QUESTION 19

1. An auditor is calculating a sample size related to substantive tests of balances, which factor with other factors being equal, would result in a sample that is larger?

   	a.	greater tolerable misstatement
   	b.	small expected misstatements
   	c.	smaller tolerable misstatement
   	d.	greater expected misstatement

2 points

QUESTION 20

1. The auditor is performing the risk assessment to complete audit planning phase-I of the sales and collections cycle. Which statement is the most accurate statement related to this planning phase?

   	a.	For assertions identified to have significant risk, auditors are required to conduct substantive audit testing.
   	b.	The auditor must relate control risk for transaction-related audit objectives to balance-related audit objectives in deciding planned inherent risk.
   	c.	The realizable value balance-related audit objectives are affected by assessed control risk for classes of transactions.
   	d.	All of the above are accurate statements.

2 points

QUESTION 21

1. True or False - For most audits, revenue recognition is considered to be a significant risk due to possibility of fraudulent activity, complex revenue recognition standards and visibility of the account to users of the financial statement.

   	a.	True
   	b.	False

2 points

QUESTION 22

1. There are two types of confirmations the auditor can use in testing accounts receivable. Select the most accurate statement

   	a.	A positive confirmation is a letter, addressed to the supplier, requesting that the recipient indicate directly on the letter whether the stated account balance is correct or incorrect.
   	b.	A negative confirmation is a letter, addressed to the supplier, but it requests a response only if the recipient disagrees with the amount of the stated account balance.
   	c.	A positive confirmation is more reliable evidence because the auditor can perform follow-up procedures if a response is not received from the debtor.
   	d.	All of the above are accurate statements.

2 points

QUESTION 23

1. Auditing standards indicate that it is acceptable to use negative confirmations only when certain circumstances are present. Which one of the following are deemed acceptable?

   	a.	Auditor obtained sufficient appropriate evidence regarding the design and operating effectiveness of controls relevant to the assertion being tested by the confirmation procedure and auditor assessed risk of material misstatement as low.
   	b.	The population of items subject to negative confirmation procedures is made up of a small number of large, homogenous account balances, transactions, or other items.
   	c.	The auditor expects a high exception rate.
   	d.	The auditor reasonably believes costs outweigh the benefits.

2 points

QUESTION 24

1. A staff auditor is analyzing account receivable and sales data for a client (ie: performing analytical procedures). Related to analytical procedures, which statement is correct?

   	a.	Based on analytical procedures auditor find a potential misstatement in sales, accounts payable is usually reconciling misstatement.
   	b.	Results of analytical procedures should be compared to budgets and industry trends.
   	c.	If sales are misstated, the income statement will be incorrect, but the balance sheet will be correct.
   	d.	If an analytical procedure uncovers an unusual fluctuation, the auditor must assume fraud is involved.

2 points

QUESTION 25

1. Audit procedures designed to uncover credit sales made after the client's fiscal year-end that relate to the current year being audited provide evidence for which of the following audit objectives?

   	a.	realizable value
   	b.	accuracy
   	c.	cutoff
   	d.	existence