As the acceptable level of detection risk decreases (Substantive tests), an auditor may change thea.Timing of substantive tests by performing them at an interim date rather than at year-end. (Down) – opposite would be up b.Nature of substantive tests from a less effective to a more effective procedure. (Up)c.Timing of tests of controls by performing them at several dates rather than at one time.CRd.Assessed level of inherent risk to a higher amount. IR 2
Based on evidence gathered and evaluated, an auditor decides to increase the assessed level of control riskfrom that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, an auditor might: (CR increase, PDR down, Evidence up)AAR = IR x CR x PDR (independent variables) PDR = AAR / IR x CRa.Decrease inherent risk. b.Decrease materiality levels. (increase evidence) c.Decrease substantive testing. (wrong direction)d.Increase detection risk. (wrong direction)Chapter 11Objectives and limitations of internal controlCOSO elements of internal controlControl activitiesWhich of the following is notan element of the internal control structure:a.Control environment.b.Control risk.c.Control procedures.d.Accounting system.An auditor would most likely review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's assertion ofa.Existence or occurrence.b.Rights and obligations.c.Valuation or allocation.d.Completeness. – usually prenumbered documents = completeness3
Problem 2 Sample Exam - COSO control frameworkFor each control, indicate which of the five COSO internal control components is best represented by each internal control.a. Control environmentb. Risk assessmentc. Control activitiesd. Information and communication – accounting system e. MonitoringControlCOSO Element1.The accounts receivable clerk reconciles the accounts receivable subsidiary ledger to the accounts receivable general ledger account on a monthly basis.
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