ACCT 444 Week 3 Quiz Solution
ACCT 444 Week 3 Quiz Solution
Week 3 : Audit
Evidence, Planning, Risk, & Materiality – Quiz
1. (TCO 6) Physical examination is the inspection
or count by the auditor of items such as (Points : 3)
cash or inventory
only.
cash, inventory,
canceled checks, and sales documents.
cash, inventory,
canceled checks, and tangible fixed assets.
cash, inventory,
securities, notes receivable, and tangible fixed assets.
Chapter 7
1. (TCO 6) The distinction between physical
examination of assets and examination of documents is dependent on the item
being examined. If the object being examined has no inherent value, the
evidence is called (Points : 3)
documentation.
physical examination.
confirmation.
none of the above.
Chapter 7
1. (TCO 6) Which of the following statements
regarding documentation is not correct? (Points : 3)
Documentation includes
examining client records, such as general ledgers and supporting journals.
Internal documents are
documents that are generated within the company and used to communicate with
external parties.
External documents are
documents that are generated outside of the company and are used to communicate
the results of a transaction.
All of the above are
correct statements
Chapter 7
2. (TCO 6) Which of the following is not a
purpose of analytical procedures? (Points : 3)
Understand the
client’s industry
Assess the client’s
ability to continue as a going concern
Identify misstatements
Reduce detailed audit
tests
Chapter 7
2. (TCO 6) Analytical procedures are (Points : 3)
diagnostic tests of
financial information that may not be classified as evidential matter.
calculations of
financial information made by a computer.
substantive tests of
financial information made by a study and comparison of relationships among
data.
statistical tests of
financial information designed to identify areas requiring intensive investigation.
Chapter 7
2. (TCO 6) When analytical procedures reveal no
unusual fluctuations, the implication is that (Points : 3)
there are no material
errors or irregularities.
there are no material
errors.
there are no material
irregularities.
the possibility of a
material error or irregularity is lessened.
Chapter 7
3. (TCO 6) The Auditing Standards Board has
concluded that analytical procedures are so important that they are required
during (Points : 3)
planning and testing
phases.
planning and completion
phases.
testing and completion
phases.
planning, testing, and
completion phases.
Chapter 7
3. (TCO 6) The primary purpose of performing
analytical procedures in the testing phase of an audit is to (Points : 3)
help the auditor
obtain an understanding of the client’s industry and business.
assess the going
concern assumption.
indicate possible
misstatements.
reduce detailed tests.
Chapter 7
3. (TCO 6) Which of the following statements
regarding analytical procedures is not correct? (Points : 3)
The definition of
analytical tests emphasizes a comparison of client’s data to GAAP.
Analytical procedures
are required on all audits.
Analytical procedures
can be used as substantive tests.
For certain accounts
with small balances, analytical procedures alone may be sufficient evidence.
Chapter 7
4. (TCO 6) Which of the following statements
about confirmation is true? (Points : 3)
Confirmations are
expensive and so are often not used.
Confirmations may
inconvenience those asked to supply them, but they are widely used.
Confirmations are
sometimes not reliable and so auditors use them only as necessary.
None of the above
statements are true.
Chapter 7
4. (TCO 6) Three common types of confirmations
used by auditors are (1) negative confirmations where only a response is
requested if the debtor disagrees with the amount, (2) positive confirmations
with a request for information where the debtor is requested to respond and to
include their believed balance, and (3) positive confirmations with the
information included where the debtor is requested to respond and to confirm
the balance we give them. If they were placed in the order of their competence,
from highest to lowest, the sequence would be (Points : 3)
3, 1, 2.
1, 2, 3.
3, 2, 1.
2, 3, 1.
Chapter 7
4. (TCO 6) Traditionally, confirmations are used
to verify (Points : 3)
individual
transactions between organizations, such as sales transactions.
bank balances and
accounts receivables.
fixed asset additions.
All of the above
Chapter 7
5. (TCO 7) The major concern when using
nonfinancial data in analytical procedures is the (Points : 3)
accuracy of the
nonfinancial data.
source of the
nonfinancial data.
type of nonfinancial
data.
presence of multiple
sources of nonfinancial data.
Chapter 8
5. (TCO 7) Analytical procedures used in planning
an audit should focus on identifying (Points : 3)
material weaknesses of
internal control.
the predictability of
financial data from individual transactions.
the various assertions
that are embodied in the financial statements.
areas that may
represent specific risks relevant to the audit.
Chapter 8
5. (TCO 7) Which of the following is correct with
respect to the use of analytical procedures? (Points : 3)
Analytical procedures
may be used in evaluating balances in the testing phase as long as the auditor
also uses them in assessing the going concern assumption.
Analytical procedures
must be used throughout the audit.
Analytical procedures
used in the testing phase of the audit are primarily used to direct an
auditor’s attention so that the auditor’s understanding of the business is
improved.
None of the above
Chapter 8
6. (TCO 7) A measure of how willing the auditor
is to accept that the financial statements may be materially misstated after
the audit is completed and an unqualified opinion has been issued is the
(Points : 3)
inherent risk.
acceptable audit risk.
statistical risk.
financial risk.
Chapter 8
6. (TCO 7) When inherent risk is high, there will
need to be (Points : 3)
more evidence
accumulated.
more experienced staff
assigned to the work.
either a or b, but not
both.
both a and b.
Chapter 8
6. (TCO 7) A measure of the auditor’s assessment
of the likelihood that there are material misstatements in an account before
considering the effectiveness of the client’s internal control is (Points : 3)
acceptable audit risk.
control risk.
inherent risk.
statistical risk.
Chapter 8
7. (TCO 7) What is the responsibility of a
successor auditor with respect to communicating with the predecessor auditor in
connection with a prospective new audit client? (Points : 3)
The successor auditor
has no responsibility to contact the predecessor auditor.
The successor auditor
should obtain permission from the prospective client to contact the predecessor
auditor.
The successor auditor
should contact the predecessor regardless of whether the prospective client
authorizes contact.
The successor auditor
need not contact the predecessor if the successor is aware of all available
relevant facts.
Chapter 8
7. (TCO 7) A successor auditor may perform which
of the following for a new audit client? (Points : 3)
Speak to local
attorneys, banks, and other businesses regarding the company’s reputation
Speak to the
predecessor auditor about disagreements they had with management
Interview client
personnel to better understand the business and associated risks
All of the above
Chapter 8
7. (TCO 7) Which of the following is not correct
regarding the communications between successor and predecessor auditors?
(Points : 3)
The burden of
initiating the communication rests with the predecessor auditor.
The burden of
initiating the communication rests with the successor auditor.
The predecessor
auditor must receive their former client’s permission prior to divulging
information to the successor auditor.
The predecessor
auditor may choose to provide a limited response to a successor auditor.
Chapter 8
8. (TCO 8) The FASB definition of materiality
emphasizes what class of financial statement users? (Points : 3)
Regulators
Informed investors
Reasonable persons
Potential investors
Chapter 9
8. (TCO 8) Auditors are responsible for
determining whether financial statements are materially misstated, so upon
discovering a material misstatement, they must bring it to the attention of
(Points : 3)
regulators.
the audit firm’s
managing partner.
no one in particular.
the client’s
management.
Chapter 9
8. (TCO 8) The preliminary judgment about
materiality is the _____ amount by which the auditor believes the statements
could be misstated and still not affect the decisions of reasonable users.
(Points : 3)
minimum
maximum
mean average
median average
Chapter 9
9. (TCO 8) In setting materiality guidelines for
current assets, the two standard setters, FASB and the AICPA, provide the
following guidelines to practitioners (Points : 3)
Both agree that
materiality should be set at an amount greater than 10% of current assets.
FASB’s guideline is
greater than 10%, but the AICPA’s is greater than 5%.
Both agree that it
should be greater than 5%.
No specific
materiality guidelines are provided by either of them.
Chapter 9
9. (TCO 8) Auditors are _____ to decide on the
combined amount of misstatements in the financial statements that they would
consider material early in the audit. (Points : 3)
permitted
required
not allowed
strongly encouraged
Chapter 9
9. (TCO 8) When auditors allocate the preliminary
judgment about materiality to account balances, the materiality allocated to
any given account balance is referred to as (Points : 3)
the materiality range.
the error range.
tolerable materiality.
tolerable misstatement.
Chapter 9
10. (TCO 8) Which of the following is not a
correct statement regarding the allocation of the preliminary judgment about
materiality to balance sheet accounts? (Points : 3)
Auditors expect
certain accounts to have more misstatements than others.
The allocation has
virtually no effect on audit costs because the auditor must collect sufficient
appropriate audit evidence.
Auditors expect to
identify overstatements as well as understatements in the accounts.
Relative audit costs
affect the allocation.
Chapter 9
10. (TCO 8) Which of the following elements
ultimately determines the specific auditing procedures that are necessary in
the circumstances to afford a reasonable basis for an opinion? (Points : 3)
Inherent risk
Materiality
Auditor judgment
Reasonable assurance
Chapter 9
10. (TCO 8) Why do auditors establish a
preliminary judgment about materiality? (Points : 3)
To determine the
appropriate level of audit experience required for the work
So that the client can
know what records to make available to the auditor
To plan the
appropriate audit evidence to accumulate and develop an overall audit strategy
None of the above
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