strengthening Set

Which component of audit risk can the auditor directly control

Detection risk

Audit risk equals what

Risk of material misstatement multiplied by detection risk

Risk of material misstatement consists of what two components

Inherent risk and control risk

If inherent risk increases what generally must decrease

Detection risk

If assessed risk of material misstatement increases what usually happens to testing

More substantive testing is required

Which type of misstatement risk cannot be directly controlled by auditor

Inherent risk

What is control risk

Risk internal control fails to prevent or detect material misstatement timely

What is inherent risk

Susceptibility of an assertion to misstatement assuming no controls

What is detection risk

Risk audit procedures fail to detect existing material misstatement

What is sampling risk

Risk sample conclusion differs from testing entire population

What is nonsampling risk

Risk from poor judgment misuse of procedures or human error

Which error creates an efficiency problem

Type I error

Which error creates an effectiveness problem

Type II error

In tests of controls Type I error means what

Assessing control risk too high when controls are effective

In tests of controls Type II error means what

Assessing control risk too low when controls are ineffective

In substantive testing Type I error means what

Incorrect rejection of fairly stated balance

In substantive testing Type II error means what

Incorrect acceptance of misstated balance

Which substantive sampling error is most serious

Incorrect acceptance

Attribute sampling is primarily used for what

Tests of controls

Variable sampling is primarily used for what

Substantive tests of details

PPS sampling gives greater chance of selection to what

Larger dollar items

What is tolerable deviation rate

Maximum control deviation rate auditor will accept

What is expected deviation rate

Estimated deviation rate before testing

What is tolerable misstatement

Maximum monetary misstatement auditor will accept

What is expected misstatement

Estimated monetary misstatement before testing

If tolerable deviation decreases what happens to sample size

Sample size increases

If expected deviation increases what happens to sample size

Sample size increases

If tolerable misstatement decreases what happens to sample size

Sample size increases

If expected misstatement increases what happens to sample size

Sample size increases

If acceptable sampling risk decreases what happens to sample size

Sample size increases

If population variability increases what happens to sample size

Sample size increases

What is simple random sampling

Every item has equal chance of selection

What is systematic sampling

Every (Fixed Interval) nth item after random start

What is haphazard sampling

Selection without conscious bias but not statistical randomness

What is block sampling

Selection of contiguous group of items

What is stratified sampling

Population divided into subgroups before sampling

To test completeness auditor usually uses what direction

Trace from source documents to ledger

To test existence auditor usually uses what direction

Vouch from ledger to source documents

If upper deviation rate exceeds tolerable deviation what should auditor do

Do not rely on control

If controls cannot be relied upon what usually increases

Substantive procedures

What is a dual purpose sample

One sample used for controls and substantive testing

What is sufficient evidence

Enough quantity of evidence

What is appropriate evidence

Relevant and reliable evidence

Which evidence is more reliable internal or external

External

Which evidence is more reliable oral or written

Written

Which evidence is more reliable originals or copies

Originals

Confirmation primarily supports which assertion

Existence and rights

Tracing primarily tests which assertion

Completeness

Vouching primarily tests which assertion

Existence or occurrence

Observation is strongest for what

Process being performed at a point in time

Recalculation tests what

Mathematical accuracy

Reperformance means what

Auditor independently executes a control or procedure

Analytical procedures are required during what two phases

Planning and final review

Substantive analytical procedures are required or optional

Optional

Which cycle has presumed fraud risk

Revenue recognition

For revenue cycle auditor focus is often on what assertion

Existence

For liabilities and expenses auditor focus is often on what assertion

Completeness

Search for unrecorded liabilities tests what assertion

Completeness

Bank reconciliation is key procedure for what account

Cash

Standard bank confirmation may confirm what two items

Deposit balances and loan balances

Lapping involves theft of what

Cash receipts concealed through customer payment transfers

Kiting exploits what

Timing difference between bank accounts

Physical inventory observation mainly supports what assertion

Existence

Inventory cutoff testing focuses on what

Recording purchases and sales in proper period

Aging of receivables helps test what

Allowance for doubtful accounts valuation

Management representation letter date should match what

Audit report date

Who typically signs management representation letter

CEO and CFO or equivalent management

Refusal to provide management representation letter may lead to what

Disclaimer or withdrawal

Audit documentation belongs to whom

Auditor

Nonissuer audit documentation retention period is how long

Five years

Issuer audit documentation retention period is how long

Seven years

Nonissuer final file assembly deadline is how long after report release

Sixty days

What are the five COSO components

Control environment risk assessment information communication monitoring and control activities

Strong tone at the top relates to which COSO component

Control environment

Segregation of duties is part of which COSO component

Control activities

What is a material weakness

Reasonable possibility material misstatement will not be prevented or detected timely

Significant deficiency is less severe than what

Material weakness

Significant deficiencies and material weaknesses are communicated to whom

Those charged with governance and management

Which IT control limits unauthorized system access

Access controls

Which IT control addresses unauthorized program changes

Change management controls

Which IT control supports recovery after system failure

Backup and disaster recovery controls

Automated three way match is what type of control

Application control

Input edit checks are what type of control

Application control

If auditor relies on system generated report auditor should test what first

Accuracy and completeness of the report

Weak passwords increase risk of what

Unauthorized access

Parallel simulation means what

Auditor reprocesses client data using auditor software

Test data approach means what

Auditor inputs known data into client system to test processing

Integrated test facility means what

Fictitious transactions processed with live data

Computer aided auditing tools (CAATs) are useful for what

Testing large data populations efficiently

SOC 1 report is most relevant to what

Controls affecting user entity financial reporting

SOC 2 report addresses what

Security availability processing integrity confidentiality and privacy

Complementary user entity controls are what

Controls user entity must implement for service organization controls to be effective

If service auditor report is Type 1 what does it cover

Design of controls at a point in time

If service auditor report is Type 2 what does it cover

Design and operating effectiveness over a period of time

Professional skepticism means what

Questioning mind and critical assessment of evidence

Fraud triangle consists of what three factors

Incentive opportunity and rationalization

When fraud involves senior management auditor should communicate to whom

Those charged with governance

If material misstatement remains uncorrected possible result is what

Modified opinion

Unmodified opinion means what

Financial statements presented fairly in all material respects