CPA Questions Exam 2 Latest Graded A+

An advantage of using statistical over non-statistical sampling methods in tests of controls is that the statistical methods a) can more easily convert the sample into a dual-purpose test useful for substantive testi ...

An advantage of using statistical over non-statistical sampling methods in tests of controls is that the statistical methods a) can more easily convert the sample into a dual-purpose test useful for substantive testing. b) eliminate the need to use judgement in determining appropriate sample sizes c) afford greater assurance than a non-statistical sample of equal size d) provide an objective basis for quantitatively evaluating sample risk - ANSWER D An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to a) eliminate the risk of non-sampling errors b) reduce the level of audit risk and materiality to a relatively low amount c) measure the sufficiency of the evidential matter obtained d) minimize the failure to detect errors and fraud - ANSWER C The likelihood of assessing control risk too high is the risk that the sample selected to test controls a) does not support the auditor's planned assessed level of control risk when the true operating effectiveness of the control structure justifies such an assessment b) contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes c) contains proportionately fewer monetary errors or deviations from prescribed controls than exist in the balance or class as a whole d) does not support the tolerable error for some or all of management's assertions - ANSWER A The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the a) allowable risk of tolerable misstatement b) preliminary estimates of materiality levels c) efficiency of the audit d) effectiveness of the audit - ANSWER D Which of the following best illustrates the concept of sampling risk? a) a randomly chosen sample may not be representative of the population as a whole on the characteristic of interest b) an auditor may select audit procedures that are not appropriate to achieve the specific objectives c) an auditor may fail to recognize errors in the documents examined for the chosen sample d) the documents related to the chosen sample may not be available for inspection - ANSWER A In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the a) efficiency of the audit b) effectiveness of the audit c) selection of the sample d) audit quality controls - ANSWER A While performing a test of details during an audit, an auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation illustrates the risk of a) assessing control risk too high b) assessing control risk too low c) incorrect rejection d) incorrect acceptance - ANSWER C The expected population deviation rate of client billing errors is 3%. The auditor has established a tolerable rate of 5%. In the review of client invoices the auditor should use a) stratified sampling b) variable sampling c) discovery sampling d) attribute sampling - ANSWER D Which of the following sampling methods would be used to estimate a numerical measurement of population, such as a dollar value? a) attribute sampling b) stop-or-go sampling c) variables sampling d) random-number sampling - ANSWER C For which of the following audit tests would an auditor most likely use attribute sampling? a) making an independent estimate of the amount of a LIFO inventory b) examining invoices in support of the valuation of fixed asset additions c) selecting accounts receivable for confirmation of account balances d) inspecting employee time cards for proper approval by supervisors - ANSWER D An underlying feature of random-based selection of items is that each a) stratum of the accounting population be given equal representation in the sample b) item in the accounting population be randomly ordered c) item in the accounting population should have an opportunity to be selected d) item must be systematically selected using replacement - ANSWER C When performing a test of control with respect to control over cash receipts, an auditor may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling is that the items in the population a) must be systematically replaced in the population after sampling b) may systematically occur more than once in the sample c) must be recorded in a systematic pattern before the sample can be drawn d) may occur in a systematic pattern, thus destroying the sample randomness - ANSWER D As a result of test of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was a) less than the risk of assessing control risk too low, based on the auditor's sample b) less than the deviation rate in the auditor's sample c) more than the risk of assessing control risk too low, based on the auditor's sample d) more than the deviation rate in the auditor's sample - ANSWER D Which of the following factors is (are) considered in determining the sample size for a test of controls? a) expected deviation rate and tolerable deviation rate b) neither expected deviation rate or tolerable deviation rate c) tolerable deviation rate d) expected deviation rate - ANSWER A Which of the following statements is correct concerning statistical sampling in tests of controls? a) deviations from control procedures at a given rate usually result in misstatements at a higher rate b) as the population size doubles, the sample size should also double c) the qualitative aspects of deviations are not considered by the auditor d) there is an inverse relationship between the sample size and the tolerable rate - ANSWER D In determining the sample size for a test of controls, an auditor should consider the likely rate of deviations, the allowable risk of assessing control risk too low, and the a) tolerable deviation rate b) risk of incorrect acceptance c) nature and cause of deviations d) population size - ANSWER A Which of the following procedures concerning accounts receivable would an auditor most likely perform to obtain evidence in support of an assessed level of control risk below the maximum? a) observing an entity's employee prepare the schedule of past due A/R b) sending confirmation requests to an entity's principal customers to verify the existence of A/R c) inspecting an entity's analysis of A/R for unusual balances d) comparing an entity's uncollectible accounts expense to actual uncollectible A/R - ANSWER A Which of the following procedures would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet? a) observe the consistency of the employees' use of cash registers and tapes b) inquire about employees' access to recorded but undeposited cash c) trace deposits in the cash receipts journal to the cash balance in the general ledger d) compare the cash balance in the general ledger with the bank confirm request - ANSWER A Sound internal control dictates that immediately upon receiving checks from customers by mail, a responsible employee should a) add the checks to the daily cash summary b) verify that each check is supported by a prenumbered sales invoice c) prepare a duplicate listing of checks received d) record the check in the cash receipts journal - ANSWER C Tracing shipping documents to prenumbered sales invoices provides evidence that a) no duplicate shipments or billings occurred b) shipments to customers were properly invoiced c) all goods ordered by customers were shipped d) all prenumbered sales invoices were accounted for - ANSWER B Which of the following controls most likely would reduce the risk of diversion of customer receipts by an entity's employees? a) a bank lockbox system b) prenumbered remittance advices c) monthly bank reconciliations d) daily deposit of cash receipts - ANSWER A An auditor suspects that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor most likely would compare the a) dates checks are deposited per bank statements with the dates remittance credits are recorded b) daily cash summaries with the sums of the cash receipts journal entries c) individual bank deposit slips with the details of the monthly bank statements d) dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded - ANSWER A Upon receipt of customers' checks in the mailroom, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the a) internal auditor to investigate the listing for unusual transactions b) treasurer to compare the listing with the monthly bank statements c) accounts receivable bookkeeper to update the subsidiary accounts receivable records d) entity's bank to compare the listing with the cashier's deposit slip - ANSWER C Which of the following procedures most likely would not be control designed to reduce the risk of misstatements in the billing process? a) comparing control totals for shipping documents with corresponding totals for sales invoices b) using computer programmed controls on the pricing and mathematical accuracy of sales invoices c) matching shipping documents with approved sales orders before invoice preparation d) reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger - ANSWER D Which of the following audit procedures would an auditor most likely perform to test controls relating to management's assertion concerning the completeness of sales transactions? a) verify that extensions and footings on the entity's sales invoices and monthly customer statements have been recomputed b) inspect the entity's reports for prenumbered shipping documents that have not been recorded in the sales journal c) compare the invoiced prices on prenumbered sales invoices to the entity's authorized price list