Question 1

Key controls are controls
A)over physical risks.
B)over significant risks.
C)on which the auditors intend to rely.
D)designed by the audit committee to prevent management fraud.

Accepted Answer

The answer of Key controls are controls
A)over physical risks.
B)over significant...

Question 2

Restaurant Products Company (RPC)has been an audit client of your firm for many years.RPC has a March 31 fiscal year end.The company is a successful distributor of restaurant and food industry products such as trays,weigh scales,dishes,and cooking implements.The company sells to businesses only (not to end-consumers),with clients ranging from small restaurants to large food-service chains and hotels.The company has a perpetual inventory system but the current inventory system relies upon accurate data entry of receipts,shipments,and inventory adjustments from paper documents.
RPC is looking to improve inventory management and maintain costs in the face of rising competition and growth.Accordingly,it is implementing RFID (radio frequency identification)technology for its inventory.RFID chips will be placed on warehouse shelf locations,boxes of products,and on high-cost individual products.At the same time,the company will implement a wireless mesh system throughout the warehouse,with wireless tracking of product movement.Effective January 31 of next year,a new inventory management system will be implemented to facilitate better decision making and access to online real-time inventory data.The new inventory management system will include a new database that will include internal records of inventory on hand,receipts and shipments of inventory,purchase order details,and payment details.
Required:A)For each phase of the financial statement audit process,describe the phase,and explain how the audit process will be affected by the implementation of the new inventory management system.B)What is the impact of the implementation of RFID on the financial statement audit process? Note that these points must be different from those raised in requirement A.

Accepted Answer

The answer of Restaurant Products Company (RPC)has been an audit...

Question 3

Cimco Forest is a client of your PA firm that has requested that the audit of its financial statements be completed 25 days after its year end.Given the time constraint,the auditor
A)should not accept Cimco as a client.
B)should increase the size of the audit team.
C)can perform audit procedures at an interim date and roll forward the interim balances to year end.
D)should change the audit program to include more tests of controls and fewer tests of details,as they are more time consuming.

Accepted Answer

Performing audit procedures at an interim date and rolling forward the interim balances to year end is a common practice when time constraints impact the completion of an audit. This allows the auditor to begin testing earlier and obtain audit evidence to support financial statements. It is important for the auditor to ensure that the interim procedures are sufficient and meet auditing standards. While increasing the size of the audit team or changing the audit program could help manage time constraints, these options may not be feasible in all circumstances and may not be the best solution for this particular client. Refusing the client altogether (option A) is not recommended since it is a drastic measure and could have negative professional and ethical implications.

Question 4

When auditors perform audit procedures relating to contingent liabilities and subsequent events,what evidence do the auditors gather for the financial statements as a whole?
A)perform preliminary analytical procedures
B)evidence from test of controls
C)evidence from substantive testing
D)obtain client representation letter

Accepted Answer

The answer of When auditors perform audit procedures relating to...

Question 5

The audit program for most audits is designed in three parts.These parts are
A)risk assessment procedures,tests of controls,and tests of details.
B)risk assessment procedures,analytical procedures,and tests of details.
C)obtaining an understanding of internal controls,analytical procedures,and tests of details.
D)tests of controls,analytical procedures,and tests of details of balances.

Accepted Answer

The answer of The audit program for most audits is...

Question 6

A standard audit program can dramatically increase
A)audit efficiency.
B)quality of audit evidence.
C)communication among the audit team.
D)the amount of work that can be delegated to more junior staff members.

Accepted Answer

A standard audit program can dramatically increase audit efficiency by providing a structured approach that helps auditors perform their tasks more systematically and consistently.

Question 7

Tests of details are designed based upon planned results of analytical review and planned results of tests of controls.Should the planned results differ materially from the actual results of analytical review and tests of controls,then
A)audit risk will be revised.
B)the planned audit program will require revision.
C)inherent risk will be revised.
D)tests of controls will not be considered for overall risk assessment processes.

Accepted Answer

If the planned results of analytical review and tests of controls differ materially from the actual results, then the planned audit program will require revision. This ensures that the audit is done effectively and the risks are properly assessed, and that sufficient evidence is gathered to support the opinion given by the auditor. Adjustments to audit risk, inherent risk or exclusion of tests of controls from overall risk assessment processes are not automatic responses to deviations from planned results.

Question 8

Control risk has been assessed at 100% for your client.What audit approach will you follow?
A)a combined approach
B)a substantive approach
C)reliance on analytical review and tests of controls
D)reliance on tests of controls and tests of details

Accepted Answer

Since control risk has been assessed at 100%, it means that the auditors cannot rely on the effectiveness of client's internal controls. Therefore, a substantive approach would be the most appropriate to test the client's account balances and transactions for misstatements. This approach involves testing the details of balances and transactions to obtain assurance on their accuracy, completeness and validity. A combined approach (Choice A) includes both tests of controls and substantive procedures, but since control risk is at the maximum, tests of controls would not add value. Reliance on analytical review and tests of controls (Choice C) would not be appropriate since controls are not reliable. Reliance on tests of controls and tests of details (Choice D) would not be appropriate since tests of controls would not add value due to the assessment of control risk at 100%.

Question 9

Which of the following ultimately determines the specific audit procedures necessary to provide an auditor with a reasonable basis for the expression of an opinion?
A)the audit program
B)the auditor's professional judgment
C)generally accepted auditing standards
D)the auditor's working papers

Accepted Answer

The auditor's professional judgment ultimately determines the specific audit procedures necessary to provide an auditor with a reasonable basis for the expression of an opinion. While generally accepted auditing standards provide guidance for the auditor's professional judgment, it is ultimately up to the auditor to apply their professional judgment in determining the specific procedures needed for the audit. The audit program and working papers are tools used by the auditor to document the procedures performed, but they do not determine the procedures themselves.

Question 10

"This is really confusing! I've sat in on audit planning meetings for three different clients so far,and each one has gone differently.I've been responsible for the sales section each time.Sure the risks are all different,but in the first one I'm supposed to do flowcharts and detailed narrative for the sales systems,in the second one I'm supposed to use the firm's computerized system to answer detailed questions,and in the last one the partner only wants a brief description of the system in narrative form - no more than one page,he said."
Required:
Explain why it may be necessary to do different types of documentation to support an understanding of internal controls in the context of risks and evidence mix.

Accepted Answer

The answer of "This is really confusing! I've sat in...

Question 11

A PA has designed an audit approach where she places maximum possible reliance on controls.This means that she will be
A)conducting only tests of controls.
B)using analytical review and tests of controls.
C)following a combined audit approach.
D)setting control risk at 100%.

Accepted Answer

A combined audit approach involves placing reliance on both tests of controls and substantive procedures, which aligns with placing maximum reliance on controls.

Question 12

You are conducting the audit of a medium-sized company that has a chief accountant and three employees.Segregation of duties is excellent,with jobs allocated to provide maximum levels of controls.Segregation is supported by accounting software with user identification and passwords that limit functions to the appropriate jobs.
Required:
A)What type of audit approach would you recommend? Why?
B)How would your answer change if the accounting department was organized on a job-sharing basis so that all employees did some of every task to keep the work more interesting? Why?

Accepted Answer

The answer of You are conducting the audit of a...

Question 13

Audit risk is assessed at which level of the audit?
A)account
B)cycle
C)transaction-related audit objective
D)overall audit

Accepted Answer

Audit risk is assessed at the overall audit level. It is the risk that the auditor gives an inappropriate opinion on the financial statements. This risk includes the combination of inherent risk, control risk, and detection risk. The auditor assesses the overall audit risk to determine the nature, timing, and extent of audit procedures required to obtain sufficient evidence to support the opinion.

Question 14

List the steps an auditor could adopt to conduct risk assessment,and develop and perform risk response (further audit procedures)to address the risks identified for the area of Accounts Receivable.

Accepted Answer

The answer of List the steps an auditor could adopt...

Question 15

After completing tests of key controls,the auditor should review the results and consider whether
A)the planned degree of reliance on internal controls is justified.
B)the audit evidence obtained from the study of internal controls can provide a reasonable basis for an opinion.
C)further study of internal controls is likely to justify any restriction of tests of details of balances.
D)sufficient knowledge has been obtained about the entity's entire internal control structure.

Accepted Answer

The auditor reviews the results of key control tests to determine if the planned reliance on internal controls is justified, which affects the nature, timing, and extent of substantive testing.

Quiz 10: Develop Risk Response: Audit Strategy and Audit Program

Key controls are controls

Cimco Forest is a client of your PA firm that has requested that the audit of its financial statements be completed 25 days after its year end.Given the time constraint,the auditor

When auditors perform audit procedures relating to contingent liabilities and subsequent events,what evidence do the auditors gather for the financial statements as a whole?

The audit program for most audits is designed in three parts.These parts are

A standard audit program can dramatically increase

Tests of details are designed based upon planned results of analytical review and planned results of tests of controls.Should the planned results differ materially from the actual results of analytical review and tests of controls,then

Control risk has been assessed at 100% for your client.What audit approach will you follow?

Which of the following ultimately determines the specific audit procedures necessary to provide an auditor with a reasonable basis for the expression of an opinion?

A PA has designed an audit approach where she places maximum possible reliance on controls.This means that she will be

Audit risk is assessed at which level of the audit?

List the steps an auditor could adopt to conduct risk assessment,and develop and perform risk response (further audit procedures)to address the risks identified for the area of Accounts Receivable.

After completing tests of key controls,the auditor should review the results and consider whether