Audit Quiz 2

An auditor is evaluating a client's internal controls. Which of the following situations would be the most difficult internal control issue for an auditor to detect? 

Two employees, who work in different departments, are circumventing an internal control.

Which of the following is not a component of the COSO's 2013 integrated framework?

Report on internal control

Sound internal control can be described as separating all of the following duties and responsibilities except for 

hiring of employees.

An auditor has identified the controller's review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the controller to understand the specific data reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs. Which of the following types of audit procedures do these actions illustrate? 

Inquiry and inspection of records

An auditor assesses the risk of material misstatement because it 

affects the level of detection risk that the auditor may accept.

While performing an audit of the financial statements of a company for the year ended December 31, year 1, the auditor notes that the company's sales increased substantially in December, year 1, with a corresponding decrease in January, year 2. In assessing the risk of fraudulent financial reporting or misappropriation of assets, what should be the auditor's initial indication about the potential for fraud in sales revenue in Year 1? 

There is a broad indication of financial reporting fraud.

The auditor uses the assessed level of risk of material misstatement to determine the acceptable level of detection risk for financial statement assertions. As the acceptable level of detection risk decreases, the auditor may do one or more of the following except change the 

assurances provided by substantive tests to a lower level.