Which of the Following is a Management Assertion Regarding Account Balances at the Period End

Which of the following is a management assertion regarding account balances at the period end? The entity holds or controls the rights to assets, and liabilities are obligations of the entity. Which of the following factors most likely would affect an auditor's judgment about the quantity, type, and content of the auditor's documentation? The assessed level of control risk. Which of the following types of audit evidence is the most persuasive? Bank statements obtained from the client. The current file of an auditor’s working papers most likely would include a copy of the Bank reconciliation. Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance? Inventory is complete. The three categories of management assertions are: classes of transactions, account balances, and presentation and disclosure. The assertion related to recording transactions in the correct accounting period is: cutoff A detailed listing of the specific audit procedures to be used to gather evidence for an account is called the: audit program. The quantity of evidence that an auditor will gather: varies with the assessed risk of material misstatement. Which is generally the most reliable form of evidence? Externally generated evidence sent directly to the auditor. When an auditor inspects a tangible asset to support a balance in the client’s records, the auditor is gathering evidence to support the: existence assertion. When an auditor inspects loan documentation and traces the details to recording in the client’s records, the auditor is gathering evidence to support the: completeness assertion. Which audit procedure is being used when an auditor checks the calculations in a client-prepared spreadsheet? Recalculation. The working papers for a client contain both a permanent and a current file. The difference between the two files is that: the permanent file includes documents that relate to the client and are relevant for more than one year’s audit, and the current file includes the details of work completed and evidence gathered that relate to the current year’s audit. Which of the following statements concerning evidential matter is correct? A client's accounting data cannot be considered sufÏcient audit evidence to support the financial statements In obtaining an understanding of an entity's internal control relevant to audit planning, an auditor is required to obtain knowledge about the Design of the controls pertaining to internal control components. A primary objective of procedures performed to obtain an understanding of internal control is to provide an auditor with Knowledge necessary to assess the risk of misstatement. When an auditor identifies internal control deficiencies, what levels of internal control deficiencies must be reported to those charged with governance of the entity? Significant deficiencies and material weaknesses in internal control. Documenting internal controls: can be handled with a combination of narratives and flowcharts or logic diagrams. Which of the following is a good example of an IT application control over the occurrence of revenue transactions? The software application compares information on a sales invoice with information from the bill of lading to ensure that sales invoices are only prepared for actual shipments. Any exceptions are not processed and are set aside for manual follow-up. In a good system of segregation of duties, which of the following duties should be segregated? Authorization of transactions, physical access to assets, and recording transactions. The internal control component that addresses how an organization holds an individual accountable for his or her internal control responsibilities in pursuit of objectives is related to: the control environment. An entity’s risk assessment process: is the entity’s process for identifying and responding to business risks and the results of those risks. The control environment: sets the tone of an entity with respect to internal control and influences the control consciousness of its people. The objectives of internal control include: operations objectives, reporting objectives, and compliance objectives. It is important for an auditor to understand a public company’s system of internal control in order to: audit internal control over financial reporting. make a preliminary assessment of control risk. develop an audit strategy. Internal control is defined as: a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of the objectives related to operations, reporting, and compliance. Which of the following matters would an auditor most likely consider to be a significant deficiency to be communicated to the audit committee (or otherwise those charged with governance)? Evidence of a lack of objectivity by those responsible for accounting decisions. Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal control structure? Incompatible duties o A system of internal control can provide only reasonable assurance of achieving an entity's control objectives because of inherent limitations. These include the fallibility of human judgment and performance and the possibility of collusion or management override. The answer that is not an inherent limitation is "incompatible duties." Which of the following types of control best describes procedures to ensure appropriate systems software acquisition? General. o general IT controls include controls over the following: (1) data center and network operations; (2) system software acquisition, change, and maintenance; (3) program change; (4) access security; and (5) application system acquisition, development, and maintenance (AU-C 315.A107). Accordingly, controls over systems software acquisition are associated with general controls. Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when Management is dominated by one individual who is also a shareholder. 1. The software application must match information from a vendor’s invoices with information from receiving and information from the purchase order before a check is issued. IT APPLICATION CONTROL Occurrence 2. Two authorized signatures are required on every check for payment of purchases over $100,000. - AUTHORIZATION Occurrence 3. Each month the credit manager carefully reviews the computer-generated aged trial balance of accounts receivable to identify past-due balances and follows up for collection. REVIEW OF PERFORMANCE Valuation and Allocation 4. A supervisor must approve overtime work. AUTHORIZATION Occurrence 5. The software application assigns sequential numbers to sales invoices used in the billing system. IT APPLICATION CONTROL Completeness 6. The software application verifies the mathematical accuracy of each voucher and prints an exception report for items with mathematical errors. IT APPLICATION CONTROL Accuracy 7. Employee payroll records are kept on an electronic file that can only be accessed by certain terminals and are password-protected. IT GENERAL CONTROL Accuracy, Classification, Occurrence 8. An accounting supervisor reviews journal entries periodically for reasonableness of account classifications. IT DEPENDENDENT MANUAL CONTROL Classification 9. Two individuals open the mail and prepare a prelisting of checks received. Then the checks received from customers and related remittance advices are separated in the mailroom and subsequently processed by different individuals. SEPARATION OF DUTIES Completeness 10 . All vouchers must be stamped “paid” on payment. PHYSICAL CONTROL Occurrence 11 . On a quarterly basis, the controller reviews a software-generated comparison of warranty expenses and actual warranty claims. IT DEPENDENT MANUAL CONTROLS Accuracy? 12 . Computer programmers are not allowed in the computer room. IT GENERAL CONTROLS Accuracy, Occurrence, Completeness 13 . The software application will not complete the processing of a batch when the accounts receivable control account does not match the total of the subsidiary ledgers. IT APPLICATION CONTROL Occurrence How would an auditor of a nonissuer most appropriately respond to a heightened assessed risk of material misstatement? By assigning more experienced staff or those with specialized skills to high-risk areas. An auditor of a nonissuer should design tests of details to ensure that sufÏcient audit evidence supports which of the following? The planned level of assurance at the relevant assertion level. Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of an internal control procedure? Observation of client personnel. Which of the following procedures would provide the most reliable audit evidence? Inspection of bank statements obtained directly from the client's financial institution. Assume that a company has a control deficiency regarding the processing of cash receipts. Reconciliation of cash accounts by a competent individual otherwise independent of the cash function might make the likelihood of a significant misstatement due to the control deficiency remote. In this situation, reconciliation may be referred to as what type of control? Compensating After obtaining an understanding of an entity's internal control structure, an auditor may assess control risk at the maximum level for some assertions because the auditor Believes the internal control policies and procedures are unlikely to be effective. When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase the Extent of tests of details. o Increase the extent of substantive tests such as tests of details. The auditor decides which controls to test by considering: the points at which fraud or error can occur. the nature of controls implemented by management. the significance of each control in achieving its control objective. A software application will not allow a sale to be processed if a customer is over its credit limit. This is an example of a(n): preventive control. Which of the following would be the most likely reason to include more unpredictability in the selection and performance of audit procedures? There is heightened risk of fraud. The nature of an audit procedure refers to: its purpose and its type. ITGCs are important because they: prevent unauthorized personnel from having access to data and applications. Which of the following represents an example of an IT application control? The software application compares all sales invoices with underlying shipping information on the bills of lading and packing slips with sales invoices. If differences are revealed, a report is generated for review and follow-up by the billing supervisor. Which of the following situations would most likely preclude an auditor from performing substantive procedures during an interim period? Internal controls are weak and the risk of material misstatement is high. Which of the following would not be a reason to increase the extent of a substantive test? Auditors have time to test more items. If an auditor performs tests of controls and determines that the control is not effective, what should the auditor’s next step in testing controls be? Determine if a compensating control exists. The auditor’s best estimate of the misstatement in a population based on the misstatement found in a sample drawn from the population is called a: projected misstatement. An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance. This is an example of which of the following sampling types of risks? Incorrect acceptance. An advantage that using statistical sampling has over nonstatistical sampling is that statistical sampling helps an auditor to Measure the sufÏciency of the evidential matter obtained. o Statistical sampling allows an auditor to: 1) design an efÏcient sample; 2) measure the sufÏciency of the evidential matter obtained; and 3) evaluate the sample results. An underlying feature of random-based selection of items is that each Item in the accounting population should have an opportunity to be selected. How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details? Increase in tolerable misstatement Increase in assessed level of control risk DECREASE SAMPLE SIZE INCREASE SAMPLE SIZE In a probability-proportional-to-size sample with a sampling interval of $5,000, an auditor discovered that a selected account receivable with a recorded amount of $10,000 had an audit amount of $8,000. If this were the only error discovered by the auditor, the projected error of this sample would be $2,000. Which of the following is the primary objective of probability proportional to sample size? To identify overstatement errors. In an audit of a nonissuer's financial statements, projected misstatement is An auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample. Audit sampling is defined as a situation where: the auditor tests a representative group that is less than 100% of the population for the purpose of drawing a conclusion about the entire population. Sampling risk: is the risk that the sample chosen by the auditor is not representative of the population of transactions Nonsampling risk: is the risk that an auditor arrives at an inappropriate conclusion for a reason unrelated to sampling issues The critical difference between statistical and nonstatistical sampling is: the use of the laws of probability in statistical sampling to determine sample size and develop a confidence interval around the results of the sample. Holding all other factors constant, which of the following factors results in an increase in sample size for substantive tests? An increase in the desired level of assurance that the tolerable misstatement is not exceeded by the actual amount of misstatement in the population. The auditor’s decision about the risk of incorrect acceptance affects which of the following factors in a statistical PPS sample?