Question 1

When testing the occurrence objective for sales, the auditor is concerned with the possibility of three types of misstatements. One type is sales being included in the journal for which no shipment was made. Discuss the other two types of misstatements.

Accepted Answer

The answer of When testing the occurrence objective for sales,...

Question 2

When designing substantive tests of transaction for sales, the auditor is concerned with several types of misstatements. What are these types of misstatements and are they intentional or unintentional?

Accepted Answer

The answer of When designing substantive tests of transaction for...

Question 3

If sales invoices are automatically calculated and posted by a company's computer system, can the auditor reduce substantive tests of transactions for the accuracy objective?

Accepted Answer

The answer of If sales invoices are automatically calculated and...

Question 4

Describe the three basic steps an auditor should follow when designing tests of controls and substantive tests of transactions.

Accepted Answer

The answer of Describe the three basic steps an auditor...

Question 5

Match each of the descriptions with the following terms for each of the documents and records
-A schedule prepared by an independent person when cash is received. It is used to verify whether cash received was recorded and deposited at the correct amounts and on a timely basis.
A) Customer order form
B) Sales order
C) Bill of lading
D) Sales invoice
E) Summary sales report
F) Accounts receivable master file
G) Monthly statement
H) Remittance advice
I) Prelisting of cash receipts
J) Credit memo
K) Uncollectible account authorization form

Accepted Answer

A prelisting of cash receipts is prepared by an independent person when cash is received to ensure that all cash received is recorded and deposited correctly and in a timely manner.

Question 6

Match each of the descriptions with the following terms for each of the documents and records
-An internal document for communicating the description, quantity, and related information for goods ordered by a customer. This is frequently used to indicate credit approval and authorization for shipment.
A) Customer order form
B) Sales order
C) Bill of lading
D) Sales invoice
E) Summary sales report
F) Accounts receivable master file
G) Monthly statement
H) Remittance advice
I) Prelisting of cash receipts
J) Credit memo
K) Uncollectible account authorization form

Accepted Answer

The description matches a Sales order, which is an internal document used by companies to record the details of a customer's order, including the description and quantity of goods ordered. It often serves as an indication that the customer's credit has been approved and that the order is authorized for shipment.

Question 7

Match each of the descriptions with the following terms for each of the documents and records
-A document that accompanies the sales invoice mailed to the customer and which can be returned to the seller with the cash payment.
A) Customer order form
B) Sales order
C) Bill of lading
D) Sales invoice
E) Summary sales report
F) Accounts receivable master file
G) Monthly statement
H) Remittance advice
I) Prelisting of cash receipts
J) Credit memo
K) Uncollectible account authorization form

Accepted Answer

Remittance advice is the document that accompanies the sales invoice mailed to the customer, which can be returned to the seller with the cash payment. It serves as a notification of payment being made.

Question 8

Testing from source documents to the journal is useful for testing nonexistent transactions.

Accepted Answer

Testing from source documents to the journal is primarily aimed at verifying that transactions recorded in the journals actually occurred and are supported by documentary evidence, thus it is not specifically designed for testing nonexistent transactions.

Question 9

In practice, auditors ________ know if a sample is truly a representative one.
A) sometimes
B) often
C) routinely
D) never

Accepted Answer

In practice, auditors can never be entirely sure if a sample is truly representative of the whole, due to the inherent limitations in sampling methods and the possibility of unforeseen biases.

Question 10

One cause of nonsampling risk is:
A) testing less than the entire population.
B) use of extensive tests of controls.
C) the possibility that a properly- selected sample still may not be representative.
D) ineffective use of audit procedures.

Accepted Answer

Nonsampling risk refers to the risk that the auditor reaches an incorrect conclusion for any reason not related to the sampling risk, such as the use of inappropriate or ineffective audit procedures. Testing less than the entire population and the possibility that a properly-selected sample may not be representative are related to sampling risk, not nonsampling risk. The use of extensive tests of controls does not inherently cause nonsampling risk.

Question 11

An auditor can increase the likelihood that a sample is representative by using care in:

Accepted Answer

The answer of An auditor can increase the likelihood that...

Question 12

Sampling risk may be controlled by:

Accepted Answer

The answer of Sampling risk may be controlled by: ...

Question 13

Which of the following is not one of the basic phases in audit sampling?
A) Selecting the sample and performing the tests.
B) Evaluating the results of the sample.
C) Planning the sample.
D) Each of the above is a phase in audit sampling.

Accepted Answer

Each option listed (A, B, and C) represents a fundamental phase in the audit sampling process, making D the correct answer as it states that all the given options are indeed phases in audit sampling.

Question 14

Which of the following methods of sample selection is appropriately used when selecting a random sample?

Accepted Answer

The answer of Which of the following methods of sample...

Question 15

The acceptable risk of assessing control risk too low will normally be assessed at a ________ level when auditing a public company.
A) nominal
B) higher
C) lower
D) compensating

Accepted Answer

The acceptable risk of assessing control risk too low is normally assessed at a lower level when auditing a public company because auditors seek to minimize the risk of not detecting material misstatements due to the higher public interest and regulatory scrutiny associated with public companies.

Question 16

Which of the following is not one of the types of computer tools used to generate random samples?
A) Random application search software.
B) Random number generators.
C) Generalized audit software.
D) Electronic spreadsheet programs.

Accepted Answer

Random application search software is not a recognized tool for generating random samples in the context of statistical analysis or audit procedures. Random number generators, generalized audit software, and electronic spreadsheet programs are commonly used for this purpose.

Question 17

In using audit sampling for exception rates, the auditor is primarily interested in determining the
A) average range in which
B) lowest
C) highest
D) none of the above

Accepted Answer

The auditor is primarily interested in determining the highest exception rate to assess the risk of material misstatement.

Question 18

Place the following steps in their proper order:1. Analyze exceptions2. Select the sample3. Define attributes and exception conditions4. State the objectives of the audit test5. Specify the tolerable exception rate
A) 4,3,5,2,1.
B) 1,3,2,4,5.
C) 1,2,3,4,5.
D) 4,3,1,2,5.

Accepted Answer

The correct sequence for conducting an audit test starts with stating the objectives (4), then defining attributes and exception conditions (3), specifying the tolerable exception rate (5), selecting the sample (2), and finally analyzing exceptions (1).

Question 19

________ represents the auditor's measure of sampling risk.
A) SER
B) EPER
C) ARACR
D) TER

Accepted Answer

ARACR, which stands for Acceptable Risk of Assessing Control Risk, represents the auditor's measure of sampling risk. It is the risk the auditor is willing to take of accepting a control as effective when, in fact, it may not be, influencing the extent of testing performed.

Question 20

Which of the following is not determined until after a sample is tested and evaluated?
A) Tolerable exception rate.
B) Computed exception rate.
C) Sample exception rate.
D) Estimated population exception rate.

Accepted Answer

Computed exception rate is determined before a sample is tested and evaluated.

Quiz 5: Overall Audit Strategy, Audit Program, Audit of the Sales and Collection Cycle, Audit Sampling for Tests of Controls and Substantive Tests of Transactions

When testing the occurrence objective for sales, the auditor is concerned with the possibility of three types of misstatements. One type is sales being included in the journal for which no shipment was made. Discuss the other two types of misstatements.

When designing substantive tests of transaction for sales, the auditor is concerned with several types of misstatements. What are these types of misstatements and are they intentional or unintentional?

If sales invoices are automatically calculated and posted by a company's computer system, can the auditor reduce substantive tests of transactions for the accuracy objective?

Describe the three basic steps an auditor should follow when designing tests of controls and substantive tests of transactions.

Match each of the descriptions with the following terms for each of the documents and records -A schedule prepared by an independent person when cash is received. It is used to verify whether cash received was recorded and deposited at the correct amounts and on a timely basis.

Match each of the descriptions with the following terms for each of the documents and records -A document that accompanies the sales invoice mailed to the customer and which can be returned to the seller with the cash payment.

Testing from source documents to the journal is useful for testing nonexistent transactions.

In practice, auditors ________ know if a sample is truly a representative one.

One cause of nonsampling risk is:

An auditor can increase the likelihood that a sample is representative by using care in:

Sampling risk may be controlled by:

Which of the following is not one of the basic phases in audit sampling?

Which of the following methods of sample selection is appropriately used when selecting a random sample?

The acceptable risk of assessing control risk too low will normally be assessed at a ________ level when auditing a public company.

Which of the following is not one of the types of computer tools used to generate random samples?

In using audit sampling for exception rates, the auditor is primarily interested in determining the

Place the following steps in their proper order:1. Analyze exceptions2. Select the sample3. Define attributes and exception conditions4. State the objectives of the audit test5. Specify the tolerable exception rate

________ represents the auditor's measure of sampling risk.

Which of the following is not determined until after a sample is tested and evaluated?