Question 1

Which of the following tests commonly occur together?

Accepted Answer

A)  substantive tests of transactions and tests of controls 
B)  substantive tests of transactions and obtaining an understanding of internal controls 
C)  analytical procedures and tests of controls 
D)  tests of controls and tests of details of balances 
A)  substantive tests of transactions and tests of controls 
B)  substantive tests of transactions and obtaining an understanding of internal controls 
C)  analytical procedures and tests of controls 
D)  tests of controls and tests of details of balances

Question 2

Auditing standards require a written audit program.

Accepted Answer

A) True 
 B)False

Question 3

Auditors follow a four-step approach to reduce assessed control risk. Which of the following is not one of the four?

Accepted Answer

A)  Apply transaction-related audit objectives to a class of transactions. 
B)  Identify accounts that have high inherent risk. 
C)  Identify key controls that reduce control risk. 
D)  For potential misstatements, design appropriate substantive tests of transactions. 
A)  Apply transaction-related audit objectives to a class of transactions. 
B)  Identify accounts that have high inherent risk. 
C)  Identify key controls that reduce control risk. 
D)  For potential misstatements, design appropriate substantive tests of transactions.

Question 4

Tests of controls, either manual or automated, may include the following types of evidence and procedures. Which of these procedures is not the same as those procedures used to obtain an understanding of internal controls?

Accepted Answer

A)  Make inquiries of appropriate client personnel. 
B)  Examine documents, records, and reports. 
C)  Observe control-related activities. 
D)  Reperform client procedures. 
A)  Make inquiries of appropriate client personnel. 
B)  Examine documents, records, and reports. 
C)  Observe control-related activities. 
D)  Reperform client procedures.

Question 5

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

Accepted Answer

A)  analytical procedures 
B)  tests of transactions 
C)  tests of controls 
D)  tests of details of balances 
A)  analytical procedures 
B)  tests of transactions 
C)  tests of controls 
D)  tests of details of balances

Question 6

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.

Accepted Answer

A) True 
 B)False

Question 7

Which phase(s) of the audit uses inquiries of clients as a type of evidence?

Accepted Answer

A)  plan and design 
B)  tests of controls and substantive tests of transactions 
C)  completion of the audit and issuance of the audit report 
D)  all of the above 
A)  plan and design 
B)  tests of controls and substantive tests of transactions 
C)  completion of the audit and issuance of the audit report 
D)  all of the above

Question 8

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statements balances and disclosures. Substantive tests are often called monetary misstatements.

Accepted Answer

A) True 
 B)False

Question 9

Analytical procedures are the most expensive type of audit test to perform because of the expertise and training required to properly use them.

Accepted Answer

A) True 
 B)False

Question 10

The auditor's understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor's initial assessment of control risk.

Accepted Answer

A) True 
 B)False

Question 11

There are three stages of the audit in which analytical procedures are performed. Identify each of these three stages and, for each stage, discuss the purpose of performing analytical procedures in that stage. Also indicate in which stage(s) analytical procedures are required by current professional auditing standards.

Accepted Answer

Analytical procedures are performed in t

Question 12

Inherent risk can be extended to individual balance-related audit objectives.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  the cost of the audit should decrease. 
B)  the auditor will conclude that internal controls are effective. 
C)  extensive tests of details of balances will need to be performed. 
D)  all of the above. 
A)  the cost of the audit should decrease. 
B)  the auditor will conclude that internal controls are effective. 
C)  extensive tests of details of balances will need to be performed. 
D)  all of the above.

Question 14

The purpose of tests of controls is to provide reasonable assurance that the

Accepted Answer

A)  accounting treatment of transactions and balances is valid and proper. 
B)  internal control procedures are functioning as intended. 
C)  entity has complied with GAAP disclosure requirements. 
D)  entity has complied with requirements of quality control. 
A)  accounting treatment of transactions and balances is valid and proper. 
B)  internal control procedures are functioning as intended. 
C)  entity has complied with GAAP disclosure requirements. 
D)  entity has complied with requirements of quality control.

Question 15

A medium-sized, nonpublic company has few effective controls and significant inherent risks. The auditor in this situation should emphasize tests of details and balances and substantive tests of transactions; no substantive analytical procedures should be performed in this situation by the auditor.

Accepted Answer

A) True 
 B)False

Question 16

Tests of controls provide evidence about the likelihood for misstatements in a client's financial statements.

Accepted Answer

A) True 
 B)False

Question 17

Which audit tests involve physical examination and confirmation?

Accepted Answer

A)  tests of controls 
B)  tests of transactions 
C)  tests of details of balances 
D)  analytical procedures 
A)  tests of controls 
B)  tests of transactions 
C)  tests of details of balances 
D)  analytical procedures

Question 18

What type of test is used to obtain the most types of evidence?

Accepted Answer

A)  substantive tests of transactions 
B)  tests of controls 
C)  risk assessment tests 
D)  tests of details of balances 
A)  substantive tests of transactions 
B)  tests of controls 
C)  risk assessment tests 
D)  tests of details of balances

Question 19

An example of auditor using disaggregated data to increase the precision of the auditor's expectations using substantive analytical procedures in the audit of inventories would be to calculate gross margin by product line, rather than calculating the total gross margin for total sales in the planning stage of the audit.

Accepted Answer

A) True 
 B)False

Question 20

Once set during the planning phase, the audit program cannot be revised.

Accepted Answer

A) True 
 B)False

Exam 13: Overall Audit Strategy and Audit Program

Which of the following tests commonly occur together?

Auditing standards require a written audit program.

Auditors follow a four-step approach to reduce assessed control risk. Which of the following is not one of the four?

Tests of controls, either manual or automated, may include the following types of evidence and procedures. Which of these procedures is not the same as those procedures used to obtain an understanding of internal controls?

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

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.

Which phase(s) of the audit uses inquiries of clients as a type of evidence?

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statements balances and disclosures. Substantive tests are often called monetary misstatements.

Analytical procedures are the most expensive type of audit test to perform because of the expertise and training required to properly use them.

The auditor's understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor's initial assessment of control risk.

Inherent risk can be extended to individual balance-related audit objectives.

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

The purpose of tests of controls is to provide reasonable assurance that the

A medium-sized, nonpublic company has few effective controls and significant inherent risks. The auditor in this situation should emphasize tests of details and balances and substantive tests of transactions; no substantive analytical procedures should be performed in this situation by the auditor.

Tests of controls provide evidence about the likelihood for misstatements in a client's financial statements.

Which audit tests involve physical examination and confirmation?

What type of test is used to obtain the most types of evidence?

Once set during the planning phase, the audit program cannot be revised.

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Materiality

Assessing the Risk of Material Misstatement

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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