auditing homework



1. Risk assessment procedures are performed to _____. A. discharge the auditor of legal liability to investors and creditors of the entity B. obtain an understanding of the entity C. obtain an understanding of the entity and its environment D. obtain an understanding of the entity and its environment, excluding internal control E. obtain an understanding of the entity and its environment, including internal control2. The overall risk associated with a particular business is often referred to as ____ risk. A. audit B. business C. engagement D. sampling E. none of the above3. According to the textbook authors, time is _____ in public accounting A. always B. often C. occasionally D. rarely E. never4. In the application of analytical procedures, auditors develop expectations from _____ A. budgets B. published industry statistics C. the client’s prior years’ financial statements D. all of the above E. B and/or C, only5. The possibility that the auditors may unknowingly fail to appropriately modify their opinions on financial statements that are materially misstated is referred to by the term ____ risk. A. audit B. business C. engagement D. sampling E. none of the above 6. The two types of risk related to the material misstatements from fraud are _____. A. defalcations and management fraud B. fraudulent financial reporting and misstatements arising from misappropriation of assets C. unintentional misstatements or omissions of amounts or disclosures in the financial statements D. all of the above E. A and/or B, only7. The audit trail cannot be used to vouch transactions. A. true B. false: the audit trail can be used to vouch transactions C. false: the audit trail is unrelated vouching transactions D. false: the audit trail audit fails to provide any evidence of transactions E. none of the above8. The second part of an audit program deals with _____. A. financial statement balances B. the “substantive test portion” C. the “systems portion” D. A and B, only E. A and C, only9. Internal control, according to the Committee of Sponsoring Organizations, _____. A. emphasized that internal control was a means to an end, not an end in and of itself B. is limited to the prevention of fraud C. recognizes the cost of internal control should not exceed the benefits expected to be obtained D. all of the above E. A and C, only10. Basic principles of internal control should include _____. A. accountability for internal control responsibilities B. commitment to attract, develops, and retain competent employees C. commitment to integrity and ethical values D. all of the above E. A and B, only 11. In making a judgment about the extent of the understanding of internal control that is necessary, the auditors should realize that the information will be used to _____. A. consider factors that affect the risks of material misstatement B. design tests of controls (when applicable) and subsequent procedures C. identify types of potential misstatements D. all of the above E. A and/or C, only12. With respect to the use of flowcharts versus questionnaire, _____. A. a possible advantage of flowchart is that internal control weaknesses are not identified as prominently as in a questionnaire B. a possible disadvantage of flowchart is that internal control weaknesses are not identified as prominently as in a questionnaire C. the advantage of a flowchart over a questionnaire is that a flowchart provides a clearer, more specific portray of the client’s system D. A and C E. B and C13. To evaluate the operating effectiveness of controls, generally _____. A. obtaining an understanding of the system is sufficient B. obtaining an understanding of the system and implementation is ordinarily sufficient C. the controls should be tested D. the controls should be abandoned for a period of at least one month but not more than one quarter E. none of the above14. In evaluating the competence of the internal auditors, the independent auditors consider the _____ of the internal audit staff. A. educational level B. professional certification C. professional experience D. all of the above E. B and C, only15. A deficiency in internal control considered to be _____ requires communication to management and those charged with governance. A. less than significant B. significant C. material D. A and/or B, only E. B and/or C, only 16. Integrated audits address the _____. A. effectiveness, efficiency, and economy of operations B. financial statements C. internal control D. A and B, only E. B and C, only17. When significant information is initiated, processed, or recorded electronically, the auditor may determine that it is _____ to design effective substantive procedures that by themselves would provide sufficient competent audit evidence. A. essential B. not possible C. possible D. unnecessary E. none of the above18. The integration of several functions in an information technology system, _____ the importance of internal control. A. diminishes B. does not diminish C. eliminates D. overrides E. none of the above19. Control activities that include both programmed control activities and manual follow-up activities are considered _____ control activities. A. application B. general C. internal D. user E. none of the above20. Systems flowcharts are _____ technique for documenting internal control in the working papers. A. a commonly used B. an essentially employed C. a prohibited D. a rarely used E. none of the above 21. Tests of controls are limited to _____ systems. A. automated B. manual C. operational D. technical E. none of the above22. The auditors _____ find a way to access records to use a computer to test the records. A. may B. may not C. must D. must not E. none of the above23. The use of statistical sampling _____. A. allow the auditors to measure and control sampling risk B. eliminates professional judgment from the sampling process C. provides no means of quantifying sampling risk D. A and B, only E. B and C, only24. Random selection results in a _____. A. a representative sample and a statistically unbiased sample B. a representative sample but not necessarily a statistically unbiased sample C. a statistically unbiased sample but not necessarily a representative sample D. neither a statistically unbiased sample nor a representative sample E. none of the above25. Procedures used in sampling to accomplish specific audit objectives are called _____. A. audit plans B. audit procedures C. sampling plans D. sampling procedures E. none of the above 26. The amount used to create a range, set by plus or minus limits from the sample results, within which the population characteristic being measured is likely to lie is called _____. A. attribute B. discovery C. estimation D. precision E. none of the above27. An example of evidence of performance is _____. A. a completed document B. the initials of the person performing the procedure C. both A and B are necessary D. either A or B is sufficient E. neither A nor B28. If the substantive procedure sample indicates that the population is materially misstated when the actual population is not materially misstated, the decision is _____. A. correct B. incorrect (risk of incorrect acceptance) C. incorrect (risk of incorrect rejection) D. any of the above E. none of the above29. _____ estimation uses the audited value of the sample as the basis of estimating the projected misstatement and total audited value of a population. A. difference B. mean-per unit C. ratio D. stratified E. none of the above30. The major difference between statistical and judgmental sampling in substantive testing _____. A. are in the procedures used to determine sample size and evaluate sample results B. is the elimination of professional judgment C. is the projection of the misstatement found in sample to the population and consideration of sampling risk D. all of the above E. none of the above


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