Questions and Answers of Auditing International Approach

If audit risk (AR) is 0.015, inherent risk (IR) is 0.50, control risk (CR) is 0.30, and analytical procedures risk (APR) is 0.50, what risk of incorrect acceptance (RIA) is suggested by the expanded
Is there any benefit to be gained from using the audit risk model to calculate risk of incorrect acceptance?
Does use of the audit risk model to calculate risk of incorrect acceptance remove audit judgment from the risk determination process?
What is the objective of test of controls auditing with attribute sampling? of test of a balance with monetary-value sampling?
When you have several alternative test of controls sample sizes to choose from, how do you choose the one to audit?
What are the links that connect test of controls sample planning with substantive balance-audit sample planning?
What is the proper interpretation of the probability in discovery sampling?
What is the UEL for these data: sample size audited = 46, actual deviations found = 3, effectiveness risk = 35%?
What is the auditing interpretation of the sampling error–adjusted deviation rate (UEL)?
What steps are involved in selecting a sample using the systematic random selection method?
Are you required to use all five digits of a random number when you have a random number table, such as the one at the end of this appendix?
When you subdivide a population into two populations for attribute sampling, how do the two samples compare to the one sample that would have been drawn if the population had not been subdivided?
Test yourself to see whether you can get the sample size of 70 using the Poisson risk factor equation with these specifications: effectiveness risk = 5%, tolerable deviation rate = 9%, expected
What facts, estimates, and judgments do you need to figure a test of controls sample size using the R value tables and Poisson risk factors? What other relevant judgment is not used?
Test yourself to see whether you can get the sample size of 87 from the R value table with these specifications: effectiveness risk = 5%, tolerable deviation rate = 9%, expected errors = 3.
What facts, estimates, and judgments do you need to figure a test of controls sample size using the R value tables? What other relevant judgment is not used?
What professional judgment and estimation decisions must be made by auditors when applying statistical sampling in test of controls audit work?
What is the connection between material dollar misstatement assigned for the substantive audit of a balance and tolerable deviation rate used in a test of controls sample?
What is the connection between possible assessments of control risk and a judgment about tolerable rate, both considered prior to performing test of controls audit procedures?
What is the probability of finding one or more deviations in a sample of 100 units if the deviation rate in the population is only 0.5%?
What is the probability of finding one or more deviations in a sample of 100 if the population deviation rate is actually 2%?
What general considerations are important when an auditor decides on an acceptable risk of assessing control risk too low?
What general considerations are important when an auditor decides on an acceptable risk of assessing control too high?
If inherent risk (IR) is assessed as 0.90 and the detection risk (DR) implicit in an audit plan is 0.10, what audit risk (AR) is implied when the assessed level of control risk is each of 0.10, 0.50,
An advantage of statistical sampling is that it helps an auditora. Eliminate non-sampling risk.b. Reapply evaluation judgments based on factors in addition to the sample evidence.c. Be precise and
The risk of incorrect acceptance in balance audit sampling and the risk of assessing control risk too low in test of controls sampling both relate to which of the following?a. Effectiveness of an
Stefani audited the client’s accounts receivable, but she could not get any good information about customer 102’s balance. The customer responded to the confirmation, saying, “Our system does
When calculating the total amount of misstatement relevant to the analysis of an account balance, an auditor should add which of the following to the misstatement discovered in individually
Which of the following should be considered an audit procedure for obtaining evidence?a. An audit sampling application in accounts receivable selectionb. Existence and proper valuation of the
Nelson next considered the sample size needed for a selection of customers’ accounts receivable for the substantive audit of the total accounts receivable. He presented the following information
Nelson Williams was considering the sample size needed for a selection of sales invoices for the test of controls audit of the LoHo Company’s internal controls. He presented the following
When auditing the client’s performance of control for the completeness objective related to recording sales, auditors should draw sample items from which of the following?a. A sales journal list of
Why does the efficiency risk affect audit efficiency and the effectiveness risk affect audit effectiveness?
Explain why control risk is inversely related to the risk of incorrect acceptance.
Why can poor controls over the existence of sales result in an overstated accounts receivable balance at year-end?
What two types of audit programs are ordinarily used as written plans for audit procedures?
Are auditors more likely to be sued successfully for sampling risk or for non-sampling risk?
Can non-sampling risk be avoided? Explain.
Can sampling risk be avoided? Explain.
Define sampling risk.
Why can a non-representative test not be done statistically?
Are testing, partial examination, and sampling the same thing? Explain your response.
What three choices are available to the auditor for deciding on the extent of audit procedures?
Give three reasons why auditors may choose to use sampling.
List audit procedures likely to be applied on a sample basis.
Give examples of auditing procedures that are not sampling applications.
How does sampling relate to forming an audit opinion on financial statements?
How does audit assurance relate to audit risk?
How do sampling risks relate to the overall audit objective of providing assurance on information?
How do auditors control non-sampling risk?
What is non-sampling risk?
How do auditors control sampling risk?
Which sampling risk is the most important in auditing and why?
What is the fundamental difference between statistical and non-statistical sampling?
What is the essential difference between representative and non-representative testing?
Why do auditors use the sampling concept as part of their testing procedure?
What are some limitations of using GAS?
What are five audit procedures that can be performed with GAS?
What are some advantages of using GAS?
Why is it important that data selected for parallel simulation tests are representative? How can the audit team determine if the data are representative?
Why does the test-data approach only provide evidence that the control operated at one point in time?
What role do CAATs play in the overall audit plan?
What types of control evidence can be provided using CAATs?
What is the difference between test data and parallel simulation, the two approaches used to audit through the computer using CAATs?
What is the difference between auditing through the computer and auditing with the computer?
What is GAS used for?
What are CAATs? What does auditing through the computer using CAATs refer to?
When would it be appropriate for the financial statement auditor to audit around the computer, that is, to treat the computer systems like a black box?
Why do auditors often evaluate environmental and general controls before application controls?
How do control weaknesses affect the audit risk assessment?
What does an auditor need to know about system conversion controls?
Describe the purposes of computer system documentation. Why should the auditor review the computer system documentation?
What aspects of documentation, file security, and retention control procedures are unique to computer systems?
Describe five types of editing or validation controls, and give an example of each for fields on a sales invoice form (e.g., customer name and number, dollar amount of the sale, shipping document
What is a self-checking number? Give your own example of one.
Application controls in information systems relate to input, processing, and output. Which of these is mainly oriented to error detection? prevention? correction?
What general and application controls are used in IT-based systems?
What are the characteristics of IT-based information systems?
What factors in the auditee’s systems indicate audit work may need to be performed at an interim date?
If an auditee has organized its information systems in a decentralized structure, what impact will this have on performing the audit?
List several aspects of the auditee’s information systems and IT that indicate the need for an IT specialist on the audit team.
How does the auditee’s use of an outside service organization to process accounting information affect planned audit procedures?
What impact does it have on the audit if the transaction trails in an auditee’s system are only available in machine-readable form for a limited period?
How does the extent to which information systems are computerized affect audit planning?
What is the audit trail? What is its use in the audit?
What are the key functions of the accounting system?
How do managers monitor control effectiveness? Why are controls monitored?
Bultz & Prime LLP is the external auditor for Bain Corp. You have been assigned to this audit. You are meeting with Chelsea, the Director of Finance, to discuss existing internal controls in
Four cases of control procedures used for financial statement items in different businesses are given below.Required:a. For each control procedure, evaluate whether there are significant risks in the
What internal control could be tested by the auditors of Mohit Corp. to support the objective of authorization for the cash account?a. A bank reconciliation is performed by a senior accountant on a
Mohit Corp. is a manufacturer of specialized diving gear. What internal control could be tested by its auditor to support the objective of proper period cutoff for their Cost of Goods Sold
Why does GAAS specifically require auditors to examine the adjusting entries made by management as part of the closing process at the end of the accounting period to prepare the financial
The auditee’s computerized exception-reporting system helps an auditor to conduct a more efficient audit because ita. Condenses data significantly.b. Highlights abnormal conditions.c. Decreases the
Control tests are required fora. Obtaining evidence about the financial statement assertions.b. Accomplishing control over the validity of recorded transactions.c. Analytical review of financial
Which of the following is a tool designed to help the audit team obtain evidence about the control environment and the accounting and control procedures of an audit client?a. A narrative memorandum
A bridge working paper shows the connection betweena. Control evaluation findings and subsequent audit procedures.b. Control objectives and accounting system procedures.c. Control objectives and
In most audits of large companies, internal control risk assessment contributes to audit efficiency, which meansa. The cost of year-end audit work will exceed the cost of control evaluation work.b.
In updating a computerized accounts receivable file, which of the following would be used as a batch control to verify the accuracy of the posting of cash receipts remittances?a. The sum of the cash
When performing an audit, the auditor must obtain an understanding of the internal controls relevant to the audit. Which of the controls below would be considered the least relevant to an audit?a.
A customer’s order was not approved for credit because the credit manager had not yet finished searching the customer’s credit rating information. Yet the goods were shipped, invoiced, and

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