1 The auditing firm of Ferentz, Fry and Parrino has implemented polices to improve client acceptance,
supervision of staff and monitoring of their engagements. The most likely reason the firm is doing this is because: a. To pass the annual COSO peer review performed by another auditing firm. b. To improve the quality of their audits. c. To comply with the AICPA Field Standards. d. To comply with the guidelines contained within GAAS. 2 True or false: Compliance testing is the same as tests of controls. a. True b. False c. d. 3 If the tolerable error rate is 5% and the sample error rate is 8%, the impact on the auditor's work plan will likely be which of the following? a. Not to do any extra work. b. Increase the sample size to get better results. c. Do additional testing later in the audit. d. None of the above. 4 Prenumbered documents will only be useful for control purposes if: a. a different numerical sequence is used for each company. b. employees do not have access to the complete sequence. c. the sequence is accounted for and reconciled periodically. d. all of the above are true. 5 True or false: The members of the Audit Committee of public company should be members of the board of directors or management who are financial experts. a. True b. False c. d. 6 Which of the following is not a characteristic of the reliability of evidence? a. Qualification of individual providing information. b. Auditor's direct knowledge. c. Cost to obtain. d. Degree of objectivity. 7 When positive confirmations are used, auditing standards require follow-up procedures for confirmations not returned by the customer. In such a situation, which of the following would not be classified as an alternative procedure? a. Send a second confirmation request. b. Examine subsequent cash receipts to determine if the receivable has been paid. c. Examine shipping documents to verify that the merchandise was shipped. d. Examine customer’s purchase order and the duplicate sales invoice to determine that the merchandise was ordered. 8 The advantage of using the negative form of confirmations is that: a. larger sample sizes can be used without increasing the costs above what would have been required for positive confirmations. b. customer’s silence proves that the balance is correct. c. follow-up procedures are scheduled automatically. d. All of the above are advantages. 9 The basic components of internal control are: a. Operations, financial reporting, and compliance. b. Control environment, risk assessment, information, communication, and compliance. c. Financial reporting. d. Control environment, risk assessment, control activities, information and communication, and monitoring. 10 Program change controls are what type of control? a. ITGC b. GCC c. Both a and b. d. None of the above 11 Which of the following statements regarding inherent risk is correct? a. Inherent risk is dependent upon the strengths in client’s internal control system. b. Most auditors set a high inherent risk in the first year of an audit and reduce it in subsequent years as they gain experience. c. Most auditors set a low inherent risk in the first year of an audit and increase it if experience shows that it was incorrect. d. The inherent risk assigned in the audit risk model is unaffected by the auditor’s experience with client’s organization. 12 What portions of a public company's internal control does the auditor not test? a. Efficiency and effectiveness of operations b. Efficiency and effectiveness of operations, and compliance with laws and regulations. c. Compliance with laws and regulations. d. Reliability of financial reporting 13 Narratives, flowcharts, and internal control questionnaires are three common methods of: a. testing the internal controls. b. documenting the auditor’s understanding of internal controls. c. designing the audit manual and procedures. d. documenting the auditor’s understanding of a client’s organizational structure. 14 If the tolerable error rate is 5% and the sample error rate is 50% the impact on the auditor's work plan will likely be which of the following? a. Include this matter in the representation letter. b. Include this matter in the engagement letter. c. Include this matter in the management letter. d. None of the above. 15 If the auditor has not obtained the anticipated level of assurance about the fair presentation of the financial statements through understanding internal control, assessing control risk, testing controls, and performing analytical procedures, then the auditor should: a. do additional tests of controls so that the assurance level can be increased. b. issue an engagement letter to the Board of Directors. c. increase substantive testing. d. issue an unqualified opinion. 16 Rank the following audit tests from most persuasive to least persuasive in terms of evidence produced for tests of internal controls. a. Reperformance, observation, inquiry. b. Inquiry, observation, reperformance. c. Observation, inquiry, reperformance. d. Reperformance, inquiry, observation. 17 Another term for non-statistical sampling is: a. haphazard sampling. b. random sampling. c. judgmental sampling. d. representative sampling. 18 The auditor has just determined that the client has poorer controls than expected in the area of granting credit to new and existing customers. What is the most appropriate change to the audit plan? a. No changes will be necessary. b. Increase the testing of the reserve for uncollectible accounts. c. Increase the testing of the reserve for uncollectible accounts and for sales returns. d. Increase the testing of sales transactions. 19 Which of the following are all appropriate selection methods for non-statistical sampling? a. Directed, Block, Haphazard b. Directed, Block, Random c. Stratified, Probability Proportionate to Size, Random d. Stratified, Probability Proportionate to Size, Haphazard 20 An auditor has a feeling that the CFO may be stealing money from the company through the mis-use of wire transfers. The auditor should: a. report the matter to the Board of Directors and the company's lawyers. b. create additional audit tests to gather more evidence. c. report the matter to the local police for investigation. d. add a paragraph to the representation letter that states that no executives are involved in any significant frauds.
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