ethics, testing, sampling, PCAOB

21. Management's risk assessment should include the following special consideration of risks that may arise from changed circumstances EXCEPT
A. rapid growth.
B. new technology.
C. new personnel.
D. domestic operations.

22. An effective accounting system should identify and record only the valid transaction of the entity that occurred in the current period, which relates to the
A. presentation and disclosure assertion.
B. valuation or allocation assertion.
C. rights and obligations assertion.
D. existence or occurrence assertion.

23. To emphasize the importance of integrity and ethical values among all personnel or an organization, the chief executive officer and other top managers should do all of the following EXCEPT
A. communicate to all employees.
B. send e-mail messages to all employees, promoting ethical values.
C. set the tone by example.
D. reduce or eliminate incentives and temptations.

24. When evaluating the planned level of substantive tests for each significant financial statement assertion, the auditor will consider the evidence obtained from all of the following EXCEPT
A. evidence about the effectiveness of internal controls gained while obtaining an understanding of internal controls.
B. assessing detection risk.
C. procedures to understand the business and industry, and related completed analytical procedures.
D. assessing inherent risk.
E. evidence of effectiveness of computer control procedures and related follow-up.

25. In performing tests of details of balances, the auditor would obtain the bank statement directly from the bank, prepare the bank reconciliation, and verify all reconciling items and mathematical accuracy if detection risk was
A. high.
B. moderate.
C. very high.
D. very low.

26. In the audit risk model, audit sampling applies to
A. inherent risk and control risk.
B. control risk and detection risk.
C. detection risk.
D. inherent risk and detection risk

27. PPS sampling would most likely NOT be cost-effective in
A. confirming accounts receivable when unapplied credits to customer accounts are insignificant.
B. independently estimating the value of a certain class of transactions.
C. estimating the amount of dollar error caused by deviations from a particular control.
D. testing investment securities for overstatements.

28. PPS sampling should NOT be used when
A. any misstatements are expected to be overstatements.
B. testing investment securities.
C. few or no misstatements are expected.
D. there are some zero-balance items in the population.

29. Public Company Accounting Oversight Board (PCAOB) standards require the auditor to evaluate the effectiveness of the audit committee as part of understanding the control environment and monitoring. Which of the following is NOT a factor the auditor should consider in making this evaluation?
A. The independence of the audit committee from management
B. Compensation practices with respect to members of the audit committee
C. The audit committee's responsiveness to issues raised by the auditor
D. The clarity with which the audit committee's responsibilities are articulated

30. Which of the following is NOT an example of incompatible duties?
A. The individual who prepares the bank deposit also takes it to the bank.
B. The individual who approves the vouchers signs and mails the checks.
C. The authorized check signer prepares the bank reconciliation.
D. The warehouse manager maintains the perpetual inventory records.

31. Which of the following management responsibilities is NOT established under PCAOB standards?
A. To accept responsibility for the effectiveness of the company's internal control over financial reporting
B. To evaluate the effectiveness of the company's internal control over financial reporting using suitable criteria
C. To present a written assessment of the effectiveness of the company's internal control over financial reporting as of the end of the company's most recent fiscal year
D. To perform cost-benefit analysis with respect to internal controls relating to assertions having a material effect on the financial statements