Auditing ch 13

Which of the following procedures would most likely be performed in response to the​ auditor's assessment of the risk of monetary misstatements in the financial​ statements?

a. tests of details of balances

b. risk assessment procedures

c. tests of controls

d. ratio analysis

a. tests of details of balances

Which of the following audit tests is usually the least costly to perform?

a. substantive analytical procedures

b. test of control

c. tests of details of balances

d. substantive tests of transactions

a. substantive analytical procedures

If the auditor finds extensive control test deviations and significant misstatements while performing substantive tests of transactions

a. the cost of the audit should decrease

b. the auditor will conclude that system of controls are effective

c. perform extensive tests of details of balance

d. all of these

c. perform extensive tests of details of balance

The auditor obtained an aged list of receivables and traced the accounts to master file, footed the schedule, and traced the amounts to the GL this is

a. existence

b. cutoff

c. detail tie-in

d. valuation

c. detail tie-in

Which of the following audit tests form the basis for an auditor's report on system of internal control over financial reporting?

a. substantive analytical procedures

b. test of control

c. tests of details of balances

d. substantive tests of transactions

b. test of control

Which audit tests involve physical examination and confirmation?

a. tests of controls

b. tests of transactions

c. tests of details of balances

d. analytical procedures

c. tests of details of balances

FreshBite has reported steady revenue growth of 6%-8% annually over the past 5 years. Revenue is highly predictable. No major changes in operations this year. Strong automated sales system with effective controls. Industry growth is also around 5%-7%.

How would you assess the risk of revenue? Which audit procedure would you select to test revenue?

a. medium-high risk; analytical procedures

b. medium-high risk; substantive test of transaction

c. low-medium risk; substantive test of transaction

d. low-medium risk; analytical procedures

d. low-medium risk; analytical procedures

You are auditing Rodgers and Company. After performing substantive analytical​ procedures, you conclude​ that, for the accounts​ tested, the​ client's balance appears reasonable. This may indicate that

a. control tests may be reduced for those accounts.

b. certain tests of details of balances may be eliminated for those accounts.

c. control tests may be eliminated for those accounts.

d. detailed test of balances can be eliminated for those accounts.

b. certain tests of details of balances may be eliminated for those accounts.

It is inefficient to perform tests of controls separately from substantive tests of transactions. T/F

False

An exception or deficiency found in a test of controls

a. indicates that an adverse opinion is warranted on the audit of system of internal control.

b. indicates the likelihood of a misstatement.

c. indicates that the financial statements are fairly stated.

d. indicates a financial statement misstatement.

b. indicates the likelihood of a misstatement.

When an auditor believes that analytical procedures indicate a reasonable possibility of​ misstatement, the auditor usually would

a. Perform additional tests of controls: No; Decide to modify tests of details of balances: Yes

b. Perform additional tests of controls: No; Decide to modify tests of details of balances: No

c. Perform additional tests of controls: Yes; Decide to modify tests of details of balances: No

d. Perform additional tests of controls: Yes; Decide to modify tests of details of balances: Yes

a. Perform additional tests of controls: No; Decide to modify tests of details of balances: Yes

Several factors influence the​ auditor's choice of the types of tests to​ select, including

a. the effectiveness of the system of internal controls.

b. the availability of the types of evidence.

c. the relative costs of each type of test.

d. all of the above.

d. all of the above.

Which of the following would most likely not be included in the evidence mix for an integrated audit of a public​ company's financial statements and system of internal control over financial​ reporting?

a. extensive substantive analytical procedures

b. low inherent risk

c. sophisticated system of internal controls

d. extensive tests of details of balances

d. extensive tests of details of balances

When designing the audit program and the particular audit​ tests, the auditor should keep in mind that

a. the tests of controls will not vary depending on assessed control risk.

b. analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning.

c. auditing standards require that the tests contained in the audit program must be approved by the PCAOB.

d. the audit program is broken down into two parts — the risk assessment procedures and the tests of details of balances.

b. analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning.

When controls are effective and control risk is assessed as​ low, auditors put heavy emphasis on tests of balances. T/F

False

Presentation and disclosure related audit objectives would be performed in which phase of the audit​ process?

a. plan and design audit approach

b. perform audit tests for controls and transactions

c. perform analytical procedures and tests of balances

d. complete the audit and issue the audit report

d. complete the audit and issue the audit report

Which of the following audit tests would be regarded as a test of​ controls?

a. tests of the signatures on canceled checks to board of​ directors' authorizations

b. tests of the additions to​ property, plant, and equipment by physical inspections

c. review of the specific items making up the balance in a given general ledger account

d. comparison of the inventory pricing to​ vendors' invoices

a. tests of the signatures on canceled checks to board of​ directors' authorizations

Subsequent events represent events that occasionally occur after the balance sheet​ date, but before the issuance of the financial statements and the​ auditor's report, that have an effect on the financial statements. T/F

True

In the financial statement audit of a nonpublic​ company, the auditor decides to perform tests of the controls related to the occurrence of sales transactions. Which of the following best explains why the auditor decided to test these​ controls?

a. In a nonissuer financial statement​ audit, the auditor is required to test the operating effectiveness of internal controls.

b. The auditor wants to obtain an understanding of the implementation of the internal controls.

c. The auditor wants to obtain an understanding of the design of the internal controls.

d. Control risk is assessed at below the maximum.

d. Control risk is assessed at below the maximum.

Substantive analytical procedures are most likely to be used to test which of the following​ accounts?

a. Cash

b. Accounts payable

c. Treasury stock

d. Interest income

d. Interest income

Which of the following is the auditor least likely to consider when developing the overall audit​ strategy?

a. The economic conditions affecting the industry in which the company operates

b. Complexity of the​ company's operations

c. Preliminary judgment about materiality

d. Evaluation of accounts receivable confirmations

d. Evaluation of accounts receivable confirmations