Question 1

The auditor would like to design a test of control to test that statements are mailed to all customers each month.Which of the following typical tests of controls would be suitable?

Accepted Answer

Inquiring about who is responsible for mailing the statements can help the auditor understand the control process and verify that there is a designated person or department responsible for this task, which is a direct way to test the control related to mailing statements to customers.

Question 2

A)Describe the five types of audit tests used to determine whether financial statements are fairly stated.Identify which types are substantive tests and which are used to reduce assessed control risk.B)There are several types of audit procedures that relate to the auditor's understanding of internal control.One type of procedure is to update and evaluate the auditor's previous experience with the entity.Identify the four additional types of procedures related to understanding internal control.

Accepted Answer

The answer of A)Describe the five types of audit tests...

Question 3

Julianne is performing an analysis of the bad debt expense as a percentage of total sales.When performing the analytical procedure,it is important that Julianne

Accepted Answer

When performing an analytical procedure, it is important to have an expectation of the result that should be obtained. This helps to identify potential issues and anomalies in the data. The other options listed, such as relying on internal controls or concluding that the accounts receivable balance is free from material misstatement, may be important considerations in other types of audit procedures, but they are not specifically relevant to performing an analytical procedure. Requesting permission from the client is also not applicable to this particular situation.

Question 4

You are a senior at a PA firm and this is your junior's first day.He would like you to explain to him the different types of audit tests that should be performed over the course of an audit to obtain sufficient and appropriate audit evidence.Be sure to indicate which component of audit risk each type of test is linked to.

Accepted Answer

The answer of You are a senior at a PA...

Question 5

The auditor would like to design a test of control to test that there is a separation of duties between billing,recording sales,and handling of cash receipts.Which of the following typical tests of controls would be suitable?

Accepted Answer

Inquiring about the duties of the accounting personnel helps the auditor understand whether there is a proper separation of duties among billing, recording sales, and handling cash receipts.

Question 6

The auditor would like to design a test of control to test that shipping documents are issued in numerical order by the computer and are accounted for weekly.Which of the following typical tests of controls would be suitable?

Accepted Answer

Using computer-assisted audit testing to detect any missing numbers in the sequence is a suitable test of control to verify that the shipping documents are issued in numerical order. This is called gap detection, and it ensures that no shipping documents are missing from the sequence. Option A involves tracing sales documents, which is not directly related to testing the control of issuing shipping documents in numerical order. Option B involves asking about the process used, but it does not provide direct evidence that the documents are issued in numerical order. Option D involves matching shipments to sales invoices, which is a test of transaction completeness, not a test of control.

Question 7

Last year the materiality for the client was $590 000.This year it is $400 000.All things being equal,how will this change in materiality affect the extent of tests of details?

Accepted Answer

When materiality decreases, auditors typically increase the extent of tests of details to detect smaller misstatements that are now considered material.

Question 8

The auditor verifies the summarizing,accuracy,and posting of entries by performing

Accepted Answer

Dual-purpose tests involve both tests of controls and substantive tests, which help verify the summarizing, accuracy, and posting of entries.

Question 9

A procedure designed to test for dollar errors or irregularities directly affecting the correctness of financial statement balances is a(n)

Accepted Answer

Substantive tests are designed to detect material misstatements in the financial statements. Testing for dollar errors or irregularities directly affecting the correctness of financial statement balances is a type of substantive test known as a substantive analytical procedure.

Question 10

If the auditor is not using tests of control,then

Accepted Answer

If the auditor is not using tests of control, they must use tests of detail to obtain sufficient and appropriate audit evidence. The purpose of tests of detail is to obtain evidence about the completeness, accuracy, and validity of transactions and account balances. Analytical procedures may be used as a substantive procedure to obtain additional evidence, but they cannot replace tests of detail. Tests of design of internal controls are not necessary if tests of control are not being used. Qualifying the audit opinion is not necessary if the auditor obtains sufficient and appropriate evidence through tests of detail.

Question 11

When the auditor has determined that there is a significant risk of misstatement for a particular assertion (for example,completeness of revenue),what type of audit testing does CAS 330 require?

Accepted Answer

CAS 330 requires the auditor to perform substantive tests to address the significant risk of misstatement identified during the risk assessment. Substantive tests involve gathering direct evidence about the assertions being audited, typically through testing transactions or balances.

Question 12

Describe a dual-purpose test.

Accepted Answer

The answer of Describe a dual-purpose test....

Question 13

The auditor would like to design a test of control to test that unit selling prices are obtained from the price list master file of approved prices.Which of the following typical tests of controls would be suitable?

Accepted Answer

Option A compares prices on sales invoices to customer purchase order, which is not directly related to the control objective of prices being obtained from the authorized price list. Option C compares sales from previous years, which is an analytical review procedure and not a test of control to verify whether unit selling prices are obtained from the price list. Option D is a control evaluation procedure and not a test of control. Option B is the most relevant as it tests whether the changes to the approved price list had proper authorization and whether those prices were actually used in sales transactions by tracing them to copies of sales invoices. Hence, B is the best choice for testing the control.

Question 14

Discuss the purposes of tests of controls and tests of details of balances.Give an example of each.

Accepted Answer

The answer of Discuss the purposes of tests of controls...

Question 15

The auditor selects several transactions in each functional area and traces them through the entire accounting system,paying special attention to evidence about whether or not the control features are in operation.This is an example of a

Accepted Answer

Tracing transactions through the entire accounting system and examining evidence to determine whether control features are in operation is a test of controls. This test assesses the effectiveness of internal control procedures to prevent or detect errors or fraud. Sequence tests, substantive tests, and functional tests are different types of audit procedures that focus on different aspects of the financial statements.

Question 16

Describe the difference among substantive tests of transactions,substantive analytical procedures,and substantive tests of balances.

Accepted Answer

The answer of Describe the difference among substantive tests of...

Question 17

In the context of an audit of financial statements,substantive tests are audit procedures that

Accepted Answer

Substantive tests are audit procedures that can be either direct tests of financial balances or analytical tests. These tests aim to provide reasonable assurance that the financial statements are free from material misstatement, whether caused by error or fraud. Option A is incorrect because substantive tests are essential and cannot be eliminated under any condition. Option B is incorrect because subsequent events are not the focus of substantive tests. Option D is incorrect because the nature, extent, and timing of substantive tests depend on the assessed level of inherent and control risk, but not on the auditor's reliance on internal control.

Question 18

When the auditor identifies an area of the accounting system with missing controls (i.e. ,a weakness or deviation),this would lead to a modification of the audit program in that area that would

Accepted Answer

The answer of When the auditor identifies an area of...

Question 19

Performance of tests of controls provide evidence in support of the specific controls that contribute to the auditor's assessed control risk (where it is reduced below 100%).Also,when dual-purpose tests are used,evidence is also obtained in support of

Accepted Answer

Performance of tests of controls provides evidence in support of the monetary correctness of transactions. Dual-purpose tests also yield evidence of monetary correctness in addition to evidence in support of the tests of controls. Option A is incorrect because tests of controls do not provide evidence of the nature of illegal acts that occurred. Option B is incorrect as tests of controls and dual-purpose tests do not provide evidence of quantitative effects of fraud risks. Option C is incorrect as statistical ratios serve to assist in analytical review, but do not provide evidence in support of control risks or fraud risks.

Question 20

It is important that sales be billed and recorded in the journal as soon as possible after

Accepted Answer

Sales should be billed and recorded in the journal after shipment takes place to ensure that revenue is recognized only when the goods or services have been delivered, aligning with the revenue recognition principle. This ensures accuracy in financial reporting.

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