The ultimate purpose of understanding internal control is to contribute to the auditor's evaluation of the risk that
Material misstatements may exist in the financial statements.
The risks of material misstatement (RMMs) should be assessed in terms of
Financial statement assertions.
When assessing the risks of material misstatement at a low level, an auditor is required to
Understanding of the Entity's Control Environment: Yes
Overall Responses to Assessed Risks: Yes
Which of the following is a step in an auditor's decision to rely on internal controls?
Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls.
`Which of the following statements about the auditor's response to assessed risks of material misstatement in a financial statement audit is true?
Risk assessment procedures performed to obtain an understanding of an entity's internal control also may serve as tests of controls.
Regardless of the assessed risks of material misstatement, an auditor should perform some
Substative procedures to restrict detection risk for significant transaction classes.
Based on an understanding of internal control completed at an interim date, the auditor assessed the risks of material misstatement at the relevant assertion level and performed interim substantive procedures. the records will most likely be tested again
The remaining period is long.
The auditor should perform tests of controls when the auditor's risk assessment includes and expectation.
Of the operating effectiveness of internal control.
Which of the following procedures is not used in tests of controls over purchases?
Confirm inventory held in public warehouses.
Tests of controls are concerned primarily with each of the following questions except
Were the controls approved by the board of directors?
The auditor should perform tests of controls when the auditor's assessment of the risks of material misstatement includes an expectation of the operating effectiveness of internal control or when
Substative procedures alone cannot provide sufficient appropriate audit evidence at the relevant assertion feel.
The objective of tests of details of transactions performed as tests of controls is to
Evaluate whether internal controls operated effectively.
To test the effectiveness of controls, an auditor ordinarily selects from a variety of techniques, including
Reperformance and observation.
An auditor wishes to evaluate the design and perform tests of controls over a client's each disbursements procedures. If th controls leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
Observation and inquiry.
Which of the following procedures concerning accounts receivable is an auditor most likely to perform to obtain evidence in support of the effectiveness of controls?
Observing an entity's employee prepare the schedule of past due accounts receivable.
In performing tests of controls, the auditor will normally find that
The rate of deviations in the sample exceeds the rate of error in the accounting records.
When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate?
Test the operating effectiveness of such controls in the current audit.
Tests of controls in a financial statement audit are least likely to be omitted with regard to
Accounts representing many transactions.
Which of the following could the auditor examine only in online systems?
Levels of terminal access.
Which of the following types of evidence should an auditor most likely examine to determine whether internal controls are operating as designed?
Client recors documenting the use of computer programs.
The major purpose of the auditor's study and evaluation of the company's computer processing operations is to
Evaluate the reliability and integrity of financial information.
JP Industries conducts its business using IT, and he only documentation of transactions is produced through the IT system. The auditor has concluded that it is not possible to obtain sufficient substantive procedures for a number of financial statement as
Perform tests on controls.
After reviewing terminal security controls, the auditor has concluded that the controls are insufficient. Which of the following audit techniques could the auditor have used to reach this conclusion?
`i, iii, and iv.
Which of the following statements about the assessment of the risks of material misstatement in a client's computer environment is true?
The auditor's objectives with respect to the assessment of the risks of material misstatement are the same as in a manual system.
After gaining an understanding of client's computer processing internal control, a financial statement auditor may decide not to test the effectiveness of the computer processing control procedures. Which of the following is not a valid reason for choosin
The assessment of the risks of material misstatement permits the auditor to rely on the controls.
When an accounting application is processed by computer, and auditor cannot verify the reliable cooperation of automated controls by
Manually reperforming, as of a moment in time, the processing of input data and comparing the simulated results with the actual results.
The auditor's primary concern when an audit's programmer writes a program to age inventory is
Loss of independence.
Which of the following necessary to audit balances in an online computer system in an environment of destructive updating?
A well-documented audit trail.
Which of the following strategies would a CPA mot likely consider in auditing an entity that processes most of its financial data only in electronic form, such as a paperless system?
Continuous monitoring and analysis of transaction processing with an embedded audit module.
Auditing through the computer is required when
Processing is primarily online and updating is real-time.
A client maintins a large data center where access is limited to authorized employees. How may an auditor best determine the effectiveness of this control activity?
Observe whether the data center is monitored.
A primary reason auditors are reluctant to use and ITF (mini company technique) is that it requires them to
Identify and reverse the fictitious entries to avoid contamination of control totals.
The following flowchart depicts
Parallel simulation.
Tests of controls in an advanced computer system
Con be performed using actual transactions of simulated transactions.
When an auditor tests a computerized accounting system, which of the following is true of the test data approach?
Test data are processed by client's computer programs under the auditor's control.
To determine whether any unauthorized program changes have been made since the last authorized program update, the best computer audit technque is for the auditor to conduct a
Code comparison.
In auditing an online perpetual inventory system, an auditor selected certain file-updating transactions for detailed testing. The audit technique that will provide a computer trail of all relevant processing steps applied to a specific transaction is des
Tagging and tracing.
Parallel simulation (the audit model technique) is an appropriate audit approach for
Calculating amounts for declining-balance depreciation charges.
To obtain evidence that online access controls are properly functioning, an auditor most likely will
Enter invalid identification numbers or passwords to ascertain whether the system rejects them.
Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed together without the knowledge of client operating personnel?
Integrate test facility (ITF).
Which of the following is likely to be least important to an auditor who is considering internal control for the automated data processing function?
Disk capacity.
The audit effort most likely to yield relevant evidence in determining the adequacy of an organization's disaster-recovery plan should focus on
The completeness of the plan as to facilities, operations, communications, security and data processing.
Auditors have learned that increased computerization has created more opportunities for computer fraud but has also led to the development of computer audit techniques to debt frauds. A type of fraud that has occurred in the banking industry is a programm
Parallel simulation.
Which of the following is the primary reason that many auditors hesitate to use embedded audit modules?
Auditors are required to be involved in the system design of the application to be monitored.
The ultimate purpose of understanding internal control is to contribute to the auditor's evaluation of the risk that
Material misstatements may exist in the financial statements.
The risks of material misstatement (RMMs) should be assessed in terms of
Financial statement assertions.
When assessing the risks of material misstatement at a low level, an auditor is required to
Understanding of the Entity's Control Environment: Yes
Overall Responses to Assessed Risks: Yes
Which of the following is a step in an auditor's decision to rely on internal controls?
Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls.
`Which of the following statements about the auditor's response to assessed risks of material misstatement in a financial statement audit is true?
Risk assessment procedures performed to obtain an understanding of an entity's internal control also may serve as tests of controls.
Regardless of the assessed risks of material misstatement, an auditor should perform some
Substative procedures to restrict detection risk for significant transaction classes.
Based on an understanding of internal control completed at an interim date, the auditor assessed the risks of material misstatement at the relevant assertion level and performed interim substantive procedures. the records will most likely be tested again
The remaining period is long.
The auditor should perform tests of controls when the auditor's risk assessment includes and expectation.
Of the operating effectiveness of internal control.
Which of the following procedures is not used in tests of controls over purchases?
Confirm inventory held in public warehouses.
Tests of controls are concerned primarily with each of the following questions except
Were the controls approved by the board of directors?
The auditor should perform tests of controls when the auditor's assessment of the risks of material misstatement includes an expectation of the operating effectiveness of internal control or when
Substative procedures alone cannot provide sufficient appropriate audit evidence at the relevant assertion feel.
The objective of tests of details of transactions performed as tests of controls is to
Evaluate whether internal controls operated effectively.
To test the effectiveness of controls, an auditor ordinarily selects from a variety of techniques, including
Reperformance and observation.
An auditor wishes to evaluate the design and perform tests of controls over a client's each disbursements procedures. If th controls leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
Observation and inquiry.
Which of the following procedures concerning accounts receivable is an auditor most likely to perform to obtain evidence in support of the effectiveness of controls?
Observing an entity's employee prepare the schedule of past due accounts receivable.
In performing tests of controls, the auditor will normally find that
The rate of deviations in the sample exceeds the rate of error in the accounting records.
When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate?
Test the operating effectiveness of such controls in the current audit.
Tests of controls in a financial statement audit are least likely to be omitted with regard to
Accounts representing many transactions.
Which of the following could the auditor examine only in online systems?
Levels of terminal access.
Which of the following types of evidence should an auditor most likely examine to determine whether internal controls are operating as designed?
Client recors documenting the use of computer programs.
The major purpose of the auditor's study and evaluation of the company's computer processing operations is to
Evaluate the reliability and integrity of financial information.
JP Industries conducts its business using IT, and he only documentation of transactions is produced through the IT system. The auditor has concluded that it is not possible to obtain sufficient substantive procedures for a number of financial statement as
Perform tests on controls.
After reviewing terminal security controls, the auditor has concluded that the controls are insufficient. Which of the following audit techniques could the auditor have used to reach this conclusion?
`i, iii, and iv.
Which of the following statements about the assessment of the risks of material misstatement in a client's computer environment is true?
The auditor's objectives with respect to the assessment of the risks of material misstatement are the same as in a manual system.
After gaining an understanding of client's computer processing internal control, a financial statement auditor may decide not to test the effectiveness of the computer processing control procedures. Which of the following is not a valid reason for choosin
The assessment of the risks of material misstatement permits the auditor to rely on the controls.
When an accounting application is processed by computer, and auditor cannot verify the reliable cooperation of automated controls by
Manually reperforming, as of a moment in time, the processing of input data and comparing the simulated results with the actual results.
The auditor's primary concern when an audit's programmer writes a program to age inventory is
Loss of independence.
Which of the following necessary to audit balances in an online computer system in an environment of destructive updating?
A well-documented audit trail.
Which of the following strategies would a CPA mot likely consider in auditing an entity that processes most of its financial data only in electronic form, such as a paperless system?
Continuous monitoring and analysis of transaction processing with an embedded audit module.
Auditing through the computer is required when
Processing is primarily online and updating is real-time.
A client maintins a large data center where access is limited to authorized employees. How may an auditor best determine the effectiveness of this control activity?
Observe whether the data center is monitored.
A primary reason auditors are reluctant to use and ITF (mini company technique) is that it requires them to
Identify and reverse the fictitious entries to avoid contamination of control totals.
The following flowchart depicts
Parallel simulation.
Tests of controls in an advanced computer system
Con be performed using actual transactions of simulated transactions.
When an auditor tests a computerized accounting system, which of the following is true of the test data approach?
Test data are processed by client's computer programs under the auditor's control.
To determine whether any unauthorized program changes have been made since the last authorized program update, the best computer audit technque is for the auditor to conduct a
Code comparison.
In auditing an online perpetual inventory system, an auditor selected certain file-updating transactions for detailed testing. The audit technique that will provide a computer trail of all relevant processing steps applied to a specific transaction is des
Tagging and tracing.
Parallel simulation (the audit model technique) is an appropriate audit approach for
Calculating amounts for declining-balance depreciation charges.
To obtain evidence that online access controls are properly functioning, an auditor most likely will
Enter invalid identification numbers or passwords to ascertain whether the system rejects them.
Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed together without the knowledge of client operating personnel?
Integrate test facility (ITF).
Which of the following is likely to be least important to an auditor who is considering internal control for the automated data processing function?
Disk capacity.
The audit effort most likely to yield relevant evidence in determining the adequacy of an organization's disaster-recovery plan should focus on
The completeness of the plan as to facilities, operations, communications, security and data processing.
Auditors have learned that increased computerization has created more opportunities for computer fraud but has also led to the development of computer audit techniques to debt frauds. A type of fraud that has occurred in the banking industry is a programm
Parallel simulation.
Which of the following is the primary reason that many auditors hesitate to use embedded audit modules?
Auditors are required to be involved in the system design of the application to be monitored.