Questions and Answers of Auditing Assurance Services

What were some of the important comments the COSO report made about internal controls?
Identify and explain the four categories of control procedure.
How might an auditor document his or her understanding of the accounting system?
What effect will the auditor’s preliminary assessment of control risk have on the extent of tests of control?
What is the purpose of tests of control, and what type of audit procedures can be used in undertaking tests of control?
What factors should be considered when the auditor attempts to co-ordinate his or her work with the entity’s internal auditors?
What does the auditor need to consider in determining the nature, timing and extent of tests of control?
Should the auditors comment on the satisfactory review and testing of the accounting and internal control systems in the auditors’ report?
The primary objective of procedures performed to obtain an understanding of the accounting system is to provide auditors with:(a) audit evidence to use in forming an overall opinion on the
As an external auditor, what objectives of internal control are you most interested in?(a) Compliance with applicable laws and regulations.(b) Reliability of financial reporting.(c) Effectiveness and
During consideration of the accounting and internal control systems in a financial statement audit, an auditor is not obligated to:(a) search for significant deficiencies in the operation of the
An auditor’s flow chart of an entity’s accounting system is a diagrammatic representation that depicts the auditor’s:(a) programme for tests of control.(b) understanding of the system.(c)
The auditor’s understanding of the accounting system is documented to substantiate:(a) the truth and fairness of the financial statements.(b) adherence to requirements of management.(c) compliance
What would be an appropriate sample of invoices to gain reasonable assurance that all payments are properly authorised as part of the annual audit?(a) Randomly pick one month and select every invoice
What is the best way for an auditor to obtain evidence about the controls in relation to ‘segregation of duties’?(a) Inspect documents and records to ensure an independent check has been
In determining the assessed level of control risk for an entity, an auditor must assess control risk as high when he or she has:(a) found no significant deficiencies in the internal control
Several categories of control activity are identified in the chapter using the following categorisation:A. Information processing controls:1. General controls 2. Application controls:(a) Proper
An audit was performed for Daley’s Motors. The evidence for the audit of cash receipts and cash payments was based primarily on testing controls. The audit assistant, as part of his interim control
Fabulous Fashion Ltd (FF) runs four private colleges which provide education and training for people in the fashion industry. Its two-year course includes training in design, textiles, manufacture
What is the difference between preliminary audit strategies and planned substantive procedures?
Why may the auditor specify different detection risks for different substantive tests of the same assertion?
What is the relationship, if any, between analytical procedures and substantive tests of details?
Under what circumstances might an auditor perform substantive procedures prior to the year-end?
What purposes are served by audit programmes?
How does the timing for preparing audit programmes differ, if at all, between an initial and a recurring engagement? Why?
Why would an auditor decide to perform a larger number of tests of details on profit and loss statement accounts?
What is the auditors’ objective in auditing accounting estimates? Indicate the factors to be considered in evaluating the reasonableness of accounting estimates.
Contrast tests of control and substantive procedures.
Which of the following is the only risk that can be manipulated by the auditors?(a) Control risk.(b) Detection risk.(c) Inherent risk.(d) Sampling risk.Choose the best answer
If the acceptable level of detection risk decreases, the assurance directly provided from:(a) substantive procedures should increase.(b) substantive procedures should decrease.(c) tests of control
The auditor assesses control risk because it:(a) includes the aspects of non-sampling risk that are controllable.(b) indicates where inherent risk may be the greatest.(c) affects the level of
The auditor is more likely to use analytical review as a substantive test when:(a) planned detection risk is high.(b) inherent risk is assessed as high.(c) control risk is assessed as low.(d) planned
Which of the following analytical procedures should be applied to the profit and loss statement?(a) Select sales and expense items and trace amounts to related supporting documents.(b) Ascertain that
As the acceptable level of detection risk decreases, an auditor may change the:(a) assessed level of inherent risk to a lower amount.(b) timing of tests of control by performing them at several dates
The procedures specifically outlined in an audit programme are primarily designed to:(a) protect the auditor in the event of litigation.(b) detect errors or irregularities.(c) test internal control
When would tests of details of profit and loss statement accounts be more likely to be required?(a) When control risk is low.(b) When substantial analytical procedures have been performed.(c) When
A new audit assistant at the accounting firm of Greentique and Partners was reviewing the planning strategy for her first audit. She could see that there was a very low inherent risk and control risk
Listed below are 15 substantive procedures:1. Perform a debtors’ circularisation.2. Review all invoices received for one month after year-end to ensure they do not relate to the current year.3.
Your client is PM Limited (PM), whose main business is maintaining commercial aircraft.PM has contracts with several major airlines to carry out maintenance exclusively on their planes when they are
Buildwell Manufacturing Company was formed 10 years ago. At that time it took out a 30- year mortgage to purchase land and a factory building that continues to house all of its manufacturing,
Define audit sampling. Is selecting all of the items within a population appropriately described as a method of sampling? Explain.
Distinguish between sampling risk and non-sampling risk.
Discuss the ‘risk of over-reliance’ and the potential implications for an audit.
What are the basic similarities and differences between statistical and non-statistical sampling?
What are the benefits to the auditor in using statistical sampling?
Discuss the factors that must be considered in determining sample size.
Define the term ‘tolerable deviation rate’ and discuss the factors that should be considered in deciding on the tolerable rate for both substantive procedures and tests of controls.
Indicate the information that may be used by the auditor to determine the expected population deviation rate.
What are the different methods available for selecting a sample? What method would auditors normally prefer?
When evaluating the results of substantive procedures, should the auditor request management to adjust the financial statements if the sample error exceeds the tolerable error? Discuss.
Discuss the advantages and disadvantages of using monetary unit sampling.
What factors would an auditor normally consider when deciding whether to use statistical or non-statistical sampling?
Which of the following does not constitute sampling?(a) Select all payments made during the year greater than £10,000 and ensure they have supporting documentation.(b) Select 50 purchase orders from
An advantage of using statistical sampling techniques is that such techniques:(a) mathematically measure risk.(b) eliminate the need for judgemental decisions.(c) define the values of tolerable error
What would most effectively describe the risk of incorrect rejection in terms of substantive audit testing?(a) The auditor has ascertained that the balance is materially correct when in actual fact
An advantage in using statistical sampling over non-statistical sampling methods in tests of control is that statistical methods:(a) eliminate the need to use judgement in determining appropriate
If all other factors remained constant, changing the tolerable deviation rate from 10 per cent to 12 per cent would mean:(a) that the sample size would increase.(b) that the sample size would remain
An underlying feature of random-based selection of items is that each:(a) stratum of the accounting population must be given equal representation in the sample.(b) item in the accounting population
Which of the following methods of sample selection is the least desirable in terms of extrapolating results to the population?(a) Systematic selection.(b) Random selection.(c) Block selection.(d)
What audit tests do you think would be most appropriate for monetary unit sampling?(a) To select a sample of debtors to confirm their balances.b) To ensure an appropriate level of management has
During the auditing planning of TKD Ltd, a manufacturer of blank video cassettes, the audit team highlighted the matters listed below:1. The audit partner wishes to place greater reliance on the
Consider each of the following results from tests of controls performed during an audit.Purchases The auditor used non-statistical sampling techniques to determine an appropriate sample size of 20 in
Wilson and Jones are auditing the 31 December 20X1 inventory of Sparks Ltd, a distributor of electronic parts. They have already performed procedures to satisfy themselves that(1) a computer
You are carrying out the audit of Top Tiles Ltd, a company that manufactures roofing tiles and other ceramic products for the building industry. The head office of Top Tiles is in Bigtown and
. What are the input devices for a computer accounting system?
Describe the three main computer files used. What are their equivalents in a manual system?
. For each of the three methods of data processing, indicate (1) their essential characteristics and (2) an advantage and a disadvantage.
What are some of the differences between using computers and using a manual system on an entity’s internal controls?
What specific knowledge about computer controls should the auditor acquire in obtaining an understanding?
. What are the three main CAATs used in testing controls? Compare and contrast these techniques.
What is generalised audit software? Identify the four main substantive procedure applications using this software.
What is microcomputer-based audit software? Identify the common applications of this software.
Discuss the main risks associated with EDI systems.
. What method of processing involves individual transactions being entered directly into a computer as they occur and generating batch control totals?(a) Batch entry/batch processing.(b) On-line
Internal control is ineffective when computer department personnel:(a) provide physical security for program files.(b) originate changes in master files.(c) design documentation for computerised
Most application systems have an ID that allows unlimited access to all parts of the system. In relation to a stand-alone purchases system, who would be the best person to have the ID allowing
Which of the following most likely constitutes a weakness in internal control in a computer environment?(a) The application programmer identifies programs required by the systems design and flow
One of the steps in assessing control risk in computer processing is identifying necessary controls to prevent data from being lost, added to, duplicated or altered during processing. An example of
An auditor may decide not to perform tests of control related to the control procedures within the computerised portion of the entity’s accounting system. Which of the following would not be a
What would be the most reliable source of evidence available to ensure that a key computer program has not changed since the prior year’s audit?(a) A report showing computer hardware maintenance
When an auditor tests a computerised accounting system, which of the following is true of the test data approach?(a) Several transactions of each type must be tested.(b) Test data must consist of all
A primary advantage of using generalised audit software packages to audit the financial information of an entity that uses computer processing is that the auditor may:(a) access information stored on
The introduction of electronic data interchange and electronic funds transfer in the purchasing system of a bookstore is most likely to:(a) tighten the cash flow.b) lengthen the purchasing cycle
Your firm is the auditor of Motor Components Ltd, which manufactures electrical components it then sells to car manufacturers and retailers. It has a number of factories, at different geographical
Your client McDuck Ltd holds a large portfolio in shares of other entities - approximately 80 per cent of them are listed on the stock exchange. Approximately 800 parcels of shares are held. The
What were some of the reasons for the growth in demand for auditing in the 19th century?
How did the audit function evolve in the UK?
Discuss what is meant by auditing having a ‘shifting paradigm’. How has this affected the objectives of the external company audit?
Describe the three main levels of audit services. What is the most common service?Why?
Discuss the influence of the two accountancy bodies in setting standards and regulating professional activities.
What role do supervisory bodies have in the regulation of auditors?
Discuss and differentiate between the types of audit activity that an auditor may perform.
Discuss the different types of non-attest services.
How does the profession/government ensure that external company audits are performed at an appropriate level of quality?
What was the predominant objective of an ‘audit’ before 1900?(a) To ensure that the financial statements were free from all material errors.(b) To detect fraud.(c) To ensure that all internal
What would not be described as part of the conformance role of auditing?(a) Evaluate reasonableness of business plans.(b) Check that the organisation complies with statutory matters.(c) Ensure the
What is the main concern of the accounting profession in relation to an increase in the level of assurance required for audits?(a) Their time budgets will become tighter.(b) It will increase their
What provides the highest level of assurance?(a) Audit.(b) Agreed-upon procedures.(c) Review.(d) It depends on the nature of the engagement.Choose the best answer.
What has been the primary growth area in recent years for the public accounting profession?(a) Auditing services.(b) Consulting services.(c) Taxation services.(d) Insolvency services.Choose the best
The primary objective of a financial statement audit is to:a) ensure that the company is free from all fraud.b) provide assurance about the future viability of the company.c) express an opinion on

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