Audit
AUDITING THEORY
1. Which of the following activities is an analytical procedure an auditor would perform in the final overall review stage of an audit to ensure that the financial statements are free from material misstatement?
A. Reading the minutes of the board of directors’ meetings for the year under audit.
B. Obtaining a letter concerning potential liabilities from the client’s attorney.
C. Comparing the current year’s financial statements with those of the prior year.
D. Ensuring that a representation letter signed by management is in the file.
2. An auditor has identified the controller’s review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the controller to understand the specific data reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs. Which of the following types of audit procedures do these actions illustrate?
A. Observation and inspection of records.
B. Confirmation and reperformance.
C. Inquiry and inspection of records.
D. Analytical procedures and reperformance.
3. Which of the following is a definition of control risk?
A. The risk that a material misstatement will not be prevented or detected on a timely basis by the client’s internal controls.
B. The risk that the auditor will not detect a material misstatement.
C. The risk that the auditor’s assessment of internal controls will be at less than the maximum level.
D. The susceptibility of material misstatement assuming there are no related internal control policies or procedures.
4. Prior to, or in conjunction with, the information-gathering procedures for an audit, audit team members should discuss the potential for material misstatement due to fraud. Which of the following best characterizes the mindset that the audit team should maintain during this discussion?
A.
1. Which of the following activities is an analytical procedure an auditor would perform in the final overall review stage of an audit to ensure that the financial statements are free from material misstatement?
A. Reading the minutes of the board of directors’ meetings for the year under audit.
B. Obtaining a letter concerning potential liabilities from the client’s attorney.
C. Comparing the current year’s financial statements with those of the prior year.
D. Ensuring that a representation letter signed by management is in the file.
2. An auditor has identified the controller’s review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the controller to understand the specific data reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs. Which of the following types of audit procedures do these actions illustrate?
A. Observation and inspection of records.
B. Confirmation and reperformance.
C. Inquiry and inspection of records.
D. Analytical procedures and reperformance.
3. Which of the following is a definition of control risk?
A. The risk that a material misstatement will not be prevented or detected on a timely basis by the client’s internal controls.
B. The risk that the auditor will not detect a material misstatement.
C. The risk that the auditor’s assessment of internal controls will be at less than the maximum level.
D. The susceptibility of material misstatement assuming there are no related internal control policies or procedures.
4. Prior to, or in conjunction with, the information-gathering procedures for an audit, audit team members should discuss the potential for material misstatement due to fraud. Which of the following best characterizes the mindset that the audit team should maintain during this discussion?
A.