1. If an analytical procedure supports management representations, it provide

a. minimal evidence.

b. key item evidence.

c. corroborative evidence.

d. persuasive evidence.

2. Which of the following statements is NOT accurate as it relates to testing and the audit risk?

a. the nature, timing, and extent of tests are determined by the risk assessment

b. the nature, timing, and extent of tests are determined by the client's management c

c. professional judgement is required in determining the nature, timing, and extent of tests

d. the nature, timing, and extent of tests are performed to decrease audit risk to an acceptable level

3. Which of the following analytical procedures will most likely provide minimal evidence?

a. calculating the school fee per grade by the number of students in the respective grade

b. examining commissions expense by referring to the terms of the agreements and the payment dates

c. agreeing investment income by calculating the average amount invested to an average interest rate

d. understanding the reason for any large accounts receivable credit transactions on the ledger

4. Which of the following is true about the timing of substantive procedures?

a. more likely to take place at an interim date if the account balance accumulates transactions that will remain in the account balance at year end

b. more substantive testing takes place at an interim audit date if control risk is high

c. professional judgement is not required in determining if substantive testing can be done prior to year end

d. substantive testing cannot take place at an interim audit date

5. Which type of evidence is considered more reliable and relevant by the auditor?

a. accounts receivable confirmation

b. copy of cash receipt

c. minutes from management meetings

d. internally generated evidence

6. During the planning stage of the audit, the auditor is alerted to fluctuations in the financial data by

a. testing the controls.

b. performing combined substantive procedures.

c. gaining an understanding of the client's business and industry.

d. forming an opinion on the fairness of the financial statements.

7. Which of the following does NOT describe items that are included in the audit program?

a. timing of substantive procedures

b. extent of audit procedures

c. adjusting entries to be entered by management

d. nature of audit procedures

8. An auditor simply compares a current year balance with the prior year balance in order to help identify trends. This procedure provides

a. persuasive evidence.

b. key item evidence.

c. minimal evidence.

d. corroborative evidence.

9. What is the first step an auditor will take if they identify an error while performing a test of transactions?

a. inform the professional body of auditors

b. ask management to investigate the error

c. resign from the audit

d. automatically determine the statements are materially misstated

10. As it relates to the testing of the reliability of the underlying data for analytical procedures, which of the following is accurate?

a. when analytical procedures are to provide persuasive evidence, it is necessary to test the underlying data

b. it is always necessary to test the underlying data when the analytical procedure provides minimal assurance

c. when using analytical procedures to perform an overall financial statement analysis, it is necessary to test the underlying data

d. professional judgement is not required when determining if the underlying data is to be tested

11. The auditor spends significant time auditing cash discounts and sales returns because

a. the materiality is higher.

b. the risk of transactions being recorded to conceal stolen cash is higher.

c. these transactions reduce income.

d. management needs to authorize these transactions.

12. If a fictitious sale has been recorded, this affects the

a. valuation of accounts receivable.

b. existence of sales.

c. occurrence of accounts receivable.

d. occurrence of sales and existence of accounts receivable.

13. When a client operates in an industry subject to changing trends

a. the risk of material misstatement is increased.

b. the risk of fraud is increased.

c. the reputational risk of the client is decreased.

d. the risk of product obsolescence is reduced.

14. The auditor obtains evidence of pledging, assigning, or factoring of accounts receivable through

a. board minutes and discussion with management.

b. customer confirmations.

c. review of the accounts receivable subsidiary ledger.

d. substantive testing of details of balances.

15. The auditor needs to understand the systems and controls for sales and receivables transactions to

a. identify the risks of assertions.

b. retain the information in the audit files for future audits.

c. assess the strengths and weaknesses to plan the audit.

d. discuss with the audit committee.

16. Understanding client gross margins and expected receivable levels assists the auditor to

a. design controls over sales and accounts receivable.

b. understand the cash flow impact of accounts receivable.

c. calculate the net income of the client.

d. develop an expectation of revenue.

17. In order to satisfy the classification assertion, the auditor

a. identifies differences between the current and prior year chart of accounts.

b. tests a sample of journal entries for sales, cash receipts, and sales adjustment transactions.

c. tests all journal entries.

d. reviews the client chart of accounts.

18. The assessed level of detection risk for the accuracy assertion for accounts receivable is low when

a. control risk and inherent risk are assessed as high.

b. audit risk and industry risk are assessed as low.

c. control risk and inherent risk are assessed as low.

d. business risk and inherent risk are assessed as high.

19. If an auditor sends an accounts receivable confirmation, and does not receive a response,

a. The auditor will determine the account balance is misstated.

b. The auditor will replace the confirmation by sending another one to a different supplier.

c. The auditor will resign from the audit.

d. The auditor will attempt to perform alternative procedures.

20. If the management of a company receive bonuses based on the level of net income, how does this affect the inherent risk for revenue?

a. There is no impact on the inherent risk for revenue

b. Higher inherent risk that revenue is understated

c. Higher inherent risk that revenue is overstated

d. Lower inherent risk that revenue is overstated