Question 1

Which of the following may Not involve a high degree of management judgment and subjectivity and may present risks of material misstatement due to fraud?

Accepted Answer

The answer of Which of the following may Not involve...

Question 2

An attitude that includes a questioning mind and a critical assessment of audit evidence is called:

Accepted Answer

Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. It is a fundamental principle of auditing that requires auditors to plan and perform audits in a manner that shows an appropriate level of professional skepticism. Operational skepticism and audit skepticism may have similar characteristics but do not encompass the same level of critical assessment required by professional skepticism in auditing.

Question 3

A process designed to provide reasonable assurance about the achievement of the entity's objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations is called:

Accepted Answer

The process described in the question is internal control, which is designed to provide reasonable assurance about the achievement of objectives in three categories: reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. External control refers to control by entities outside of the organization, while internal auditing is a separate function that evaluates and provides recommendations for improvement of internal control processes.

Question 4

The combined ratio is the sum of it:

Accepted Answer

The combined ratio is the sum of the loss ratio and the expense ratio.

Question 5

The SEC rules clarify that management's assessment and report is limited to internal control over financial reporting.

Accepted Answer

The SEC rules state that management's assessment and report is limited to internal control over financial reporting and does not extend to broader internal control over an entity's operations.

Question 6

Short-term portfolios are:

Accepted Answer

Short-term portfolios are designed to meet liquidity needs, and therefore consist of assets with maturities of less than one year.

Question 7

Final approval should be obtained prior to placing a new system into operation is the activity that can be fall into which control?

Accepted Answer

This activity falls under system development control, as it pertains to ensuring that a new system is fully developed and tested before it is put into operation. It is important to obtain final approval before the system is used to avoid any potential issues or problems once it is in operation.

Question 8

Which of the following is NOT the interrelated component of internal control?

Accepted Answer

The interrelated components of internal control are control environment, risk assessment, control activities, information and communication, and monitoring. "Planning control" is not a recognized component of internal control.

Question 9

____________ is provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles.

Accepted Answer

Audit evidence provided by original documents is considered more reliable as it reduces the risk of alteration or manipulation. Photocopies and facsimiles can easily be altered, which increases the risk of unreliable evidence.

Question 10

Which control includes the procedures for system design, including the acquisition of software packages, should encourage active participation by the accounting department and internal auditors?

Accepted Answer

The answer of Which control includes the procedures for system...

Question 11

The auditor responds to risks of material misstatements due to fraud in which of the following ways?

Accepted Answer

The auditor responds to risks of material misstatements due to fraud in all of the above ways. The auditor's overall response to assessed risks includes designing procedures to obtain sufficient appropriate audit evidence to respond to the assessed risk of material misstatement due to fraud, and to audit the financial statements with a mindset that recognizes the possibility of material misstatement due to fraud. The auditor responds to identified risks involving the nature, timing, and extent of auditing procedures to be performed. The auditor performs certain procedures to further address the risk of material misstatement due to fraud involving management override of controls.

Question 12

The Module Rule requires the insurer to provide:

Accepted Answer

The Module Rule requires the insurer to provide a copy of notification of adverse financial condition to the insurance commissioner of the state of domicile. There is no requirement to provide evidence to an auditor, so option B is incorrect. Therefore, the correct answer is A.

Question 13

The profitability of an insurance entity on a statutory basis is generally gauged by:

Accepted Answer

The answer of The profitability of an insurance entity on...

Question 14

___________ is an unmanaged fund designed to replicates closely as possible the performance of a specified index of market activity.

Accepted Answer

An index fund is specifically designed to track and replicate the performance of a particular market index, such as the S&P 500. It is an unmanaged passive fund, meaning it does not require active management or analysis. It is considered a low-cost and efficient way for investors to gain exposure to a diversified portfolio of assets, while minimizing the risks associated with active management.

Question 15

Audit regulatory is more reliable when it is obtained from knowledgeable independent sources inside the entity.

Accepted Answer

Audit regulatory is more reliable when obtained from knowledgeable independent sources outside the entity, as they provide an unbiased and objective perspective.

Question 16

The auditor should obtain a sufficient understanding by performing risk assessment procedures to:

Accepted Answer

The auditor should determine whether the design of controls relevant to the audit of financial statements has been implemented as part of the risk assessment procedures.

Question 17

The operating ratio is the combined ratio less than the ratio of investment income, to earned premiums.

Accepted Answer

The operating ratio is calculated by dividing incurred losses and loss adjustment expenses by earned premiums. The combined ratio is calculated by dividing incurred losses, loss adjustment expenses, and underwriting expenses by earned premiums. Investment income is not included in the calculation of either the operating ratio or the combined ratio.

Question 18

Which are the types of misstatements relevant to the auditor's consideration of fraud in a financial statement audit?

Accepted Answer

Both misstatements arising from fraudulent financial reporting and misappropriations of assets are relevant to the auditor's consideration of fraud in a financial statement audit. Fraudulent financial reporting involves intentional misstatements or omissions of amounts or disclosures in financial statements to deceive users, while misappropriation of assets involves the theft or misuse of an entity's assets. Both types of fraud can result in material misstatements in the financial statements, which the auditor must consider and address during the audit.

Question 19

Which risk assessment procedures are used to obtain an understanding of the entity and its environment, including its internal control?

Accepted Answer

All of the above procedures (inquiries of management, analytical procedures, and observation) are used to obtain an understanding of the entity and its environment, including its internal control. This understanding is essential for identifying and assessing the risks of material misstatement in the financial statements.

Question 20

An estimate due to time lags in the receipt of reports from cendants is called reinsurance.

Accepted Answer

The answer of An estimate due to time lags in...

Exam 2: Certified Trust and Financial Advisor