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Chapter 4 MCQs, AUD414306, AUD414307, AUD410847, AUD410186, AUD414399,…
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AUD410186
When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?
Identifying reasonable explanations for unexpected differences, before talking to client management helps the auditor to determine reasonableness of management reason provided for such unexpected differences.
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AUD414035
The auditor should consider certain factors in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details. In determining whether and to what extent analytical procedures should be used, which of the following should the auditor consider?
The most important factor in determining the type of testing procedures to be used is the nature of the relevant assertions being tested. The auditor must consider the assertions in order to determine and assess risks by considering the different types of potential misstatements that may occur (planning the audit) and then design further audit procedures that are responsive to the assessed risks in performing the audit. Thus, the nature of the relevant assertion is the key in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details.
AUD412012
In confirming a client's accounts receivable in prior years, an auditor discovered many differences between recorded account balances and confirmation replies. These differences were resolved and were not misstatements. In defining the sampling unit for the current year's audit, the auditor most likely would choose
When auditor discovered many differences between recorded account balances and confirmation replies and if these differences were resolved and were not misstatements, an auditor would choose individual invoices as a sample in the current year. Sampling of individual invoices would make it easier for customers to reply accurately.
AUD414153
Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?
Figures in a cash flow statement are derived from figures in other financial statements like the balance sheet and the income statement. Specifically, the cash flow statement contains net impact of amounts of incomes earned in cash, expenses incurred in cash and changes in balance sheet items due to movement of cash. Thus, the auditor should be able to reconcile amounts on the statement of cash flows to the other financial statements.
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AUD414753
In a retail entity, each self checkout pay station has a camera that permits a store employee to observe the item that is being scanned. The item being scanned and a written description of what is being scanned is displayed on store employees monitor. This control would ensure management assertion of:
A camera placed at each payment station that permits the store employee to observe the product that is being scanned would ensure completeness by ensuring that the customer has scanned all the items he is taking. The item being scanned and a written description of what is being scanned being displayed on store employees monitor would help store employee to observe that the correct bar code is being entered for the correct item, thus ensuring accuracy and classification.
AUD414434
When control risk is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying analytical procedures and
The requirement is to identify the most likely audit procedure, in addition to analytical procedures, when control risk for payroll is assessed as low. Accrual of payroll at year-end is not an entry made frequently throughout the year and accordingly recording of the entry is often not controlled by the payroll portion of the internal control structure. Thus the auditor may limit his substantive tests to applying analytical procedures and recalculating payroll accruals when control risk is assessed as low for assertions related to payroll.
AUD414106
Which of the following management assertions is specific to transaction level assertions over account balance and presentation and disclosure assertions?
Cut-off assertion means that all transactions were recorded within the correct reporting period and thus is specific to transaction level assertion. Account balance assertion is related to the ending balances in accounts and so relate primarily to the balance sheet. Presentation and disclosure relate to the presentation of information within the financial statements, as well as the accompanying disclosures. Thus, cut off is not related to either account balance or presentation and disclosure assertions. :check:
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AUD412010
An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year end?
If confirmations obtained during an interim date are reasonable; an auditor may not re-apply such procedures at year end. An auditor may review the supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year end.
AUD414152
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to:
The requirement is to determine the purpose of tracing a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. Completeness and accuracy are important when auditing purchase transactions because the risk that accounts payable and purchases will be understated is high. The given audit procedure enables the auditor to confirm that purchases have been properly recorded in the purchases journal and thus verify completeness.
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AUD414759
In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity’s financial statements most likely would consider the
The requirement is to identify the most likely consideration of an independent CPA when assessing the objectivity of internal auditors. Internal auditing standards developed by the Institute of Internal Auditors describe the requirements for the independence of internal auditors and would be an appropriate source of information about the internal auditor’s objectivity.