The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the
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1. The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the
a. Evidence to be gathered to provide a sufficient basis for the auditor's opinion
b. Procedures to be undertaken to discover litigation, claims, and assessments
c. Pending legal matters to be included in the inquiry of the client's attorney
d. Timing of inventory observation procedures to be performed.
2. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality?
a. The results of the initial assessment of control risk
b. The anticipated sample size for planned substantive tests
c. The entity's financial statements of the prior year
d. The assertions that are embodied in the financial statements
3. Which of the following procedures would an auditor least likely perform before the balance sheet date?
a. Confirmation of accounts payable
b. Observation of merchandise inventory
c. Assessment of control risk
d. Identification of related parties.
4. Because an audit in accordance with generally accepted auditing standards is influenced by the possibility of material misstatements, the auditor should conduct the audit with and attitude of
a. Objective judgment
b. Conservative advocacy
c. Professional responsiveness
d. Professional skepticism
5. Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?
a. Large amounts of liquid assets that are easily convertible into cash
b. Low growth and profitability as compared to other entities in the same industry
c. Financial management's participation in the initial selection of accounting principles
d. An overly complex organizational structure involve unusual lines of authority
6. An auditor who discovers that a client's employees paid small bribes to municipal offices most likely would withdraw from the engagement if
a. The payments violated the client's policies regarding the prevention of illegal acts
b. The client receives financial assistance from a federal government agency
c. Documentation that is necessary to prove that bribes were paid does not exist
d. Management fails to take the appropriate remedial action
7. An auditor should obtain sufficient knowledge of an entity's accounting system to understand the
a. Safeguards used to limit access to computer facilities
b. Process used to prepare significant accounting estimates
c. Procedures used to assure proper authorization of transactions
d. Policies used to detect the concealment of fraud.
8. An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about the
a. Methods of assigning production tasks to employees
b. Appropriate prices the entities should charge for its products
c. Efficiency of management's decision-making process
d. Entity's ability to process and summarize financial data
9. In planning an audit, the auditor's knowledge about the design of relevant internal control policies and procedures should be used to
a. Identify the types of potential misstatements that could occur
b. Assess the operational efficiency of internal control
c. Determine whether controls have been circumvented by collusion
d. Document the assessed level of control risk.
10. In assessing control risk, an auditor ordinarily selects from a variety of techniques, including
a. Inquiry and analytical procedures
b. Reperformance and observation
c. Comparison and confirmation
d. Inspections and verification
11. Which of the following is least likely to be evidence the auditor examines to determine whether controls are operating effectively?
a. Records documenting usage of computer programs
b. Canceled supporting documents
c. Confirmations of accounts receivable
d. Signatures on authorization forms
12. Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?
a. Fictitious transactions may be recorded that cause an understatement of revenues and an overstatement of receivables
b. Claims received from customers for goods returned may be intentionally recorded in other customers' accounts
c. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash.
d. The failure to prepare shipping documents may cause an overstatement of inventory balances.
13. An auditor suspects that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor would most likely compare the
a. Dates checks are deposited per bank statements with the dates remittance credits are recorded
b. Daily cash summaries with the sums of the cash receipts journal
c. Individual bank deposit slips with the details of the monthly bank statements
d. Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded
14. Which of the following procedures would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?
a. Observe the consistency of the employees' use of cash registers and tapes.
b. Inquire about employees' access to recorded but undeposited cash.
c. Trace the deposits in the cash receipts journal to the cash balance in the general ledger.
d. Compare the cash balance in the general ledger with the bank confirmation request.
15. An auditor generally tests the segregation of duties related to inventory by
a. Personal inquiry and observation.
b. Test counts and cutoff procedures.
c. Analytical procedures and invoice recomputation.
d. Document inspection and reconciliation.
16. A payroll manager was including fictitious employees on the payroll each month and taking the checks for himself. An audit procedure that would most likely lead to discovering this would be
a. recalculating the payroll amounts.
b. comparing the total payroll amount to the journal entry.
c. a surprise payroll distribution.
d. making sure all checks clear the bank.
17. Which of the following is not a valid reason for an auditor deciding not to send accounts receivable confirmations:
a. The balance is immaterial.
b. Confirmations would be ineffective.
c. The client requests alternative procedures be performed instead.
d. Other procedures provide sufficient competent evidence.
18. An auditor most likely would perform substantive tests of details on payroll transactions and balances when
a. cutoff tests indicate a substantial amount of accrued payroll expense.
b. the assessed level of control risk relative to payroll transactions is low.
c. analytical procedures indicate unusual fluctuations in recurring payroll entries.
d. accrued payroll expense consists primarily of unpaid commissions.
19. Inventory count tags are controlled
a. to prevent counting errors.
b. to test cut-off.
c. to prevent subsequent addition of goods to the inventory.
d. for all the above reasons.
20. Counting inventory on the warehouse floor and tracing the count to the inventory compilation provides evidence to support which management assertion?
a. Existence or occurrence.
c. Rights and obligations.
d. Valuation or allocation.
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