollar amount of an item relative to other items in the financial statements
d. materiality is determined by reference to AICPA guidelines


Answer: a. materiality is a matter or professional judgment

An auditor's permanent file audit documentation most likely will contain

a. excerpts of the corporate charter and bylaws
b. the most recent engagement letter
c. memoranda of conference with management
d. internal control analysis for the current year


Answer: a. excerpts of the corporate charter and bylaws

Which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions

Which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions before the balance-sheet date?

a. inspecting communications with the client's legal counsel regarding recorded contingent liabilities
b. scanning the minutes for significant transactions with members of the board of directors
c. reviewing accounting records for recurring transactions occurring near year-end
d. interviewing internal auditors about their reporting responsibilities


Answer: b. scanning the minutes for significant transactions with members of the board of directors

Spreadsheet software would be most useful for which of the following audit activities?

a. drafting a planning memorandum
b. preparing a comparison of current-year expenses with those from the previous year
c. preparing an audit plan
d. testing internal controls over computerised accounting applications


Answer: b. preparing a comparison of current-year expenses with those from the previous year

Which of the following is an advantage of computer-assisted audit techniques (CAATs)?

a. the use of CAATs can be substituted for a relatively large part of the required testing
b. the software can be used for audits of clients that use differing computer equipment and file formats
c. the use of CAATs has reduced the need for the auditor to study input controls for computer-related procedures
d. the CAATs programs are well written in one computer language


Answer: b. the software can be used for audits of clients that use differing computer equipment and file formats