Audit
AUDITING THEORY
8. Which of the following should an auditor do when control risk is assessed at the maximum level?
A. Perform fewer substantive tests of details.
B. Perform more tests of controls.
C. Document the assessment.
D. Document the internal control system more extensively.
9. Which of the following is least likely to be a test of a control?
A. Inquiries of appropriate personnel.
B. Inspection of management’s engagement letter.
C. Observation of the application of a policy.
D. Reperformance of the application of a policy.
10. Which of the following controls may prevent the failure to bill customers for some shipments?
A. Each shipment should be supported by a prenumbered sales invoice that is accounted for.
B. Each sales order should be approved by authorized personnel.
C. Sales journal entries should be reconciled to daily sales summaries.
D. Each sales invoice should be supported by a shipping document.
11. If the objective of a test of details is to detect overstatements of sales, the auditor should trace transactions from the
A. Cash receipts journal to the sales journal.
B. Sales journal to the cash receipts journal.
C. Source documents to the accounting records.
D. Accounting records to the source documents.
12. Which of the following is least likely to be considered when assessing inherent risk?
A. Nonroutine transactions.
B. Estimation transactions.
C. Susceptibility to theft.
D. Expected effectiveness of controls.
13. The risk that an auditor’s procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as
A. Audit risk
B. Inherent risk
C. Control risk
D. Detection risk
14. Evidential matter concerning proper segregation of duties ordinarily is best obtained by
A. Preparation of a flowchart of duties performed by available personnel.
B. Inquiring whether control activities operated consistently throughout
8. Which of the following should an auditor do when control risk is assessed at the maximum level?
A. Perform fewer substantive tests of details.
B. Perform more tests of controls.
C. Document the assessment.
D. Document the internal control system more extensively.
9. Which of the following is least likely to be a test of a control?
A. Inquiries of appropriate personnel.
B. Inspection of management’s engagement letter.
C. Observation of the application of a policy.
D. Reperformance of the application of a policy.
10. Which of the following controls may prevent the failure to bill customers for some shipments?
A. Each shipment should be supported by a prenumbered sales invoice that is accounted for.
B. Each sales order should be approved by authorized personnel.
C. Sales journal entries should be reconciled to daily sales summaries.
D. Each sales invoice should be supported by a shipping document.
11. If the objective of a test of details is to detect overstatements of sales, the auditor should trace transactions from the
A. Cash receipts journal to the sales journal.
B. Sales journal to the cash receipts journal.
C. Source documents to the accounting records.
D. Accounting records to the source documents.
12. Which of the following is least likely to be considered when assessing inherent risk?
A. Nonroutine transactions.
B. Estimation transactions.
C. Susceptibility to theft.
D. Expected effectiveness of controls.
13. The risk that an auditor’s procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as
A. Audit risk
B. Inherent risk
C. Control risk
D. Detection risk
14. Evidential matter concerning proper segregation of duties ordinarily is best obtained by
A. Preparation of a flowchart of duties performed by available personnel.
B. Inquiring whether control activities operated consistently throughout